You Need at Least $3M in Savings to Live Comfortably in Retirement
bloomberg.com
bloomberg.com
I would say though that aiming for more predictable spending in retirement would be very good for the economy. It’s a bit disconcerting that in the US, a medical procedure that slips through the cracks of Medicare/medicaid can suddenly cost millions of dollars for a retiree (when most health problems start happening). IMO this makes it so basically no amount of money feels like enough to retire so everyone has to just sit on their cash like a dragon protecting their gold until death. I think if this was a bit more predictable way more people would be spending money more liberally and/or retiring earlier, leaving jobs for the newer generation.
It's not, but that's a level of passive income that most Americans can not achieve. I suspect it's also structurally impossible for everyone to get there, but yes some individuals can do it.
People in countries like Switzerland with a high percentage of renters (58%) somehow manage to retire...
I would say a prerequisite for safe retirement is to have enough to buy a home outright in cash, otherwise mortgages will weigh you down like a stone:6% interest on a 1 million gbp loan in the UK is unpayable for majority of people even in London and yet you wont find anything worth buying there below that price.
Also we should stop saying a house has equity: it doesn't. You are a paying off a loan for a commodity. A house is like a car or groceries: necessary, yes, but not an investment, unless its luxury. This is how we exploded house prices.
Both of you say a mortgage is unacceptable.
Equity is simply the assets you hold. You can have equity in a car or groceries only it will disappear quickly if you don't sell the car or groceries.
In my economy, the figure is held to be more like half or less than this, and thats including not necessarily spending all of the capital before you die (which is highly contentious, because the superannuation system wasn't designed to be a revenue stream forever, it was designed to be spent)
Here in australia, $70,000 p.a. is the defined "comfortable" annual spend for a couple who own their own home. Some find that a bit low. If you're still hang-gliding in your 90s then you may need more. Most of us will be playing parcheesi and arguing if the stones or the beatles were better. With a government mandated 4% drawdown, you can do the sums. Once you hit somewhere around $800k in assets (as a couple) you get discounted health services, and below that start to get income support from the state as a pension.
The actuarial conversations become quite focussed when you're within 5 years of retirement/vesting age: How long do you plan on living? Thats going to define your draw-down rate.
Bloomberg clearly plan on us all living forever. The annuity returns on $3m (about the worst return you can plan for) would be north of the australian "comfortable" income stream.
I guess I'm not a HNW individual with low expectations of comfort. I am btw speaking regularly to my superannuation people, with plans to retire in the next 2-5 years and I certainly don't have $3m nor an expectation I will therefore NOT be living comfortably.
I read the article. I think it must be the cohort who are vested, or read bloomberg responding. this is completely adrift from Australian Industry Superannuation fund models.
(and I am sure it IS what people said: I don't mean Bloomberg made it up, I mean they're talking to batshit crazy people who aren't living in the real world)
Also, I really wonder if they meant for a couple or an individual and whether or not there was some misinterpretation there.
They say achievable things for a broader population, not the most accurate things.
It seems a very odd choice of banding given that it probably skews dramatically to contain what is probably the median of the distribution at the low end while tailing off very far towards the high end.
they list the numbers from all continents in their survey graph, and for what it's worth, the numbers for Australia seem higher than the US
Thats not comfortable retirement as I understand it. I totally believe people responded like this btw.
I don't have the data, but I would speculate the the socio-economic expectations of investors that Bloomberg could reach may not reflect the actual economics of what is required to live normally in retirement.
That is in the most literal sense the million dollar question and the answer is most likely 'you don't know'.
People routinely live to their mid 80's and even early 90's now, which used to be quite rare. But the quality of life isn't all that great for the majority of them and if you end up misjudging your longevity by a year it isn't going to be all that hard to make ends meet. But if you misjudge it by a decade or even more you are going to be utterly miserable near the end.
I hope to leave my kids enough that they will at least be able to afford a house. But at the rate house prices have increased and the cost of living has increased I am not 100% sure that that will happen.
If so then yes, that would be an indication that they are saving too much, it could also be an indication that your social security system is paying a lot of money to people that technically do not need it.
I know plenty of people living pretty good lives on the age pension which is less than $30K.
