Not So Much – A Million Dollars for Retirement

Category: Financial and taxes in retirement

June 18 2013 — If someone had asked us in 1970 if we would feel comfortable about retiring some day with savings of $1 million – we would have said – YES! But even for the 1 in 12 American families who have that much saved outside of their home equity, a million smackeroos is really not so much to live on in retirement anymore.

According the BLS.gov CPI calculator, $1 million in 1970 is the equivalent of $6,003,737 in 2013. That change explains the inflation side of the problem pretty well. But there are other reasons why the million dollar figure isn’t that great:
– The pathetic amount you can earn on that much money (10 year Treasuries are currently returning 2.2% – 2.2% of $1 million is $22,000 a year, while a 1 year CD @.24% pays a whopping $2,400 -a year!)
– It has taken stocks 5 years to return to their pre-crash levels (and for those who sold at the bottom, the money is gone)
– Increasing life expectancies – your money has to last a lot longer than it use to.

In “For Would Be Retirees, A Million-Dollar Illusion”, the New York Times recently reported on a hypothetical 65 year old couple with $1 million in retirement savings, all invested in tax-free municipal bonds. According to the analysis in the article, in the current low interest rate world if they take out 4% each year they have a 72% chance of running out of money before they die. That risk declines to about 35% if they take out 3% annually. It’s worth noting, however, that if interest rates return to more normal levels the chances of outliving your savings with a bond-based portfolio get much smaller.


Conventional wisdom on its head
The traditional advice has been that the older you get, the more you should have invested in bonds and the less in stocks. However, according to the referenced study by AllianceBernstein, in this low-interest world adding more stocks to your portfolio greatly lessens the chance you will run out of money. There is still plenty of risk when you invest in stocks, though, particularly if you need to take out money in those periods when the market is down.

All of this highlights the dependence even millionaires now have on Social Security, which is inflation protected.

Comments? What are your thoughts about the value of your retirement savings and how long it will last? Do you think these low interest days will yield soon to a more typical scenario? Please share your ideas in the Comments section below.

Posted by Admin on June 18th, 2013

37 Comments »

  1. Interesting article….but typical. The wide-ranging generalizations of articles like this make them almost worthless, aside from starting conversations. Every retirement is unique. How you live, where you live, how you spend, how you save and many, many more issues will be the determining factors on a successful retirement as far as financials are concerned.
    Each one of us must take a hard and realistic deep dive into the question…”Do I (we) have the savings and SS and any other source of revenue to support the lifestyle we want in our retirement years”. Plus, what is our best guess of how many years we have to support ourselves. I could live high-on-the-hog for 5 years…..but what then?
    Don’t let hugely airplane view articles make you worried or calm…..examine your own portfolio and try to determine if it fits your retirement wants and desires. If it does, great! If not….lower your expectations. Just be sure your plans fit what is in your wallet.

    by Dave C. — June 19, 2013

  2. “The wide-ranging generalizations of articles like this make them almost worthless, aside from starting conversations.”

    Dave, I don’t disagree with your assessment of the article, but discussion is good!

    The idea that you should start off retirement with all your funds in TBills is silly. The market goes up, the market goes down, and what you need is the ability to recover from the downs without cashing everything in. We keep 5 years expenses very liquid, and the rest in a balanced portfolio of stocks, corporate bonds, domestic and international, that produces results while tempering risk. It is unwise to treat your whole portfolio with one and only one risk tolerance, giving your money you will need much later a better chance to grow. If one can’t deal with any risk, they should continue working.

    “Each one of us must take a hard and realistic deep dive into the question…”Do I (we) have the savings and SS and any other source of revenue to support the lifestyle we want in our retirement years”.”

    You don’t always get what you want. Nothing wrong with shooting for what you need instead.

    What I am more concerned about is how will things change, things out of our control. Already in our projections we have discounted our SS by half, since we feel it will be means tested and taken away from us. To some extent it already is in the way it is taxed. And there is a bill restricting how much you can accumulate in your tax deferred accounts. So good investors will be punished. Our gov’t simply doesn’t encourage saving, being self-sufficient. Why would we vote for them if we didn’t need them?

