One million dollars needed for retirement?!

In My Humble Opinion
41

Myself, I am choosing the expat route and plan to move to Monterrey Mexico where my GF’s (soon to be wife) family lives. While we could continue to live fairly well here in SE Michigan there are quite few advantages to moving south of the border since we already have an established family there, we should be able to live very well there since I would have permanent residence status once we marry. Also, my grand parents are from Monterrey, so that could help me in obtaining full citizenship.

Some adavantages for me would be that Monterrey is probably the most Americanized city in Mexico, as there is a large American comminity in the San Pedro section of town and we could live in a middle class Mexican community just next to it for cheap. Also, we could travel to resorts like the locals do for cheap since we could go in what most American people see as off season since we would know what next weeks weather was looking like and could take local transpertaion. And I like the food and eating out is fairly cheap. Medical there is pretty good if you are local with money, and the US is only a couple of hours away if i must have something major that I prefer to be done in the US. Oh, and I have much family in Texas so I could maintain an address there as well.

Not an option for everyone, but it is a good one for me. And the added advanatage is getting away from american politics and the media circus if I choose.

42

This conversation kinda surprises me. While I do not know the net worth of all of my friends/relatives, I’ve known many folk who retired after not terribly high earning careers such that I expect they have well under $1 mill in savings. Most of them seem to accomplish that as a result of having led lives somewhat frugally and within their means. They either own a modest home which bears no mortgage, or when they feel unable to maintain the home, they move to a modest apartment.

Since they never travelled widely or spent freely while working, they do not expect to support such a lifestyle in retirement. But they are able to continue to participate in their lifelong hobbies - such as golf and music.

Most of them have maintained good relations with family, such that a spouse and/or children are available to assist (tho not entirely support). And very few of my acquaintances have led or expect to lead a lengthy stay in assisted living. Of my circle, the vast majority stayed out of hospitals until close to the end. Sure, there is some degree of luck there, but I think expectations also contribute.

43

You have to account for that pension. I retired with way less than a million in the bank - but according to a calculator I found, I would need $1.7 million to buy an lifetime annuity yielding the same income as my pension.

44

It depends - if the nursing home accepts Medicaid , they can’t kick someone out because they have used up their assets and Medicaid is now paying. They can’t kick someone out whose Medicaid application is pending. If they stop accepting Medicaid , they can only refuse new Medicaid admissions- they can’t evict people who are already receiving Medicaid. But if the home never accepted Medicaid or if the person refuses to apply , they can be kicked out. And that 10% or so that don’t accept Medicaid are likely to be the best and most expensive.

45

Continuing from @doreen’s expert post.

Many middle class older folks seeing an expensive nursing home in their future try to impoverish themselves so they can qualify for Medicaid. They do this by giving their assets to their intended heirs since the alternative is the nursing home will suck all their money dry, leaving nothing to be inherited when the elders finally die.

Of course the government has anticipated this maneuver and made it hard, but not impossible. You absolutely can impoverish yourself by giving your money to your heirs ahead of time. You just need to finish that process several (5? 10?) years before you apply for Medicaid. Most folks in this situation don’t plan that far ahead.

46

Yeah - a fair number of current retirees have union or traditional employer pensions. For some/many - that might not appear an option. But for those who chose long term employment for a school, government, union job, trade, or for an employer offering pension, that may have proven a wise choice.

I remember back in the 90s, so many people making big bucks in the private sector were telling my wife and me I had to get out of my relatively low paying gov’t job. Now that I’m nearing retirement, some of those same people speak as tho it is “unfair” or that I am “lucky” to be looking forward to such a (relatively) comfortable retirement.

47

I have known quite a few people who worked into their mid 70s or even 80s and also someone who expects to work until he dies. The thing is , just because someone does that doesn’t mean to had to be that way. Some of the 70 + year olds I know who are still working had no life outside of work and as one said " What will I be if I’m no longer a salesman ?" They had no hobbies or friends - I know one who was forced into retirement who was annoyed that he couldn’t get his SS and pension checks in the email - he wanted the social interaction of going to the bank to deposit them. Others spent ten of thousands of dollars paying for college and weddings and down payments for their children. The one who expects to work until he dies wouldn’t have to do that if he had saved the over $12K/yr he spent on lottery tickets for the past 30 years. Others plan to work until 70 to get the max SS even though they can afford to retire earlier

There are absolutely people who would have to work into their 70s or even later no matter how they lived their lives - but there are plenty of people who are doing so either because of their current choice or due to past choices.

