NYTimes: $1mm not enough!

[footenote]

Today the New York Times tells us why a $1,000,000 portfolio isn't nearly enough to retire on:
http://www.nytimes.com/2013/06/09/your-money/why-many-retirees-could-outlive-a-1-million-nest-egg.html?hp

The writer cites two reasons: you can't squeeze enough yield if it's (stupidly) invested too conservatively. And because you need 80% of $150,000 to retire:

"Still, even $61,000 or $71,000 a year — the combined Social Security and cash flow from the $1 million portfolio — isn’t likely to be enough for most people who have grown accustomed to living on $150,000 or more a year. And $150,000 is the median income of a typical household in the top 10 percent, roughly the ranking of a family with $1 million in net assets, Professor Wolff says.

"Without another source of income, perhaps from traditional pensions from either or both spouses, he adds, a household like this won’t come close to replacing 80 percent of its pre-retirement income — often considered an acceptable target level."

[Jamesqf]

Seems like yet another case of "Garbage In, Garbage Out".  Given their basic assumption of spending $60K/year or more, they're perfectly correct, people can't do that forever on a $1 million stash.  But if you're like me (and most Mustachians), and (assuming a paid-off house) can live quite well on $1K/month, the picture changes.

[Grigory]

And $150,000 is the median income of a typical household in the top 10 percent, roughly the ranking of a family with $1 million in net assets,

It's amazing how a single word can have so much emphasis. I'm sure all the dedicated Mustachians on this board exist on the far fringe of economic projections and statistics. I'd bet that "roughly" refers to 75-80% of households with $1 million in assets, but there are always exceptions... That article may as well have been written in a parallel universe as far as we're concerned here.

[Rich M]

It's funny since the average per capita GDP for Americans is about $47K and most of us are doing okay, in fact most of us are living way crazy lifestyles, this is a crazy article.

Sure, 1 million is not what it used to be.  No more yacht and casino lifestyles like we imagined in the 60s when having a million you could.  But that was a stupid dream based on false ideals anyway.

The new ideal is the old ideal that experiences have the most value in life.

"Many men go fishing all of their lives without knowing that it is not fish they are after." -- Thoreau.

[Joet]

I'm probably in the vast minority here but I think $1m in a portfolio w/home ownership w/SS is not enough for a couple. Not sure if this article was household or individual based. Also not sure if we're talking about nominal dollars. I don't have a crystal ball re: inflation/purchasing power but somewhere around 10 years from now $1M might be only able to buy around $5-600k today or thereabouts. Who knows.

If an individual were retiring today, sure, $1M + SS is probably fine. If they are ER'ing it might be a little sketchy and we'd probably have to stretch the definition of 'retiring'

Anyways my rambling comments. It really comes down to inflation expectations. Also not sure if traditional fixed income/Age-bonds in equities/~50% of portfolio in equities in retirement is more consistent with the adjective 'prudent' or 'stupid', YMMV

[KingMe]

But if you're like me (and most Mustachians), and (assuming a paid-off house) can live quite well on $1K/month, the picture changes.

In the NYC area, home to the target audience of the New York Times, property taxes alone can easily be over $1,000. Easily. And not for a mansion or McMansion. For a normal place, you can pay $15,000 in property taxes. Even if you own your home outright, you must pay more than "most Mustachians" just on shelter. So I wouldn't be so quick to judge.

The slant of the article is a bit hyper, but doesn't its conclusion fit right in with the ethos of this board? Invest when you're young, keep expenses low during your life, and maybe find some thing you like to do to continue to earn income when you're older?

[footenote]

KingMe - I've lived in CT, so I understand how HCOL the tri-state is. So maybe living in a HCOL area in retirement isn't realistic for most of us in retirement.  I agree with you that the author ends with reasonable advice, and also agree that the tone of the entire article is hyperbolic and not helpful.

Joet - That's why we invest a healthy part of our portfolios in equities - because they help you keep up with inflation! Yes, investing everything in bonds is stupid.

Rich M - Yep. These retirees can't possibly live on... a little less than the $47k that the vast majority of Americans live on....

Grigory & Jamesqf - I felt the way you did, like this was being written from some Parallel, GIGO Planet!

