Personally, I kind of doubt it. My net worth is pushing a million bucks again, now that the market has revived. And nobody, my canny investment manager included, seriously believes my savings will last until the end of my life. The horror of it is, the fact that my house is paid off and I have many hundreds of thousands of dollars in the stock market lifts me into the upper reaches of America’s financial strata. Eduardo Porter reports, in today’s New York Times, that the average American who’s looking at retirement within the decade has a grandiose $104,000 in retirement savings.
Lovely. That’ll keep you going for about four years, if no major expenses hit.
Porter points out that one reason for this unsurprising state of affairs is that, as he puts it, “Wall Street is bleeding savers dry.”
While that may be hyperbolic, his point is that the fees and blatant conflicts of interest that are part of large management firms’ standard business model drain workers’ savings at an alarming rate. Researchers at Harvard, MIT, the University of Hamburg, the University of Toronto, the University of Virginia, and the University of Pennsylvania have found that investment advisers routinely direct clients’ money to funds that share upfront fees with them, and that returns on these funds are weak compared with alternatives. Kickbacks are rife — some advisers have been paid $6,000 to $9,000 to get clients to roll over savings from 401(k) plans to IRAs.
So. Caveat emptor. Or you’re likely to find yourself with an empty bank account come retirement time.
For the time being, Porter concurs with Vanguard founder John C. Bogle in urging investors to seek out low-fee passively managed funds. As an example, Bogle posits a 30-year-old worker earning $30,000 a year, receiving an annual raise of 3 percent. If she invested 10% of her wages in a passive index fund, at age 70 she would have $977,000 in savings. If she put her money in a typical actively managed fund, though, she would end up with just $561,000.
Vanguard and Fidelity are funds with relatively low management fees. Be sure you find out the costs of the funds that appear in your 401(k), and pick the ones with the least rapacious practices.
In your case, when will you start getting social security? It seems like social security plus 4% of investments should be sustainable.
I had to start taking SS at the age of 64, because I was laid off my job and no one would hire a superannuated English Ph.D., especially not during a Recession-That-Was-Not-a-Depression. So my SS covers a little less than half of my actual day-to-day living expenses, property tax, and insurance.
Meanwhile, my son and I copurchased a house, thinking we were hitting the market at the bottom. We were wrong. I have to pony up $735 a month to cover my share of the mortgage. The house is no longer upside down, but my name is still on the loan and I have to cover my share of the payments. That money comes straight out of the retirement fund, since I couldn’t begin to cover it on SS and adjunct teaching income. My investment adviser would like that to go away, and he feels that I should delay using drawdowns to live on for as long as I can cling to t he hated adjunct teaching jobs. The longer I can put off taking out larger drawdowns, the more likely it is that the money will last until I’m in my late 90s, which is about how long my doctors estimate I will live.
I see. So you’re taking SS but not investment income. Well hopefully that will grow during this rise in the stock market and you’ll be able to get some good income when the teaching ends. I am in my late 40’s and so am interested to know how I’ll make my investments into an income. I think it would be wise to have a cushion because the 4% rule is a little risky, but that a cushion is unlikely for me. I’m still playing catch up. Good luck!
I’ve actually seen it make ten grand in a month. O’course, a jaw-dropper like that doesn’t happen often. And it can lose that much in a month, too. 😉
The trick is to invest regularly in a low-fee mutual fund and don’t stop investing or take your money out just because the economy decides to crash. What goes down must come up.
Also pay down debt or if possible get rid of it altogether. These tricks make for a penurious magician…but over time they do work together to build wealth.
I paid off all of my debt ($50k or so) about 4 years ago, saved an emergency fund and am now in all low-cost index funds. I’m in a good place, but starting later than many people (not all I know!). I feel like I’m in good shape, but am trying to learn. I enjoy your blog!
It has been my experience this is a crazy subject where “one size…does not fit all”. I have met folks….my FIL included….who retired with modest savings and a very modest pension and SS. They live/lived full, meaningful lives and seem happy as clams. I have also seen folks retire with generous pensions, savings and SS. And some of these folks never seem to have enough money, can’t tell you where it goes and are less than happy.
My “savy” FIL, who has passed, was an avid gardener who had an extensive vegetable garden was thrifty. He received a very small pension of less than $150/mo and SS of around $1000/mo BUT never seemed to want for anything…..and for the most part was a “happy clam… As he so often said…”it’s not what you make…it’s what you spend”…Just my 2 cents….
Jack, you said a mouthful. That is exactly how I feel. Most of us who have lived modestly will be able to continue to do so in retirement.
You hit the nail on the head.
Yep. You just described SDXB to a “T.” And bear in mind: this is a guy who retired in his late 40s, having decided that Werk is bad for one’s health. 😉
Actually, he made some lucky investments and then surprisingly found himself in the right place at the right time. Was he a millionaire? Don’t think so. Not in the literal “got a million dollars” sense. But he was in the sense that he understood what was really of value in life.
SDXB is indeed “thrifty.” We could call him “frugal.” The average American who spends heaven only knows how much on eating out every time she or he turns around would describe him as frugal. He keeps his money in credit-union CDs because he doesn’t trust the stock market. And his money is…well, just not that much.
But he eats like Croesus: he loves to cook, he knows how to buy food on sale (he calls it “investing in food futures”!), and he can (and does…every day) turn out an incredible, delicious meal with little effort and less cost.
He’s the guy who came up with the list of all the things to do that are free. Many of those free things happen to be healthful — like hiking in the city’s mountain preserves.
He buys his clothes at thrift shops and the Base Exchange. He always looks handsome and nicely turned out.
He travels. He has a lovely girlfriend with whom he goes dancing and partying all the time. In fact, is social life is so full you have to make an appointment to get together with him. He entertains his friends all the time. And he’d love the “what you spend” saying!
Funny…thank you for sharing SDXB, his exploits and his “credo” with us on your blog. IMHO here is a guy that learned at a relatively young age (40’s) what’s really important. As for you having to take SS at 64 …might have been a “blessing” in disguise. Recently got word that my cousin’s x-husband past away suddenly. He was a nice enough gent …just couldn’t get along with my crazy cousin. Anyway he dropped dead at his kitchen table last week…had been under a doctor’s care for some issues but supposedly nothing serious…. He was 59….worked his whole life….never drew a dime of SS…and “poof!…gone”…Maybe, sometimes, it pays to….”have your desert first”….
It’s crazy to think your $1M won’t be enough till you hate your 90s. It’s even crazier to realize most people don’t have $100K in their retirement accounts.
I worry about our future, so I max out retirement accounts. Hopefully, this will help in the future. Although it never seems like we are saving enough.