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THE NEW REALITY OF OLD AGE IN AMERICA

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I look at how I got to where I am and realize I was blessed. I really didn't have much of a clue what I was doing when I was young but basically did what my father was advising me to do. He helped me secure loans to purchase real estate. So I was able to gain a lot of leverage on my money and when the markets increased I did very well. Now I look at my children and realize the amount of money they will need for a comfortable retirement when they are 55 -60 years old is far more than what they will ever save up from a middle class salary. I see it as my responsibility to watch for opportunities to coach and help them make wise investments while they are young. (I'm expecting my kids will each need $5,000,000 to retire on). 

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6 minutes ago, 4x4ord said:

(I'm expecting my kids will each need $5,000,000 to retire on). 

I’m curious how you got to this number as at the somewhat popular 4% withdrawal rate, 5 mil generates $200k/yr. Perhaps you’re just in a much higher socioeconomic class than most and this is their current expenditure?

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21 minutes ago, 4x4ord said:

I look at how I got to where I am and realize I was blessed. I really didn't have much of a clue what I was doing when I was young but basically did what my father was advising me to do. He helped me secure loans to purchase real estate. So I was able to gain a lot of leverage on my money and when the markets increased I did very well. Now I look at my children and realize the amount of money they will need for a comfortable retirement when they are 55 -60 years old is far more than what they will ever save up from a middle class salary. I see it as my responsibility to watch for opportunities to coach and help them make wise investments while they are young. (I'm expecting my kids will each need $5,000,000 to retire on). 

I think, not sure, that most of the people on this forum are between 55 and 80 years old... 

We're actually the lucky ones...we grew up when education was more accessible for people who wanted to go to college...and many of us got good jobs, a career and either a pension or a matching defined contribution plan..... let me tell you a generous defined contribution plan is every bit as good as defined benefit plan.. just structured differently.   

What's going on now is the "gig economy", meaning a lot of independent contractor work, less benefits, maybe no vacation, retirement and old age security. And no health care insurance.... which is a horrible Rx for anyone trying to make it today....they have part time jobs....no retirement ...it's not good..

And employers have no loyalty to the employee and vice versa.....

Companies love that ... they can pay the lowest wages and lay off their expensive employees and hire temporary workers.....

SO....those of us who grew up in the 60s or early 70s really should appreciate what we have.. the kids of today will find it much harder...some will do fine who are the innovative ones ....the rest especially with no education or training will wind up with menial dead end jobs.  The good paying jobs during the time of manufacturing are gone... Robots and automation are taking everyone's job if they can.....

It's like the industrial revolution all over again.. it's not a pretty picture.  

If you don't make money when you're young....you won't have anything to support you in your old age.....a lot of people can be retrained, but, it's easier said than done.

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2 hours ago, Black said:

I’m curious how you got to this number as at the somewhat popular 4% withdrawal rate, 5 mil generates $200k/yr. Perhaps you’re just in a much higher socioeconomic class than most and this is their current expenditure?

I can't say where the $5M figure came from.  However if the kids are 30 and will retire at 70 (probably a realistic age 40 years from now) $200K/year to retire could be a good ballpark figure.  40 years of inflation takes its toll.  

Whatever the retirement income figure is 40 years in the future, if the kids don't start saving NOW it is going to be really tough to retire anytime.

People need to realize you don't have to buy a new $50-$70K car/truck.  You CAN buy used for $20-$30K, drive it for 10 years, junk it.  Just as important in those 10 years, make car payments to yourself and then pay cash for the next vehicle.  You also don't have to have a 2500-3000 sq ft house to live in.  You don't have to live in the newest fanciest neighborhood.  Buy a smaller less expensive house with a 15 yr instead of 30 yr loan.  Pay it off and then invest the house payments.  Do this and in 40 years you will have the money to retire.

