Americans need $1.4 million to be financially comfortable

[Smurf Hunter]

https://finance.yahoo.com/news/apos-americans-takes-financially-comfortable-135500181.html

The article is not great, but it may be a good discussion topic. 

What's missing in this article is the definition of "financially comfortable".

If you are about to retire at age 65 with social security, that's decent.
On the other hand, if you're age 30, have that saved and continue working and saving, that's awesome.
But that's certainly not enough money to give your boss the middle finger, buy a new Porsche and pickup the the tab for the entire bar that night.  Well I guess you *could* do those things, but none of them habitually.

I suppose if invested well along with a massive lifestyle downsize, I could live off the interest, albeit rather modestly.

Does $1.4m mean you'd never have to work or think about money again, or would it just be a huge boost?

[bartsdad]

Where also plays into this. Property values and taxes play a huge role in comfort-ability . Also , health care plays a role in this as well.  If I/we retire at 60, which is the current goal, at 1.4M, we would be golden. Our only expenses would be life ( food, ins, travel and such), property taxes, and health care.

Realistically, I don't see many people ever getting to that point in life. Between trying to keep up with the Jones' and living on credit, having a net worth that high is only a pipe dream for most.

Even at a modest 6% return, $84,000 is not a bad gig.

[Smurf Hunter]

Even at a modest 6% return, $84,000 is not a bad gig.

Especially if your costs are in check.  If you don't have a mortgage and don't live in crazy real estate prices, I fully agree.

[Alan Georges]

Here are two books outlining shortcuts to early retirement.  Neither of them is what most people would consider comfortable, but in some contexts they make sense.

Jack had this guy on a while back:
https://www.amazon.com/Early-Retirement-Extreme-Philosophical-Independence/dp/145360121X/ref=sr_1_1?s=books&ie=UTF8&qid=1526943622&sr=1-1&keywords=early+retirement+extreme&dpID=416JeQSqokL&preST=_SY291_BO1,204,203,200_QL40_&dpSrc=srch

And a similar approach:
https://www.amazon.com/Poor-Richards-Retirement-Everyday-Americans-ebook/dp/B0725GG5LK/ref=sr_1_1?s=books&ie=UTF8&qid=1526943638&sr=1-1&keywords=poor+richard%27s+retirement

Both can be summed up by the phrase "extreme minimalism."  But compared to slaving away at a job you hate until 70, that's pretty appealing.

[David in MN]

It's a big part of how I think. When I get to $2,000,000 in savings a modest bucket of stocks could yield $60k per year in dividends (that's averaaging a 3% return). That's not a bad life here in the Midwest if you've payed off the house.

But I would question the poll. Charles Schwab users are pretty self-selected. People like me. And I'm all about the numbers and the maths. I'm guessing if you tested the entire population you'd get a much lower number. The "average" American doesn't own any stock or investment vehicles.

I should add  that all traders have a number and we don't share it. [2 million isn't mine.] You get weird results when you ask "money people".

[Smurf Hunter]

I should add  that all traders have a number and we don't share it. [2 million isn't mine.] You get weird results when you ask "money people".

I'm not asking about you personally, but do you mean they might say "$2m" but deep inside they hope to get $5 million?

[David in MN]

I'm not asking about you personally, but do you mean they might say "$2m" but deep inside they hope to get $5 million?

No. We view ourselves as gamblers and we all have a number so we know when to leave the table. Bad traders only want "more". Good traders know there is a point where they can retire and live a quiet life with their family.

Think of it this way... If you had a roulette wheel where you won 51% of the time the rational action is to play to death. To literally live on the wheel eating, sleeping, and crapping your pants for the opportunity to keep winning. That's why you need the number. The number goes down with age, I should add. But at some point you need to leave the casino, change your clothes that reek of sweat and cigarettes, and go have a picnic.

Living by numbers is not healthy. A stock trader is no better than a horse gambler. When you hear that they want 1.4m it's their way of saying they could win without paying attention. They could stop playing risky derivitives or options and live off dividends never again fearing a margin call.

[CharlesH]

I’m 54.  I would consider myself comfortable with 1.4 million in retirement worth (IRAs and 401Ks).  But I need my mortgage paid for and social security for both my wife and myself on top of that to be where I want.  That’s all very doable for us.  I’m looking at using David’s 3% a year from the retirement fund as opposed to the 6% also mentioned here.  At 3% I feel like I am likely to be able to annuitize the principal for the entire life of both my wife and I and increase it annually in line with inflation.  Any more than 3% and I’m not so sure about it’s longevity, especially given that every year it seems people are living longer and need income longer, too.  Yes, I’ll probably have principal left over when the wife and I are dead.  The kids can thank me later.... (Oh wait, they actually won’t be able to thank me later!  Lucky kids...)