    People think we are crazy for leaving the work force early in our prime earning years, taking a huge hit in income to retire early. I think they are crazy not to spend what they have saved while healthy enough to enjoy it, even if it means a simply retirement to keep the retirement fund solvent. Savers and planners are in the minority and tend to be taxed to death or kept from programs they have paid for because they are not one of the grasshopper voting majority. We’ve already given our kids a loan free college education…their inheritance so to speak. We plan on spending the rest.

    by Julie — June 20, 2013

  3. One’s savings and/or portfolio value /worth is mostlydetermined by the geographic area in which one resides…Here at home, my net worth (savings +)makes me almost upper wealthy. But, if I moved to the Northeast rust belt, or to many Florida are communities, I may not be able to afford the “good life” of retirement, as such, for the next 25-30 years!!!!!

    by Louisville Dr. Bill — June 20, 2013

  4. Too much for me……..my income is pretty fixed – I receive a pension (more than social security) and health insurance from my state job when I worked as a woefully underpaid behavioral science director.. I also receive social security.
    I do have cash invested but have not relied on that. Hopefully that will be passed on to my kids as long as I can afford to live off my retirement money.
    Currently I am still in my home and probably will not sell as all three of my children and my two grandchildren are within an hour. I still have an elderly (96) mother who is 80 miles from me and as long as she is living there will be no thoughts of moving further.
    Would like to have a small place at the ocean one day.

    by Carol — June 21, 2013

  5. I could not agree with Julie more….we learn by sharing. I am fortunate, I will be 62 in 9-months and I will take my SS then. No question for me. If I don’t spend it, I’ll invest it and likely make as much as if i waited. (The men in my family seldom last to 80 anyway).
    The headline of this article talked about retiring with a million bucks. If that person retires at 65 or later…good chance of making it to 90. If that person does early retirement at 50 with one kid still in the house….the million likely will not last 40 years. Tons of variables. Buy the boat…don’t buy it. Vacation in the south of France or rent a cabin in the Grand Canyon National Park.
    Don’t “spend like ya got it”……”spend what ya got”. 🙄

    by Dave C. — June 21, 2013

  6. Not sure about the value of the original article. My guess would be that most persons participating in this format do not have retirement funds in the millions. If they did they would most likely have an advisor doing what advisors do, ie: checking out the best possible scenario for their clients retirement years. Clearly the more you have to invest the more you can make. For the average couple or single retirement person a million is something you wish you would win with the next lottery ticket you buy. It’s probably not what’s sitting in your back account.

    by Anne — June 21, 2013

  7. The struggle of the million dollar retiree highlights just how bleak the retirement picture looks for so many retirees. With the average retiree having almost no meaningful savings their only resort is to spend what little they have, then exist on social security. Or, keep working and saving as long as you can.

    by Mark — June 25, 2013

  8. For those who are not yet retired the quickest way to increase your retirement income is to increase your Social Security. If you retire at 62 with a lower monthly SSI payment and only have $1M in savings then $1M won’t get you very far. Your monthly SSI is lower so you’ll use more of your savings to meet daily expenses PLUS the money will have to last longer. If you keep working until your full retirement age or age 70, you get more SSI, and don’t start drawing your retirement savings for up to eight additional years. The difference is huge. I know some must retire early due to health and employment issues, but if you can continue working to your full retirement age or longer…..you should. Just my 2 cents

    by Don — June 26, 2013

  9. While I agree with you Don that waiting until full retirement age or longer gets you more money in your montyly SS check it may not be the best bet. If you start receiving your SS at 62 instead of your normal retirment age of 66, it will take you 11 to 12 years to break even.
    62 (early) vs. 66 (NRA): Break-even age is between 77 and 78.
    62 (early) vs. 70 (late): Break-even age is between 80 and 81.
    66 (NRA) vs. 70 (late): Break-even age is between 83 and 84.

    I will take my money starting at 62 and spend or invest as I see fit and do it while I am still young enough to enjoy the money. A lot of things can go wrong if you wait another decade to start collecting what is rightfully yours.

