Article on retirees- how finances stack up

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am
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Article on retirees- how finances stack up

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https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
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Re: Article on retirees- how finances stack up

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Topic moved to general investing.
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Re: Article on retirees- how finances stack up

Post by calwatch »

Many of them are doing fine with owning their own home, Social Security income, and some dividends. Food budget is often the largest expense and that can be flexible. The reduction in interest rates for bank savings accounts and CDs annoy a lot of retirees.
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Re: Article on retirees- how finances stack up

Post by Broken Man 1999 »

Many BHs live in Lake Wobegon, where their portfolios are all above average. :moneybag

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Re: Article on retirees- how finances stack up

Post by HomerJ »

am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
25x expenses is still correct.

They just have lower expenses. It says in the "average" and the "comfortable" groups that 50% spend less than $3000 a month.

So yeah, if SS (for a couple) and a pension covers $2500, then you only need $500 a month from savings... $6000 a year x 25 = $150,000

If SS and pensions covers more than the $3000, then you don't even need to pull from savings. You're feeling pretty good with $75k or $100k in the bank for emergencies.

It's pretty cheap to live in most of America, if you have the house paid off. Food and utilities just don't cost that much.
Last edited by HomerJ on Sun Nov 28, 2021 3:55 pm, edited 2 times in total.
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Re: Article on retirees- how finances stack up

Post by Mike Scott »

Most retirees make do with what they have. Having more resources than that (and choices) is a luxury few people have.
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Re: Article on retirees- how finances stack up

Post by am »

Mike Scott wrote: Sun Nov 28, 2021 3:48 pm Most retirees make do with what they have. Having more resources than that (and choices) is a luxury few people have.
How do you explain the countless people coming on here with 7 figure portfolios and pensions asking if they’re ok to retire?

Are we all in a bubble on this forum? Seems like this is a forum consists of very affluent working people and retirees many of whom are worried about running out of money.
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Re: Article on retirees- how finances stack up

Post by Ron »

am wrote: Sun Nov 28, 2021 3:58 pmAre we all in a bubble on this forum?
Yes, most definitely, when compared to the "average" person in the US today when it comes to financial discussions.

- Ron
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Re: Article on retirees- how finances stack up

Post by JoeRetire »

am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
I don't plan to change my advice based on this article.

I'm glad most retirees in ages 62-75 proclaim themselves happy. Hopefully, they will remain happy after 75.
It's not much of a surprise that even in this small group, more affluence produced a higher self-proclaimed level of satisfaction.

I suspect they would be even more satisfied, if they had saved 25x.

Why change any advice?
Last edited by JoeRetire on Sun Nov 28, 2021 4:12 pm, edited 2 times in total.
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Re: Article on retirees- how finances stack up

Post by Kenkat »

am wrote: Sun Nov 28, 2021 3:58 pm
Mike Scott wrote: Sun Nov 28, 2021 3:48 pm Most retirees make do with what they have. Having more resources than that (and choices) is a luxury few people have.
How do you explain the countless people coming on here with 7 figure portfolios and pensions asking if they’re ok to retire?

Are we all in a bubble on this forum? Seems like this is a forum consists of very affluent working people and retirees many of whom are worried about running out of money.
A lot of these people are asking if they can retire at 52. Or 48. Or younger.

The other thing you have to remember is that the 25x number is after other income sources like pensions or social security. If you are in your late 50s or early 60s, you only need to fund a few years of expenses before these other income sources kick in. Many here are looking to delay social security until 70, but the most common age to take it is 62. Many people want to maximize income early in retirement rather than overall wealth late in retirement.

So yeah, it’s a different mind set here.
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Re: Article on retirees- how finances stack up

Post by NiceUnparticularMan »

Yeah, there was only a minor marginal difference in the satisfaction surveys between the average and comfortable groups, even less between the comfortable and affluent groups. This is pretty much in line with the empirical work on happiness and material wealth, which finds a VERY sharp diminishing marginal return to additional income once you reach the threshold necessary for what one might call a comfortable but basic middle-class lifestyle.

Now of course if your goal is to spend a lot more income than that, then it is not bad advice to say you will need enough accumulated wealth, reasonably invested, as supplemented by other sources of income like Social Security, to reliably provide that level of income.

But if your hope is spending a lot more than that will make you a lot happier, then that probably isn't going to happen.

So if you have enough already to be comfortable, and certainly if you already have enough to be affluent in the sense of this survey (which is indeed not very affluent by many Bogleheads' standards), and retiring would make you significantly happier? Then you should very likely seriously consider retiring. And at least you should really think carefully and critically about why you are not.
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Re: Article on retirees- how finances stack up

Post by AnnetteLouisan »

am wrote: Sun Nov 28, 2021 3:58 pm
Mike Scott wrote: Sun Nov 28, 2021 3:48 pm Most retirees make do with what they have. Having more resources than that (and choices) is a luxury few people have.
How do you explain the countless people coming on here with 7 figure portfolios and pensions asking if they’re ok to retire?

Are we all in a bubble on this forum? Seems like this is a forum consists of very affluent working people and retirees many of whom are worried about running out of money.
There is a book (not endorsing, just offering up) on this precise question called Cut Adrift about how different income levels seek to create security for themselves and their families in uncertain times. The book’s explanation about your precise question is more or less the following:

-our extra wealth gives us the luxury of time to contemplate a broader perspective on possible future risks while others are more pressed to focus on the here and now
-we are detailed oriented control freaks in the first place which is part of why we are affluent now
-we are among others with equivalent or more wealth so more aware of the amount we have not being enough possibly
-we often have responsibility for others and pay full freight rather than rely on social services which costs more
-our education and math/Econ knowledge allows us to be more knowledgeable of potential risks
-we have pretty high lifestyle costs currently that will take more money to preserve.

But keep in mind each individual has a constellation of risk factors around them that is highly specific. A moderate income married clerical worker with a 40 year govt pension vs a successful business owner with 2.5 mil and a family illness - who is more secure? A middle manger with an extensive family network in the US vs a new immigrant high finance guy or gal with a high income but only family overseas. Who is more secure? Social isolation in an era of divorce, addiction and job insecurity is a growing risk factor described in Charles Murray’s book Coming Apart (not endorsing him or his book, just mentioning) - he also has what he calls his bubble quiz.
Last edited by AnnetteLouisan on Sun Nov 28, 2021 4:28 pm, edited 5 times in total.
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Re: Article on retirees- how finances stack up

Post by Broken Man 1999 »

25X expenses isn't something that many retirees accumulate for retirement

Those investors who can accumulate that size retirement portfolio definitely makes then outliers.

One can certainly have a comfortable retirement on much smaller portfolios. Millions of retirees do just fine.

