Author Topic: Idiotic Retirement Formula on MarketWatch  (Read 3503 times)

dude

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Idiotic Retirement Formula on MarketWatch
« on: March 20, 2019, 06:48:16 AM »
This is one of the stupidest things I've ever seen, right up there with Suze Orman. According to this guy, if your house has a market value of $700k, you need a retirement income of $210,000, and thus a $5.25million stash.

https://www.marketwatch.com/story/the-right-retirement-formula-is-based-on-the-value-of-your-home-2019-03-20?mod=hp_retirement

Malkynn

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #1 on: March 20, 2019, 07:28:45 AM »
What the ever loving fuck did I just read????

I just can't with that nonsense.

prudent_one

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #2 on: March 20, 2019, 07:35:56 AM »
I have seen some stupid methods of evaluating retirement income/assets, but this one has to be at the top of the list. That the author feels the genius behind this concept is "the most thoughtful advisor I have ever met" doesn't flatter him either. Then he doubles down at the end with "The house drives everything" and "This is why people downsize when they retire. It isn't really about needing less space. It's about taking down your spending."

It's sad that this type of story gets play on a mainstream finance site. I imagine some poor schlub thinking "Damn, why did your dad leave us this house in his will? This article says because we got this free $1m house, we won't be able to retire until age 70 since we'll need $300k/year!"

At least the comments on the article have skewered the concept across the board.

Holyoak

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #3 on: March 20, 2019, 07:57:32 AM »
Man, that groovy Brady's Bunch house was a pretty nice investment after-all...  Oh yeah, "and thus a $5.25million stash."...  Suze is exploding with glee, raving like a three day coke bender, and with that GD smug smile on her yap.  Please quit buying her books, she doesn't need another 20,000 new leather jackets.  God, it's not *that* hard folks.

acepedro45

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #4 on: March 20, 2019, 08:10:48 AM »
Quote
If you live in a $1.4 million house, you live in a pretty nice neighborhood. Those houses have pretty nice cars in front of them, and so will yours. Maybe you think you will have an old rust bucket sitting in front of your $1.4 million house. Then you will be that guy.

I already am that guy. (My house isn't worth $1.4M, though.)

Dogastrophe

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #5 on: March 20, 2019, 08:25:50 AM »
If anything the comments are entertaining.

FIRE@50

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #6 on: March 20, 2019, 08:46:59 AM »
The writing style really comes across as sarcasm. I don't think it is intended to be though.

jinga nation

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #7 on: March 20, 2019, 10:27:22 AM »
Well Fargo advisor. 'Nuff said.
Fellow "divergent thinker" as the author. Bumpkins.

I did the math, Wife and I need $225k to live in our $300k current-value house. ROFLMAO

ender

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #8 on: March 20, 2019, 10:30:56 AM »
Funny how an article starting with:

Quote
The first page gives you a wide range of numbers, mostly between $1 million and $2 million. Of course, most people retire with less than that. They make it work.

ends up so off the rails.

thd7t

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #9 on: March 20, 2019, 10:35:24 AM »
This article is weird, but I could totally see it working if you live in MCOL or LCOL.  For a $250k house, it suggests you retire with $1.875MM.  That's $75k/year.  While it's not mustachian, it's not totally out of line.

It also uses the 4% rule, which makes sense.

I think they're using home cost as a proxy for how spendy you are.  It doesn't work everywhere and will work less in this group, but it's not a terrible assumption.
« Last Edit: March 20, 2019, 10:38:56 AM by thd7t »

thd7t

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #10 on: March 20, 2019, 10:37:07 AM »
Well Fargo advisor. 'Nuff said.
Fellow "divergent thinker" as the author. Bumpkins.

I did the math, Wife and I need $225k to live in our $300k current-value house. ROFLMAO
You did the math wrong.  It says that you need $2.25MM, which isn't a crazy number.

dandarc

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #11 on: March 20, 2019, 10:46:32 AM »
Man - I fucked up not buying one of those condemned houses in Detroit to live in.

YttriumNitrate

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #12 on: March 20, 2019, 10:56:43 AM »
As I've said before, whoever does the layout for these articles certainly earns their keep. 98% of people would stop reading if this little doozy was at the top of the article:
Quote
Jared Dillian is a former Lehman Brothers head of ETF trading.

StarBright

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #13 on: March 20, 2019, 11:19:50 AM »
This article is weird, but I could totally see it working if you live in MCOL or LCOL.  For a $250k house, it suggests you retire with $1.875MM.  That's $75k/year.  While it's not mustachian, it's not totally out of line.

It also uses the 4% rule, which makes sense.

I think they're using home cost as a proxy for how spendy you are.  It doesn't work everywhere and will work less in this group, but it's not a terrible assumption.