(As I write this, the article is the #1 most emailed article from the entire NYTimes site. In a comment, I challenged the writer to do a follow up profiling people who are managing fine on $1mm or considerably smaller portfolios. He can easily find people to interview here at MMM or at early-retirement.org )

[mpbaker22]

isn’t likely to be enough for most people who have grown accustomed to living on $150,000 or more a year.

the key here is the wording of this statement.  On the surface it sounds like the article claims most people live on $150K a year.  Actually it's saying, "out of the people who live on $150K a year they're too accustomed to switch their habits now"

In short, this article is written exclusively for the top 10%.

[Joet]

Allocating a retirement portfolio (when in retirement) highly in equities (well beyond 50/50) is the 'stupid' part of the spectrum, IMO. Dont let poor planning/underfunding alter your risk profile. Also lets not get too carried away with the interest rate picture of the last 3-4 years and chase yield. In short, dont be stupider than the stupid hypothetical referenced couple. Just like there is no santa claus, there is also no magic inflation protection wand

[Jamesqf]

In the NYC area, home to the target audience of the New York Times, property taxes alone can easily be over $1,000. Easily. And not for a mansion or McMansion. For a normal place, you can pay $15,000 in property taxes.

I had always thought that the target audience of the NYT was the English-speaking world.

Given the higher property taxes in NYC, there seems to be a simple solution: on retirement, sell your house to the next investment banker wannabe that comes along, and move to someplace with a reasonable cost of living.

Grigory & Jamesqf - I felt the way you did, like this was being written from some Parallel, GIGO Planet!

You know, I have always suspected NYC of being in a different universe.  Now the question: is there intelligent life there?

I admit I may have been prejudiced by my few experiences of the place.  The most recent involved a shuttle bus from LaGuardia airport to a train station.  At one stop, the bus needed to make a left into a parking lot (the Port Authority, IIRC) but there was a garbage truck parked close to the entrance.  The driver tries the turn anyway, and rams the side of bus into the truck.  Does he stop, inspect the damage, maybe exchange insurance info?  No, he backs up and tries again, ramming a few feet further along the side of the bus.  And again, and yet again...  At which point, I got off (along with most everyone else) and started walking.

[MrsPete]

Is a million "enough"?  Depends.  I can think of several variables off the top of my head:

- Do you own a paid-for house?
- Do you plan to retire in a high cost of living area?
- Do you have -- in addition to the stash-- a pension or expectation of social security?
- Do you have insurance through a group, or will you be paying independently?
- How's your health now?  Remember that lots of people who are healthy at 30-40 see their health costs increase as they age. 
- Have your grandparents and older relatives tended to die young or have they lived into their 90s?
- Are you still supporting children?  Or putting children through college? 
- Do you anticipate supporting expensive hobbies during retirement? 
- Are you open to part time work for a while? 

You could certainly add other variables specific to your own life, and these may mean that what you consider "enough" isn't what I think is "enough". 

[KingMe]

I had always thought that the target audience of the NYT was the English-speaking world.

It is the New York Times. The paper is primarily for people in and around New York and secondarily for people between Boston and DC.

For many people, if you can't afford your home region in retirement, then you don't have enough. 

[2527]

I read the article with amusement too.  But I suppose the article is correct.  If a couple have a $150,000 per year lifestyle and want to maintain it, $1M plus SS isn't enough.

[footenote]

Is a million "enough"?  Depends.  I can think of several variables off the top of my head:

- Do you own a paid-for house?
- Do you plan to retire in a high cost of living area?
- Do you have -- in addition to the stash-- a pension or expectation of social security?
- Do you have insurance through a group, or will you be paying independently?
- How's your health now?  Remember that lots of people who are healthy at 30-40 see their health costs increase as they age. 
- Have your grandparents and older relatives tended to die young or have they lived into their 90s?
- Are you still supporting children?  Or putting children through college? 
- Do you anticipate supporting expensive hobbies during retirement? 
- Are you open to part time work for a while? 

You could certainly add other variables specific to your own life, and these may mean that what you consider "enough" isn't what I think is "enough".