This forum probably stresses some posters who see the 25X expenses number bandied about.

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Re: Article on retirees- how finances stack up

Post by student »

am wrote: Sun Nov 28, 2021 3:58 pm
Mike Scott wrote: Sun Nov 28, 2021 3:48 pm Most retirees make do with what they have. Having more resources than that (and choices) is a luxury few people have.
How do you explain the countless people coming on here with 7 figure portfolios and pensions asking if they’re ok to retire?

Are we all in a bubble on this forum? Seems like this is a forum consists of very affluent working people and retirees many of whom are worried about running out of money.
I assume they want to retire and maintain the lifestyle or even upgrade it.
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Re: Article on retirees- how finances stack up

Post by JS-Elcano »

The large group (28%) that mostly relies on SS and defined benefit plans will decline steadily as defined-benefit plans keep disappearing.
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Re: Article on retirees- how finances stack up

Post by Katietsu »

The bulk of those retirees indicated incomes between $40k-$100k with average expenses reported as $3000 a month. A significant source of income was social security and it seems that many mentioned pensions. And they have about 15 years(?) of retirement to fund. That all sounds quite manageable.

Not directly comparable to myself as a fifty something with no pension, several years before social security, and a much longer potential number of years to need to support.

Also, many here are planning to maintain self support even if physical abilities decline. My experience with family members who were doing fine under these financial conditions at 65 or 70, has been that they all needed help financially or as a time commitment as they got physically less able. They can not pay for needed help for housekeeping, landscaping or caregivers. They can not afford assisted living even though they really need that level of care. When it is undeniable that one spouse needs nursing home care, the community spouse may end up in subsidized housing. Or a family member must move in and maintain the senior’s household. I would hope not to be left with no good options.
Last edited by Katietsu on Sun Nov 28, 2021 4:38 pm, edited 2 times in total.
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Re: Article on retirees- how finances stack up

Post by JS-Elcano »

AnnetteLouisan wrote: Sun Nov 28, 2021 4:15 pm
am wrote: Sun Nov 28, 2021 3:58 pm
Mike Scott wrote: Sun Nov 28, 2021 3:48 pm Most retirees make do with what they have. Having more resources than that (and choices) is a luxury few people have.
How do you explain the countless people coming on here with 7 figure portfolios and pensions asking if they’re ok to retire?

Are we all in a bubble on this forum? Seems like this is a forum consists of very affluent working people and retirees many of whom are worried about running out of money.
There is a book (not endorsing, just offering up) on this precise question called Cut Adrift about how different income levels seek to create security for themselves and their families in uncertain times. The book’s explanation about your precise question is more or less the following:

-our extra wealth gives us the luxury of time to contemplate a broader perspective on possible future risks while others are more pressed to focus on the here and now
-we are detailed oriented control freaks in the first place which is part of why we are affluent now
-we are among others with equivalent or more wealth so more aware of the amount we have not being enough possibly
-we often have responsibility for others and pay full freight rather than rely on social services which costs more
-our education and math/Econ knowledge allows us to be more knowledgeable of potential risks
-we have pretty high lifestyle costs currently that will take more money to preserve.

But keep in mind each individual has a constellation of risk factors around them that is highly specific. A moderate income married clerical worker with a 40 year govt pension vs a successful business owner with 2.5 mil and a family illness - who is more secure? A middle manger with an extensive family network in the US vs a new immigrant high finance guy or gal with a high income but only family overseas. Who is more secure? Social isolation in an era of divorce, addiction and job insecurity is a growing risk factor described in Charles Murray’s book Coming Apart (not endorsing him or his book, just mentioning) - he also has what he calls his bubble quiz.
I fall in the category that has a relative good income not necessarily by BH standards but in general, but is single without kids, has no pension, no employer retiree healthcare, and all family overseas. This is the exact reason why I obsess over my retirement funds needing to be higher to feel (reasonably) safe at least to the point that it is under my control. My biggest fear is that I will need assisted living or a nursing home and don't have the funds to afford one that is top. :confused
Last edited by JS-Elcano on Mon Nov 29, 2021 5:18 pm, edited 1 time in total.
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Re: Article on retirees- how finances stack up

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Katietsu wrote: Sun Nov 28, 2021 4:31 pm The bulk of those retirees indicated incomes between $40k-$100k with average expenses reported as $3000 a month. A significant source of income was social security and it seems that many mentioned pensions. And they have about 15 years(?) of retirement to fund. That all sounds quite manageable.

Not directly comparable to a fifty something with no pension, several years before social security, and a much longer potential number of years to need to support.

Also, many here are planning to maintain self support even if physical abilities decline. My experience with family members who were doing fine under these financial conditions at 65 or 70, has been that the need help financially or as a time committed as they get physically less able. They can not pay for needed caregivers or more expensive assisted living. When one spouse needs nursing home care, the community spouse may end up in subsidized housing. Or a family member must move in and maintain their household. I would hope not to be left with no good options.
I do wonder if having more funds would allow one to be more willing to pay for help. My mom is in that situation with my father - frustrated at the various issues that come up with his age but also unwilling to hire someone to clean the house, pay for meal delivery, etc (and unwilling to let me do the same). Her argument is that she is not going to pay for those until they really need it, and although she can get annoyed she can manage by herself. If she had double her nest egg, maybe having a helper a day a week to clean, cook, do errands, etc. might not feel so bad.
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Re: Article on retirees- how finances stack up

Post by AnnetteLouisan »

Sadly I’ve encountered among my friends coworkers and acquaintances a real lack of appreciation for the nuances around how people’s circumstances can differ and therefore how they handle their finances and that often leads to bitterness, misunderstanding and even friendship breakup.

This is an extremely mobile society, both upwardly and downwardly. Therefore it is possible that you know both descendants of our fine presidents and pilgrims, descendants of slaves and large landowners, descendants of war heroes, cold warriors and criminals, and also war and famine refugees or the children of refugees, and many other situations in between. And we are all working together and we don’t know the backstory. Usually all we see is the image.

An easy example: all my relatives lived into their 90s, so I plan for supporting myself and my relatives to that age. A friend who called me cheap tragically experienced all his relatives dying in their 50s and early 60s, so for him, it’s live every day spend every penny. And both of these make sense.

My plea is that if someone is cheap, afraid, or has a different attitude than you, consider that it might not be just that they are strange, stupid, uncouth or naive. They may be doing the best they can with the circumstances and the past that they experienced. We are all complex and there is always more to any story so let’s try to appreciate the good and help each other to the extent we are inclined and we can.
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Re: Article on retirees- how finances stack up

Post by KlangFool »

am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
am,

How do you know that they do not have 25X expense? It seems to me that they have 25X as per the article.