If you have your own house, in good health, don't drink, smoke or play the pokies, you could enjoy your retirement on $30k easily.
If I were to retire at 65 my monthly Social Security payment would be 1.94 times my monthly budget for food/groceries, taxes, insurance (health, car, house, earthquake), utilities (electricity, internet, phone, waste), prescriptions, subscriptions, domains, email, web host, gasoline, car registration, and clothes. (House is paid off, as is car).
That seems to have everything I need to live comfortably covered with plenty to spare for the occasional need to replace old furniture or a washer/dryer/fridge or a TV or phone or computer or random small to medium things, except for a small number of bigger things that I might have to go to savings for.
The big things are a new roof for my garage (house got a new roof a couple years ago which should outlast me), a new well pump, a water heater upgrade, an HVAC upgrade, and a new car.
I don't think $3M would be needed for all that. (And if those can be reasonably spread out I can probably do most of them without having to touch savings).
If I wait until 67, SS is 2.24 times my monthly budget.
I believe not worrying about money.
Putting away $3m is fine for those earning 6 figures but for the vast majority of US households struggling to pay for housing costs, childcare, food, etc these numbers are laughable. I have had a good career and was lucky enough to love my work but my savings and investments were wiped out twice with major medical emergencies (cancer) in the days prior to the ACA when health insurance companies regularly refused to cover treatments. I have a friend wiped out by a forest fire with insurance that fought her and ended up only covering half of her losses. I have friends who had children with disabilities that required them to make a choice as I did, do you forgo the needs of your family or your own health to keep your retirement funds intact or do you deal with the emergency at hand. 1-3 million is a pipe dream for most Americans. Perhaps there should be a discussion on how Average Americans will survive in retirement.
We might have been calling it The 6% rule otherwise...
Here's[1] an article on the 4% rule, and it clearly is about invested money:
> The rule applies to a hypothetical portfolio invested 50% in stocks and 50% in bonds.
[1] https://www.schwab.com/learn/story/beyond-4-rule-how-much-ca...
Also: taxes, setbacks, health, children, divorces, stuff breaking that needs to be replaced and so on. A million all at once is a lot of money, but spread out over the course of a lifetime in the developed world it isn't all that much.
> ... If you have $1 million saved for retirement ... you could spend $40,000 in the first year of retirement following the 4% rule.
> Beginning in year two of retirement, you adjust this amount by the rate of inflation. ... In year three, you’d take the prior year’s allowed withdrawal, and then adjust that amount for inflation.
> One common misconception is that the 4% rule dictates that retirees withdraw 4% of their portfolio’s value each year during retirement. The 4% applies only in year one of retirement. After that inflation dictates the amount withdrawn. The goal is to maintain the purchasing power of the 4% withdrawn in the first year of retirement.
https://www.forbes.com/advisor/retirement/four-percent-rule-...
In other words: you'll be withdrawing more and more over time to keep up with the compound effect of inflation on your savings. And there is no law that says inflation should be between 0 and 3%, as the last couple of years have amply demonstrated.
But sure, if you see having your funds in the stockmarket as risk free and guaranteeing you that 7% then you can base your retirement strategy on that.
Savings = Cash in the bank
Stocks = an asset class, so an investment, which has an ROI but also a risk (the ROI is effectively a risk premium)
The bulk of the people that have this kind of money will have the majority of it in the form of home equity, not in the form of savings in the bank or stocks.
Depending on where you live your first healthcare crisis can wipe out that million easily.
https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-nee...
assuming no setbacks.
assuming a rate of inflation that is not in line with the present day numbers.
assuming that you have all of that liquid rather than invested, where it is exposed to risk.
If you manage to make it work then more power to you but I like to have a generous safety margin around these things and the remainder can go to my kids.
I'm working hard to make sure my next product is "the big one" :)
There are quite a few retirement simulators that you can look at to see what chance you have with the money you have.
Cfiresim, firecalc, etc.
I retired on less than 1 million about a decade ago and I'm doing more than fine.
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The trouble with anyone giving anyone else an amount they need to save before they can retire is that you have to ask first how little you can live on.
No extra mouths to feed is also something you can't take for granted, both 'up', 'down' and 'sideways' in your family tree.