+1

[ny.er]

My family went from right around $150,000 income to less than $50,000 after husband's unexpected layoff turned ER in 2009. This was not an easy transition, but doable. We live in a high tax county north of NYC, paying around $15,000 annually in real estate taxes (our house is comfortable, not huge), and our taxes are not nearly as expensive as nearby towns! We stopped being consumers out of necessity. Fortunately the house was paid off, and savings were healthy. We sulked about this turn of events for awhile, but reading this blog helped re frame our thinking from negative, (boohoo, look what happened) to: "thank goodness we saved!!" My motivation for saving had always been so that we wouldn't have to move in retirement, but with many less years to save than anticipated, moving may be in our future.

[Hamster]

I had always thought that the target audience of the NYT was the English-speaking world.

It is the New York Times. The paper is primarily for people in and around New York and secondarily for people between Boston and DC.

For many people, if you can't afford your home region in retirement, then you don't have enough.

Their readership is pretty broad. I live on the west coast and have always considered NY Times a national paper, except for the regional sections. They also have regional inserts for some markets like the Bay Area and Chicago, so I don't think the Times considers itself just a NY or DC-Boston Corridor paper.

What other options are there outside major metro markets? USA Today is a bit of a joke in my opinion, and I don't think any other newspapers have the depth and quality of reporting that NY Times does.

[footenote]

The author posted a response:

http://bucks.blogs.nytimes.com/2013/06/10/the-1-million-nest-egg/?ref=retirement

He begs many questions and still hasn't addressed a point that several made in the comments to the original article: few retirees will need $120k per year (target retirement income in the original article was 80% of $150k) to live very comfortably in retirement.

The first comment response to this new post does the math correctly.

[galaxie]

isn’t likely to be enough for most people who have grown accustomed to living on $150,000 or more a year.

the key here is the wording of this statement.  On the surface it sounds like the article claims most people live on $150K a year.  Actually it's saying, "out of the people who live on $150K a year they're too accustomed to switch their habits now"

In short, this article is written exclusively for the top 10%.

Right, when you read it carefully, it seems like the author is trying to say "people who have $1M in assets (that would be the 10%) also tend to be used to high spending levels, so they can't retire on $1M." 

[Tyler]

Right, when you read it carefully, it seems like the author is trying to say "people who have $1M in assets (that would be the 10%) also tend to be used to high spending levels, so they can't retire on $1M."

The author notes that those with $1mm net worth have a median income of $150k, then jumps to the conclusion that they also spend most of what they make.  I recommend that the author read The Millionaire Next Door.

[Hamster]

Right, when you read it carefully, it seems like the author is trying to say "people who have $1M in assets (that would be the 10%) also tend to be used to high spending levels, so they can't retire on $1M."

The author notes that those with $1mm net worth have a median income of $150k, then jumps to the conclusion that they also spend most of what they make.  I recommend that the author read The Millionaire Next Door.

It really is a number of bad logical jumps that the author makes:
1) $1mm puts you in the top 10% of net worth
2) If you are in the top 10% in terms of net worth, then you must also be among the top 10% for annual earnings
3) The median of the top 10% of earners is $150k per year
4) People are expected to spend 80% of their current annual income when they retire
5) Therefore if you have $1mm you have to spend 80% of $150k per year, so $1mm isn't enough.

Other than items 1 and 3, which are just factual statements, I think anyone can find the logical problems with all the other assumptions/conclusions. High net worth doesnt' necessarily equate to high earnings, and neither has to correlate with high spending.

The other point of the article - that bonds alone won't allow much of a withdrawal rate druing retirement is spot-on in the current low interest-rate environment.

[pom]

1) $1mm puts you in the top 10% of net worth
2) If you are in the top 10% in terms of net worth, then you must also be among the top 10% for annual earnings
3) The median of the top 10% of earners is $150k per year
4) People are expected to spend 80% of their current annual income when they retire
5) Therefore if you have $1mm you have to spend 80% of $150k per year, so $1mm isn't enough.

Another comment on your great list, Hamster, is that assuming that (2) is right, then (4) can't be right.

What I mean is that if these people earning $150k a year managed to save $1mm, they are certainly not spending all of what they earn. I don't know what their average age is but assuming that they are 50, that means that they have saved in average 15% of their income. So why would they need 80% of their salary? The house is paid off, the kids are gone or just about ... 