<<The bulk of those retirees indicated incomes between $40k-$100k with average expenses reported as $3000 a month. A significant source of income was social security and it seems that many mentioned pensions.>>

For a married couples with incomes between 40K to 100K, it is entirely possible that their 3K per month of expense would be almost totally covered by the social security.

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Re: Article on retirees- how finances stack up

Post by LilyFleur »

AnnetteLouisan wrote: Sun Nov 28, 2021 4:15 pm
am wrote: Sun Nov 28, 2021 3:58 pm
Mike Scott wrote: Sun Nov 28, 2021 3:48 pm Most retirees make do with what they have. Having more resources than that (and choices) is a luxury few people have.
How do you explain the countless people coming on here with 7 figure portfolios and pensions asking if they’re ok to retire?

Are we all in a bubble on this forum? Seems like this is a forum consists of very affluent working people and retirees many of whom are worried about running out of money.
There is a book (not endorsing, just offering up) on this precise question called Cut Adrift about how different income levels seek to create security for themselves and their families in uncertain times. The book’s explanation about your precise question is more or less the following:

-our extra wealth gives us the luxury of time to contemplate a broader perspective on possible future risks while others are more pressed to focus on the here and now
-we are detailed oriented control freaks in the first place which is part of why we are affluent now
-we are among others with equivalent or more wealth so more aware of the amount we have not being enough possibly
-we often have responsibility for others and pay full freight rather than rely on social services which costs more
-our education and math/Econ knowledge allows us to be more knowledgeable of potential risks
-we have pretty high lifestyle costs currently that will take more money to preserve.

But keep in mind each individual has a constellation of risk factors around them that is highly specific. A moderate income married clerical worker with a 40 year govt pension vs a successful business owner with 2.5 mil and a family illness - who is more secure? A middle manger with an extensive family network in the US vs a new immigrant high finance guy or gal with a high income but only family overseas. Who is more secure? Social isolation in an era of divorce, addiction and job insecurity is a growing risk factor described in Charles Murray’s book Coming Apart (not endorsing him or his book, just mentioning) - he also has what he calls his bubble quiz.
AnnetteLouisan,
Your post is insightful as well as "fuzzy." I have two comments:

1. In order to earn the kind of money that the average BH possesses, a big brain is a prerequisite. And big brains overthink, research, and overthink some more. Then they passionately discuss their overthinking. This is not criticism--I'm the pot calling the kettle black. :mrgreen:

2. You've discussed some important socioeconomic factors that make others on the forum uncomfortable. The "fuzzy" parts of life are indeed risk factors, as is the unknowable financial future. Many here want to make extremely complicated spreadsheets to make decisions that feel safe, yet the spreadsheets are based on highly variable factors, like expected earnings on a portfolio. As Bogleheads, we understand money rather well, but we are all staring into a rather fuzzy crystal ball, and coping in a variety of ways, all of which include a higher satisfaction level than the person with average savings.
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Re: Article on retirees- how finances stack up

Post by KlangFool »

HomerJ wrote: Sun Nov 28, 2021 3:46 pm
am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
25x expenses is still correct.

They just have lower expenses. It says in the "average" and the "comfortable" groups that 50% spend less than $3000 a month.

So yeah, if SS (for a couple) and a pension covers $2500, then you only need $500 a month from savings... $6000 a year x 25 = $150,000

If SS and pensions covers more than the $3000, then you don't even need to pull from savings. You're feeling pretty good with $75k or $100k in the bank for emergencies.

It's pretty cheap to live in most of America, if you have the house paid off. Food and utilities just don't cost that much.
+1,000.

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Re: Article on retirees- how finances stack up

Post by anon_investor »

Broken Man 1999 wrote: Sun Nov 28, 2021 3:44 pm Many BHs live in Lake Wobegon, where their portfolios are all above average. :moneybag

Broken Man 1999
+1. I think many BHs are outliers in a good way. Just check out the thread about people's saving rates, amazing! Thanks in large part to BHs, I will likely hit 25x well before age 50.
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Re: Article on retirees- how finances stack up

Post by friar1610 »

calwatch wrote: Sun Nov 28, 2021 3:29 pm Many of them are doing fine with owning their own home, Social Security income, and some dividends. Food budget is often the largest expense and that can be flexible. The reduction in interest rates for bank savings accounts and CDs annoy a lot of retirees.
I’ve posted in other threads that I’ve done income taxes for seniors through the AARP Tax Aide program. Based on the totally unscientific sample of taxpayers in Massachusetts whose returns I did, I would agree with the post above and the cited article. Low enough income not to pay Fed taxes and to get state tax credits. Social Security x 2, a small pension (in some cases state tax-free), Medicare (Advantage in many cases), small savings account (inferred through modest 1099-INT income), maybe a PT job. Key is owning a paid-off older home that they likely bought when starting out and in which they raised their now-adult kids. From what I can tell these folks are generally satisfied with their lot in life.
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Re: Article on retirees- how finances stack up

Post by Tamales »

am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?!
One can't confidently say they're financially fine until the day they die.
The threads here that you criticize are considering many bad and costly things that may happen during the multiple decades one might be retired for. People are free to ignore those things.
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Re: Article on retirees- how finances stack up

Post by CyclingDuo »

am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
Keep in mind that all of one's expenses are not covered by the portfolio alone when you mention saving 25x expenses. Other income streams such as the article mentioned - especially SS and perhaps a pension - provide enough retirement income streams to cover a good amount of expenses.

Bill Bernstein even points out in his excellent 2014 primer for Millennials If You Can:

Image
https://www.etf.com/docs/IfYouCan.pdf

Most targeting retirement in the age range of 65 to FRA who will receive SS will be fine with 12x annual expenses saved - just as the majority of those depicted in the article seem to be. As Bill suggests to Millennials in his 2014 primer, start saving 15% of your income at age 25 and continue doing that throughout your 40 years of working.

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Re: Article on retirees- how finances stack up

Post by delamer »

Katietsu wrote: Sun Nov 28, 2021 4:31 pm The bulk of those retirees indicated incomes between $40k-$100k with average expenses reported as $3000 a month. A significant source of income was social security and it seems that many mentioned pensions. And they have about 15 years(?) of retirement to fund. That all sounds quite manageable.

Not directly comparable to myself as a fifty something with no pension, several years before social security, and a much longer potential number of years to need to support.

Also, many here are planning to maintain self support even if physical abilities decline. My experience with family members who were doing fine under these financial conditions at 65 or 70, has been that they all needed help financially or as a time commitment as they got physically less able. They can not pay for needed help for housekeeping, landscaping or caregivers. They can not afford assisted living even though they really need that level of care. When it is undeniable that one spouse needs nursing home care, the community spouse may end up in subsidized housing. Or a family member must move in and maintain the senior’s household. I would hope not to be left with no good options.
Average expenses may or may not be the same as “half with expenses of $3,000/month.”