^ I 100% agree. Not at all a terrible assumption.

jinga nation

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #14 on: March 20, 2019, 11:30:02 AM »
Well Fargo advisor. 'Nuff said.
Fellow "divergent thinker" as the author. Bumpkins.

I did the math, Wife and I need $225k to live in our $300k current-value house. ROFLMAO
You did the math wrong.  It says that you need $2.25MM, which isn't a crazy number.
Value of house $300k * 0.3 = $90k retirement income
$90k / 0.04 = $2.25M assets

Our current spend is under $50-60k with two young ones. Should drop as they're out of the house. 90k maybe 15-20 years from now if inflation is significant.
Yeah but I ain't using WF as FAs. Useless, have them currently through my employer's 401k. The shits, ultimate bottom.

thd7t

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #15 on: March 20, 2019, 12:01:05 PM »
Well Fargo advisor. 'Nuff said.
Fellow "divergent thinker" as the author. Bumpkins.

I did the math, Wife and I need $225k to live in our $300k current-value house. ROFLMAO
You did the math wrong.  It says that you need $2.25MM, which isn't a crazy number.
Value of house $300k * 0.3 = $90k retirement income
$90k / 0.04 = $2.25M assets

Our current spend is under $50-60k with two young ones. Should drop as they're out of the house. 90k maybe 15-20 years from now if inflation is significant.
Yeah but I ain't using WF as FAs. Useless, have them currently through my employer's 401k. The shits, ultimate bottom.
Totally against using Wells Fargo for anything!  I'm sorry they're in your 401k.

The more I look at it, though, this article is suggesting that people buy houses worth about 3x their income while saving 10% of their income.  Then it suggests the 4% rule in retirement.  It's definitely not aimed at this community, but there are definitely worse rules of thumb that are more popular.

FINate

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #16 on: March 20, 2019, 12:17:27 PM »
This article is weird, but I could totally see it working if you live in MCOL or LCOL.  For a $250k house, it suggests you retire with $1.875MM.  That's $75k/year.  While it's not mustachian, it's not totally out of line.

It also uses the 4% rule, which makes sense.

I think they're using home cost as a proxy for how spendy you are.  It doesn't work everywhere and will work less in this group, but it's not a terrible assumption.

^ I 100% agree. Not at all a terrible assumption.

Did you notice the picture of the million dollar home at the top? Obviously HCOL area.

No, the premise is idiotic. It assumes lifestyle inflation is a fact of life, an immutable force of nature. If your $500k home appreciates to $1MM then you *must* spend accordingly. The for-profit investment industry is desperate to convince people to keep running on the hedonic treadmill, their livelihood depends on it.

ender

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #17 on: March 20, 2019, 12:20:54 PM »

No, the premise is idiotic. It assumes lifestyle inflation is a fact of life, an immutable force of nature. If your $500k home appreciates to $1MM then you *must* spend accordingly. The for-profit investment industry is desperate to convince people to keep running on the hedonic treadmill, their livelihood depends on it.

And the author more or less says it too:

Quote
If you live in a $1.4 million house, you live in a pretty nice neighborhood. Those houses have pretty nice cars in front of them, and so will yours. Maybe you think you will have an old rust bucket sitting in front of your $1.4 million house. Then you will be that guy.

If you are living in a $1.4 million house, you are not buying your clothes at Old Navy. You are not getting your furniture from Bob’s Discount Furniture. You are not getting your jewelry from Kay. You are not getting your groceries from Walmart WMT  — you are going to Whole Paycheck.

All of this stuff adds up. Your lifestyle, and all the money you spend, comes from the house that you live in, and the zip code that it sits in.

bacchi

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #18 on: March 20, 2019, 12:39:46 PM »
$1M houses in HCOL areas don't need 1-2% for maintenance. Most of the increase is from the land value. There's some increase in labor and materials costs but a 1000 ft^2 bungalow in California isn't 10* more expensive to maintain than one in Omaha.

Same with cars and lifestyle. A $1-2 million neighborhood in the Bay Area is average. There aren't Bentley or even many Porsche owners and no one is flying to the Maldives twice a year on their private jet.

Comparing a million dollar house in KC to a $150k house in KC is one thing; comparing a million dollar shack in San Francisco to a $150k house in KC is another.
« Last Edit: March 20, 2019, 12:52:00 PM by bacchi »

ysette9

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #19 on: March 20, 2019, 12:41:22 PM »
My house is only $1.1M, so not at the $1.4 quoted in the article, but it is true that I don’t buy my clothes at Old Navy. I might buy Old Navy clothes on consignment from ThredUP though. As others have commented, rules of thumb don’t work for mustachians and they definitely don’t work in HCOL areas.

