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Retirement Prospects Dim for Median US Family

Hi Guys,

In some recent MFO exchanges I was surprised by a few Board participants who apparently pursue a rather Spartan lifestyle.

I suppose I shouldn’t have been so flabbergasted given that financial reporting for decades has identified the poor savings discipline and the extravagant expenditure lifestyles of the average American family. These observations have been used to forecast miserable retirement prospects for most of us. I trusted, but never verified these projections.

Our Board discussions nudged me to do a little homework. But I needed some stats.

I’m rather agnostic concerning Motley Fool’s articles with the exception of those generated by Morgan Housel. I am a big fan of his informative and entertaining lists. Well, an Internet search uncovered several Fool articles that seem authoritative enough and satisfied my data needs.

I used median family income, expenditure, and savings graphs for folks hovering around the age 65 threshold. Annual median family expenditures are about 42K dollars; annual median family savings are roughly 140K dollars. Remember that median implies that 50% are above those levels, but 50% are below those numbers.

In retirement, Social Security (SS) benefits that range from 15K to over 30K will greatly soften portfolio withdrawal requirements. I included the SS cash inflows as part of my quick analysis.

I continued the march using Monte Carlo simulations for a 30 year retirement period. The financial reporting is spot on-target. The median American family is in dire need for more savings to enhance his retirement survival prospects, or he will be on the road to the poorhouse or the bankruptcy courts.

I did the Monte Carlo analyses for a baseline conservative portfolio that was projected to generate an average annual return of 7%. For postulated drawdown annual rates of 20K, 15K, 10K, and 5K dollars, the portfolio survival odds increased from 0%, to 7%, to 44%, to 96%, respectively. That provides little comfort unless the retiree can reduce his drawdown needs to only 5K annually.

I repeated the simulations using a more optimistic or aggressive portfolio that was forecasted to return 10% annually on average. That improved survival likelihoods to 4%, to 24%, to 67%, and to 99%, respectively. Better, but it still suggests the need for a meager 5K portfolio withdrawal schedule.

This is indeed a depressing prediction for the median family in the US. In this instance, the financial reporters are correct. That’s too bad, since it forecasts a painful retirement for a huge segment of our population.

Best Regards.


  • MJG,
    Thanks for your further research on this.
    Only one question - does the Monte Carlo analysis result
    include taxes on portfolio withdrawals?
  • AKAF,
    Check out for yourself whether

    has the tax variables and flexibility desired.
  • Hi AkaFlack,

    Good to hear from you.

    No, my quickly analysis did not include tax considerations. My analysis was quick and dirty to just scope the problem.

    Both you and Davidrmoran are perfectly right that a more refined set of simulations would yield better insights. My shallow calculations were mostly motivated by my need to make a tennis engagement.

    Like Davidrmoran, I favor the Flexible Retirement Planner tool that both he and I recommend.

    Best Wishes.
  • There is another potential source of income available to seniors: a reverse mortgage on their house. I realize there are many "ifs" to this source, but it needs to be considered. It may be that a house is a family's largest asset.
  • If the BC and other data are to be believed, that is going to be immense down the road, to the point perhaps where banks stop thinking it is a good idea for them to lend and be involved.
  • " few Board participants who apparently pursue a rather Spartan lifestyle."

    Didn't post my current retirement expenses, but I can tell you they are "peanuts" compared to what I used to spend in my professional/ Family lifestyle of younger years.
    Can you enlighten me on what YOUR projected "Luxury" Retirement expenses Could be?
    I Can't find many "expenses" in MY very happy retirement Lifestyle...Just Wondering
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