Based on my quick calculation, 55% of the people surveyed have expenses of less than the $40,000/year.

Frankly, we’d be pretty miserable if we had to live on that. It would be a major decline in our lifestyle, homeowner or not. I understand that we are high-side outliers. That was true when we were working, and it’s true now. The simple fact is that, for a very large percentage of people, the higher their working income then the more income they’ll want in retirement.

Saying that 69% of retirees are doing “just fine” — as the OP did — is a very optimistic interpretation of the data.
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Re: Article on retirees- how finances stack up

Post by 22twain »

Broken Man 1999 wrote: Sun Nov 28, 2021 3:44 pm Many BHs live in Lake Wobegon
Shouldn't that be Lake Wobogle, the setting of the "Coastal Home Companion?" :twisted:
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Re: Article on retirees- how finances stack up

Post by Call_Me_Op »

am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
Remember - it's 25 times residual living expenses. For some people, like my folks, they live within their Social Security, so their residual living expenses are $0.
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Re: Article on retirees- how finances stack up

Post by kleiner »

Ron wrote: Sun Nov 28, 2021 4:03 pm
am wrote: Sun Nov 28, 2021 3:58 pmAre we all in a bubble on this forum?
Yes, most definitely, when compared to the "average" person in the US today when it comes to financial discussions.

- Ron
Indeed - I just had a conversation with a friend in his mid 70s who thought that half a million dollars was a huge nest egg. I retired last year at 58 only after our net worth had exceeded ten times what my friend thought was a huge amount.
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Re: Article on retirees- how finances stack up

Post by Triple digit golfer »

Key point is age 62-75. These people can take Social Security, are likely receiving any potential pensions, and many are on Medicare already.

If expenses are $60k a year and Social Security covers $40k, they only need $20k a year out of their portfolio, which would be a $500k portfolio if we assume 4%.
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Re: Article on retirees- how finances stack up

Post by balbrec2 »

HomerJ wrote: Sun Nov 28, 2021 3:46 pm
am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
25x expenses is still correct.

They just have lower expenses. It says in the "average" and the "comfortable" groups that 50% spend less than $3000 a month.

So yeah, if SS (for a couple) and a pension covers $2500, then you only need $500 a month from savings... $6000 a year x 25 = $150,000

If SS and pensions covers more than the $3000, then you don't even need to pull from savings. You're feeling pretty good with $75k or $100k in the bank for emergencies.

It's pretty cheap to live in most of America, if you have the house paid off. Food and utilities just don't cost that much.
Our portfolio is very high six figures. When subtracting SS and pension from
the very reasonable budget we have, our portfolio is 45 times remaining expenses.
We are 64 and 61, both retired and have a dedicated emergency fund and no debt.
Life is good.
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Re: Article on retirees- how finances stack up

Post by Sandtrap »

CyclingDuo wrote: Sun Nov 28, 2021 5:56 pm
am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
Keep in mind that all of one's expenses are not covered by the portfolio alone when you mention saving 25x expenses. Other income streams such as the article mentioned - especially SS and perhaps a pension - provide enough retirement income streams to cover a good amount of expenses.

Bill Bernstein even points out in his excellent 2014 primer for Millennials If You Can:

Image
https://www.etf.com/docs/IfYouCan.pdf

Most targeting retirement in the age range of 65 to FRA who will receive SS will be fine with 12x annual expenses saved - just as the majority of those depicted in the article seem to be. As Bill suggests to Millennials in his 2014 primer, start saving 15% of your income at age 25 and continue doing that throughout your 40 years of working.

CyclingDuo
Great points!
Well said!

Yes. The 25X in "context" is the elephant in the room. (only in context).
j :D
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dbr
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Re: Article on retirees- how finances stack up

Post by dbr »

am wrote: Sun Nov 28, 2021 3:58 pm
Mike Scott wrote: Sun Nov 28, 2021 3:48 pm Most retirees make do with what they have. Having more resources than that (and choices) is a luxury few people have.
How do you explain the countless people coming on here with 7 figure portfolios and pensions asking if they’re ok to retire?

Are we all in a bubble on this forum? Seems like this is a forum consists of very affluent working people and retirees many of whom are worried about running out of money.
You have to consider individual cases, but I suspect in many instances an implied requirement is that such posters are scared to death that taking any money or even any loss from the portfolio is the kiss of death. In addition those posts usually contain no clue of thinking about what one wants to do with all that money. I knew a guy with $8M who would not let his wife have anything but a used Toyota because a new car would cost too much.

There is also a selection effect on the forum that people who are not worried about running out money would not be posting about how to solve their problem.
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Re: Article on retirees- how finances stack up

Post by carolinaman »

Broken Man 1999 wrote: Sun Nov 28, 2021 3:44 pm Many BHs live in Lake Wobegon, where their portfolios are all above average. :moneybag

Broken Man 1999
+1.
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Re: Article on retirees- how finances stack up

Post by NiceUnparticularMan »

Triple digit golfer wrote: Mon Nov 29, 2021 6:51 am Key point is age 62-75. These people can take Social Security, are likely receiving any potential pensions, and many are on Medicare already.

If expenses are $60k a year and Social Security covers $40k, they only need $20k a year out of their portfolio, which would be a $500k portfolio if we assume 4%.
Just to extend this math a bit, though, let's say that at 65 you could reach these conditions such that Social Security would pay all but $20K of expenses and you would just need a $500K portfolio to supplement.

OK, so now you want to retire earlier. How much more do you need?

Well, it somewhat depends on your assumptions, but for simplicity I am going to assume a portfolio can safely generate 2.5% real and still arrive at that $500K (real) on schedule. This means so far you can get $12,500 annually out of that $500K, and you have $47,500 left to cover.

OK, so let's say you want to retire early at 55. That's 10 years at $47,500 per year you need to generate, and again for simplicity I am going to assume you are going to use something which basically has a zero-percent real return, meaning you will need $475,000 in addition to the $500,000 to cover those ten years and arrive at 65 with enough left when your Social Security kicks in.

OK, so yeah, your early retirement plan needs more like $975K rather than $500K to bridge that 10-year gap until Social Security. Maybe a bit more when you also factor in health costs, although the Affordable Care Act has made that cost a lot more predictable/manageable in the circumstances we are imagining.

Anyway, what your 10 years of early, meaning pre-SS retirement, does not need to fund it is something like a $2M+ portfolio. Basically, there is very likely going to be no reasonable circumstance under which you actually need that much in savings if your spending goal is as modest as $60K a year.