Chranstronaut

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #20 on: March 20, 2019, 01:01:21 PM »
This works accidentally well in the Detroit area.  You could definitely buy a house for 60k and live on a stash of 450k here.

Man - I fucked up not buying one of those condemned houses in Detroit to live in.
Don't worry, you can still buy actual, livable houses under 100k in many areas.  You can also buy houses for 400k+.  It's a weird market.  The abandoned homes are often a terrible deal - back taxes, secondary liens, rat infestation, arson and water damage.

honeybbq

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #21 on: March 20, 2019, 01:07:55 PM »
Everyone in a HCOLA needs 10+ million dollars.

All SF, NY, LA, Seattle, Boston, etc.

Retireatee1

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #22 on: March 20, 2019, 01:31:10 PM »
MarketWatch had a crazy article a few weeks ago where the older you were going to be when you retired, the more money you had to save.  There's probably a MMM post on it.

dandarc

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #23 on: March 20, 2019, 01:36:49 PM »
MarketWatch had a crazy article a few weeks ago where the older you were going to be when you retired, the more money you had to save.  There's probably a MMM post on it.
That's obviously true. More time for your lifestyle to inflate before retirement.

mm1970

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #24 on: March 20, 2019, 02:49:39 PM »
Clearly I'm doing it wrong.

1-2% per year maintenance?  We've done the following:
- Refinished and repaired the hardwood floors
- Replaced the windows with double-paned
- Insulated (blow in)
- Patch the stucco
- Painted
- Replaced the roof, including quite a bit of wood replacement due to termite damage
- Regraded the back yard, turning it into "tiers" (our back neighbor's water, sewer, gas lines run through it)
- Took out the wall heater.
- Upgraded central air into air/heat
- Remodeled the kitchn
- Replaced sink and toilet in bathroom
- Replaced plumbing from bathroom to clean-out
- Replaced plumbing from clean-out to street, including replacing the wye to the sewer line

(House built in 1947)

We hired out  most of that.  It has cost us a grand total of 40% of what they think it should have.  Not 1.5% per year in the 15 years.

If you multiply the house value by 0.3...well that's just a ridiculous number.  We make about that much with 2 FT jobs, and save a metric ton of money every year.

Travis

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #25 on: March 20, 2019, 03:35:29 PM »
As I've said before, whoever does the layout for these articles certainly earns their keep. 98% of people would stop reading if this little doozy was at the top of the article:
Quote
Jared Dillian is a former Lehman Brothers head of ETF trading.

Either there are several former Lehman employees writing Marketwatch articles, or this guy has been featured here (MMM) before hawking bullshit.

Edit:  I knew I recognized the name.

https://forum.mrmoneymustache.com/antimustachian-wall-of-shame-and-comedy/mocking-working-less-and-spending-time-with-family/msg2000954/#msg2000954
« Last Edit: March 20, 2019, 03:57:30 PM by Travis »

OtherJen

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #26 on: March 20, 2019, 08:20:06 PM »
This works accidentally well in the Detroit area.  You could definitely buy a house for 60k and live on a stash of 450k here.

Man - I fucked up not buying one of those condemned houses in Detroit to live in.
Don't worry, you can still buy actual, livable houses under 100k in many areas.  You can also buy houses for 400k+.  It's a weird market.  The abandoned homes are often a terrible deal - back taxes, secondary liens, rat infestation, arson and water damage.

It definitely works here! My house has a market value of $75k: 950 square feet, 3 bed/1 recently remodeled bath, detached 2-car garage, everything to code. There are definite advantages to LCOL areas.

We don’t have central AC or a dishwasher, though. Apparently that makes our house undesirable.

infogoon

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #27 on: March 21, 2019, 06:53:50 AM »
Jared Dillian is a former Lehman Brothers head of ETF trading.

Sounds right.

spartana

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #28 on: March 21, 2019, 02:49:16 PM »
This article is weird, but I could totally see it working if you live in MCOL or LCOL.  For a $250k house, it suggests you retire with $1.875MM.  That's $75k/year.  While it's not mustachian, it's not totally out of line.

It also uses the 4% rule, which makes sense.

I think they're using home cost as a proxy for how spendy you are.  It doesn't work everywhere and will work less in this group, but it's not a terrible assumption.

^ I 100% agree. Not at all a terrible assumption.

Did you notice the picture of the million dollar home at the top? Obviously HCOL area.

No, the premise is idiotic. It assumes lifestyle inflation is a fact of life, an immutable force of nature. If your $500k home appreciates to $1MM then you *must* spend accordingly. The for-profit investment industry is desperate to convince people to keep running on the hedonic treadmill, their livelihood depends on it.
Agreed the premise is totally idiotic! Especially since it isn't talking about cost for a home at the time of purchase - which may be a decade or more ago -  but current market value ("you live in a house whose market value is $1.4 million. Not what you paid for it — the current market value.") which could be several hundred K more if located in a HCOL area after years of appreciation.

