How much do you really need at age 65 to have an upper-middle class retirement for 2 people in today's dollars?
How much do you need at age 65 to enjoy an upper-middle class retirement in today's dollars? Let's just level set expectations here:
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Forget inflation for now, we can always add that in later but it muddles up the math
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Let's also forget passing anything on to kids for now as that'll vary by person
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Upper middle class defined as -- 2x a year international vacations, live in a nice house (~3k sqft in a nice suburb), can eat at a nice restaurant 1-2x per week, etc
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Retiring in a solid area. So not a random po-dung town in Alabama but doesn't need to be Orange County CA either. Something on the upper end of mid
How much money is needed for 2?
I know most people here are going to give much higher numbers but I’d argue that most people are just not very good at optimizing their expenses. I think that being in top 15-20% of earners (looking at people in their late 40s) seems like a good barometer for “upper middle class. According to online data that figure is like $120k/year (https://dqydj.com/salary-percentile-by-age-calculator/) so call it you need roughly $3 million in post tax net worth at a ~4% rate to just relax and enjoy life
My sister lives in Orange County. I think some places there are quite reasonable in price, especially compared to LA or SF.
By the way, it’s podunk
My guess is ~$5M
All about burn rate which needs to include debt. If you are debt free, life becomes simple. I'm approaching this stage of life and think about this all the time. I'm thinking 150k cash flow should be plenty to live a very comfortable life. That said, there are always surprises (medical, home repairs, family member needs help, etc.) More comfortable having padding so 200k. Subtract social security and more like 160-170.
As an FA, I've worked many yrs on creating appropriate solutions for what I call The Lifestages of Money: Accumulation, Distribution/Preservation, Legacy. The tools available for each leg are vastly different. This is a key factor in achieving a successful retirement (and being a value add FA - Trusted Advisor) Most clients just take a "set and forget" and tIhey ultimately are so misaligned with their actual goals and concerns. You'd be surprised how many near retirees (and retirees) are almost entirely equity based, and within that, mostly growth. I frequently have to educate them and make them realize the tools that got them there won't necessarily keep them there. Time horizons worked for them, and now work against them. Dollar Cost Averaging (contributions) worked for them and now reeks havoc (dollar cost distributing) when they're not properly aligned for income. Takes a whole different approach to investing for Distribution / Preservation.
Bottom line - if you get rid of debt and transition to predictable income producing vehicles, 2M - 3M is generally enough to get most to a comfortable, long retirement. The asterisk is always about spending habits. I try to help them (middle to upper middle class) plan for earning 75%-100% of their working income while minimizing risk.
Great post. Couple clarifications:
1. Do you mean 200k post-tax or pre-tax cash flows?
2. This 2-3ml you're talking about would be for 2 people? I guess you'd assume using up all or most of the principal by death?
3. When you think of income producing vehicles, is this just debt generally? What about real estate?
1. Taxes - Most likely a blend between tax free, long term gains, and ordinary income (dividends). Different instruments produce different tax results.
2. Could provide legacy as well. Personally I handled that a long time ago with permanent life insurance, so regardless of what we leave from assets, they'll be $X of guaranteed / tax free money. I also use life insurance as a major part of our joint retirement plan. Think in terms of spend and replace. I most likely will pass many yrs before my wife (my health issues and her longevity). We have enough to live comfortably for a long time (well past my likely life expectancy). Not planning on using it all by then, but regardless, the kitty gets replenished with more cash when I pass. That amount certainly won't get spent during her remaining yrs so the kids will get both that and a nice pop from a survivorship policy (2nd to die).
3. Real Estate can certainly be involved. I like laddering income streams with bonds. I like guaranteed income from annuities. I like CEFs that produce solid consistent distributions, I like good old fashioned dividend paying stocks.
The key is blending this all based on their comfort zone, considering income, taxes, etc. I like to guarantee (as close as one can) a bunch and leave the rest in VERY predictable income producers.
Hard to answer without getting much more granular. Upper middle class might mean an income of the 75-99 percentile.
How nice of an international vacation? Are we talking flying coach to London and staying for a week in a 3 star or going to the Maldives in an over the water bungalow for 2 weeks and flying first? It’s easy to spend $20k on international first class tix for 2.
How nice of a restaurant are we talking about? A nice bistro with entrees at $30-40 or a tasting menu with wine pairings at $250/head plus tip?
Is there a mortgage to service? What’s a rough home value and tax rate?
Everything you’re describing is clearly upper class and not upper middle class
Define upper middle class.
To me it’s an income up to the top 1% which means a household income of ~$570k, and the 75th percentile on the bottom at about $129k.
150k retirement income divided by 5% draw rate is $3 million.
BUT big healthcare is going to eat you alive in the last years of your life It’s only going to get worse. Id probably double it. 6mn.
long story short - most people won’t retire
I define a comfortable retirement as being able to do the things you typically do (maintaining lifestyle). It's not about becoming luxurious all of a sudden. I'm 58 (soon to be 59). I still work (as needed to maintain lifestyle without drawing down on retirement funds - and because I like what I do). We travel a bunch to see the kids, take nice family trips (have one scheduled to Europe in the fall for a few weeks), go out whenever we want, have lots of good dinners with good friends, etc. Essentially we do what we want. Just because we're able to retire (wife is fully retired while I work half time and make a chunk), we don't set our sites on 1st class travel an overly expensive items simply because that's not who we are. Could we afford 1st class flights? Sure. But we don't care about that. I guess if I had another "0" to my net worth, I might just for extra comfort but probably not.
Now I do have some friends who are in the 8 and 9 figure net worth bucket. They do things that I wouldn't think about. Hire a driver, special event tickets or best in class tickets for sporting events (get on the field for batting practice, lunch with the players, etc - I just want to go to the game. I don't care about that crap). These are the ones paying 2k a ticket when Hamilton first came to Broadway.
My upper middle class life doesn't afford that, but nor does my taste. Without debt, you can be quite comfortable with 150k-200k per yr. If you want a more lavish life, you'll need more. If you're going to burn through 250k/yr, have 5M. 500k/yr, have 10M. I just don't see what I would spend that much money on yr over yr.
You mentioned ignoring kids but what about parents and other family? Health expenses will destroy budget so fast.
I am planning on spending $200,000 per year on medical expenses after 50 for my parents and other dependents personally. I am very close with my cousins + aunts/uncles so if anything happen I would want to be able to support them financially. for example, right now we are spending $$$ on my grandma’s dementia care. I would feel really guilty if I couldn’t afford the same quality of care for an aunt or a parent
My own lifestyle isn’t fancy and I could probably live off low 6 figures but I am very paranoid of health issues so I’d want a huge huge buffer for that.
Im interested if you're spending so much why not consider retiring in a cheaper European country like Portugal , Spain or Italy and having better and cheaper healthcare
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