I'm only pointing this out because I think it is obvious the only reason people should be targeting mid-seven-figure (or higher) retirement portfolios is if they want to spend a lot more than that $60K a year in this example. And I will just point out again there is typically no good reason to believe that spending a lot more than that will make you significantly happier.
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Re: Article on retirees- how finances stack up

Post by Broken Man 1999 »

22twain wrote: Mon Nov 29, 2021 1:58 am
Broken Man 1999 wrote: Sun Nov 28, 2021 3:44 pm Many BHs live in Lake Wobegon
Shouldn't that be Lake Wobogle, the setting of the "Coastal Home Companion?" :twisted:
Ha! Good one!
:sharebeer

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Re: Article on retirees- how finances stack up

Post by Barsoom »

am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/
Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
\
am wrote: Sun Nov 28, 2021 3:58 pm Are we all in a bubble on this forum? Seems like this is a forum consists of very affluent working people and retirees many of whom are worried about running out of money.
From the article:
Comfortable retirees (22%) were more likely to have financial assets between $99,000 and $320,000, and annual income between $40,000 and $100,000. Almost 75% said their retirement savings are sufficient or even exceed their needs... Affluent retirees (19%) were more likely to have financial assets of $320,000 or more and annual income of $100,000 or more. Only one in three said they plan to spend all or a significant portion of their retirement accounts.


I wonder if it's the difference between retirees who are depending solely on their portfolios for income versus retirees who have outside income sources?

-B
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Re: Article on retirees- how finances stack up

Post by Grt2bOutdoors »

kleiner wrote: Mon Nov 29, 2021 6:48 am
Ron wrote: Sun Nov 28, 2021 4:03 pm
am wrote: Sun Nov 28, 2021 3:58 pmAre we all in a bubble on this forum?
Yes, most definitely, when compared to the "average" person in the US today when it comes to financial discussions.

- Ron
Indeed - I just had a conversation with a friend in his mid 70s who thought that half a million dollars was a huge nest egg. I retired last year at 58 only after our net worth had exceeded ten times what my friend thought was a huge amount.
Short of you accumulating your nest egg on individual lottery tickets (equities or other instruments), you’d need a large income to accumulate such an amount. The average person making a relatively large income of $100k-$150k is not retiring at age 58 with $5 million plus in the assets side of the balance sheet. Your friend at age 70 is likely close to the truth - I have a few retired neighbors in that age band, they are slowing down and spending is going down as well. They get by fine on 2x Social Security, pension and residual portfolio income. You might need $5 million to feel personally secure but are likely an outlier.
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Re: Article on retirees- how finances stack up

Post by delamer »

NiceUnparticularMan wrote: Mon Nov 29, 2021 9:18 am
Triple digit golfer wrote: Mon Nov 29, 2021 6:51 am Key point is age 62-75. These people can take Social Security, are likely receiving any potential pensions, and many are on Medicare already.

If expenses are $60k a year and Social Security covers $40k, they only need $20k a year out of their portfolio, which would be a $500k portfolio if we assume 4%.
Just to extend this math a bit, though, let's say that at 65 you could reach these conditions such that Social Security would pay all but $20K of expenses and you would just need a $500K portfolio to supplement.

OK, so now you want to retire earlier. How much more do you need?

Well, it somewhat depends on your assumptions, but for simplicity I am going to assume a portfolio can safely generate 2.5% real and still arrive at that $500K (real) on schedule. This means so far you can get $12,500 annually out of that $500K, and you have $47,500 left to cover.

OK, so let's say you want to retire early at 55. That's 10 years at $47,500 per year you need to generate, and again for simplicity I am going to assume you are going to use something which basically has a zero-percent real return, meaning you will need $475,000 in addition to the $500,000 to cover those ten years and arrive at 65 with enough left when your Social Security kicks in.

OK, so yeah, your early retirement plan needs more like $975K rather than $500K to bridge that 10-year gap until Social Security. Maybe a bit more when you also factor in health costs, although the Affordable Care Act has made that cost a lot more predictable/manageable in the circumstances we are imagining.

Anyway, what your 10 years of early, meaning pre-SS retirement, does not need to fund it is something like a $2M+ portfolio. Basically, there is very likely going to be no reasonable circumstance under which you actually need that much in savings if your spending goal is as modest as $60K a year.

I'm only pointing this out because I think it is obvious the only reason people should be targeting mid-seven-figure (or higher) retirement portfolios is if they want to spend a lot more than that $60K a year in this example. And I will just point out again there is typically no good reason to believe that spending a lot more than that will make you significantly happier.
This is a very broad statement about a $60,000 retiree income that is very dependent on individual circumstances:

“there is typically no good reason to believe that spending a lot more than that will make you significantly happier”

Yes, many people live comfortably in that amount. But many people make significant compromises on their lifestyle because of limited retirement income. I know a few couples who had to leave the high cost-of-living area where their now adult children (and future grandchildren) continued to live because their retirement income was too low. Another $20,000/year would have allowed them to stay put.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
delamer
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Re: Article on retirees- how finances stack up

Post by delamer »

This discussion hasn’t covered surviving spouses, and how their finances can look very different.

In my parents’ case, they continued to save money in retirement while they were both still alive and living in their paid off home. One pension plus 2 Social Security checks more than met their needs.

Once my father died, it was a completely different situation. My mother’s income from his pension & Social Security fell by over 40%.

And she moved into an independent apartment in a CCRC, so her living costs were higher than her fixed income.

At age 80 she was still only spending down their portfolio at around 4% to 5% a year, so all was well. (Except that she still worried about running out of money or having to downsize her apartment. Neither had happened when she died at 94.)

So a comfortable life for a couple can get turned on its head for the survivor if there aren’t some savings to replace lost income streams.
Last edited by delamer on Mon Nov 29, 2021 10:32 am, edited 1 time in total.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Article on retirees- how finances stack up

Post by dbr »

delamer wrote: Mon Nov 29, 2021 10:24 am This discussion hasn’t covered surviving spouses, and how their finances can look very different.

In my parents’ case, they continued to save money in retirement while they were both still alive and living in their paid off home. One pension plus 2 Social Security checks more than met their needs.

Once my father died, it was a completely different situation. My mother’s income from his pension & Social Security fell by over 40%.

And she moved into an independent apartment in a CCRC, so her living costs were higher than her fixed income.

At age 80 she was still only spending down their portfolio at around 4% to 5% a year, so all was well. (Except that she still worried about running out of money or having to downside her apartment. Neither had happened when she died at 94.)

