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That's just a scare tactic to get you to invest with them. Every situation is different. 20x your pre-retirement income applies if you have zero other income. That's a worst case scenario. Your situation may be different.
I agree with this. Let's say you make $100,000 then that means "wealth managers" are saying you need $2 million in assets, and they are absolutely salivating at the prospect of managing that $2 million and getting their 1% fee which means $20,000 into their pockets. Their 1% advice is likely to be high cost mutual funds which extract another 1% so your $2 million means the "wealth management" industry actually manages their wealth better than yours because by scaring you to save $2 million they get to pocket $40,000 every year from you for doing not much.
Of course if they scare you into saving $2 million in low cost ETFs that might cost say $1,000 a year in fees then at least that's a "good" scare that is more helpful to your retirement than the wealth management industry.
the ball park calculations are not usually based on what advisors want for fees.
they are based on actual past retirement time frames and whether a hypothetical income stream would have failed a hypothetical group of retirees over a 30 year time frame.
imagine taking every rolling 30 year time frame since 1926 and following the account balances through.
take interest rates,market returns, the sequence of those returns and inflation and while spending down a certain percentage and inflation adjusting just follow through the balance each year for 30 plus years.
what you will find is some 30 year time frames left you with zero well before.
in order to have those time frames make it through you either have to knock down the percentage you are going to draw out , increase allocations to investments that could produce more , save up more money or all of the above...
eventually you will reach a balance where based on actual events all 110 rolling periods since 1926 made it through the 30 years.
if you go more conservative from that point you will need to save more. if you want more money to live on than has reliably been done before you may have to save more.
WHILE WE DON'T KNOW WHAT FORMULAS WILL WORK OFF IN THE FUTURE ,WE SURE KNOW WHAT FAILED IN THE PAST.
the amount you need will be based on a whole lot more than just your expenses since the uncertainty of events on your portfolio require keeping quite a bit of powder dry if you don't want to fail based on what already failed in the past.
if you have a pension or other sources of income that will reduce the overall amount you need your savings to generate but the rules still stay the same, only the amount you need to draw from savings change.
if you want to be able to have withstood the worst of times we already had then a good calculator like firecalc can at least put you in the ballpark.
you will be surprised how much of a buffer you need to hold so you are not taking big cuts in income in unfavorable market and interest rate years.
what you really want is the buffer to rise or fall with how much is left at the end when you or your spouse die while leaving your income stream pensionized so doesn't fall in bad times and it also goes up with inflation.
no easy feat by the seat of your pants guessing.
Last edited by mathjak107; 10-23-2013 at 03:57 AM..
I agree with this. Let's say you make $100,000 then that means "wealth managers" are saying you need $2 million in assets, and they are absolutely salivating at the prospect of managing that $2 million and getting their 1% fee which means $20,000 into their pockets. Their 1% advice is likely to be high cost mutual funds which extract another 1% so your $2 million means the "wealth management" industry actually manages their wealth better than yours because by scaring you to save $2 million they get to pocket $40,000 every year from you for doing not much.
Of course if they scare you into saving $2 million in low cost ETFs that might cost say $1,000 a year in fees then at least that's a "good" scare that is more helpful to your retirement than the wealth management industry.
If you go the self directed route and end up at the same point as the directed route contributing the same amount it is still 2 million.
Having 2 million saved after fees is still very healthy for your retirement. Some might argue that 2 million after high fees is better than 1 million with low fees. I have a hunch that for most forum participants having 2 million in assets at age 65 would ease any pain from having their arm twisted to get there.
After 30 yrs you will probably have had 4-6 homes, hopefully you have made smart purchases and pocketed $500k tax free (if married) each time you sold (unlikely, but possible). (Who needs a job with THIS tax loop-hole?). Untaxed income is KING !!! remember that... it will take you far!
Property taxes - ouch.. $40 / day on a very simple house (up from $4/day when I was 'planning' retirement)
Insurance - ouch $37/day, (up from $7/ day when I was planning retirement.)
Obamacare should bail out folks who can creatively be very poor. (it only counts taxable income, of which $500k every 2 yrs TAX FREE gains from personal residence is NOT included)... BUT one is to see if the 'TAX CREDIT' method of paying your medical will work for most. (probably not). More smoke and mirrors.
My biggest expense will be the property tax.
Currently paying abt $15k/yr. I expect to be close to $40k - $50k/yr. When I retire.
But I have already created sources of income ~ 20k/MONTH.
If you go the self directed route and end up at the same point as the directed route contributing the same amount it is still 2 million.
Having 2 million saved after fees is still very healthy for your retirement. Some might argue that 2 million after high fees is better than 1 million with low fees. I have a hunch that for most forum participants having 2 million in assets at age 65 would ease any pain from having their arm twisted to get there.
I agree with this but my personal experience is low fee funds get you farther than high fee funds. After trying high fee funds and "self directing" I found that a simple buy and hold and leave it alone approach with low cost ETFs went the furthest "distance" using the least "gas" so that's all I recommend for people I know. Of course everyone's mileage may vary.
I agree with this but my personal experience is low fee funds get you farther than high fee funds. After trying high fee funds and "self directing" I found that a simple buy and hold and leave it alone approach with low cost ETFs went the furthest "distance" using the least "gas" so that's all I recommend for people I know. Of course everyone's mileage may vary.
You miss my point. I agree about low fee funds. My point is two million is two million at retirement regardless of the fees getting their. Now if it was 2.2 million with low fees and 2 million with high fees the difference would be their at retirement.
