Author Topic: How many people only withdraw gains from retirement accounts?  (Read 2196 times)

CheapScholar

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Obviously one of the main components of the philosophy of MMM is to withdraw money from retirement accounts or investments so that you can continue to do so for the rest of your natural life.  We can debate if safe amounts to withdraw are 3%, 4%, 5% or whatever.

What's interesting to me is that most mainstream financial services websites and experts also mention this strategy and often site the 4% rule (a Fidelity rep at a workshop at my work mentioned it last month).  The main difference in the MMM community is that we are hoping to build investment portfolios earlier in life, while most people are lucky to get there by their mid 60s.

This all has me thinking, however.  How many people, especially us Americans, come anywhere close to having a portfolio where 4% provides any significant payout?  This article from CNBC suggests very few actually do: http://www.cnbc.com/2017/04/07/how-much-the-average-family-has-saved-for-retirement-at-every-age.html

I suspect the answer to that question is maybe 5% of the population?  The sad thing is, when you adopt a MMM mentality, you see how insignificant even the mean retirement savings actually is.  I suspect many people spend their retirement accounts within the first few years of retirement and by 70 are broke and rely on SS.  Just wondering if anyone has other stats or articles on this topic.

fuzzy math

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Re: How many people only withdraw gains from retirement accounts?
« Reply #1 on: July 15, 2017, 08:51:56 AM »
Those median savings are depressing. like really really depressing. It shows the normal 32-37 yr old only saving $5k (even less if we assume market returns are part of their savings) to get to $6k 10 years later.

The first chart also shows the 50+ segment being the only group to have a worse off savings level after the Great Recession. I wonder how much of this is due to ageism in the work force, vs whatever stereotypical behavioral patterns there are in the baby boomer segment.
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CheapScholar

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Re: How many people only withdraw gains from retirement accounts?
« Reply #2 on: July 15, 2017, 09:52:28 AM »
One reason I really got to thinking about this is that my neighbor, late 30s, was recently telling me that he cashed out a 401k in order to buy a new septic tank.  I live in what would be classified as an upper middle class town next to a university city.  A new septic system isn't cheap but I was kind of taken back he needed to touch retirement money. 

The same guy, a few months later, purcashed a BMW SUV.  It was used, but he was explaining (bragging) to me that he got it for 40K (financed, I'm sure).  Then, last week, I was driving to work and noticed a shit ton of firework shells and garbage in the street next to his trash can.  Apparently he lit off so much on the fourth that he couldn't fit it all the remnants in his massive garbage tote.....

Rife

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Re: How many people only withdraw gains from retirement accounts?
« Reply #3 on: July 15, 2017, 09:56:26 AM »
I don't have data to add, but this topic comes up a lot at work. The average salary is >100k, but the current retirees have a pension on top of their 401k. So most have been very liberal with their spending and only save the match. Those retiring with 30 year pensions almost all comment they couldn't imagine having to retire without it (since they couldn't support their spending om only their savings/ss).

Naturally our pension is freezing this year. I am not sure the future retirees will adjust their spending especially when they are heavily influenced by the habits of the older workers. The fact is we need to save a lot more and spend less. Most have expensive hobbies to support and for that matter seem to take things like hiking and manage to make it expensive. They also eat out everyday. So, while we do have a generous match, and have decent 401ks, I am not sure they are considering how much they need to support the spending.
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fuzzy math

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Re: How many people only withdraw gains from retirement accounts?
« Reply #4 on: July 15, 2017, 10:00:35 AM »
Hey cheap scholar I live in a university town in the Midwest. I'm in MO how about you?
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CheapScholar

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Re: How many people only withdraw gains from retirement accounts?
« Reply #5 on: July 15, 2017, 10:31:57 AM »
Hey cheap scholar I live in a university town in the Midwest. I'm in MO how about you?

South Bend, IN area.