So a comfortable life for a couple can get turned on its head for the survivor if there aren’t some savings to replace lost income streams.
Indeed, among our acquaintances the ones who are most on the edge in retirement are the survivors of death of a spouse or divorce.
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Re: Article on retirees- how finances stack up

Post by WhyNotUs »

What I take from the article is gratitude for those who introduced and strengthened SSI and Medicare, it has transformed the experience of retirement for wage earners in the U.S.

BHs seem to be looking for a retirement that is earlier, longer lasting and/or more luxurious than is commonly available to those without financial assets of the top 10%.
I own the next hot stock- VTSAX
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Re: Article on retirees- how finances stack up

Post by smitcat »

NiceUnparticularMan wrote: Mon Nov 29, 2021 9:18 am
Triple digit golfer wrote: Mon Nov 29, 2021 6:51 am Key point is age 62-75. These people can take Social Security, are likely receiving any potential pensions, and many are on Medicare already.

If expenses are $60k a year and Social Security covers $40k, they only need $20k a year out of their portfolio, which would be a $500k portfolio if we assume 4%.
Just to extend this math a bit, though, let's say that at 65 you could reach these conditions such that Social Security would pay all but $20K of expenses and you would just need a $500K portfolio to supplement.

OK, so now you want to retire earlier. How much more do you need?

Well, it somewhat depends on your assumptions, but for simplicity I am going to assume a portfolio can safely generate 2.5% real and still arrive at that $500K (real) on schedule. This means so far you can get $12,500 annually out of that $500K, and you have $47,500 left to cover.

OK, so let's say you want to retire early at 55. That's 10 years at $47,500 per year you need to generate, and again for simplicity I am going to assume you are going to use something which basically has a zero-percent real return, meaning you will need $475,000 in addition to the $500,000 to cover those ten years and arrive at 65 with enough left when your Social Security kicks in.

OK, so yeah, your early retirement plan needs more like $975K rather than $500K to bridge that 10-year gap until Social Security. Maybe a bit more when you also factor in health costs, although the Affordable Care Act has made that cost a lot more predictable/manageable in the circumstances we are imagining.

Anyway, what your 10 years of early, meaning pre-SS retirement, does not need to fund it is something like a $2M+ portfolio. Basically, there is very likely going to be no reasonable circumstance under which you actually need that much in savings if your spending goal is as modest as $60K a year.

I'm only pointing this out because I think it is obvious the only reason people should be targeting mid-seven-figure (or higher) retirement portfolios is if they want to spend a lot more than that $60K a year in this example. And I will just point out again there is typically no good reason to believe that spending a lot more than that will make you significantly happier.
"if they want to spend a lot more than that $60K a year in this example.
And I will just point out again there is typically no good reason to believe that spending a lot more than that will make you significantly happier."
Of course it can.
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Re: Article on retirees- how finances stack up

Post by NiceUnparticularMan »

delamer wrote: Mon Nov 29, 2021 10:11 am
NiceUnparticularMan wrote: Mon Nov 29, 2021 9:18 am
Triple digit golfer wrote: Mon Nov 29, 2021 6:51 am Key point is age 62-75. These people can take Social Security, are likely receiving any potential pensions, and many are on Medicare already.

If expenses are $60k a year and Social Security covers $40k, they only need $20k a year out of their portfolio, which would be a $500k portfolio if we assume 4%.
Just to extend this math a bit, though, let's say that at 65 you could reach these conditions such that Social Security would pay all but $20K of expenses and you would just need a $500K portfolio to supplement.

OK, so now you want to retire earlier. How much more do you need?

Well, it somewhat depends on your assumptions, but for simplicity I am going to assume a portfolio can safely generate 2.5% real and still arrive at that $500K (real) on schedule. This means so far you can get $12,500 annually out of that $500K, and you have $47,500 left to cover.

OK, so let's say you want to retire early at 55. That's 10 years at $47,500 per year you need to generate, and again for simplicity I am going to assume you are going to use something which basically has a zero-percent real return, meaning you will need $475,000 in addition to the $500,000 to cover those ten years and arrive at 65 with enough left when your Social Security kicks in.

OK, so yeah, your early retirement plan needs more like $975K rather than $500K to bridge that 10-year gap until Social Security. Maybe a bit more when you also factor in health costs, although the Affordable Care Act has made that cost a lot more predictable/manageable in the circumstances we are imagining.

Anyway, what your 10 years of early, meaning pre-SS retirement, does not need to fund it is something like a $2M+ portfolio. Basically, there is very likely going to be no reasonable circumstance under which you actually need that much in savings if your spending goal is as modest as $60K a year.

I'm only pointing this out because I think it is obvious the only reason people should be targeting mid-seven-figure (or higher) retirement portfolios is if they want to spend a lot more than that $60K a year in this example. And I will just point out again there is typically no good reason to believe that spending a lot more than that will make you significantly happier.
This is a very broad statement about a $60,000 retiree income that is very dependent on individual circumstances:

“there is typically no good reason to believe that spending a lot more than that will make you significantly happier”

Yes, many people live comfortably in that amount. But many people make significant compromises on their lifestyle because of limited retirement income. I know a few couples who had to leave the high cost-of-living area where their now adult children (and future grandchildren) continued to live because their retirement income was too low. Another $20,000/year would have allowed them to stay put.
So what I am referring to is various studies on happiness measures and how they correlate to income. There obviously can be some individual variation, but it is interesting how the same pattern of sharply diminishing marginal returns in terms of happiness keep reoccurring.

My sense is part of what is going on is that for most people, their happiness is less dependent on their "lifestyle" than they might predict in advance. Instead, people tend to be a lot more adaptable than they predict they will be. And again beyond a certain pretty basic threshold, happiness then ends up much more a product of things like your attitude, the quality of your relationships, and so on, rather than anything more money can buy.

So, while it is undoubtedly true that many people might have their retirement lifestyle influenced, or "compromised", quite a bit by their available retirement income, it might be quite a bit less true that those lifestyle compromises actually end up playing much of a role in their ultimate happiness.

Now of course the particular scenario you are describing, where grandparents are forced to move far away from beloved children and grandchildren due to income limits, is trying to draw a connection between income and quality of relationships. And of course that could be true in individual cases. But I think in terms of the scale of that problem on a national basis, it is moderated in several ways. First, of course many people don't have families only in very high cost of living areas. Second, many people who have raised families in high cost of living areas long ago bought a family home in those areas, which they can either keep living in or can trade in for a suitable retirement home.

So yes, in the specific circumstance in which grandparents are going to need to pay current market housing prices out of their retirement income in high housing price markets in order to be near their families, they may need atypically high incomes to make that work. But fortunately, most retirees are not in those circumstances, for one reason or another.