    Editor’s Note: Larry, thanks for sharing your thoughts. I am not sure where you got this break-even information, but it does conflict with the facts we know about break-even points. As you can see in our “What You Don’t Know About Social Security Can Hurt You Series”, the expert opinion is that the system was designed to have age 78 as the breakeven point – no matter when you take social security! In other words, whether you claim at 62, 66, 70, or anywhere in between – if you live to age 78 you will have received the same amount of benefit. After that age, the later you claim, the more you are ahead. If you die before age 78, early claiming was better. If you can point to a reliable source that shows your numbers are correct we will take another look, but in the meantime we don’t want our members to be relying on incorrect info.
    See http://www.topretirements.com/blog/financial/what-you-think-you-know-about-social-security-could-hurt-you-part-1.html/

    One other important thing to consider. Many men take social security early and end up hurting their wives financially down the road. The logic here is that men typically die first, at which point the widow now gets the full benefit the man was receiving (not 50% as spouse). If a man dies at 80 and his 78 year old wife lives to 90, the financial cost of an early claim amounts to serious dollars.

    by Larry — June 27, 2013

  10. Larry just provided a huge bit of very clear and valuable formation in his post above. How could his point be more clear?
    All the noise now is to wait for SS until your 66th birthday or longer. Whoa….maybe, but also maybe not. I say this to often, but, it is not a “group” decision. It is easy for me, I will take SS at 62 years of age…..and never look back. Why? The men in my family seldom make it past 80. Also, my SS check will allow me to withdraw less from my own pile of treasure, thereby making that last longer. (The government is less likely to mess with my bank account than with SS).
    I am healthy now and I will remain so…..until I am not. I will spend my hard-earned SS now, thank you very much. I have always lived by the saying…….”A bird in the hand is worth two in the bush”

    by Dave C. — June 27, 2013

  11. Larry and Dave, you’re both right if those are the only numbers you consider. The biggest risk all of us face in retirement is living too long and the only ways to minimize that risk is working longer/saving more/increasing your SSI or smoking a pack a day. My biggest fear is dying and leaving my widow with no retirement savings and only her reduced SSI to live on. I’ll keep working and saving and maybe I’ll miss out on some of my hard earned SSI, but if I live to see 90, I still want my wife and I to be living comfortably with a few bucks in the bank. I hope you both live long and happy lives with plenty of money.

    by Don — June 27, 2013

  12. See Editor’s comment above correcting break even information. We want to make sure our readers have the correct facts when making an important decision like when to take Social Security benefits.

    by Admin — June 27, 2013

  13. Don:” The biggest risk all of us face in retirement is living too long and the only ways to minimize that risk is working longer/saving more/increasing your SSI or smoking a pack a day. My biggest fear is dying and leaving my widow with no retirement savings and only her reduced SSI to live on.”

    Don, I understand these fears, but given how many of our friends and coworkers we’ve seen die behind their desks, I fear DH won’t survive working even to 62, and we are planning on getting out of the rat race in our mid 50’s. This was a life long strategy for us, maxing out retirement funds since we could put in and being serious savers not spenders, not something that was a recent revelation, so I am not sure how my anecdote will be beneficial to any, but after seeing my parents retire in their 50’s and enjoy the heck out of the next 20 years, I am a believer in early retirement. Enough in fact to fund our kids’ Roths to the max allowed since they started working at 14. I would like to see a third generation enjoy early retirement, and pass that on to their kids.

    I may be wrong, but doesn’t your widow get the option of taking your full SS payment or hers after you pass, whichever is greater? And she should be able to take her SS payment or half yours, whichever is greater, so in the very least you should be able to get 1 1/2 times the highest SS when both still alive, or the full highest SS payment when a widow/widower.