BTDretire

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Re: How many people only withdraw gains from retirement accounts?
« Reply #6 on: July 15, 2017, 11:09:15 AM »
I don't have data to add, but this topic comes up a lot at work. The average salary is >100k,
  I don't see $100K average salary anywhere, the average household income I see for 2016 was $57,600 for 2016.
That $57,600 includes lots of two income households. So, there are many $25k plus $30k two earner families.
I do see the very low amount of savings for most families, and find it very sad. We bought our first home about
3 years after being married, and got as low as $3,000 of savings. After that we always had savings and never had
any concern about paying any bills or living paycheck to paycheck. Looking back we never had any (lack of) money stress.
 I can only imagine what it would be like to have to worry about getting bills paid. But we also always lived well under our income,
the first year we were married we earned $18,000 and saved $5,400 + the $600 we had in wedding gifts.
  My wife and I together have averaged about $47,000 of income a year over the last 36 years.
We are the odd ones because, if I could get my wife to retire, we could easily live on the gains
from our retirement accounts. But it took us 30 years to save $1M in investment assets.
 We could not have done it in 15 or 20 years.
 We are blessed, but we also get a large chunk of credit for the blessing we have, it didn't just happen!

wenchsenior

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Re: How many people only withdraw gains from retirement accounts?
« Reply #7 on: July 15, 2017, 02:23:03 PM »
I don't have data to add, but this topic comes up a lot at work. The average salary is >100k,
I don't see $100K average salary anywhere, the average household income I see for 2016 was $57,600 for 2016.
That $57,600 includes lots of two income households. So, there are many $25k plus $30k two earner families.
I do see the very low amount of savings for most families, and find it very sad. We bought our first home about
3 years after being married, and got as low as $3,000 of savings. After that we always had savings and never had
any concern about paying any bills or living paycheck to paycheck. Looking back we never had any (lack of) money stress.
 I can only imagine what it would be like to have to worry about getting bills paid. But we also always lived well under our income,
the first year we were married we earned $18,000 and saved $5,400 + the $600 we had in wedding gifts.
  My wife and I together have averaged about $47,000 of income a year over the last 36 years.
We are the odd ones because, if I could get my wife to retire, we could easily live on the gains
from our retirement accounts. But it took us 30 years to save $1M in investment assets.
 We could not have done it in 15 or 20 years.
 We are blessed, but we also get a large chunk of credit for the blessing we have, it didn't just happen!

I think Rife was referring to the salary where he works averaging 100K.  Your number looks like the median income across the U.S. (which I looked up as ~$57,800 for 2016), rather than the average salary. Median is more meaningful for most discussions about household income anyway.


wenchsenior

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Re: How many people only withdraw gains from retirement accounts?
« Reply #8 on: July 15, 2017, 02:43:04 PM »
Not sure of percent of population that actually accumulates assets, because cursory googling only got me stats for "asset holding" households, which already weeds out a big chunk of the working poor and poor.

However, the peak years for American net worth are (not surprisingly) just around typical retirement age: 65-69.  I just saw statistics that median household net worth for this age group is just under 200K.  HOWEVER, crucially, most of this net worth is tied up in home equity.  The median LIQUID assets for that age group (i.e., $ that should generate the 4% income stream) is just under 50K.  So the median household will (assuming correct investing technique, which is a huge assumption) have an extra 2K per year income stream going into retirement.

It's brutal.  I think the older Boomers and the Silent Gen still had a fair percentage of their number that had access to pensions, but of course that has been an ever decreasing percentage over time.  A lot of people live on SS and extremely meager savings in old age, with the possibility of tapping home equity as a buffer.  Inheritances save some of these people, but I think the mythology of 'non poor retirement' being available to the majority of American comes from the brief, abnormal period of about 25-30 years post WW2, when a combo of very fortuitous circumstances (pre-eminent, booming economy/rising wages/newly available SS/pensions for about 40% of workers).

