I was spending time with my parents on retirement planning. They're in their mid-50s now and fortunately it looks like they'll live quite comfortably during their golden years given the way we're running the numbers.
How much income would you say you need to live comfortably during retirement assuming you are debt free? There's groceries, utilities, etc but also less-obvious things that make life a lot more comfortable (regular PT, massages, personal trainer, cleaning service, business-class tickets when traveling internationally - old joints and all that). Post-tax, would $75k be sufficient for two people? Or $100k / $150k?
Somewhat linked, looks like the top 1% of Americans enjoy a net worth of 10-11ml, is this generally the standard of 'wealthy'? Or would you say something closer to 5-6ml is enough?
$3 mil + not including home value affords a pretty decent retirement in usa assuming 3% withdrawal rate that's 90k/yr which is fairly reasonable with a paid off home. Anything north of that is a job well done in my book. That being said, there's plenty of people that have done it with much less. Depends how much they plan to spend. For myself i think 8 figures seems to be a good walk away number although why even retire at this point. Purpose + easy money
"Purpose + easy money"
This is exactly why a lot of (very rich) people don't retire. By the time you make it to the top, you've spent so many years working to get there doing jobs that were objectively more labor-intensive for WAY less money that you sort of just want to cash in. Beyond that, if you've maniacally focused on your career for the entirety of your adult life, it's difficult for many executives to find meaning or purpose in other things. So why retire? If you don't like fishing or golfing, what's your plan? It's not like you can go do a ski season at 75. You'd kill yourself on a fall. You can't go party like you did in your 20s while in your 60s. The hangovers would kill you, and you simply can't rip a bunch of lines without blowing out your heart as a retiree. No one wants to see your old, saggy body on a beach and unless you've been surfing your whole life, you're not picking it up in retirement. This is why old rich people sail and travel. There is little else to do past a certain point, so in my book, easy money plus purpose trumps unlimited free time since I don't know what I'd do with myself anyway.
$15M - $20M I think but I'm not sure I would want to retire. Instead I would like to take it a bit easier and trim hours down to ~50 - 60 a week and avoid the super high stress deals.
Maybe somewhat controversial.. but I think if you're good at making money, you have a social obligation to do so and then donate it to help your community so maybe I'd just donate my equity positions/big chunk of cash flow etc and stay in the same line of work. Or maybe launch a company focused on solving bigger problems.
Not really about nest egg, but rather cash flow. Yes cash flow will come from nest egg but it also comes from other items (income producing RE, annuities, SS, pensions, etc.) Know plenty of teachers who will be just fine with very little savings (less than 500k) due to SS and pension which together comprise about 75% of their income and are guaranteed forever, some including healthcare until medicare kicks in.
Working with a couple now who only have 1M in retirement savings and they will live very comfortably. Pre retirement income of 140k. Post retirement will be between 100k -150k, debt free. They literally could take no risk (other than inflation) and keep their money under their mattress, pull out 50k per yr for 20 yrs and be at 110k thanks to SS and a small pension. No debt is key. If they shoot for 3% returns in a stable FI portfolio, they'll be able to pull out what they want until 100. Only real risk is senior healthcare (which is a real risk but mitigated via insurance products).
Hard for young people to understand but when you have no debt, life is pretty simple. Of course if you want a rock star lifestyle, that's a different conversation, but the couple I describe above will take several nice trips per yr (2 European and 5 cruises). They don't need anything else.
This is a lot like my parents. They have income streams post retirement that will total out to $180-190k a year. They paid off the house a few years ago, live extremely below their means, and have absolutely no debt. Other than property taxes, utility bills, food, insurance, and gas for the cars there’s really nothing else to spend money on for them. I’m hoping they’ll travel and enjoy life. But neither worked in “high finance” or anything similar.
Exactly! I have another client who receives about 225k GUARANTEED between annuities, SS , and a teachers pension. They were making about 250k when they worked. They don't know what to do with the money. Can't spend it all and are gifting a bunch to their kids / grandkids and church each yr. It's not sexy like making IB money and retiring early but it's still rocks. They wouldn't have retired early anyway. Actually didn't retire until their mid 70s because they didn't know what to do with the time. Some people want to stay busy. They volunteer a lot now and spend time with the family spread out across the country.
Thanks for your response rickle +1SB. I've seen quite a few of your posts on this stuff and it's been very enlightening. Some quick follow ups:
1) Parents are planning to have about 50% of their net worth invested in equities that will rapidly compound. 20% will be income producing residential RE and remaining 30% will be in investment-grade bonds (on top getting SS). So 50% portfolio will be responsible for growing wealth & combat effects of inflation (equities) while 50% will be income-producing and much less prone to volatility to provide reliable income. Is this a good way of thinking about it? Also, for the I-grade bonds we are thinking a PIMCO fund and expecting 3-4% per annum delivered safely, is this fair (any other funds you recommend)?