    Until relatively recently, one could take SS at 62, then pay everything back and reset to the higher payments when you got older. Of course, that meant you had to save what you received, not spend it, but it sure made when to take SS less of a risk.

    by Julie — June 28, 2013

  14. EDITOR…I got my information from Schwab. Hope the link works in the Website column provided. I haven’t really looked into the break even point that much, as I do plan on starting my SS at 62. See http://www.schwab.com/public/schwab/resource_center/expert_insight/retirement_strategies/planning/when_should_you_take_social_security.html

    Editor’s Comment: Thanks for getting back to us with the Schwab link. It is definitely worth looking at, although the chart and text seem to conflict. We found another, definitely more technical article that does point to the breakeven point coming at age 78, no matter when you claim it. There are a few more factors to consider, however, such as tax rate and what kind of return you can get on your early claim. The higher the return you can get, the more it makes sense for an early claim, assuming you are going to invest it, which most people don’t. http://www.fpanet.org/journal/CurrentIssue/TableofContents/WhentoStartCollectingSocialSecurityBenefits/

    by Larry — June 28, 2013

  15. Could someone explain Windfall Profit tax? I don’t want to know what it does, I am going to get screwed out of a chunk of my SS and I would like to try and understand the thinking behind that. I have been a teacher for over twenty years, but I also had another career. I paid quite a lot into SS in those years. Then I went into teaching and taught in CA and now in Texas…both school districts did not take SS out of my pay. I wouldn’t expect to get SS for years I did not contribute, but why am I not able to receive my full SS benefits for my other years? I have a meeting wit SS people this month, but from what I have learned from speaking on the phone with them, they are not so bright. Will the government really take 50percent of my SS? That is beyond ridiculous! Why? Does anyone know?

    by DianaF — June 28, 2013

  16. DianaF – that law, as well as one called the Government Offset will effect your SS drastically! I am also a teacher in one of only 14 states that these two laws apply. Your best resource is your teacher retirement office in the two states in which you taught. Second best is the SS website which also explains both laws. I fully understand that they should not provide benefits for the years that we taught and paid into our state retirement funds, rather than SS. BUT, all of the teachers that I know supplemented their incomes, out of necessity, with private sector jobs – most have more than enough quarters to receive full SS benefits. However, in its infinite wisdom, SS will not consider any privates sector contributions if you worked in one of those 14 states. Had I known this when I started teaching 33 years ago, I would have spent my career in the state next door, where retired teachers collect both SS and a small state pension. The really bad news, is that should your husband collect SS and pass on before you, you will receive NONE of his SS survivor benefits either. Be prepared to live on your state pension and any savings and that is it! I have seen many widowed female retired teachers reduced to poverty once their husband dies – food pantries, Goodwill for other items…how does substitute teaching in your 80’s sound? But thank you for devoting many years to the children of California and Texas!

    by Sandy — June 28, 2013

  17. Three observations: (1) I have no problem finding munis at 4% (or better), through either FMS Bonds or Morgan Stanley. And that rate results in the $40K mentioned in the NYT article. (2) Live in a no-income tax state and you can buy munis tax-free from anywhere in the US. (3) I keep on reading about the horrors of inflation – but I have yet to see an inflation rate based on a retiree’s life situation: no kids to clothe, feed,and school; smaller house and older car fine; medicare now (and Obamacare coming); Senior discounts; etc.

    by OldNassau — June 28, 2013

  18. Sandy, why on earth would they do this to us? My teacher pensions are small. I don’t have the years that you have put in because it was my second career. If I would have known, I too would have taught in a state that took SS out of my salary as well as retirement. Did not know that back then. Teachers used to be respected, now they are not-and this just another way of showing disrespect. It makes me sad on o many levels. Thank you too, Sandy for your years in the profession.

    by DIanaF — June 29, 2013

  19. Re: large dogs question. There are two Del Webb communities that are about 5 miles apart. One allows one dog, not sure of size, the other up to three pets. Do not know size, but saw some larger dogs there. So if two different Del Webb communities in same city have different rules, I think, you would just have to check.