That’s absolutely true - but those people aren’t the same ones who were mocking me for making half as much as they did in the 90s.

48

Excellent point. OTOH …

I started in my union job in 1989. The one with the big defined benefit pension at the end. And about a third of the way through through my career it was all swept away in my employer’s voluntary and financially unnecessary bankruptcy. Like most pensions, the value you’re supposed to get is heavily based on your final supposed to be highest earning years. The value accumulated in the early years is but a cupful in the eventual bucket.

So I have one of those pensions. It’s a cupful, not a bucketful. Compared to so many people with zero, even a smidgen is a gift. But even at the time they stole a hefty fraction of my future earned value for my work I couldn’t go back and start a different career, or even the same career at a different employer and build the same kind of full pension elsewhere. I no longer had the years left.

So not everyone lacking an effective pension made their bed then and get to lie in it now. A bunch of us in many industries have been unceremoniously turfed out of the bed we thought we had made.

As to me personally, I’m not worried. I’ve got assets to more than make up the difference. Not all of my co-workers, and certainly not everyone in every industry who’s had their DB pension gutted sometime in the last 30 years is so well-equipped.

None of which is to say that folks who still have full DB pensions should be ashamed. But they should recognize, as you do, the value of what you have.

49

It has always bothered me that corporations (at least some airlines) were able to “reorganize” in a manner that allows the top management to continue earning insane bucks, while screwing folks’ pension expectations. I’ve generally thought pension assurances ought to be the FIRST interest accommodated, even if it means the rest of the org disappears.

50

My wife has 20 years in the Rhode Island school system pension plan, which would have been a big piece of our retirement plan. Then RI went and spend the money. The end result is that her pension is now worth about half what it once was. It wasn’t a devistating blow to us since we were still years from retirement but it had major impact on people who were about to retire or all ready retired. It really pulled the rug out from under a bunch of people.

51

Never said you did. All those things are in addition to the mortgage now anyways so without the mortgage you are saving money.

52

I couldn’t agree more with these statements. As I have often mentioned on the Dope, I do volunteer tax returns for people of well, modest, means. (Our max income for which we will enter a return is $64k). About half of our 400 clients this year were 70 and above. Of that group, the vast majority have only SS income, and perhaps a small pension and/or IRA draws. While they are not living high on the hog, they are by no means destitute, and most of them appear to keep active in their church or other social organizations. Now, when they leave their homes and enter a nursing facility, I have no doubt that they will be forced into a more spartan existence, relying on Medicaid, but right now they are leading comfortable, if not glamorous, lives.

53

My employer froze the pension plan, but they switched to a 401K, and i ended up with quite a lot stashed in that.

I used to be a pension actuary. One advantage of defined contribution plans (like 401k plans) over defined benefit plans (pensions) is equity between older and younger employees. As @LSLGuy mentioned, a lot of the value of a traditional pension plan accrues in the last few years you work. This means that employers have to pay a lot more into the plan for older employees than for younger employees.

Back when it was common for people to work for a single employer for most of their career, this wasn’t a huge issue, but it really is when people move around. It makes it that much less attractive for employers to hire older workers, and makes it enormously less attractive for older workers to voluntarily change jobs. (Since you get screwed on your benefits.) Defined contribution plans are harder for the employee to manage, but are fairer between generations and are easily portable between employers.

Yeah, sucks to have the changeover half way through your career. (And that happened to me, too.) But that changeover really wasn’t about screwing the employees. I mean, it can be implemented that way, but in the plans i saw switch as an actuary, and in the case of my employer when it switched, that wasn’t the motivation, and the employer continued to tuck away about as much each year towards employee retirement as it had previously.

(“Voluntary and unnecessary bankruptcy” sounds like an attempt to screw over employees. But that’s not how plans usually convert.)

My advice is to check if you have a 401k, and if you do, make sure that AT A MINIMUM you contribute enough to max out your employer’s contribution. (Employers often throw in some fraction of employee contributions up to a limit.) And especially if you are younger, invest as much as you can manage. Compound interest is real.