Cars are technically speaking optional but not having one immediately shrinks your world considerably unless you have excellent public transport.
Social security may be available, or it may not be available by the time you reach your pensionable age. If you count on it you may end up with a serious shortfall if for whatever reason there are cuts.
And no returns without risks...
Of course, they ended up on good circumstances to make all of this possible, but imo these circumstances they ended up with aren't all that rare especially in the area they live. The returns could backfire, sure, but there are investment strategies that are pretty safe too. I think robinhood is offering 4.15% on cash currently, for example.
If you insist on spending your life and retirement somewhere expensive. I bought 3 houses in cash for less than $150k total. If you want to live and retire in the center of Paris or New York or whatever, that is your choice and then you need a lot more money. Houses can be found for next to nothing in many places. If you are capable of DIY (I am not), you can really pick up stuff for nothing and spend 10 years before your pension doing it up as a side project.
And sure, social security, free/accessible healthcare or your pension pot may no longer be available once you reach this age; society might have collapsed and the money you saved might be worth nothing anymore. You cannot plan for those things reasonably; I am going to assume healthcare and social security are good still in my country and next to that, I live of very little (couldn’t care less about ‘things’) with my family at about $1200/mo while making about $300k/year (excluding stocks and other passive income). No reason for that to change (inflation corrected of course) unless some type of societal collapse.
Retirement sounds as boring as heaven, so I am doing neither anyway.
Where I live life is expensive. My kids will live here. I will have the choice to abandon them or to retire 'somewhere expensive'.
> I bought 3 houses in cash for less than $150k total.
Good for you! Here that would get you 1/2 of the most basic house or apartment.
> If you want to live and retire in the center of Paris or New York or whatever, that is your choice and then you need a lot more money.
Those are still a lot more expensive than where I live. But a half decent house here in a place near where there is work and with decent schools and other facilities will be anywhere from 300K to 500K depending on the market and the kind of house.
> Houses can be found for next to nothing in many places.
Not in this country. Even the most rundown area (the North East of Groningen, where I lived for years) still has as the cheapest listing a 90K price with a 1000 euros / months service fee:
https://www.funda.nl/koop/haren-gr/appartement-42005398-nesc...
> If you are capable of DIY (I am not), you can really pick up stuff for nothing and spend 10 years before your pension doing it up as a side project.
I'm very much capable of DIY, restored a bunch of buildings, made money on some, broke even on others and even lost on some. Markets are fickle.
> And sure, social security, free/accessible healthcare or your pension pot may no longer be available once you reach this age; society might have collapsed and the money you saved might be worth nothing anymore. You cannot plan for those things reasonably; I am going to assume healthcare and social security are good still in my country and next to that, I live of very little (couldn’t care less about ‘things’) with my family at about $1200/mo while making about $300k/year (excluding stocks and other passive income).
If you make $300K / year you are in a group called the lucky few. Which is disproportionally represented on HN, but it's nothing that you can count on if you're just an ordinary individual that works a regular job (or two...).
> No reason for that to change (inflation corrected of course) unless some type of societal collapse.
Or your health takes a turn for the worse. This is one that I've seen a couple of people near me deal with and that can really ruin your plans. And I had a bad scare myself a few years ago (but got away with it).
> Retirement sounds as boring as heaven, so I am doing neither anyway.
This we can agree on.
I FIRE'd with $850k without owning a primary residence. I spend like $800 a month. I would love to have blog income like them - it makes a huge psychological difference.
These days I believe that having a free and clear place to live really helps and that a 2.5% rule is more robust. What a surprise.
I presume they mean savings beyond your home equity (no mortgage).
Or are we to assume the cost of renting some 5bd McMansion, which nobody needs in retirement?
Maybe it's also including cost of health care? Even most Americans aren't paying for that in retirement.
> The answer is somewhere between $3 million and $5 million, according to the 553 investors worldwide who shared their views in the latest MLIV Pulse survey. About a third of investors pegged it at $3 million, and roughly another third at $5 million.
1/3rd of South Americans replied $20 million, lol.
Are their sources on this reliable?
> One in Ten Portfolio Managers Is Considering Working Forever
That's it? I'd throw darts at a wall until I die too.
