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How dare they want the better life that they worked for... how dare they! Hey as long as they don't have their fingers in my pockets I could care less.
People are so damn jealous of others it's really pathetic.
You totally missed my point. There is nothing at all wrong with people living in exclusive neighborhoods, driving high-end cars, etc. My quarrel was with such people claiming to be middle class, because they are quite simply not middle class. They are delusional about the numbers of people who are at their financial level compared to the total number of households in this country, and how the "middle" actually lives.
From my reading your 6% figure underestimates those who are effectively millionaires.
State employees of the richer states (possibly 10% of the population all by themselves) get pensions and health benefits throughout their retired lives. If you summed the value of the pension payout and their health benefits, the total would easily reach $2-3 million for many such employees.
For police and fire personnel, especially in NY and CA, the total would be considerably higher. Many get $100K pensions starting at age 45. The simplified math is 40 years (assuming a lifespan of 85) X $100K = $4 million (not counting their generous health care benefits).
In sum, you'd have to add to that 6% everyone with pension and health care benefits worth a million or more. The sum of all people working for municipal, state, and the federal govt is about 25% of the population.
I'd say that about 10% have about one million in lump sum assets. Assuming a little bit of overlap between the pension/health care millionaires and the lump sum millionaires, I'd estimate that 30% of Americans have a million dollars (or more) in retirement assets (lump sum and/or pension) at retirement.
Your correct that many government employees can be considered millionaires (and rightfully so) when you count the value of their pension. However, your calculation for pension value and percentage of government employee's that are millionaires is off. The correct way to calculate the value of their pension would be to only count any employee who will make at least $50K/year if they retire today. That’s assuming that for every $1 million, the pension system could expect a 8-9% return. They would use 5% to pay the pension and the other 3-4% back into the system to ensure it stays solvent.
The total number of government employees (state, federal and local combined) is actually around 15.6% if you compare against total number of all workers in the USA. That would bring the percentage of millionaires down to approximately 14% of the population. And that’s an optimistic estimation that assumes that 1/2 of all government employees receive at least $50K. It's an optimistic assumption because only mid-level managers (and above), law enforcement and fire are the only ones whose pensions reach at least $50K. The rest of the government employee’s never see their pension reach that amount.
Your correct that many government employees can be considered millionaires (and rightfully so) when you count the value of their pension. However, your calculation for pension value and percentage of government employee's that are millionaires is off. The correct way to calculate the value of their pension would be to only count any employee who will make at least $50K/year if they retire today. That’s assuming that for every $1 million, the pension system could expect a 8-9% return. They would use 5% to pay the pension and the other 3-4% back into the system to ensure it stays solvent.
The total number of government employees (state, federal and local combined) is actually around 15.6% if you compare against total number of all workers in the USA. That would bring the percentage of millionaires down to approximately 14% of the population. And that’s an optimistic estimation that assumes that 1/2 of all government employees receive at least $50K. It's an optimistic assumption because only mid-level managers (and above), law enforcement and fire are the only ones whose pensions reach at least $50K. The rest of the government employee’s never see their pension reach that amount.
Second if you are calling them millionaires for having a pension, why do you say they need 50k per year when the traditional swr for a million invested is 4%? Your calculation should be 40k per year and see link above, it is still hard to get.
But you are right, i know a few millionaires in the govt, they also worked a lot of hours for decades too. and it has nothing to do with working in the govt but because they did something similar to mr money mustache but on a longer time frame. I also know millionaires outside of govt like my former ceos who got paid millions each year.
Besides why do you guys care if they want to say they are middle class? You dont have to worry about them taking your waitering jobs. So much jealousy over a pension but you guys dont want to buy an annuity yourself for decades.i could just as easily call anyone making under 40k poor, but that ruins your argument of what a millionaire not being middle class doesnt it?
The median income in this country is $28,000. Millionaires are rich.
Median HHI is about 55K. But a millionaire would have a hard time generating 55K/year off only 1M in capital. You'd need to be really savvy to get a 5.5 return.
Median HHI is about 55K. But a millionaire would have a hard time generating 55K/year off only 1M in capital. You'd need to be really savvy to get a 5.5 return.
Actually you can easily get that from a rather conservative stock portfolio.
the failure rate over 30 years for 5.50% inflation adjusted withdrawals would have been way way to high. in fact a 50/50 mix would have only a 59% success rate at 5.50 % . that is barely better than a coin toss looking at every rolling 30 year time frame since 1926. anything under 90% is unacceptable .
the y2k retiree who retired in 2000 would have been dead broke this year trying to draw 5.50% inflation adjusted without taking a pay cut 7 or 8 years back. .
in order to not run out of money even at 4% inflation adjusted withdrawals you need to maintain at least a 2% real return average the first 15 years of a 30 year time frame. if you don't then you would end up spending down so much the first 15 years that even if the next 15 years were great you would not have enough left to save the retirement.
so far the y2k retiree has failed to be able to maintain that since bonds and stocks have produced less than 2% real return over that period. we have had a few other periods here 4% failed so 5.50% is pretty much a huge gamble with your retirement income.
the only way you could do that is age banding where you draw more early on amd less later down the road but with healthcare costs escalating the way they are it is throwing the sun life study and the work of ty bernicki out the window which used to show we spent less as we aged.
depending where you live medicare , part d and medigap can run 12k a year at 65 . in many parts of the country supplemental costs escalates by age each year. so you start out lower but end up higher .
here in ny we start out higher but don't escalate by age. so i wouldn't count on past spending patterns reflecting much about retiree spending falling off.
as far as moving forward from here the uncharted world we are in of high stock valuations and historically low rates are pointing to a 2.50% real return range for quite a while from here . that would mean even 4% could be tough sledding if the sequencing is poor.