    Have seen labs and goldens walking around Lennar, but do not know size limit.

    by Elaine — June 30, 2013

  20. Oops, the above post was supposed to be on HOA blog

    by Elaine — July 1, 2013

  21. Folks regarding at what age to take ss, I’m taking it at 62. I don’t need it so I will invest it. The break even point of age 62 vs 66 is not worth waiting for. I realize that everyone has a different view. This makes the most sense to me. This may not be the best plan for everyone.

    by Skip — August 6, 2013

  22. Diana,I taught for many years. 23 years paying social security and 12 years in Texas where I did not…I was able to buy in 5 more years because I taught in a department of defense school. So, I get $900 month from Texas now….started at age 63. I am 65. At 66, I will take SS. From reading the windfall info: If you get a relatively low pension, you
    are protected somewhat. The reduction in your Social Security benefit cannot be more than one-half of the amount of your pension …in my case $450 per month.
    Since I have 23 years of substantial service where I paid into SS , mine cannot be reduced more than $277 month. That is a lot, but I realized I am so much better off than most in this situation. Google Windfall Elimination Provision…which will take you to,the official site. There are charts provided that have already worked out the complicated formula. Not fair! I agree!

    by Limda — August 7, 2013

  23. Sandy it is not quarters they look at regarding windfall. You have to pay into social security a full 30 years to not fall victim to the windfall provision,in this case. I was 7 years short of that, thus my reduction. It is prorated.

    by Linda — August 7, 2013

  24. […] to Inheriting a 401k 5 Reasons to Convert to a Roth IRA How to Buy an Annuity from Social Security Not So Much: $1 Million for Retirement Scammers Targeting […]

    by » You and Your IRA and 401k: An Owners Manual for the Newly Retired Topretirements — October 26, 2013

  25. I have a question. Is there a state – I heard it’s Pennsylvania, where one’s 401-K is not taxed. So can I take my entire 401-k and move there after retirement and not have to pay tax on the amount. Instead I could buy a house with that money, and live off my pension and social security. Tell me if this is true.

    by Rita — October 30, 2013

  26. Rita,

    It is true that PA currently does not tax retirement income at all, be it 401K, SS, public or private pensions, IRAs. Even the inherited IRA RMDs I currently take are not taxed. Property taxes can be considerable, however, if you do not rent or work to minimize it when buying. It is also not the only state that does not tax 401Ks. http://i.mktw.net/_newsimages/pdf/retirement_taxes_02142013.pdf

    by Julie — October 31, 2013

  27. Julie and Rita: Thanks for that chart, Rita. Very helpful. Julie: When looking at real estate in PA, it’s important to do tax research. Real estate taxes can vary significantly from county to county (Pittsburgh is Allegheny County, for example, and its taxes are almost twice as much as neighboring counties. Being just over the county line and in a suburb that is 30 minutes from downtown can cut your taxes significantly.) You also have to ask realtors if the tax number that is listed for a property includes school, county and township taxes. School taxes are generally the highest. I pay about 1,300 per 100,000 of housing value for a home that is in a suburb within Allegheny County. Other taxes to consider are the 7% sales tax, although clothing, medicine and most foods are exempt from sales tax. Gas is currently in the $3.46 range. We have a lot of gas heat (not oil or electric), and my utility bills are fairly reasonable. My budget gas bill for heat, gas dryer, exterior gas light post, pool heater, and a gas fireplace (with pilot light) is about $220/mo, and my electric budget bill is about half that. I have 2,500+ square feet in a nearly 40 year old house. My housing insurance is about $250 per $100,000 of value. HOA fees in condos appear to be in that $160-$200 range. I pay $50 for a landscaper to cut my grass, and $45 per snowstorm for plowing whenever there is 3+ inches of snow. Plowing has cost me around $250-$350 each year for last four years. However, keep in mind that PA is a big state and can take more than 6 hours to drive across! Every region is going to have a different feel, and a different bottom line cost of living. Even in Western PA, there can be significantly different costs of living and quality of live. Every area has its own pluses and minuses.

    I would love for other people to share costs of living in other parts of the country!

    by Sharon — October 31, 2013

  28. Rita, Pennsylvania may not tax your withdrawals from your 401(k), but the feds sure will, regardless of what state you live in. They can’t wait to get their hands on those taxes, hence the minimum required distribution beginning when you turn 70 1/2.

    by Linda — October 31, 2013

  29. Sharon, real estate taxes in PA vary not only county to county, but township to township within a county and even house to house within a township. PA has a very weird way of applying tax rate, in which the age of the home matters greatly. If you buy a new home in PA prepare to be taxed in a serious way, that might not happen even with a 5 year old home. If I compare my taxes to a similar property in two neighboring townships within the same county that have similar quality school districts, my taxes are half what the others pay. At $8,000/year that is still not cheap, but it beats $16,000/year by far. The houses in our township cost about 20% more because of the much lower taxes, but we get that back on resale.

