"We're Living In 'End Times' When You Can't Retire On $1 Million"

How about that for a headline from a Marketwatch article, here's the link via Morningstar.

The magic of having $1 million for retirement is no longer what it once was. Assuming normal withdrawal rates of 4-5%, $40,000 or $50,000 is a fine income stream but it's not a G-Wagon in the driveway, a closet full of $500 shoes and frequent first class tickets to Europe.  

The research cited in the article points to $1.25 million as being sustainable for a 25 year retirement assuming 4%/$50,000/yr. Just about every other thing I've read says 4% has never failed a 30 year retirement but ok, 25 years. The lead researcher is quoted, talking about a comfortable $50,000/yr retirement which I will address below. 

The author concedes that the idea of a universal retirement number is flawed based on several factors, the biggest one probably being where you live. Making $300,000 in NYC doesn't sound so great but that kind of income would be very well off in probably 2/3rds of the country if not more. 

Back to Ben Carlson from the other day showing how far away every age cohort is from $1 million or $1.25 million. 

To use the number above of a comfortable $50,000 retirement (you can fill in your own annual number), there was no mention of Social Security, $50,000 including SS or in addition to SS?

I try to address all this very simplistically. Above a certain amount, your accumulated retirement savings go from being an emergency fund to being a source of sustainable income assuming the withdrawal rate is reasonable. At 70 years old, a $50,000 IRA is just an emergency fund but a few hundred thousand it's a source of sustainable income and the line is somewhere in the middle. 

Stating the obvious, a $400,000 account can be a source of $16,000/yr for a very long time (hopefully that nudges higher over the years). A $1.75 million account can be a source of $70,000/yr for a very long time. How much do you have now and how much are you likely to have when you retire? What is the math for a 4-5% withdrawal rate? 

Whatever the number, that is one income stream. How far does that go for what you think you need? How much will you get for Social Security? How about if you haircut SS by 25%? Making up an example, if you should be able to take $48,000 safely from accounts and a reduced SS works out to $40,000, how far does $88,000 (use your own numbers) go in relation to what you think your post-retirement lifestyle will cost? Is it enough?

There are multiple solutions for it not being enough. Cut expenses somehow or add another income stream which could mean working longer or creating some sort of new income stream. We explore how to do the latter constantly here. 

The reason creating your own income stream is a point of emphasis here is the extent to which we can have a hand in building a successful outcome. With the right kind of effort and a properly long timeframe, I think this is very doable and I don't mean settling for whatever it is you would least want to do. 

I've laid out my own path with wildland fire incidents, Del E Webb and our Airbnb rental, for as much as I write about this, I believe I should be walking the walk. The important theme running through all three is that the runway has been very long for all of them. Trying to shortcut something in six months probably won't work. 

The incident management team work (fire related) probably requires more of a commitment than makes sense in light of my day job so that is sort of back burnered other than maintaining contacts and relationships. I am available to work "locally" which means anything on the Prescott National Forest. A backup for something bad happening with my day job would be to try to get appointed to a team roster which would mean going out frequently. That is far from my first choice but I'd be grateful for the opportunity if we needed it. Also fire related, Walker Fire will be upgrading one of our water tenders (2000 gallon water truck) in the next year or so and I'd be able to take that out if we needed.

I mentioned my involvement with the Del E Webb Foundation turning into an income stream. They asked me to join them three years ago based on something specific related to Walker Fire many years before that. It will be a small stipend but will be enough cover a decent percentage of our expenses if we ever got to the point of relying on it that way.

Our Airbnb covers about 2/3rd of our current monthly expenses plus less frequent expenses like property tax and insurance. The mortgage on our rental should be paid off in six years and everything else being equal, the rental income would cover 85% of our current monthly expenses plus less frequent ones. Of course everything else staying equal is not guaranteed which is why you have multiple streams and figure out how to adapt. 

Part of adaptability is not making bad portfolio decisions like being too conservative with your portfolio. 

That period includes quite a few multi-year declines. I usually phrase this as maintaining some sort of normal allocation to equities because equities are the thing that goes up the most, most of the time. Even if equities compound at just 5% for a while, the index would double in 14 and a half years. Do the math on your having just a 40% allocation which I would say is a little less than normal. From age 65 or 70 to age 80 or 85, where would that leave you? By the way, the CAGR in the period isolated in the Creative chart was 11.56%, miles ahead of 5%. Hopefully, a 5% CAGR going forward is insanely conservative. 

Anyone relying on their portfolio to make their retirement plan work probably needs a "normal" allocation to equities. If someone has $10 million and only taking out $100,000, I would argue they are not relying on their portfolio to make their retirement work. 

Repeated from I don't know how many previous posts, retirement is a problem to be solved or a challenge to overcome. The more effort put in, the more success coming out. "No one will care more about your retirement than you."

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