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Fixed 4% Withdrawal Rate In Retirement Unrealistic In Real World, Researchers Say
That paper is 26 pages - I'm not going to read it.
JP Morgan's job is to sell fear and get people to give them their money for JPM to invest for them.
Retirement needs vary but, if you take a healthy individual with $1M in assets and renting an apartment the 4% rule should work even excluding inflation.
In the real world, the USA, the person worked for that $ so they have SS and possibly a pension (but let's leave that out).
So, they retire at 60 with $1m and withdraw 4% for 6 years then start collecting SS. In addition, their taxes should be at the low end when you include the standard deduction and 2 individual deductions - 1 for being over 65 (am I correct?)
I'm not going to do the math but you get the idea - when the person is 65 they have income of the 4%, $40 + SS est 25K for an area of 60 to 65K of income.
Also, the idea that spending increases as we age should be examined. A person's spending habits change over time. While young they might spend more $ on travel and such but over time that line item cost decreases and the travel $ gets re-allocated to other areas that do increase with inflation. So, the expenses stay relatively constant.
A million dollars is a fantasy for a lot of us. And cman, the number of prescriptions I need is already unbelievable. Advice to everyone else: get rich, and don't get old.
... the number of prescriptions I need is already unbelievable. Advice to everyone else: get rich, and don't get old.
Both observations are correct. Therefore, I'm of the opinion that a good offense is the best defense. Exercise vigorously every day. Watch diet. Maintain optimum weight. There's a ton of valuable nutritional info on the web. (I think even Doc Hussman runs such a website:-)
And, don't forget to have fun and enjoy it as long as you can. Cheers!
I have watched pretty much all my friends' parents pass away over the past many years (except thankfully for my aged Mom) and with just about every health problem under the sun. I realize I may be naive here but the only medical expense killers I saw were the nursing homes. And killers they were as they sapped many of their entire nest eggs before Medicaid kicked in. Yes, maybe they should have planned better getting assets out of their name but easier said than done since many of us don't think we will ever need nursing care.
The withdrawal rate discussion has been in place for a number of years, eh?
All cases are obviously going to be different. I consider, in part; that the white paper study from the bank's Asset Management group is a forward planning document to pull some business their way. I can envision copies of this paper being handed out at bank branch levels to "encourage" clients to bring their monies to "us", 'cause we know what we're talking about..... Not unlike the old E.F. Hutton commercials. "When E.F. Hutton talks, people listen." A brillant, short and sweet advertisement.
Past this, "IF" $1 million at this house was entirely inside of IRA's; the current calculation for just about any amount indicates a required withdraw rate after reaching age 70.5 years to start at about 3.64% whether we would want or need the money. This percentage rate does increase going forward. So, one is already locked into a given rate under some circumstances. If one retired at age 65, a withdrawal rate may have to be established prior to RMD amounts. None of the above includes or deals with any SS or pension plan monies.
I'm now going to check all of the mail from the local Chase Bank for an "offer" I can't refuse.
"So, one is already locked into a given rate under some circumstances."
Yes - and No ... RMD notwithstanding, nothing in the law mandates that you actually spend the money. Consider reinvesting in any number of tax efficient funds outside the tax-deferred umbrella. Further, at current interest rates holding cash within a sheltered account offers little advantage (albeit some). So, another strategy would be using the RMD required distributions to substitute for part of whatever allocation to cash you already carry within the sheltered account. Also, don't overlook munis as a potential parking place.
I agree. Heck, if we were (not at the magic age yet) pumping out RMD money we didn't need, it would likely go into the no frills annuity at Fido with a choice of 56 funds with which to play among. No surrender charges, tax deferred growth and .25% fee + the underlying E.R. of the mutual fund.
There are mechanisms for ensuring that your spouse is not made destitute if you enter a nursing home. So far as YOU becoming destitute as a result of being in a nursing home, so far in my area and many areas, the taxpayers cover your costs if that occurs. In addition to a fire 3 feet high, one of the many things that burns my butt is the idea that one should transfer all their assets and let the rest of us pay for their old age in a nursing home.
200 years ago people scrimped for their old age. If you want your children to have your money, give it to them while you are healthy. If you raised them well, they'll take care of the extras you want while the rest of us pay for your basics.
Sorry, I'm probably off topic, but I don't think I'm off base.
Comments
JP Morgan's job is to sell fear and get people to give them their money for JPM to invest for them.
Retirement needs vary but, if you take a healthy individual with $1M in assets and renting an apartment the 4% rule should work even excluding inflation.
In the real world, the USA, the person worked for that $ so they have SS and possibly a pension (but let's leave that out).
So, they retire at 60 with $1m and withdraw 4% for 6 years then start collecting SS.
In addition, their taxes should be at the low end when you include the standard deduction and 2 individual deductions - 1 for being over 65 (am I correct?)
I'm not going to do the math but you get the idea - when the person is 65 they have income of the 4%, $40 + SS est 25K for an area of 60 to 65K of income.
Also, the idea that spending increases as we age should be examined. A person's spending habits change over time. While young they might spend more $ on travel and such but over time that line item cost decreases and the travel $ gets re-allocated to other areas that do increase with inflation. So, the expenses stay relatively constant.
And, don't forget to have fun and enjoy it as long as you can. Cheers!
All cases are obviously going to be different. I consider, in part; that the white paper study from the bank's Asset Management group is a forward planning document to pull some business their way. I can envision copies of this paper being handed out at bank branch levels to "encourage" clients to bring their monies to "us", 'cause we know what we're talking about..... Not unlike the old E.F. Hutton commercials. "When E.F. Hutton talks, people listen." A brillant, short and sweet advertisement.
Past this, "IF" $1 million at this house was entirely inside of IRA's; the current calculation for just about any amount indicates a required withdraw rate after reaching age 70.5 years to start at about 3.64% whether we would want or need the money. This percentage rate does increase going forward.
So, one is already locked into a given rate under some circumstances. If one retired at age 65, a withdrawal rate may have to be established prior to RMD amounts.
None of the above includes or deals with any SS or pension plan monies.
I'm now going to check all of the mail from the local Chase Bank for an "offer" I can't refuse.
Take care,
Catch
I agree. Heck, if we were (not at the magic age yet) pumping out RMD money we didn't need, it would likely go into the no frills annuity at Fido with a choice of 56 funds with which to play among. No surrender charges, tax deferred growth and .25% fee + the underlying E.R. of the mutual fund.
Thanks Hank and good night.
Catch
200 years ago people scrimped for their old age. If you want your children to have your money, give it to them while you are healthy. If you raised them well, they'll take care of the extras you want while the rest of us pay for your basics.
Sorry, I'm probably off topic, but I don't think I'm off base.