Also don't dismiss the income from social security.  Yes it is not enough to live on.  It was never intended to totally fund retirement.  However SS can and does for many, double the retirement income.  Even if it only add 50% it really helps. 

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2 hours ago, Al F said:

40 years of inflation takes its toll.

FWIW 2% inflation for 40 years results in a inflation factor of 2.2.  So $200K 40 years from now would be the equivalent of $90k today.

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1 hour ago, docj said:

So $200K 40 years from now would be the equivalent of $90k today.

If $90k is typical of what most participants in these forums have to live on, I think that I'm on the wrong forums! Some years ago we ran a poll on these forums asking what a typical annual budget was and as I remember that poll showed the average to be between $30 & $40k per year. Since it was anonymous I tend to think that it was probably pretty close to reality. Quite likely the average amount has gone up as costs typically do, but how much? Is it time to do another such poll?

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7 minutes ago, docj said:

I wasn't trying to justify the number. I simply did a mathematical calculation. 

I didn't take it that way, but the thought still applies. 

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Kirk,

i think the poll should be redone.  I’m sure we aren’t the only ones that notice a definite uptick on how much things cost compared to say 2010.

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I'm living proof that you can live off your S.S. income. I just lived at a lower level then most. Been out here doing it for over 4 years now. Yes, I have savings which are still there. My wife passed away 5 year ago from cancer, we both worked our whole life together. I had open heart surgery back in 2008, the same day my working career ended. I was 62 then, not quite eligible for S.S. or Medicare. The company I was working for then had health insurance which paid a lot of the surgical expenses. And while I was going though rehab she had to have surgery herself. She wasn't covered by insurance at all. We managed to repay all the expenses on our own while we where both still working part-time. And then in 2013 she passed away. WE had a pretty good life together, didn't get to saving much until we were in our 40's. We tired the stock market which we found out later that it wasn't for us, to many up's & downs. So we saved as best we could. And so far it turned all right. The Motor Home I had I sold and bought a good used 40 foot 5th wheel trailer and had it towed to my Co-Op lot. I now have a small truck & trailer that I travel in. I'm not complaining about  at all, I've had a good life so far.

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5 hours ago, Kirk W said:

 Is it time to do another such poll?

A poll was started by you sir in Nov of '15 seeking the annual budget of folks. I'll certainly play along with another one as well if started.

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12 hours ago, Roadtrek 1 said:

It's like the industrial revolution all over again.. it's not a pretty picture.  

Except now it's the intellectual revolution. Those who can develop new solutions will be the elite. That's why we see so many families joining the full time lifestyle--they can work anywhere they have an internet connection so they are working plus traveling--in effect, having their retirement experiences right along side their working experiences. That doesn't sound so bad to me.

In the meantime, those going into the traditional trades are fewer so I read that those who do so, like welders, are making more money than their parents did in those same trades.

Linda

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10 hours ago, docj said:

FWIW 2% inflation for 40 years results in a inflation factor of 2.2.  So $200K 40 years from now would be the equivalent of $90k today.

Thank you for doing the math.  So $5,000,000 more than what one would need for retirement 40 years from now.  Maybe folks will ONLY need 3 million in investments to retire. 🙂

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3 hours ago, rm.w/aview said:

A poll was started by you sir in Nov of '15 seeking the annual budget of folks. I'll certainly play along with another one as well if started.

I didn't remember just how long back it was but did recall that it was me who started it. Not sure if it is really warranted but willing to do it again if others would like. 

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On 3/11/2019 at 12:52 AM, Black said:

I’m curious how you got to this number as at the somewhat popular 4% withdrawal rate, 5 mil generates $200k/yr. Perhaps you’re just in a much higher socioeconomic class than most and this is their current expenditure?

You can come at it from a couple different ways but I'm basically thinking most people today wouldn't consider retiring at 55-60 years old unless they were debt free with at least 2 million saved up in investments. My kids will be in that age bracket 35 years from now. An inflation rate of 2.6 % would mean they should be planning to save 5 million over the next 35 years. I realize that people now can and do retire on less than 2 million but most who do will be considerably older than 55 and or are not planning to live very high on the hog.

