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October 17, 2007


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A generation ago, did "the guy next door" really care about living in a McMansion, driving a Hummer or going out to eat every night? I don't think so.

I really don't have any sympathy for people that choose to sell a business for $4 million then complain because they can't live the same lifestyle. Here's an idea...keep the business and work! What this jackass doesn't realize is that he won't be working 60 hours a week and might actually have time to enjoy life.

Where is that defined benefit plan when you need it? Probably scraped to save money on labor. One wonders why they retire at all. Living on top of the heap isn't good enough?

Wow, if you can't retire on 4M of liquid assets then you have a serious spending problem, not a cash problem. I mean come on, even in a CD/GIC ladder you'd be pulling 5% a year and making $200,000. When the median family income is something like 45-50K and you are making 4 times that amount, any complaining you do is crying like a baby.

Maybe they should live how the median family does for a year and then go back to their 'mid priced' Audi sedan and their 3500Sq Ft 'tiny' 4 bedroom place to cry some more.

Sadly, I see a lot of this. People just don't think it through.

It's one of the reasons why I think people should have a "salary ceiling": an amount they plan to live off of and that everything they earn above it goes into savings. It both gives one a great way to discipline oneself to save but also helps resets our consumerism appetites.

But you would be shocked by how many people raking in high six figures aren't saving anything near what they ought to be for the lifestyle that they want in the future. They want all now and in the future. Not possible.

Hah, I feel so bad for those people..... Yah, probably not...

Gees, they'll have to live in those small 3500sqft homes and pay 12k/year in property taxes. Probably seems like nothing though when compared to there previous taxes...

I agree with all you guys. But at the same time, I actually thank (silently) this type of people when I have them in front of me. Without people like that, that need to work 60 hrs a weeks to "barely make it", my stocks and sales figures would be nowhere near where they are. So I say Thank you!! please keep consuming, while I drink my Margarita.

Where is that defined benefit plan when you need it?
------------------ Rich Dad, Poor Dad.

I also came across this article. It didn't really get me steamed as much as just think these people are stupid "jackasses" as Kevin said.

These retirement calculators are so silly. One of them says I need to save $13K a year to be able to retire at 67 and continue my current meager standard of living. Another calculator says I can expect to die $114K in debt. Looks like the designers need a reality check.

I think it's pointing out that many people think they have enough to live on but sadly they haven't saved close to the amount necessary. How many people underestimate medical costs? Long term nursing care? Living longer than expected. All of that probably never weighed in people's minds until now.

Wow! That's pretty bad if you can't retire on $4M. You could pay cash for a very nice house and still set it up so that you could live on interest alone. I'm not sure what kind of retirement these people are talking about.

Two brief comments:

1. What you said, that "if someone is used to living off $400,000 a year, then $5,000,000 in retirement isn't going to last," is not quite true. At an 8% rate of return, $400K is exactly what you would draw on $5M.

2. The principle of how much money is needed to fund a retiree is not really very complex, except that the variables are uncontrollable -- rate of return, inflation, taxation, longevity, etc. But in a large pension fund, the management cannot prudently aim for as high a rate of return as might be reasonable and practicable for the little-guy-individual-investor-retiree.

P.S. I agree with the sentiment of the previous writer, and in my opinion, nearly everything that appears in Forbes is worthless blather and should be disregarded.

Yea, but remember that the typical Forbes reader makes that kind of bank. The target market for that magazine does not include your $45K/year median earners.

The article says in 30 years you will need $2 million to purchase the equivalent of $1 million today. Given the rate of the loss of buying power of the dollar this may only take 2-3 years.

FMF, how about an article covering this point?

Big cheese

For those with spreadsheet skills, you can easily create a spreadsheet that will tell you how much money you need to start saving now to provide a specific income in the future.
1) Determine how much income NOW you would need to replace in the future.
2) Using an inflation rate, calculate its future value.
3) Using the future value, multiply it by 25 to show what stash you would need to pull from at a 4% rate. Of course, you can choose any multiplier/rate combination you want.
4) Using the stash value, calculate its present value using an expected investment return percentage.
5) Now you know what you need to save per year.

Someone making $400k isn't only making that much. Likely they have a lot of company perks they use but are not having to pay for. Like eating out on company CC. Or traveling to exotic locals for business trips but only paying for a few extra nights hotel. And not cheap hotels or coach, but 4 star hotels and business class.

Careful folks. People like F. Morana are spouting some seriously dangerous information. Anyone here that thinks a retirement withdraw rate of 8% is maintainable is sadly mistaken. The number given my most prudent financial advisers is 4%. $5 million in net worth should break down like this:

15% Housing - $750k
85% Income Generating Assets - $4.25 million

A reasonable sustainable withdraw rate looks like this:

(Annual Return - Inflation) * 0.9 => (8% - 3%) * .9 = 4.5%

*** The .9 factor accounts for future bad years and volatility ***

$4.25 million * 0.045 = $191,250

This calculation assumes a 5% real return which is thought to be very optimistic for a conservative risk profile including bonds and cash needed for stable income generation during retirement. Admittedly this result would be an upgrade for a lot of people in many parts of the country, some of them very nice places to retire, but it will come up short when you think about the West or Northeast , particularly for those who would be subscribers to Forbes.

Another real risk I've read about is extensively that a growing number of respected economists expect future equity returns to have a real return of between 3.5 and 4% over the coming years. This would erode your returns and shave up to a quarter off of the spendable investment income.

Now, the final piece of the puzzle is, how much is this worth in 2030 or 2040 when most of you plan to retire?

2030 => 1.03^23 = 1.974 inflation factor
2040 => 1.03^33 = 2.652 inflation factor

Inflation Adjusted Results - $5 million net worth in 2030
$380k house and $96,884 per year

Inflation Adjusted Results - $5 million net worth in 2040
$283k house and $72,106 per year

I don't know where you folks are from or what type of life you want in retirement but I know that for me $5 million isn't going to cut it. I'm more apt to aim for at least double or even quadruple that figure before I would voluntarily walk away from active income seeking ventures (aka WORK).

I think that was the real point of the article and hopefully this will encourage folks on the site to not let a number like $5 million make you feel all warm and fuzzy because it sure isn't going to be buying you BMW's, vacation homes, or college funds for your grandchildren (all things I would enjoy). As the article says, we will all work much longer to accumulate assets or reduce our expectations and lifestyle drastically to match.

I couldn't help but laugh when reading this. What's going through their head when they say this in an honest way... go live in someone else's shoes for a day and enter the real world!

Are you clowns for real...I own a 32 unit apt bldg with a mortgage on it. However I can simply look at the statement and see before we pay our payment on our $1 mil loan we would make 150K if it was paid off a year...! Is this not enough?

Well two later and this economey is ready to roll over. What does that mean? It means if you have a million or more dollars in liqudity you are going to have tremendous opportunities to double or triple your money in the coming financial chaos.
If your in the wrong investments now your going to be in trouble going thru 2013-2014.

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