54

Your chances (nursing-home-wise) are better if you are able to self-pay (or have family pay) for a bit at first; one place we looked at for the in-laws required proof that the parents had 2 years of expenses on hand (in their own names!) before admitting them. Then they would switch to Medicaid. My MIL is in a place that required the family to self-pay initially (while the Medicaid process was being handled) and now it pays most of her costs; the advantage for her is that she is in a room by herself, rather than having to share one of the same size (and it is not a large room).

As far as the planned suicide: one huge issue there would be that by the time you get to that point, you may not be physically or mentally capable of pulling your own plug.

Re the 1M to retire: it’s not a bad target. And it depends on a) how that 1M performs, and b) how the money is held. If it’s all in an IRA / 401(k), you have minimum required distributions.

Using 1M, starting RMD at age 72, and assuming 5% growth per year (which is achievable, in theory, but will have lots of ups and downs), you’d withdraw less than it grows every year up to about age 87. That year, your RMD would be about 70,000.

Is this enough to retire on? In many parts of the country, absolutely. Especially if you’ve gotten your housing expenses down.

Where we live, it would be tough. With 2 people, we’d be taking home 100K a year in this scenario, plus our Social Security. It’d be a bit tough here, though certainly doable (we’d want to move to a smaller place if we could).

BUT, this all assumes you don’t have any unusual expenses. Any medical emergencies could force you to withdraw more than the expected amount. A downturn in the market could mean that you need to either majorly adjust your spending, or withdraw a larger percentage of your principal (which of course affects every year after that).

And of course that RMD starting at 72 doesn’t account for what you do between your actual retirement, and age 72. If you have 1M at age 65, can you restrict your spending to just what it earns in a year? If not, then your 1M is lower at age 72.

Definitely a complex picture, but 1M is not a bad target if you can make it. You can retire on less if you live in a cheaper area and/or strongly restrict your spending.

55

OMG! Are you me? I’m a retired government employee who’s had that conversation a million times!

When the private sector was going great guns, I was a ‘loser’. Now, I’m a fat cat bilking the taxpayers.

56

Yeesh. People taking that attitude are just showing their sour-grapes attitude. They had the benefits of private sector all those years - higher income then, and they could have saved more of that income so they’d be just as well off. As a government worker, you gave up the higher salary, in trade for better long-term benefits. They’re also jealous of the cost of living adjustments (which private-sector retirement plans, if you can even get them, do NOT have). One fellow we knew, decades ago, realized he’d be taking home MORE after retirement (between military service and his university retirement, and Social Security). He gave up a lot, in the interim, however.

They can just get over their damn selves.

I do sort of wish one of us had gone for government work a few years back, since the health options in retirement are somewhat better, but in our line of work, we’d have to become administrators versus doing actual work :::shudder:::.

57

Honestly, we might all be better off with traditional pension plans. Some people are going to die shortly after retirement and the money in their accounts will be available for the few who live longer than expected. With defined contribution plans, you are trying not to overspend each year and run out of funds.

58

That age was recently bumped up to 73, if you turn 72 on or after January 1, 2023.

59

In addition to the whole age-related expense thing, a lot of pension plans were defined so that you got NOTHING until you’d been there for 10 years. Even employer contributions to a 401(k) required a fairly lengthy vesting period before you could get their funds (your own were always yours). I don’t know what the average time-at-job is, these days, but I suspect it’s way less than 10 years in many industries.

Back in the 1990s, a law was passed changing the vesting requirements, at least for 401(k) and the like; not sure if they changed for defined benefit (traditional pension) plans, as this was when a lot of companies were starting to make the switchover. When that law was passed, companies either had to fully vest you at 5 years, or step vesting starting at 20% a year at 3 years, so you’d be fully vested in 7.

I hadn’t really thought of the older versus younger employee issue with traditional pensions; makes sense, as an older employee with 10 years service is likely earning more than a 20-something working there for 10 years. In addition, the older employee will likely start drawing down as soon as they leave, while the employer has 30ish years to continue funding that younger employee’s pension before s/he can draw on it.

60

You are correct. But for illustrative purposes, 72 works well enough (I got the table from Fidelity; clearly they have not yet updated it!)