The number I've historically heard for "safe rate of withdrawal" is 4%, but a lot of people are saying 3% these days. 3% of $1M is $30k, which is exactly $2500/month * 12 months. My risk tolerance is too high to consider that to be comfortable.
Another issue is that here in the states we don't have health care guaranteed by the government, and the likelihood that you'll have some kind of condition that incurs more costs increases as you get older (up to and including something like memory care, which is very expensive).
1. Own a home (landlord shenaningans suck, especially when older). Median price in Christchurch is about $700k, but ideally need to spend a bit more.
2. If over 65, get superannuation of about $20k after tax.
3. Median income is about $60k before tax. So let’s aim for $40k from investments before tax (investment income is taxed). No mortgage so reasonable middle class lifestyle (nowhere near extravagant).
4. Need $40k above inflation (so not depleting investment). Also need to cover volatility risk. My guess is $1.5 million investments to do that.
5. Government is slowly tightening screws on the “wealthy” so my guess is that you need another $1 million to cover that risk in next decades.
In New Zealand, $1M NZD total today would leave you struggling (careful budgeting for heating and food, no budget to cover health risks beyond government care). $2M NZD total equity is risky but likely okay. $3M NZD total equity would be minimum to have reasonably low risk, and a comfortable middle class lifestyle.
I.e. you need 1 to 2 million NZD investments. Much more after inflation in future decades.
I don't see myself retiring unless I become unable to work in tech. Unless I somehow got rich.
Assuming you get rich from working hard for many years:
With some probability, you really like your work.
My goal is to reach a point where not having to work makes me want to keep working.
Yeah, the classic vision of retirement is mostly a 20th century quirk from the era of pensions.
More generally, people just tend to do different work as they age, enjoy the growing support of people they were generous with or loyal to while they were younger, and eventually maybe get infirm and need full support for a little while.
If you worked yourself to death as a bureaucratic cog for forty years and need to finally reward yourself with a decade of full-time travel and golf, that’s fine, but there are other ways to have navigated the whole experience such that you don’t seed such a harsh transition (nor the giant stockpile of wealth that dream begs for).
For a lot of us “hacker” people that are careful not to burn ourselves out along the way, we’ll be tinkering on things that are valuable for people right up until the end and can expect some cash flow from that if we need it.
Lucky them. This isn't the rule though. The rule is that they will be paying it forward to the next younger generation, not to pay it back to the one before.
But even among deeply Americanized families we’re already seeing a return to multi-generational households as independent living becomes harder for everyone. As that takes hold, you don’t see a lot of families throwing the old fella to the street just because he can’t pay an equal share of the rent anymore. Everybody’s just making it work together.
So we’ll see.
About £1 million would allow a 3% draw-down forever and give a really nice salary like much higher than the average.
Many FIRE blogs talk about the 4% safe withdrawal rate (meaning you figure out how much money you spend in a year, including taxes, and as long as that's no more than 4% of the total you've saved, you should be fine), but IMO that's not conservative enough; personally I'd target something in the 2-3% range. So $3M is only enough if you can live off $90k (again, including taxes) per year. Certainly that's possible for some folks in some locations, but definitely not for everyone.
And of course "what you spend per year" might be variable. If you're planning on having kids (or more kids) in the future, you need to assume your spending will go up, especially if you plan to send those kids to university eventually. Even if you don't have kids, is that $90k enough for both you and your spouse (or possible future spouse)? Or are you planning on retiring while they still work? Nothing wrong with that, just stuff that you need to think about.
So ok, I guess the headline is technically accurate, as "at least" $3M could mean more -- or much more -- depending on your needs. But... yeah, so?
It really is kinda simple, though. Just figure out how much you spend in a year, think about the future and whether or not your spending is likely to go up or down based on whatever factors you think are relevant to your life, and pick a withdrawal rate you're comfortable with. If you're in your 60s or older, 4% might be safe. If you're in your 30s or 40s, I would plan for something more conservative, like 2-3%, but... up to you.
Mine used to be $3-5M. FAANG adventures have led me to understand why people retire, now I’m claiming $400K is enough to go back home and take a couple years off