As a final thought, I agree the right scale of this effect is going to be on the order of $20,000 per year, because that is about another $1700 per month, and that plus whatever you would have been spending on housing in medium cost of living market should likely be adequate to get something reasonable (not lavish) in almost any U.S. market.

So, modifying the example above, someone like that may need $40K, not $20K, on top of the assumed $40K from Social Security, so $1 million once Social Security kicks in at the assumed 65. 2.5% of that is $25K, so they need $550K more to bridge the 10-year gap to Social Security, given an early retirement at 55. So, retiring early in a high cost of living area where you don't already own a home may well require more like $1.55M rather than $975K due to the higher housing costs.

But . . . that still isn't even $2M yet.
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Re: Article on retirees- how finances stack up

Post by NiceUnparticularMan »

smitcat wrote: Mon Nov 29, 2021 10:55 am "if they want to spend a lot more than that $60K a year in this example.
And I will just point out again there is typically no good reason to believe that spending a lot more than that will make you significantly happier."
Of course it can.
So in this type of discussion, verbs matter. You say spending a lot more "can" make a person significantly happier, and I said there is typically no good reason to believe spending a lot more "will" make you significantly happier, and those are two different concepts.

The verb "can" covers a lot of ground, because of course unusual, atypical, rare, and so on things "can" happen. And across billions of people in the world, you can be confident many very rare things are happening to someone, somewhere.

But just because in rare circumstances something "can" happen, that is not a good reason to expect in your particular circumstances it "will" happen.

And there is really quite a lot of empirical work to support the idea that there is a sharply diminishing marginal utility to income. There are some complexities, but generally it is such a robust result, showing up across different countries, different times, and so on, that it is one of the best-confirmed general observations in what are called the social sciences.

The fun part is trying to figure out where the line flattens. But I am aware of no such empirical study in the U.S. or elsewhere which suggests it has not already flattened long before the sorts of incomes it seems many Bogleheads are targeting. What does make a difference is getting to the point you are not seriously worried about shelter, food, clothing, health care, and so on. But once you have those basics covered, and maybe a little more for some discretionary spending, a lot more to spend is unlikely to do much for your happiness.

However, also fairly common in the literature is that most people are bad at predicting how their happiness will respond to more spending. Meaning most people overestimate, sometimes by very wide margins, how much more spending will increase their happiness, or how much less spending will decrease their happiness.

So for practical purposes, most people should be focused more on correcting the natural tendency to overestimate the happiness effect of income, rather than trying to find ways to rationalize their instinctual attitudes on these issues. To return to the beginning, most people should not be thinking about things that hypothetically can be true, and should more be thinking about what likely will be true in practice, when planning their lives.

Again, to put it in simple terms: if you would rather not be working at a certain point, but are working anyway because of the promise it will increase your future pretty high income even higher, there is a very good chance your plan will not make you happier. And if you implicitly are acting as if believe you are a rare exception, you should think critically about whether you are truly as exceptional in this regard as you are implicitly predicting.
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Re: Article on retirees- how finances stack up

Post by smitcat »

NiceUnparticularMan wrote: Mon Nov 29, 2021 11:21 am
smitcat wrote: Mon Nov 29, 2021 10:55 am "if they want to spend a lot more than that $60K a year in this example.
And I will just point out again there is typically no good reason to believe that spending a lot more than that will make you significantly happier."
Of course it can.
So in this type of discussion, verbs matter. You say spending a lot more "can" make a person significantly happier, and I said there is typically no good reason to believe spending a lot more "will" make you significantly happier, and those are two different concepts.

The verb "can" covers a lot of ground, because of course unusual, atypical, rare, and so on things "can" happen. And across billions of people in the world, you can be confident many very rare things are happening to someone, somewhere.

But just because in rare circumstances something "can" happen, that is not a good reason to expect in your particular circumstances it "will" happen.

And there is really quite a lot of empirical work to support the idea that there is a sharply diminishing marginal utility to income. There are some complexities, but generally it is such a robust result, showing up across different countries, different times, and so on, that it is one of the best-confirmed general observations in what are called the social sciences.

The fun part is trying to figure out where the line flattens. But I am aware of no such empirical study in the U.S. or elsewhere which suggests it has not already flattened long before the sorts of incomes it seems many Bogleheads are targeting. What does make a difference is getting to the point you are not seriously worried about shelter, food, clothing, health care, and so on. But once you have those basics covered, and maybe a little more for some discretionary spending, a lot more to spend is unlikely to do much for your happiness.

However, also fairly common in the literature is that most people are bad at predicting how their happiness will respond to more spending. Meaning most people overestimate, sometimes by very wide margins, how much more spending will increase their happiness, or how much less spending will decrease their happiness.

So for practical purposes, most people should be focused more on correcting the natural tendency to overestimate the happiness effect of income, rather than trying to find ways to rationalize their instinctual attitudes on these issues. To return to the beginning, most people should not be thinking about things that hypothetically can be true, and should more be thinking about what likely will be true in practice, when planning their lives.

Again, to put it in simple terms: if you would rather not be working at a certain point, but are working anyway because of the promise it will increase your future pretty high income even higher, there is a very good chance your plan will not make you happier. And if you implicitly are acting as if believe you are a rare exception, you should think critically about whether you are truly as exceptional in this regard as you are implicitly predicting.
Non hypothetically we have spent above $60K for quite a long time before retiring and now after retirement.
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Re: Article on retirees- how finances stack up

Post by iceport »

am wrote: Sun Nov 28, 2021 3:00 pm https://tribunecontentagency.com/articl ... -stack-up/

Survey for those with less than 1 million in assets age 62-75 and it seems like at least 69% are doing just fine?! None of them would be advised to retire if they posted their profiles here. Wondering if a lot of the advice on here is too conservative and whether we should aim for a different goal than 25x expenses?
FYI, there's a ton more data with nice graphics and far more/better interpretation available directly from the Employee Benefit Research Institute.

Summary: Retirees in Profile: Evaluating Five Distinct Lifestyles in Retirement

Issue Brief (24 page PDF): https://www.ebri.org/docs/default-sourc ... 39e33a2f_8
Conclusion

The findings of this study show that first, households’ debt status has a significant influence on retirement outcomes.
Those with no debt or manageable levels of debt, as well as those who owned their homes free from mortgages, were
more likely to have a better retirement outcome across all measures.
Second, the higher levels of financial means did not make Affluent Retirees the most likely to report spending more
than $3,000 per month. Average Retirees were more likely to do so, and Comfortable Retirees were equally likely
to do so. In addition, the likelihood of the Average and Comfortable Retirees having a monthly expenditure of
$2,000–$4,000 was comparable to that of the Struggling Retirees, despite their significantly lower financial means.
These potential signs of retirees’ reluctance to spend were confirmed in the survey findings, where most retirees said
they prefer to spend none or only a small portion of their financial accounts, and even if they incur a loss due to a
market downturn, the majority prefer to spend less rather than to tap their savings.
The reason that this generation of retirees wishes to retain assets in retirement is probably in part because they are
able to cover their expenses with their regular income alone and do not need to draw down assets. A behavioral bias
could also contribute to their inability to switch gears from accumulation to decumulation.
But more importantly, it
could be that they do not know how to determine a sustainable withdrawal rate that takes into account the
uncertainties they may encounter over their remaining lifetime, which makes them extremely risk averse.
Man, can I relate to that highlighted theory! I think they're really onto something there...

