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four percent returns won’t work when that 4% needs to be inflation adjusted .
in order for 4% inflation adjusted to hold one needs at least 2-1/2% over inflation over the first 15 years of a 30 year retirement, AND THAT CAN LEAVE YOU WITH A BUCK LEFT under worst case outcomes.
inflation can ravage one’s outcome not to mention to even draw 4% inflation adjusted requires at least 35-40% equities and market sequences play a big roll
Agree that inflation is a huge factor, I addressed that.
4% (or whatever figure one inputs) only speaks to the dollar amount coming out, and that is not impacted by inflation. 4% of $1M is $40k. $40k is $40k, no matter what the actual present-day value of it is.
So I think the more accurate way to look at it is to figure out what amount you need to live on. Adjust it over time for inflation. Then figure out your other income sources and the gap between your expected living expenses and your "other income" is how much you need to make off of 4% ROI on investment. So (as an example) if your gap is $40k, then you need to save $1m. If your gap is $60k, $1.5M, and so on...
The 4% rule is not impacted by Inflation, but the amount you need to live on is, and that influences your gap, and that gap determines how much that 4% needs to yield. So the number impacted by inflation is ultimately the size of your retirement nest-egg. ("4% of what number will be enough for retirement?")
The point of bringing it up was to evaluate net worth to determine if that was enough. It's a rental for now, and we'll decide what to do with it when we start figuring out the pieces to the puzzle. If it wasn't for the fact that my son lives there, I doubt we'd continue being a landlord. There's a lot of risk on that and I doubt I'd want to deal with that in retirement
Then it doesn't sound like you are doing too bad. If you sell the property, then you can include the value as a liquid asset, otherwise, if you keep it as a rental, then the net cash flow could be added to your SS as passive income (minus 10% or 20% for repairs and vacancy issues).
The other part of the equation is, of course, what you expect your expenses to be post-retirement. The only real way to know what you need is to do the full analysis with all income, expenses, assets, and liabilities. It may be simpler to do the analysis if you suppose you can sell one property and pay the other off. Then you would know what your liquid assets would be and your expenses would not include a mortgage. But that may not be an optimal strategy if you got a mortgage when rates were extraordinarily low.
I've been told for quite some time that my wife and I should be shooting for somewhere in the ballpark of $2.5 million. Our combined SS should be between $5k to $5500 a month. I anticipate about $800k in savings and home equity (2 homes) of roughly $1 to $1.2 million. I'm just wondering which figure is more accurate ($1 million or $2.5 million)?
Of course. Why are you surprised by that? The avg American earns somewhere around $35k a year. A family has several kids, a mortgage, car notes, and having to pay for family package insurance even if ins is provided for the employee. Christmas costs, birthdays, weddings, groceries, deductible for medical care, dentistry & orthodontics for the kiddos. It's simple math.
If you live in the north (higher COL + higher wages), and are upper middle class.....you are not the norm any more than someone earning $20k a year with 2 kids is the norm.
Small businesses, which are the main employers in the country, typically can't afford to have 401k plans or pensions. If you are an entrepreneur or work for a large business, you are not the norm.
It amazes me how people don't realize how the different classes/income levels in the country live.
Healthcare insurance is a big cost during our lifetimes. And children.
Agree that inflation is a huge factor, I addressed that.
4% (or whatever figure one inputs) only speaks to the dollar amount coming out, and that is not impacted by inflation. 4% of $1M is $40k. $40k is $40k, no matter what the actual present-day value of it is.
So I think the more accurate way to look at it is to figure out what amount you need to live on. Adjust it over time for inflation. Then figure out your other income sources and the gap between your expected living expenses and your "other income" is how much you need to make off of 4% ROI on investment. So (as an example) if your gap is $40k, then you need to save $1m. If your gap is $60k, $1.5M, and so on...
The 4% rule is not impacted by Inflation, but the amount you need to live on is, and that influences your gap, and that gap determines how much that 4% needs to yield. So the number impacted by inflation is ultimately the size of your retirement nest-egg. ("4% of what number will be enough for retirement?")
not so .
inflation determines your real returns and since in order for a 4% inflation adjusted safe withdrawal rate to hold it requires at least a 2% real return over the first 15 years as an average .
so it certainly has an effect on your sequence of returns risk and out come .
kitces found every single failure to last 30 years at a 4% draw , happened when the first 15 years fell below a 2% real return average .
it didn’t matter how great the next 15 years were , once you crossed that 15 year mark , to much was spent down with not enough of a real return and even the best bull market in history couldn’t save the 1965/1966 group.
one cannot safely draw 4% from fixed income either , it requires at least 35-40% equities to be considered safe .
not using equities and counting on fixed income alone , has failed to last 65% of the 123 rolling 30 year periods we have had to date.
so allocation counts as well along with sequence risk and inflation
Last edited by mathjak107; 08-18-2023 at 11:42 AM..
It's all about being smart with your money. When you are retired, you shouldn't be carrying car notes for example.
When you no longer are supporting anyone other than yourself, and you have a lot of debts paid off, you'll find that you have more money and can definitely live a great life on Social Security. It's all about managing the debts you can control.
As I mentioned upthread, my mom had 100k-150k in liquid assets but she only made one withdrawal for a remodeling splurge. She only had two active credit card accounts, and she paid mostly everything she purchased in full. The only time she carried balances is when the purchases were large (several thousand) and there were promotional "no interest" deals. Even with those, she quickly paid them off. She kept meticulous records and monitored her expenditures.