 I bought a cheap place in HCOL SoCal during a housing market crash and it appreciated greatly over that time period. Basing my FIRE number on the current market value of my cheap paid off house rather than my actual expenses would be crazy. I'd need millions even if I could cover all my expenses for less than $1k/month. Such a stupid article.

ETA that's SoCal (or NorCal or just plain old Calif) @Paul der Krake not "Cali". Just...no ;-).

ETA again: just did the math and apparently I'd need over $200k/ year income and over $5mm assets. If my expenses are around $10k/year then that'll leave me with $190k/year for "fun".
« Last Edit: March 21, 2019, 03:26:13 PM by spartana »

ysette9

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #29 on: March 21, 2019, 03:04:46 PM »
This article is weird, but I could totally see it working if you live in MCOL or LCOL.  For a $250k house, it suggests you retire with $1.875MM.  That's $75k/year.  While it's not mustachian, it's not totally out of line.

It also uses the 4% rule, which makes sense.

I think they're using home cost as a proxy for how spendy you are.  It doesn't work everywhere and will work less in this group, but it's not a terrible assumption.

^ I 100% agree. Not at all a terrible assumption.

Did you notice the picture of the million dollar home at the top? Obviously HCOL area.

No, the premise is idiotic. It assumes lifestyle inflation is a fact of life, an immutable force of nature. If your $500k home appreciates to $1MM then you *must* spend accordingly. The for-profit investment industry is desperate to convince people to keep running on the hedonic treadmill, their livelihood depends on it.

ETA that's SoCal (or NorCal or just plain old Calif) @Paul der Krake not "Cali". Just...no ;-).
This. Never “Cali” and never “San Fran”. :)

bacchi

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #30 on: March 21, 2019, 04:14:20 PM »
ETA that's SoCal (or NorCal or just plain old Calif) @Paul der Krake not "Cali". Just...no ;-).
This. Never “Cali” and never “San Fran”. :)

"Going back to Cali, Cali, Cali. Going back to Cali...I don't think so!"

spartana

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #31 on: March 21, 2019, 05:09:09 PM »
ETA that's SoCal (or NorCal or just plain old Calif) @Paul der Krake not "Cali". Just...no ;-).
This. Never “Cali” and never “San Fran”. :)

"Going back to Cali, Cali, Cali. Going back to Cali...I don't think so!"
On "the" 5 ;-).

« Last Edit: March 26, 2019, 03:23:04 PM by spartana »

ysette9

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #32 on: March 21, 2019, 05:53:09 PM »
Uh oh. If we are opening up the “5” vs “the 5” debate this is going to get ugly, quickly.

~runs for the hills~

;-)

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #33 on: March 21, 2019, 10:41:33 PM »
ETA that's SoCal (or NorCal or just plain old Calif) @Paul der Krake not "Cali". Just...no ;-).
This. Never “Cali” and never “San Fran”. :)

"Going back to Cali, Cali, Cali. Going back to Cali...I don't think so!"

I always visualize a dancing Hindu death goddess. Is that wrong? Especially since it's based not on the homonym but on the traffic, particuarly on the 5 and the 405?

And then, of course there's a certain version of Linux.
« Last Edit: March 21, 2019, 10:43:28 PM by TheGrimSqueaker »

jinga nation

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #34 on: March 22, 2019, 06:51:01 AM »
ETA that's SoCal (or NorCal or just plain old Calif) @Paul der Krake not "Cali". Just...no ;-).
This. Never “Cali” and never “San Fran”. :)

"Going back to Cali, Cali, Cali. Going back to Cali...I don't think so!"

I always visualize a dancing Hindu death goddess. Is that wrong? Especially since it's based not on the homonym but on the traffic, particuarly on the 5 and the 405?

And then, of course there's a certain version of Linux.
As a Person of Indian Descent, I approve both.
Kali maaa! Shakti De!

Plus Kali Linux is used a lot in my field of work, a very appropriately named distro.

auntie_betty

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #35 on: March 23, 2019, 12:46:58 AM »
So, the moral of the story is - wait for a house price crash. Suddenly house is worth half what is was and you need half of the previous figure to retire on. Because obviously the price of a new roof, kitchen, oh and the car on the driveway, will also have halved.

Sorted :)

Cassie

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Re: Idiotic Retirement Formula on MarketWatch
« Reply #36 on: March 26, 2019, 12:01:59 PM »
The whole thing is silly and most people would never retire.