Who Wants to be a Millionaire (in Retirement)?
Take, for example, a hypothetical couple about to retire who have assets of just over $1 million. To help them, assume they have no children who are financially dependent on them. Also assume that they will be entitled to maximum Social Security benefits, which are just over $30,000 a year each (this year) for people who start collecting at age 66. (Delaying the start of benefits for up to four years increases the amount to be received but might, for some, require earlier withdrawals of retirement funds that would be subject to income tax.)
On the minus side, assume that this couple has no other pension plans that will provide retirement income — although many people who entered the workplace 40 years ago have significant defined-benefit pension plans from corporate or government employers. Mr. Luxenberg said there was a one-in-four chance that one member of a couple who had reached 65 would live into his or her 90s. So that person will have to plan for 30 years of income, he said. A rule of thumb, he said, was to draw 4 to 6 percent of retirement assets, adjusted for inflation, each year. For a hypothetical millionaire, that would be $40,000 to $60,000 a year, plus Social Security benefits.
The Times has an article this morning about how $1 million isn’t what it used to be, which, yes, we know! I don’t think we need to be told that having $1 million to retire on isn’t going to allow us to jet set around the world or take trips to space on Richard Branson’s Virgin Galactic spaceship. A financial planner concedes that “folks with $1 million in a well-balanced portfolio can be comfortable,” and that’s all I really want, really, to be comfortable in retirement, and if things go according to plan, I’ll have my million saved (but hopefully more). We can do this, you guys.
My financial adviser’s secretary scolded me yesterday for not planning for my retirement. I honestly don’t see the point of saving for it; Social Security will be gone, I’m certainly not getting a pension through work, and at the current rate that my wages are stagnating vs. the exponentially increasing cost of living, I can barely save up the money to pay for books for grad school (let’s not talk about tuition – please), let alone contemplate whether I’ll be comfortable should I live to 90. I actually find it’s easier to assume I’ll be working until I drop dead because it seems less futile.
@MuffyStJohn I would never scold anyone for not planning for retirement. That’s terrible. We’re all planning to live out our golden years in our own way, and what works for me might not work for you! I definitely plan to work past the age of 65—because, let’s be real here, being a writer isn’t exactly back-breaking work. But I found putting money in a retirement savings account has worked for me, so I’ll continue to do that until we see otherwise.
One goal I have for this site it to show how people who don’t have any retirement savings are able to make it work. We’ll figure out what exactly that thing is that will work for you, Muffy.
@Mike Dang Oh thank you Mike Dang! I always feel like a screwup about retirement because so much of the “advice” is people making it sounds like you’re guaranteed to live your golden years in squalor if you don’t set up an IRA by the time you’re 25, which is so unrealistic for today’s young people. I love that this site addresses all kinds of financial realities. Viva la Billfold!
@MuffyStJohn Saving for retirement is such a tricky thing for young people in this country because so many of the jobs that people have, from food service to low/unpaid internships to contract/temporary workers to graduate students, don’t provide any retirement benefits. Even with a good job at a major corporation, you are lucky to get a limited 5% match on money you contribute to your 401k. My dad works for the state government and his benefits are so ridiculously better than people hired in the last 15 years due to changes in policy. I am currently looking at beautiful beaches in Central America that will survive global sea level rise!
@MuffyStJohn I invite you to read this passage from the Social Security Board of Trustees:
“After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.”
In other words, the $2.5 trillion Social Security trust fund, and into which we continue to deposit some $700 billion each year, will not magically disappear at some point in the near future.
A slight rise in the payroll tax (from 12.4% to, say, 13%) and/or retirement age at some point in the next 10-20 years, and the problem is essentially solved.
(Sorry, I always get frustrated when I hear the old “Social Security won’t even be around so why bother?” trope.)
@stuffisthings If the solvency of Social Security relies on us raising taxes, then I’m pretty comfortable believing it’s going the way of the Dodo.
One of my friends brought up a really interesting idea the other day–why not retire somewhere with an exceptionally low cost of living, like Thailand? What’s keeping you in the US after you stop working? Plus, anything you’ve saved will get you so much farther.
I don’t know guys, I kind of think I might go for it.
@thejacqueline I think this is a fine idea!
@thejacqueline This is actually a thing; I know I’ve seen articles (and episodes of “House Hunters International”) in the past few years about people retiring to places like Costa Rica and Ecuador with very low costs of living.
@thejacqueline I had a neighbor who had retired from a blue-collar job and spent his winters in Bahia, Brazil. Grew up in a Spanish-speaking home so learning Portuguese was not a major hassle, and he’d fallen in love with the place. Rented an apartment in his (owned) home to keep up with the expenses of that building, came home and hung out on his old block in the summer, but as soon as it started getting cold, he headed south again. When he died in his 80s about five years ago, much of his funeral was about how important Brazilian culture had become to him.
He was an incredibly kind and generous man, so he’s my model in more ways than one, but yeah, that lifestyle sounds super-amazing to me. When I told him as much once, he reminded me that he’d worked 40 years to get it. Something to aim for…!
@thejacqueline That’s my plan! I think what’s keeping (some? a lot of?) people from doing that are ties to family members/what’s familiar, support from friends and family that you can’t get in a foreign country, etc. etc.
@thejacqueline When are you planning to retire? By my back-of-the-envelope calculation suggests that the cost of living in Thailand is set to surpass that of the United States by around 2049.
@stuffisthings Ha. Being that I am 26 years old, I haven’t quite picked out a place yet.
@thejacqueline This is what my mom plans to do! Except my mom is a little bit nuts and has decided she will divide her time between Tasmania and Ireland? Her more realistic daughter is hoping against hope that “Tasmania and Ireland” isn’t code for “my daughter’s house.”