:|

The issue was published in April, so it's curious that Kiplinger's decided to mention it only now.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
IowaFarmBoy
Posts: 1240
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Re: Article on retirees- how finances stack up

Post by IowaFarmBoy »

Tamales wrote: Sun Nov 28, 2021 5:22 pm One can't confidently say they're financially fine until the day they die.
The threads here that you criticize are considering many bad and costly things that may happen during the multiple decades one might be retired for. People are free to ignore those things.
I think this is a great point. We are probably way over saved but it gives significant protection against risks we may encounter like inflation, poor market performance and major health costs. Long term care is a big variable that I would prefer to have more control over. I suspect most of the people with lower savings will need to rely on Medicaid if they need long term care. Hopefully, we will be able to afford some options like home care, etc.
delamer
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Joined: Tue Feb 08, 2011 5:13 pm

Re: Article on retirees- how finances stack up

Post by delamer »

NiceUnparticularMan wrote: Mon Nov 29, 2021 10:56 am
delamer wrote: Mon Nov 29, 2021 10:11 am
NiceUnparticularMan wrote: Mon Nov 29, 2021 9:18 am
Triple digit golfer wrote: Mon Nov 29, 2021 6:51 am Key point is age 62-75. These people can take Social Security, are likely receiving any potential pensions, and many are on Medicare already.

If expenses are $60k a year and Social Security covers $40k, they only need $20k a year out of their portfolio, which would be a $500k portfolio if we assume 4%.
Just to extend this math a bit, though, let's say that at 65 you could reach these conditions such that Social Security would pay all but $20K of expenses and you would just need a $500K portfolio to supplement.

OK, so now you want to retire earlier. How much more do you need?

Well, it somewhat depends on your assumptions, but for simplicity I am going to assume a portfolio can safely generate 2.5% real and still arrive at that $500K (real) on schedule. This means so far you can get $12,500 annually out of that $500K, and you have $47,500 left to cover.

OK, so let's say you want to retire early at 55. That's 10 years at $47,500 per year you need to generate, and again for simplicity I am going to assume you are going to use something which basically has a zero-percent real return, meaning you will need $475,000 in addition to the $500,000 to cover those ten years and arrive at 65 with enough left when your Social Security kicks in.

OK, so yeah, your early retirement plan needs more like $975K rather than $500K to bridge that 10-year gap until Social Security. Maybe a bit more when you also factor in health costs, although the Affordable Care Act has made that cost a lot more predictable/manageable in the circumstances we are imagining.

Anyway, what your 10 years of early, meaning pre-SS retirement, does not need to fund it is something like a $2M+ portfolio. Basically, there is very likely going to be no reasonable circumstance under which you actually need that much in savings if your spending goal is as modest as $60K a year.

I'm only pointing this out because I think it is obvious the only reason people should be targeting mid-seven-figure (or higher) retirement portfolios is if they want to spend a lot more than that $60K a year in this example. And I will just point out again there is typically no good reason to believe that spending a lot more than that will make you significantly happier.
This is a very broad statement about a $60,000 retiree income that is very dependent on individual circumstances:

“there is typically no good reason to believe that spending a lot more than that will make you significantly happier”

Yes, many people live comfortably in that amount. But many people make significant compromises on their lifestyle because of limited retirement income. I know a few couples who had to leave the high cost-of-living area where their now adult children (and future grandchildren) continued to live because their retirement income was too low. Another $20,000/year would have allowed them to stay put.
So what I am referring to is various studies on happiness measures and how they correlate to income. There obviously can be some individual variation, but it is interesting how the same pattern of sharply diminishing marginal returns in terms of happiness keep reoccurring.

My sense is part of what is going on is that for most people, their happiness is less dependent on their "lifestyle" than they might predict in advance. Instead, people tend to be a lot more adaptable than they predict they will be. And again beyond a certain pretty basic threshold, happiness then ends up much more a product of things like your attitude, the quality of your relationships, and so on, rather than anything more money can buy.

So, while it is undoubtedly true that many people might have their retirement lifestyle influenced, or "compromised", quite a bit by their available retirement income, it might be quite a bit less true that those lifestyle compromises actually end up playing much of a role in their ultimate happiness.

Now of course the particular scenario you are describing, where grandparents are forced to move far away from beloved children and grandchildren due to income limits, is trying to draw a connection between income and quality of relationships. And of course that could be true in individual cases. But I think in terms of the scale of that problem on a national basis, it is moderated in several ways. First, of course many people don't have families only in very high cost of living areas. Second, many people who have raised families in high cost of living areas long ago bought a family home in those areas, which they can either keep living in or can trade in for a suitable retirement home.

So yes, in the specific circumstance in which grandparents are going to need to pay current market housing prices out of their retirement income in high housing price markets in order to be near their families, they may need atypically high incomes to make that work. But fortunately, most retirees are not in those circumstances, for one reason or another.

As a final thought, I agree the right scale of this effect is going to be on the order of $20,000 per year, because that is about another $1700 per month, and that plus whatever you would have been spending on housing in medium cost of living market should likely be adequate to get something reasonable (not lavish) in almost any U.S. market.

So, modifying the example above, someone like that may need $40K, not $20K, on top of the assumed $40K from Social Security, so $1 million once Social Security kicks in at the assumed 65. 2.5% of that is $25K, so they need $550K more to bridge the 10-year gap to Social Security, given an early retirement at 55. So, retiring early in a high cost of living area where you don't already own a home may well require more like $1.55M rather than $975K due to the higher housing costs.

But . . . that still isn't even $2M yet.
Actually, a big part of the problem for the couples who moved is that they can’t afford their homes in the high cost-of-living area once they’ve retired. Usually because they still have a mortgage. So they used their equity in the expensive area to buy a non-mortgaged home in a less expensive area.

Clearly, as you note, there’s a lot of individual variation in terms of the marginal happiness bought by an additional $20,000/year. And whether $60,000/year provides a good baseline of happiness for any given retiree.

And there is no doubt that my personal situation and the situations of people I know skew my perspective on the issue.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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