Retirement in the mode of the widely mythologized  'golden years' has, I suspect, been becoming much less common since the 80s.


BTDretire

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Re: How many people only withdraw gains from retirement accounts?
« Reply #9 on: July 15, 2017, 09:30:26 PM »
Wenchsenior, I think you may be correct in that the golden years have came and went.
 That does cause me concern for those of us that did live frugally and have substantial assets.
 I suspect the have nots will find a way to redistribute the wealth from us mustachians, even though over our lifetime we had no greater earnings just greater savings.

skip207

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Re: How many people only withdraw gains from retirement accounts?
« Reply #10 on: July 16, 2017, 08:46:33 AM »
The vast majority of my friends (mid to late 30s) have virtually no savings and no pension to speak of.  Most are going to either work till 70 ish or rely on inheritance that may or may not come. 

Most of them live well though, and its their choice.  We all earn roughly the same so its just a case of how and when you spend that money really I guess.


wenchsenior

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Re: How many people only withdraw gains from retirement accounts?
« Reply #11 on: July 16, 2017, 09:44:42 AM »
Wenchsenior, I think you may be correct in that the golden years have came and went.
 That does cause me concern for those of us that did live frugally and have substantial assets.
 I suspect the have nots will find a way to redistribute the wealth from us mustachians, even though over our lifetime we had no greater earnings just greater savings.

First, a caveat: While the principles of mustachianism and frugality cross all income lines, most people on this message board earn well above the median household income, as has been shown repeatedly in polls.  Many of us have greater opportunities to save than most Americans ever will.  I don't fool myself that I'm in a currently more secure financial position than my two sisters only because I'm so awesome and superior at life.  Good luck and timing has played a role in my situation also, and bad luck could quickly drain my assets to the point where I'm no longer as secure.

But still, poverty in old age is isn't remotely a new problem. It's just become a tougher one because people live longer, our health care system doesn't control costs, people have fewer or no children to support them, and families are very scattered.  Many people make bad decisions in many areas of their lives.  They don't save, they eat crap, they smoke and drink, they don't exercise.  People who optimize decision-making in all areas of their lives are a rare breed indeed.  And the whole society pays for many of the consequences of all of our sub-optimal decisions.  However, we also have to remember that humans aren't really wired to plan properly for the long term.  Also, many people lack the mental capacity or personality or support or conditioning to make good decisions. This problem is inherent to the human condition... 

There is little point fighting human nature, I think.  As a society, we should put certain guardrails in place ("libertarian paternalism") to make sure that all people receive fiduciary-based counseling about personal finance throughout their lives; enable access to low-fee retirement accounts, preferably via automatic enrollment and stepped increases in deposits with every raise (this would include an opt-out provision); and strengthen SS so that it remains fully solvent, because the vast majority of Americans have and will continue to rely on it as their primary or only source of retirement income.

Doing all these things might cost me, personally, a bit more in tax money/lower SS payout ratio in my old age.  But not doing them could totally destabilize society, which would cost me anyway.  Tax rates in the United States are very low relative to their historical rates. With an aging population, we definitely anticipate paying more taxes in retirement than, e.g., my parents or grandparents did; and we anticipate perhaps a 25-30% cut in SS benefits. That will suck, but it would suck MORE if we had to suddenly, individually,  be even more responsible than we already are for supporting our poor aging relatives (who currently live on ~1200/month from SS). 




skip207

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Re: How many people only withdraw gains from retirement accounts?
« Reply #12 on: July 16, 2017, 10:45:24 AM »
The UK just brought in auto enrolment pensions (with opt out provision).  Mixed feelings so far but its a start.

Davids

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Re: How many people only withdraw gains from retirement accounts?
« Reply #13 on: July 16, 2017, 02:51:18 PM »
The vast majority of my friends (mid to late 30s) have virtually no savings and no pension to speak of.  Most are going to either work till 70 ish or rely on inheritance that may or may not come. 

