MarketWatch is a conventional website. It runs financial news. It also runs articles on investing.
This one caught my eye. “How to make your nest egg last over 40 years.” That sounds good!
I read it. The article says you can achieve this goal. But you will need at least $2 million. A million won’t get the job done.
Let’s look at a simplified example of how these numbers go together.
Assume that your annual cost of living in retirement is $90,000 and that Social Security and pensions will provide $40,000 of that. From these two numbers it’s easy to see that you will want to take out $50,000 from your portfolio.
Now assume that you retire with $1 million in your portfolio, properly diversified among stock and bond funds, and that in addition you have an emergency fund available so you don’t have to make unexpected “raids” on your long-term investments.
With these assumptions, we can get to the nitty-gritty. On this first day of your retirement, you can see that you’ll need to take out $50,000 to get you through the first year. That’s 5% of the portfolio. You figure that you will adjust next year’s withdrawal to reflect actual inflation, and that seems pretty reasonable.
He takes us through the exercise. He shows that you won’t make it through retirement with a mere million bucks.
So, what to do? Don’t retire.
There are three other ways to address this problem. One is to save more money when you’re working. A second is to keep working longer, giving you more years of saving and fewer years of living from your portfolio. The third is to plan on spending less in retirement — in other words to withdraw less from your portfolio.
He is correct. I have taken this strategy. I plan to work until I am 80. That will do it! Maybe.
But the point is this: a journalist in a major financial magazine shows that there is no easy retirement, even if you have $1 million at 65. But hardly anyone does.
Then how will people afford retirement? They can’t.
Do most people understand this? Then what will happen to them? They will move in with their kids. Are the kids ready for this? No. Are the kids in debt? Yes.