Edited by 4x4ord

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5 hours ago, 4x4ord said:

You can come at it from a couple different ways but I'm basically thinking most people today wouldn't consider retiring at 55-60 years old unless they were debt free with at least 2 million saved up in investments. My kids will be in that age bracket 35 years from now. An inflation rate of 2.6 % would mean they should be planning to save 5 million over the next 35 years. I realize that people now can and do retire on less than 2 million but most who do will be considerably older than 55 and or are not planning to live very high on the hog.

I pretty much agree with the principals provided in the quote above, but I do want to add some perspective.

--  Retiring today with $2M and useing a withdrawal rate of only 3% (4% is usually the accepted rate, but with the young age I use a 3% rate) would give you $60,000/year.  Pretty decent income.

--  The vast majority of people in the 55-60 year old range are physically capable of supplementing their income with various types of work, including volunteer work which provides free parking with utilities.  Others go to Amazon for a 6-8 weeks stint, usually with free camping at an RV Park.  

--  Delaying your full retirement a few years until at least 62 and start early Social Security would greatly reduce your savings requirements.   SS income is nothing to sneered at.  We have a friend who recently retired at 66 with 31 years of relatively low income, think of $10 to $11/hour in today's pay.  Her SS is about $1550/month ($18,600/yr). 

--  If you consider many folks in this life long low income situation are couples with dual working history they could be looking at drawing SS at age 62 with a combined SS income of about $28,000/yr. (That $28K is the full retirement amount of $18,600 our friend has, reduced by 25% for starting SS at age 62) That puts a pretty good dent in the need for a $2M nest egg.  

--  Now about needing $5M nest egg for retirement 35 or 40 years from now.  

#1  Make sure you participate in any 401K type plan available to you to at least any level matched by the company.  

#2  With 35-40 years to go, there is only one place to put your money:  The stock market!!  Historically you are guaranteed excellent returns over that time period.  Including if you invested in 1928, the year before the '29 stock market crash.  It could be prudent to put some part of your money in an international stock fund.  Does anyone really believe that over the next 20-40 years that the total value of all the companies in the USA & and the world is going to be less than today's value?????  Really?

#3  Note that Vanguard  offers a Total Stock Market fund at an extremely low management fee of .04%.  That is you pay only $40 per $10,000 per year.  Other companies offer similar low cost funds. 

#4  Back to 401K plans (also 403(b) plans for teachers, etc).  Many companies only offer high fee investment funds.  Some charging 1-4% per year.  That means you are paying 2.5 to 7.5 times as much ($100-$300/year) for someone to manage your money with a much lower return over 35-40 years that the very low cost fund. 

#5 With any of these high cost 401K plans you can and SHOULD do an annual, no cost, direct roll over into a IRA with a low cost fund.  You just have to call Vanguard, Fidelity, etc and give them the details of your 401K and they will transfer the funds.  

 

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1 hour ago, Al F said:

I pretty much agree with the principals provided in the quote above, but I do want to add some perspective.

I want to add a few comments also.

1 hour ago, Al F said:

--  The vast majority of people in the 55-60 year old range are physically capable of supplementing their income with various types of work, including volunteer work which provides free parking with utilities. 

That is exactly what we did. My employer offered an early retirement program with health insurance which allowed us to retire at 57 in 2000. We did a lot of RV volunteer positions, a few of which did have a small stipend but most only supplied a site and utilities but quite often those positions also involve work that most of us would do for noting because we love doing it. Things like wildlife studies and such. Our expenses were very low as a result and are posted on our website. Because of this lifestyle, we have only recently begun to withdraw from our IRA and that is now required. 