2) In general, how do you think about the risk-adjusted returns of residential RE vs. bonds as a more "fixed" revenue stream? Naturally the former requires one to be hands on (unless getting a property manager which cuts into yield so much that perhaps the bonds would be better alternative) while latter is just clipping a coupon. But in the overall portfolio context of wanting 50% equities, I would be really uncomfortable if the remaining 50% was invested in anything with more than low volatillity (both for my parents & my future retirement). As such, which is the superior investment risk-adjusted? I.e. can one get 6+% yield safely in RE (buying homes vs. a REIT) for similar risk for 3-4% from investment grade bonds?
3) How do you think of inflation when planing for retirement? Makes case for staying in equities vs. bonds / RE in one sense. Assuming 2.5% LT rate of inflation, in 29yrs 1ml is only going to be worth 500k in real terms. So more personally, if I'm between 30-35yrs out from retirement, how much should young folks today try to save for retirement to live in a very comfortable manner (don't think twice about making most reasonable purchases, 2-3 long vacations a yr, PT, massages, cleaning service, etc.)?
Your question really speaks to risk tolerance which is quite personal. Also (and obviously), I can't recommend funds or anything on this site as I would need to know much more. That said, PIMCO is a great fund family and arguably the best FI AM out there in terms of active management. I like their funds and use them a lot to derive long term, stable and predictable income for my clients who desire that. RE is an interesting asset class (the real thing not a fund that owns RE). It's great if you have good tenants who pay on time and there is low maintenance. Know several people who own multiple properties and will be using the cash flow as income in retirement, and ultimately sell a property every few yrs if wanted / needed. Nothing wrong with that approach.
Inflation is a non issue today and will be benign for a few yrs minimum. The nice thing about funds is you can easily adjust if / when inflation creeps in. Ultimately, we'll get back to a 2%-3% (I don't think for at least 3 years). IG is a good place, safer than HY and better returns than government bonds.
50/50 will likely need to be adjusted as they age but might be good for now, again based on their risk tolerance.
Also, I should add that for me personally, it will take about 3M with no debt to be comfortable. With SS that gets you around 175k/yr (depending on spend down strategy). Still have life insurance on both of us to fill the bucket again when one passes. Actually consider that a major asset within our plan.
Debt free is KING!
Haven't really thought about a number, but having this talk with your parents is great. I feel like enough people don't discuss plans like these and push them under the rug, until it becomes a problem later.
Completely agree. One thing that's really shocked me since working in AM is how little people know about investing / growing one's wealth (myself included before). Whether that's what type of funds to look at, equity vs. fixed income mix, other asset classes (i.e. RE) and how it all comes together within a broader portfolio context to provide a risk-adjusted return during retirement.
Reason this is crazy is because I compare how much my parents have today vs. what they could have had if they had put their money in other vehicles (the right equity mutual funds, asset class allocation in general, low value of cash, etc.). I can honestly say they'd have 2x what they have now if they had made better moves. Fortunately what they have now + what they'll earn until retirement will be more than enough but surprising to see how much money they left on the table. I suspect my parent's experience is very widespread, and am just glad I got to them with some suggestions & planning today.
Even so, I'm by no means well-informed in asset classes other than equity or retirement planning so we just tried to stay conservative with out assumptions of what they'll have vs. what they'll need. Was speaking with an engineer friend about 401k and he made it clear he has 0 interest in it, even when I'd highlighted that just 2pts more per annum returns on your portfolio would be such a massive difference in 30yrs when he'd retire. Most people just either find this too boring or don't think it matters. Wish there was greater financial literacy initiatives around this as it's such a big difference maker when you're old and don't need to bitch about the electricity bill going up by $10
See if his company matches contributions, if you explain he's literally throwing away free money he might change his mind a bit.
My dad had retired recently and saved up a good amount of money, but almost all of his 401k was in government securities (throughout his career) instead of total/S&P 500 funds. That part was pretty wild. Lately I've been helping my friends that don't work in finance with their 401ks/IRAs/basic portfolios with stuff like that because it's just not talked about enough, I feel like it's only really people that are interested in it or work in the space.
You can be fine with $1mm and a house if you are cool living in a less populated/expensive area.
If you want to live in NYC you probably need $3mm+ and a house.
There are variations in between those obviously, and you need less the older you are at retirement.
1ml, how do you figure? Let's say 2 retirees are withdrawing 50k per year at bare minimum (80k+ to live more luxuriously), 1ml just doesn't seem to cut it
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