I have been in retirement forums for quite some time either as a participant or lurker. Times have changed as has the discussion. Prior the the Great Recession and artificial low interest rates especially prior to the Dot.Com and 9/11 melt down and resulting low interest rates the norm of expected returns as a goal was 8 percent. That 8 percent world compared to days lower ROI world in fixed incomes makes 20 times more difficult to achieve. Six years ago the discussion was less about not outliving your nest egg and more about preserving your nest egg and keeping the principle in tact. Consider the consequences of a 8 percent return world:
4 percent draw down
3 percent inflation growth
with a 1 percent margin to grow your principle for down years. You could get 5-6 percent in CD's etc etc etc.
Now in this environment capital preservation becomes more of a challenge. doable but more of a challenge. Also part of the conversation was inheritance and capital preservation as legacy money.
I agree with this. Let's say you make $100,000 then that means "wealth managers" are saying you need $2 million in assets, and they are absolutely salivating at the prospect of managing that $2 million and getting their 1% fee which means $20,000 into their pockets. Their 1% advice is likely to be high cost mutual funds which extract another 1% so your $2 million means the "wealth management" industry actually manages their wealth better than yours because by scaring you to save $2 million they get to pocket $40,000 every year from you for doing not much.
Of course if they scare you into saving $2 million in low cost ETFs that might cost say $1,000 a year in fees then at least that's a "good" scare that is more helpful to your retirement than the wealth management industry.
This type of information is provided to the public (at large) all the time in magazines, books, television, radio, newspaper, etc. None of these authors [of articles, books, etc.], individually or collectively, are providing this information [to the public] in order to personally collect a managing fee. They are providing this type of information (99% of the time free unless it is in a purchased book they author) to the public because it is what they (as experts) believe to be correct and helpful...regardless whether people elect to engage a wealth manager or money manager, or not. Believe it or not, most people who are able to accumulate 7 or 8-digit net assets do not want or need a manager of their money and investments. Further, when you have 7+ digits of assets the percentage a so-called 'wealth manager' charges drops well below 1% in most cases unless an unscrupulous money manager is dealing with a very inexperienced person - such as a widow that has no clue about money or investments. In today's climate, in particular, no reasonably intelligent retired person would dare risk investing in high-risk investments, but instead in low-risk investments that unfortunately are not paying much recently. That said, why would a person (money manager's client) pay 1% to get an after-tax net 1%-3% return? No reasonably intelligent person would!
Money managers and wealth managers are more often used by younger high income individuals that do not have the time nor the interest to invest their sizable savings...or older widows without a clue how best to invest for their personal situation, tax consequences, etc. The number of people paying managers to 'manage' their money has dropped significantly since the Internet has become so popular during the past decade or two with the vast amount of online information available. Throw in a healthy dose of cheap and friendly online trading and investment websites (e.g. Scottrade, E-Trade, Ameritrade, etc.) and what was not so easy a couple of decades or longer ago is extremely easy nowadays.
Last edited by highcotton; 10-23-2013 at 06:35 PM..
Many people I know, trying to get to that magic 20X have done some unwise investing. When you are further away from retirement, you can afford higher risk funds, because you have time to recoup the losses. But as you get closer to retirement, conservative investing is prudent. I guess some people are just greedy, I know many people who had excellent portfolios, took major losses in 2008, to the point of losing 1/3 their retirement...or more, which seems plain stupid to me. They were riding on the wave, never thinking about a crash. After all, when you are >5 years to retirement, I would think a majority of your funds should be diversified in lower yield funds, even at >10 years, make sure you have more than 3/4 your funds in stable funds. Play with the other 1/4 if you must.
Maybe I am just very conservative. In 2008 I did not lose that much, because I never invested in those high yield funds. Sure, I never gained much, just plodding along, like the tortoise, when the rabbit races past....and now, I pass the rabbits, who are still crying about how they have to work for another ten years to make up what they lost.
Last edited by jasper12; 10-24-2013 at 06:30 AM..
Reason: Edit
jasper , allocations as we age have been debated as long as we have had stock markets.
conventional wisdom tells us we should get more and more conservative as we age just for the reasons you mentioned.
but like the saying the only thing we have to fear is fear itself the fact is that has turned out to be the worst advice and the best advice would have been just staying put in a 100% index fund.
every rolling retirement time frame spanning 30 years or longer survived every period tested over the last 146 years.
that includes periods containing the great depression , world wars , and every major disaster we have had .
it has been traditionally the more conservative portfolios that have failed over and over those 30 year plus time frames.
while not many of us would have the stomach to go so aggressive because we can't help but think we will be the exception the fact is conventional wisdom right up today has been wrong .
the reason is in good times such a large cushion is built up that when things drop you are still so far ahead from where you would have been had you been very conservative.
the more conservative you are the less of a cushion for black swans and unexpected events .
cash instruments have failed more often than not over all those retirement periods yet we think those are the safest.
a 50/50 mix or higher has had excellent sustainability.
the damage in equities usually comes from not sticking to the plan and bailing out or trying to time things.
research by Michael kitces and dr wade pfau have shown us that a glide path starting around 50/50 and increasing equities by 1% a year through retirement has had the greatest sustainability through every single 30 plus years of retirement.
interesting because it shows us how what we believe to be true hurts us the most.
now if I only had the pucker factor to run such high equity levels.
Last edited by mathjak107; 10-24-2013 at 09:23 AM..
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