    If you buy in PA do your own due diligence, part of which is talking to your Realtor. I have been amazed at how few Realtors understand how to game the expensive tax system. If you are considering PA do not be scared off by my taxes. I am in an expensive county with an excellent school district, and for us the taxes have been a bargain when compared to a private school education for our kids. There are many options when it comes to taxes in PA.

    by Julie — November 1, 2013

  30. I have hundreds of hours and used mega spreadsheet running the scenarios and was surprised to see that I should draw off my 403B just long enough to get to the 70 years mark to collect social security. After that I would not have to touch my 403B other than RMD for about 12 more years. I ran it out until I was 104 and still had dollars. Everyone’s budget is different but your money should be in different pools to minimize taxes and still have a comfortable amount to retire on. This mix would include a ROTH as well as other types of incomes. Social security should only be one leg of the stool. It’s not what you earn, its what you spend. My guess is that most people don’t have a solid budget to work off of today or looking into the future. Look at the T Rowe Price website for social security calculator and for those that are married check out the file and suspend with spousal benefits. This income can help bridge the gap in getting to 70 years of age. Best of luck to all. Working is easy, retiring is difficult.

    by Jon — November 1, 2013

  31. I understand Julie – per my posting, I’m a PA resident (30 years+). I’ve owned rural (a horse farm), suburban and city properties during this time. We’ve had several reassessments, so your rule of thumb about older houses being a bargain tax-wise is not necessarily going to be true. It really will depend on the part of PA that someone chooses. For the last year I’ve been doing research to prepare for selling my home and moving to a retirement home. I’ve been tracking the sales prices in my community against assessed values of the homes that were sold, their prior assessment value, Zillow value, and asking price. Yeah, I know…I have way too much time on my hands LOL. At least in our community, sales prices are running about 10-15% above assessed values. I’m not seeing any major disconnects, which is probably due to the recent reassessments.

    by Sharon — November 1, 2013

  32. To add, the townships within a county can have variances in tax rates as you noted. Realtors can provide this information. (In Southwestern PA, the Pittsburgh Post Gazette typically issues at least one Community issue a year in which all of the tax rates are listed.) We don’t see huge variances between townships, although they can be magnified depending on the value of the home. The rates can vary more across county lines, just as amenities and school systems can vary. There are going to be good and bad communities in any state. Local taxes are always going to be different depending on the community that someone chooses. I’ve lived in other states, and I really don’t believe PA local taxes are unusual.

    by Sharon — November 1, 2013

  33. Interesting WSJ article “Rethink Your Retirement Income”
    http://online.wsj.com/news/articles/SB10001424052702304173704579264463292233346

    by Elaine — December 30, 2013

  34. Elaine: That’s a really well-written article. Thanks for providing the link.

    by Ted — December 31, 2013

  35. Wishing everyone a Happy and Healthy New Year!

    by Gerard — January 1, 2014

  36. […] Could Wreck Your Retirement” The Biggest Unexpected Retirement Expense You Never Thought of Not So Much, A Million Dollars for Retirement EBRI- Confidence Returns for Those with Retirement […]

    by » The Kids Are Through College, You Retire Next Month, and You’re Dead Broke. What’s Next? Topretirements — July 1, 2014

  37. […] on the ones explained here: You and Your IRA and 401(k) – An Owner’s Manual Not So Much – A Million Dollars for Retirement? Goodbye 4% Retirement Spending Rule Eclipsed by New Theories What Is Your […]

    by » How Much to Take from Your Retirement Funds? Some See RMD as Guideline - Topretirements — October 12, 2014

RSS feed for comments on this post. TrackBack URL

Leave a comment

Salary Data custom salary reports specific to your state and industry.