Last edited by mathjak107; 05-10-2015 at 02:38 AM..
does 1 million generate a middle class lifestyle ? maybe not under the new normal.
Because interest rates are so low now, while stock markets are also very highly valued, we are in uncharted waters in terms of the conditions at the start of retirement and knowing whether even the 4 percent rule can work . 5.50% would be ludicrous to entertain.
researchers have been looking at more dynamic real time methods of withdrawing money and spending down . but those higher withdrawals in good times can be near poverty level in poor times. there is a price to pay for taking higher withdrawal rates then conditions allow.
today there are 3 main methods , none of which could ever support a 5.50% inflation adjusted withdrawal rate on a constant basis with a low enough failure rate..
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this is all based on a 50/50 mix at age 65 and 1 million in a portfolio..
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method 1 is the old 4% rule although it was never meant to be a rule and today it looks like 2.85% may be the new 4%.
Constantinflation-adjusted spending
STRATEGY
Retirees begin by withdrawing a given percentage of their initial retirement portfolio. Each year thereafter, the withdrawal amount is increased to match the inflation rate.
2.85% initial withdrawal rate is the new 4% under this method
worst case scenario's left you with 17,900.00 left from the 1 million 30 years later.
income stayed constant at 28,500 in inflation adjusted dollars . the old 4% withdrawal rate failed way to many times under today's projections to be safe.
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method 2 - bengens floor and ceiling rule.
bill bengen , the founder of the old 4% rule has since revised his work. the new model requires more human adjusting .
In the first year, retirees withdraw a given percentage of their portfolio. After that, withdrawals could increase by up to 25% in bull markets, or decrease by not more than 10 percent in bear markets.
3.29% initial withdrawal rate which is 32,290.00
worst case scenario's left you with 17,100 left from 1 million 30 years later. income varied from 28,000 to 39,500 in inflation adjusted dollars
Withdrawals are increased each year to match inflation, except in years when the portfolio loses money. If the withdrawal rate ever rises to more than 120% of the initial rate, that year’s withdrawal is cut by 10 percent. In good years, withdrawals may increase by 10 percent.
4.95% initial withdrawal rate (49,500.00) but Rate fluctuates to keep withdrawals steady with inflation and to reflect bull markets.
worst case scenario's left you with 43,900 but income varied from 15,800 to 61k in inflation adjusted dollars .
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in no case is 5.50% even close to a consideration and all other methods can require you to dip below the initial starting rate if markets fall except method 1 which stays constant .
the problem with the higher withdrawal rates initially and cutting back later if markets fall is it is very hard to plan around cutting depending how much discretionary income is in your budget that can be cut .
if you were figuring 4% initially and today that figure is closer to 2.85% that is a difference in income based on the old rule of 40k vs 28k.
now using guytons method you can take 49,500 initially but could find yourself having to live on only 15, 800 under worst case scenario's if cuts havbe to be made . no many can cut like that if markets are poor.
my thoughts are plan for the worst conditions and anything better will be a pleasant upside surprise instead of planning for better times and ending up in the failed retirement graveyard.
Last edited by mathjak107; 05-10-2015 at 03:49 AM..
Second if you are calling them millionaires for having a pension, why do you say they need 50k per year when the traditional swr for a million invested is 4%? Your calculation should be 40k per year and see link above, it is still hard to get.
But you are right, i know a few millionaires in the govt, they also worked a lot of hours for decades too. and it has nothing to do with working in the govt but because they did something similar to mr money mustache but on a longer time frame. I also know millionaires outside of govt like my former ceos who got paid millions each year.
Besides why do you guys care if they want to say they are middle class? You dont have to worry about them taking your waitering jobs. So much jealousy over a pension but you guys dont want to buy an annuity yourself for decades.i could just as easily call anyone making under 40k poor, but that ruins your argument of what a millionaire not being middle class doesnt it?
Ummm some reading comprehension might help you.... What you said above is exactly what I was saying in my post. So if you’re saying I'm wrong then your arguing against yourself. Also, I did not mention FERS specifically. I talked about ALL the government pensions in the USA, many of which are far superior to the FERS. On top of that I said that the scenario I gave is an extremely optimistic one to illustrate the fact that most don't get to a million from pensions even in the best case scenario.
As far as the swr of 4% I don't go by the conservative return. I go by the average. The historical average for the S&P 500 has been approximately 9%.
The definition of a millionaire is not well defined. Traditionally it probably means someone or a couple that makes at least 300K a year minimum and they have investment accounts of at least 1 million and at a fairly young age of say 40.
A couple in their late 50's who have earned around 100K per year on average and now have a retirement account totaling around 1.5 million are not "millionaires".
Traditionally it means someone with a million dollars. In the 19th and early 20th centuries when the word became popular, $1 million made you very rich.
With inflation, $1 million is only a medium-sized amount of savings but the English language hasn't changed. A middle-class saver who has a retirement account totaling a million dollars is a millionaire.
Some people use the word "millionaire" to mean "a rich person" or "somebody they don't like" but that's not what it means.
As far as the swr of 4% I don't go by the conservative return. I go by the average. The historical average for the S&P 500 has been approximately 9%.
sorry there , but averages when spending down mean a thing . they almost don't exist.
sequence risk is the big factor . you can have the exact same average return but different orders and have as much as 15 years difference in how long your money will last.
averages do not have you spending down in negative years or have negative interest rates and changing inflation.
while when accumulating money averages are everything that is not so once you start spending down at the same time returns are coming in.
Last edited by mathjak107; 05-10-2015 at 06:28 AM..
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