Most of them live well though, and its their choice.  We all earn roughly the same so its just a case of how and when you spend that money really I guess.
I have traveled to London a few times on business and the workers there basically waste their money at the pubs after work.

Letj

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Re: How many people only withdraw gains from retirement accounts?
« Reply #14 on: July 16, 2017, 04:45:45 PM »
Wenchsenior, I think you may be correct in that the golden years have came and went.
 That does cause me concern for those of us that did live frugally and have substantial assets.
 I suspect the have nots will find a way to redistribute the wealth from us mustachians, even though over our lifetime we had no greater earnings just greater savings.

First, a caveat: While the principles of mustachianism and frugality cross all income lines, most people on this message board earn well above the median household income, as has been shown repeatedly in polls.  Many of us have greater opportunities to save than most Americans ever will.  I don't fool myself that I'm in a currently more secure financial position than my two sisters only because I'm so awesome and superior at life.  Good luck and timing has played a role in my situation also, and bad luck could quickly drain my assets to the point where I'm no longer as secure.

But still, poverty in old age is isn't remotely a new problem. It's just become a tougher one because people live longer, our health care system doesn't control costs, people have fewer or no children to support them, and families are very scattered.  Many people make bad decisions in many areas of their lives.  They don't save, they eat crap, they smoke and drink, they don't exercise.  People who optimize decision-making in all areas of their lives are a rare breed indeed.  And the whole society pays for many of the consequences of all of our sub-optimal decisions.  However, we also have to remember that humans aren't really wired to plan properly for the long term.  Also, many people lack the mental capacity or personality or support or conditioning to make good decisions. This problem is inherent to the human condition... 

There is little point fighting human nature, I think.  As a society, we should put certain guardrails in place ("libertarian paternalism") to make sure that all people receive fiduciary-based counseling about personal finance throughout their lives; enable access to low-fee retirement accounts, preferably via automatic enrollment and stepped increases in deposits with every raise (this would include an opt-out provision); and strengthen SS so that it remains fully solvent, because the vast majority of Americans have and will continue to rely on it as their primary or only source of retirement income.

Doing all these things might cost me, personally, a bit more in tax money/lower SS payout ratio in my old age.  But not doing them could totally destabilize society, which would cost me anyway.  Tax rates in the United States are very low relative to their historical rates. With an aging population, we definitely anticipate paying more taxes in retirement than, e.g., my parents or grandparents did; and we anticipate perhaps a 25-30% cut in SS benefits. That will suck, but it would suck MORE if we had to suddenly, individually,  be even more responsible than we already are for supporting our poor aging relatives (who currently live on ~1200/month from SS).

This is an excellent post that completely nails the issue.

Cassie

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Re: How many people only withdraw gains from retirement accounts?
« Reply #15 on: July 16, 2017, 05:08:38 PM »
If you retire early you would be a fool to withdraw more then the gains. However, if you retire in your 60's, have other steady streams of income then withdrawing more would be fine provided you have enough $ until you die. Some people don't care about leaving an inheritance for others which is fine.  However, it sounds like the average person doe not have much $ at all.

Rosy

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Re: How many people only withdraw gains from retirement accounts?
« Reply #16 on: July 17, 2017, 09:37:57 AM »
Good points, Cassie, ^^^ that is pretty much how I see it.



sisto

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Re: How many people only withdraw gains from retirement accounts?
« Reply #17 on: July 17, 2017, 12:56:50 PM »
Wenchsenior, I think you may be correct in that the golden years have came and went.
 That does cause me concern for those of us that did live frugally and have substantial assets.
 I suspect the have nots will find a way to redistribute the wealth from us mustachians, even though over our lifetime we had no greater earnings just greater savings.
This is how I feel as well. I think of it similar to the people that bought houses they couldn't afford with interest only loans etc. All these programs to help people that made poor financial decisions, but nothing for those of us that made good choices.
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