[FreeLancer]

This article says there are 157,000 401k millionaires, with the average saver taking 30 years to reach that point. 

https://www.washingtonpost.com/news/get-there/wp/2018/05/21/the-number-of-401k-millionaires-hits-a-new-high/?utm_term=.704178a39969

“They contribute enough to get their full company match, they’re less likely to take 401(k) loans, they don’t cash out when changing jobs and they invest for growth — on average, 401(k) millionaires hold 76 percent of their savings in equity mutual funds.”


Same author wrote this a month ago:  This is how it feels to be a millionaire and still feel broke

In a nutshell:  64 year old woman, just laid off, is freaked out that her $1 million savings isn't enough to retire on. 

I think I'm with her, $1.4 million goes quick when faced with a medical crisis or long-term care for a spouse with Alzheimer's.  Medicare doesn't cover a whole bunch of things, and Medicaid doesn't kick in until everything else is gone. 

[Bradbn4]

My gut check now is about 7 million dollars to retire without having to worry too much about the core principle.
I don't remember when I came up with that number; but it is based on taxes, insurance, and cost of living adjustments.

That amount was based on no other savings but that money; and no SS or retirement plans. 

[FreeLancer]

My gut check now is about 7 million dollars to retire without having to worry too much about the core principle.

That sounds about right.

[Smurf Hunter]

That sounds about right.

What are you people planning to do in retirement?  Buy private jets annually?
Even at a modest 3%, that gets you $210K without touching the principal.

I understand if you plan to be a philanthropist in San Francisco, that's not a lot of money, but if I paid off my mortgage, didn't have to commute to work, or raise my children, I could remain in my zipcode and live of 1/4 of that.

[bartsdad]

What are you people planning to do in retirement?  Buy private jets annually?
Even at a modest 3%, that gets you $210K without touching the principal.

I understand if you plan to be a philanthropist in San Francisco, that's not a lot of money, but if I paid off my mortgage, didn't have to commute to work, or raise my children, I could remain in my zipcode and live of 1/4 of that.

This^^^

[Carl]

  I think I might be a tad short for my retirement....maybe not.

[David in MN]

OK, so a window into my mind...

If I had $1m to manage for retirement I'd find a list of all dividend producing stocks that looks kinda like:

http://www.dividend.com/dividend-stocks/high-dividend-yield-stocks/

And pick through them to find 100 best picks and put $10k in each. Assuming I averaged a 3% dividend I get $30k per year. Sounds paltry but without any debt it's not the worst. Using the $1.4m that Schwab came to I'd get $42k. That's not too far off of the median income of about $59k if it assumes the house and cars are paid for. Add on a pension or two, Social, and you're doing pretty good.

What I'm getting at is that these investors are reporting how much money they need to make enough to live in a very conservative manner. Sure there are risks but it can be well managed. They could even be lazy and go the ETF route for more security:

http://etfdb.com/type/investment-style/dividend-etfs/#etfs__dividends&sort_name=dividend_yield&sort_order=desc&page=1

I should add a note. I have chosen 3% because it is conservative. Companies with 10+% dividends exist but tend to be very risky.

[Morning Sunshine]

Assuming I averaged a 3% dividend I get $30k per year. Sounds paltry but without any debt it's not the worst.

no debt, paid off mortgage, and in an EXTREMELY low tax bracket.  The .gov almost pays you to file taxes.  And you do not "work."  Sure you may not be taking the senior-living cruises, but sounds like living the high life to me!

[FreeLancer]

What are you people planning to do in retirement?  Buy private jets annually?
Even at a modest 3%, that gets you $210K without touching the principal.

I understand if you plan to be a philanthropist in San Francisco, that's not a lot of money, but if I paid off my mortgage, didn't have to commute to work, or raise my children, I could remain in my zipcode and live of 1/4 of that.

I guess for me, the key phrase was "retire without having to worry too much about the core principal" at risk due to health or other crisis.


You have to put your money to work somewhere during retirement.  Cash and bonds will almost always lose to inflation during "normal" times, to say nothing of hyperinflation, and this will erode the buying power of your principal over several decades of retirement.  While equities could crash 50% and destroy investor confidence and risk tolerance in the short-term. 

How many people do you know who saw their retirement savings halved in the crash a decade ago, cashed out what was left to sit on the sidelines, and as a result have totally missed out on the market gains since then?


Obviously the "number" is different for each of us, but for me I think the safe thing is to try to shoot for 2-3X of that because predicting the future (economic, geopolitical, health and family), and our emotional reactions to it, is hard.  It's basically the "two is one, and one is none" principle applied to personal finance.

[Smurf Hunter]

Obviously if anyone has the means to achieve $7m in retirement savings, I'm not about to stop you.  I just think that's practically quit difficult even with exceptional luck timing and trading skills.

Also to freelancer, I am pretty sure the article is not taking into account a financial collapse.  Unfortunately we have no coice but to prepare for no collapse and 3-7% annual returns.

[FreeLancer]

$1 million in 1970 is equivalent to $7 million now.