She invested conservatively, and had her money in annuities and CDs. She had income streams that she just didn't need to use. She paid off her car and didn't drive it to the ground.
She sold her home in a high COL state and moved to TX, which was less expensive at the time. She paid a good chunk of her house down so that the monthly mortgage and taxes were far less than if she had rented a senior apartment.
Since she was in good health at the time, a lot of whatever income she had each month was hers. Healthcare is a big asset drain, especially if you are afflicted with chronic, long term illnesses. But money may not really change anything in terms of outcome, really.
Of course. Why are you surprised by that? The avg American earns somewhere around $35k a year. A family has several kids, a mortgage, car notes, and having to pay for family package insurance even if ins is provided for the employee. Christmas costs, birthdays, weddings, groceries, deductible for medical care, dentistry & orthodontics for the kiddos. It's simple math.
If you live in the north (higher COL + higher wages), and are upper middle class.....you are not the norm any more than someone earning $20k a year with 2 kids is the norm.
Small businesses, which are the main employers in the country, typically can't afford to have 401k plans or pensions. If you are an entrepreneur or work for a large business, you are not the norm.
It amazes me how people don't realize how the different classes/income levels in the country live.
Healthcare insurance is a big cost during our lifetimes. And children.
You are actually looking at average US income from all sources including welfare, and that average "income" per adult is indeed about $37-40k. But people included in that average are those who receive free healthcare and substantially or fully subsidized housing, which raises the material value of what they receive annually by at least $20k.
The average annual salary in the US (ie, what average Americans actually EARN) is $59,428. The median (ie, people earning more than 1/2 other Americans, but less than the other 1/2 Americans) is even higher: $70,784.
About 35% of households in the US are not families, 65% are families. There are about 84 million families in the US, more than 50 million of them have no kids under 18 living at home.
Neither someone earning $35k with 2 kids, nor the upper middle class, is the average in the US. Upper middle class is what it is, and earning $35k is poverty class (unless they don't need to earn, like Bill Gates who works in consultant capacity for Microsoft for his $1 salary :-) - neither example is the average.
Per 2022 data (which are a bit higher now due to salaries going up with inflation), the most common American income (earned by working) is between $50k and $1 short of $75k - 16.5% Americans make that much (or about 1 out of 6 Americans). The second most common category of income is $100k to $1 under $150k - 15.3% Americans.The third most common category of income is $75k to $1 short of $100k - 12.2% Americans. So, the most typical American income is between $50k and $150k, ie, 44% Americans are within that income range.
Per Feb 2022 data, there were only 11.4% households in the US living below $20k/year in 1-2 member households and below $30k/year in 3-4 member households. A couple with 2 kids that earns $35k per year in the US is not anywhere near the average.
The most typical American married couple indeed has an average of about 2 kids (a little less than 2). But if they both work, and are among the most typical Americans, they together earn between about $100k and $150k per year - not $35k.
I'm just wondering which figure is more accurate ($1 million or $2.5 million)?
Why are you wondering?
Windows comes with a handy-dandy calculator and if by chance you don't like it there's lots to choose from on the internet.
I can do the calculation for you. It's simple. Can you get by on $50,000/year? Because if you can then you only need $1 Million.
Quote:
Originally Posted by blameyourself
A friend's financial advisor (in a conversation at an event).
But, of course! Your friend's financial advisor needs mo' money so go ahead and give them mo' money since you don't need it.
Quote:
Originally Posted by bpollen
The avg American earns somewhere around $35k a year.
Not in this country. In this country the average earns $60,575/year.
Quote:
Originally Posted by elnrgby
Per Feb 2022 data, there were only 11.4% households in the US living below $20k/year in 1-2 member households and below $30k/year in 3-4 member households.
While that might be true it's also true they are not necessarily at or below poverty level.
The federal poverty level is meaning but it is the weight average of the poverty levels of the 48 contiguous States (Alaska and Hawai'i are excluded as statistical outliers).
Whether $20,000/year is above or below the State poverty level depends on the State.
I appreciate the comments so far and the stark contrast on the answers (it almost seems like analytical vs emotional/feels like). The divergent topics are interesting also as I need to figure out what to do when I retire. Admittedly, based on some of the antagonistic comments regarding financial advisors, I'm wondering if I should have included that. For the record, he was not looking to sell me anything. He was someone I met at a guys get together (and have seen him at a few events) that was giving me some general info. He's actually a very nice guy and I solicited the advice. Sounds like some of you have a low opinion of financial advisors. This simply was not what some of you are implying. We were living in one of the most expensive cities in the country at the time FWIW, so I imagine that factored into his comment in addition to the info I supplied him.
Last edited by blameyourself; 08-18-2023 at 02:17 PM..
If you have any expensive house in a high property tax state like TX, property taxes alone could be tens of thousands annually. Maintenance. Health insurance.
It all adds up.
LOL, you're preaching to the choir here. Obviously when we were doing our research and planning our retirement, the locations under consideration were NOT high property or income tax states, or those for which the cost of living would be prohibitive for us. We also made provisions for health insurance policies that would pay the bills with no out of pocket expenses, had made employment choices that provided us with pensions, lived within our means and saved money while we were working, and worked to be as debt free as we could in our retirement years. It took time, thought and discipline to carry out these choices, but it's served us well, better than I could ever have imagined.
It ALL involves planning, even the choices of where you want to live in retirement.
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