I understand that someone might want to have 80% of salary but most financial advisors use the words "need" and "want" as if they were the same thing.

Well, just my 2 cents worth.

[Jamesqf]

The first comment response to this new post does the math correctly.

Is it just me, or do other people not see any comments on that page?

There's still - especially for his NYC audience - the possibility of cutting retirement living costs drastically while still maintaining a reasonable standard of living, just by moving to a lower cost area - and just about everywhere is lower cost than NYC.  As for instance I've lived in some high-cost areas (like Silicon Valley) when jobs took me there, but I certainly never intended them to be my permanent home.

[Gyosho]

As soon as I saw this article I thought of MMM's post about "Do We Need to Fire the Entire Financial Services Industry". The article obviously proves the answer is YES.

[Self-employed-swami]

I'm probably in the vast minority here but I think $1m in a portfolio w/home ownership w/SS is not enough for a couple. Not sure if this article was household or individual based. Also not sure if we're talking about nominal dollars. I don't have a crystal ball re: inflation/purchasing power but somewhere around 10 years from now $1M might be only able to buy around $5-600k today or thereabouts. Who knows.

If an individual were retiring today, sure, $1M + SS is probably fine. If they are ER'ing it might be a little sketchy and we'd probably have to stretch the definition of 'retiring'

Anyways my rambling comments. It really comes down to inflation expectations. Also not sure if traditional fixed income/Age-bonds in equities/~50% of portfolio in equities in retirement is more consistent with the adjective 'prudent' or 'stupid', YMMV

If you want to spend money on dog walker, 3 new bikes a month, and walk around spending money on EVERYTHING in site, $1M is not enough.  However, for a reasonable MMMer, who doesn't need/want the consumeristic trappings, that should be close to enough, depending of course, on the area they are living in (property taxes and food expenses).

[mpbaker22]

They started with a 65-year-old couple, retiring this year and using the 4 percent withdrawal rate that is a commonly used rule-of-thumb draw-down. The calculations provided by Bernstein Global Wealth Management showed that at a 4 percent withdrawal rate, adjusted for inflation, if they had invested the $1 million entirely in municipal bonds, there is a 72 percent probability that they will exhaust all of that money before they die.

Why would someone invest entirely in munis at their current rate? 

My Strategies column on Sunday, “For Retirees, a Million-Dollar Illusion,” was intended to be provocative. It evidently succeeded.

Unfortunately it was provocative for all the wrong reasons and included ZERO intelligence.  The follow up consisted of slightly less intelligence.

[Joet]

I'm probably in the vast minority here but I think $1m in a portfolio w/home ownership w/SS is not enough for a couple. Not sure if this article was household or individual based. Also not sure if we're talking about nominal dollars. I don't have a crystal ball re: inflation/purchasing power but somewhere around 10 years from now $1M might be only able to buy around $5-600k today or thereabouts. Who knows.

If an individual were retiring today, sure, $1M + SS is probably fine. If they are ER'ing it might be a little sketchy and we'd probably have to stretch the definition of 'retiring'

Anyways my rambling comments. It really comes down to inflation expectations. Also not sure if traditional fixed income/Age-bonds in equities/~50% of portfolio in equities in retirement is more consistent with the adjective 'prudent' or 'stupid', YMMV

If you want to spend money on dog walker, 3 new bikes a month, and walk around spending money on EVERYTHING in site, $1M is not enough.  However, for a reasonable MMMer, who doesn't need/want the consumeristic trappings, that should be close to enough, depending of course, on the area they are living in (property taxes and food expenses).

Personal jabs aside I disagree with respect to nominal vs inflation adjusted $1M, it is the huge glaring exception in my post. Now I'm sure YOU can live on the effective SWR from a 400k-ish portfolio, but for typical inflation scenarios, $1M 25 years from now is only around $400k, which is really my only point. Kudos to you and your ability to live off of 10-15k inclusive of health care and all that.

[footenote]

Joet - Acushla, intelligent investors (like you!) invest with inflation in mind. I'm very aware of inflation (because, in part, I lived through a period of dramatic inflation!) and am confident I can navigate around it.         