1 hour ago, Al F said:

SS income is nothing to sneered at.  We have a friend who recently retired at 66 with 31 years of relatively low income, think of $10 to $11/hour in today's pay.  Her SS is about $1550/month ($18,600/yr). 

2

I think that you may be over-optimistic about SS payments. I retired in 2000 at the age of 57 with a salary of about $22/hour. I began to draw SS at age 62 and get just about what she does reports. Pam was a "stay at home" mom for most of our years but did pay into SS enough to get the benefit but she draws 1/2 of what I get since that is higher than what she could draw based on her own work history. Part of the difference is that I took early but.................

I got into the IRA when it was introduced and then the 401k when that bill was passed a year or two later. My employer was one who really promoted the plan and who offered an incentive to employees to get into it, but even then there were a few employees who didn't take advantage of it. Our sons are now nearing the age that we retired and I know that 2 of the 3 are planning for retirement but not nearly as soon as we did but part of that is the fact that they were nearly 10 years older when starting families than we were and so are unlikely to retire as early as we did. With lifespan increasing and more importantly the number of healthy years increasing for most of the population, it is probably right for them to think of working longer than we did, but I am encouraging them to plan now. 

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14 hours ago, 4x4ord said:

You can come at it from a couple different ways but I'm basically thinking most people today wouldn't consider retiring at 55-60 years old unless they were debt free with at least 2 million saved up in investments. My kids will be in that age bracket 35 years from now. An inflation rate of 2.6 % would mean they should be planning to save 5 million over the next 35 years. I realize that people now can and do retire on less than 2 million but most who do will be considerably older than 55 and or are not planning to live very high on the hog.

I can only say our experience did not require your numbers and we live quite "high on the hog".

Linda Sand

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23 hours ago, Kirk W said:

I didn't remember just how long back it was but did recall that it was me who started it. Not sure if it is really warranted but willing to do it again if others would like. 

Yes, go ahead and do that...

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About a poll of fulltimers budget.   A poll gives numbers but leaves out specifics. Where you stay, how far a distance you travel each year, how often and where you go to eat out, the cost of your RV, etc, etc all make a huge difference in your budget. 

One of the best sources of information is a multi part series of articles (actually blog entries, but written as articles) from Wheelingit.us.

NOTE:  I just wrote "information"!  Not, this is how much "I" spend, or John & Jane Doe spends, or this is what you should do, etc.  The articles give information to assist people in making decisions.  Well, yes there is some details on what Wheelingit.us spends and some about what others spend.  However most of the info is there to help people make good estimates and decisions. 

Here is the link to the first entry.  At the bottom of the entry is a link to the next article.  https://wheelingit.us/2017/02/09/the-costs-of-fulltime-rving-part-i-budgeting-planning-your-spend/

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19 hours ago, sandsys said:

I can only say our experience did not require your numbers and we live quite "high on the hog".

Linda Sand

I think of middle class income is in the range of 40,000 to 120,000 per year. As has been mentioned at a 3% withdraw rate a person wanting to fully retire at 55 is going to need a minimum of 1,300,000 just to have a 40k annual salary. That is certainly going to put them at an income level far lower than "high on the hog" in my mind. Now that person living on 40k per year might be happier than someone else living on 200k but "high on the hog" definitely requires some cash.

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1 hour ago, 4x4ord said:

As has been mentioned at a 3% withdraw rate a person wanting to fully retire at 55 is going to need a minimum of 1,300,000 just to have a 40k annual salary.

NO...this is not true...you don't need $1,300,000 to have a $40,000 return.  

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19 minutes ago, Roadtrek 1 said:

NO...this is not true...you don't need $1,300,000 to have a $40,000 return.  

So, 3% of $1,300,000 is ACTUALLY only $39,000... I would call that close enough to 40k to round off.

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But you can use 4% or 5% or some other rate that you feel better reflects what the market is doing.  Using 5%, which is certainly reasonable for the past few years, would give $65K.  

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