[Joet]

Right, and unless I've missed it, the question of current/future $1m didn't seem plainly stated. If we are talking about a point 20-25 years in the future '$1m not enough' could be a lot closer to $2.0-2.5m.

Is $1m enough in todays dollars? I'd argue yes: per individual, certainly do-able [with certain sacrifices, and the big unknown being healthcare ER costs, and whether home ownership is assumed]

[Jamesqf]

Right, and unless I've missed it, the question of current/future $1m didn't seem plainly stated.

I'd think it'd have to be in today's dollars, since future inflation rates are unpredictable.  Even in the lifetime of most of us, we've seen inflation vary from the current 1% or so up to 1980's nearly 14%.

[Self-employed-swami]

I'm sorry if you are getting many personal jabs Joet, but I think you bring it on yourself, with all the rediculous posts about your extravigant spending.

[footenote]

My comment was not intended to be a jab. (Look up "acushla"!) I'm hopeful Joet will learn by hanging out here.

My point was that there are many ways to manage your investments during periods of inflation. Joet, if you anticipate inflation you don't say "well , if I have $1mm today, then I really need $2mm tomorrow because prices will be higher." Instead, you ensure your investments will grow with inflation.

And perhaps you hedge as well. A simple hedge example is housing. If I think we're going to see significant inflation, perhaps either a fixed 30 yr mortgage at today's low rates or even buying outright (if mortgages aren't an option) would be a great inflation hedge. You would either be paying the mortgage in inflated dollars against a low rate, or just enjoying the benefit of an ever-inflating house value with no payments.

Make sense?

[Joet]

it doesn't make sense because theirs no magic anti-inflation wand. Track the 70s vs your favorite investment class or all of them, fine by me. The point is 'inflation' is like a secret tax. Some investments will do better than others in high inflationary environments. Most get the brunt of the secret tax. If you stop accumulating early, inflation can be deadly. Sure equities seem to ride it out. Somewhat. Bonds... not so much [unless TIPs], real estate... sort of, but not really especially if inflation is also tied with high interest rates [stagflation]. Commodities... hmm, somewhat, etc etc

While you're serving up anti-inflationary solutions I would also like a unicorn or 2 for my ranch. Under the rainbow :)

[footenote]

Thank you for listing the (yes, non-magical) investments for warding off inflation: certain equities, TIPs, commodities. I would add real estate to your list since housing is a major cost in retirement. If I can buy a house at today's low rates / low costs, and I'm happy living in it for 30 years, that's a powerful hedge against inflation. Inflation cuts both ways, it's not some universal portfolio-poison-pill. (Deflation can be very damaging too.)

Bottom line: I believe (and you're free to disagree) that intelligent investors can navigate through any market conditions starting with a $1mm portfolio. I admit I'm biased by having lived through a period of serious stagflation. It was challenging. But every middle class investor I knew came through it fine (and with well less than $1mm).

Disclaimer: I am an accredited investor. Non-accredited investors' mileages may vary.

[Joet]

That doesnt mean that my point regarding shooting for a target of (N)*$1m, with (N) being the future-inflation-factor is invalid. You are likewise free to disagree :). It really comes down to the point of whether or not this $1m is in todays or future dollars. Sounds like we are in agreement.
I believe I mentioned real-estate. I also believe I mentioned health care as a potential stumbling block (among many)

Curious on your ideas with respect to inflation not being a universal detractor? Is this hypothetical investor employed? does he have health care? did he stay at a holiday inn express? is he using debt to leverage high inflation? Help me understand this hypothetical. The only scenario I see it working as a positive is to a young worker full of human capital that is highly in debt. Pretty much the opposite of an ER/FI person as far as the context of the article/OP is concerned.

[footenote]

Good points. I always assume that $1mm is in today's dollars and that it will gleefully inflate if correctly invested in just the instruments you suggested (the right equities, TIPS, etc). I also agree that inflation can benefit young people who are leveraged.

On healthcare for ERs, ACA should help enormously, especially if the retiree's income is below 400% of poverty (qualifying for subsidy). I also assume the retiree is living a mustachian lifestyle, reaping some passive income, and eventually adding SS.

I think one legit point in the original NYT article was that retirees can no longer just park $1mm (or whatever) in "safe" bonds and call it a day.

Finally: I agree inflation is bad. So is stagflation. So is deflation. I cannot imagine any 30+ year period that is not going to have the full panoply of not-so-great macro economic winds to survive. You have to stay awake and adjust. (Or, to your point, save more in the first place and not have to pay as much attention, which I think is a legit alt.)

[Jamesqf]

While you're serving up anti-inflationary solutions I would also like a unicorn or 2 for my ranch. Under the rainbow :)

I disagree.  I think many investments - stocks, real estate, etc - are inflation-proof over the long run, since the value of a share of a sound company, or a acre of land somewhere, is going to be pretty well independent of what happens to the particular currency you buy it in.  Thus if I buy a share of some (non-growth) company - say IBM - at $200 today, and inflation halves the worth of a dollar over the next decade, I should expect that share to be worth $400 - plus whatever growth the company did, and $0.95/share quarterly dividends...

[Joet]

that's fine, I happen to disagree on that topic, IMO not all assets rise linearly with inflation, and you're ignoring the hidden tax drag (unless implicit in your argument is that the growth somehow ALSO surpasses the tax drag). My personal favorite part of inflation is being rewarded with paying for the 'gains' in terms of taxes.

The inflation scenarios of our fathers [at least in the US] were quite a bit more stag-flationary. Meaning a race to the bottom and really no fun. Of course the counterpoint to that is that there literally was no better position to be in than in equity [public or private] as yes, inflation over the really long run tends to bid up assets more or less uniformly. Except when they dont [eg 70s], and basically it's a wealth reducer. Can you do much about it? Nope.

[ep114]

I am chuckling that there is a discussion of retirement and New Yorkers and no mention of Florida. Seriously it's like the 6th borough down there. My retired relatives regularly run into people they went to high school with. Any you should hear the accents, they seem to blossom in the heat. Nice beaches, no snow, low housing prices, lots of friends...not a bad place to be.

[Jamesqf]

that's fine, I happen to disagree on that topic, IMO not all assets rise linearly with inflation, and you're ignoring the hidden tax drag (unless implicit in your argument is that the growth somehow ALSO surpasses the tax drag).

I don't believe there is a "tax drag" in the case of equities.  If you buy that share of IBM at $200 today, and due to growth & inflation it's worth $400 in 10 years, you still won't pay taxes on it unless you sell it.  Of course you pay taxes on the dividends you get (unless you're holding it in a 401k/IRA), but that's a different matter.

[Joet]

no  capital gain taxes in your neck of the woods? or you're never selling equities? wow, must be nice :o

[oldtoyota]

I had always thought that the target audience of the NYT was the English-speaking world.

It is the New York Times. The paper is primarily for people in and around New York and secondarily for people between Boston and DC.

For many people, if you can't afford your home region in retirement, then you don't have enough.

When I lived in FL, the NYT provided papers for sale there. They have (had??) printing presses around the country back when people read paper more often. I doubt they've changed their idea of readership or would want to limit it to the NY area.

[footenote]

There are two editions of the NYTimes: local and national. The local edition is a superset of the national edition (lots of local content and advertising).

The national edition has been printed, home-delivered and sold in stores daily in major markets as far away as San Diego for many years. The "$1mm not enough" article ran in the national edition. So there is no argument that the article was meant only for the local, HCOL readers.

In spite of many commenting that $1mm was certainly enough for those of us who have learned how to live frugally, the author did not address this point in two follow up articles (one blog post and one article one week later). (Btw, I did not post those follow ups to this forum because the author did not respond to any of the comments to the original article or add anything to his original piece.)

[jfer_rose]

The main takeaway of this article as I see it is that the bond market currently sucks. All the math in the article assumes that 100% of that million dollar stache is invested in bonds. Bonds aren't currently yielding much, and as a result a 4% withdrawal rate ($40,000 a year) draws down the principal much too quickly to last through retirement.

Of course, I'm an optimist so I don't wish to believe that the bond market will still suck when I retire. But even so, I'm still learning about the MMM way, but wouldn't an mustachian avoid having a stache entirely in bonds, even when retired?