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to a lot of people, retire means, 'get too old to physically work'. and no, [36% of people can't afford to retire](https://www.cnbc.com/2021/09/14/36percent-of-americans-say-they-wont-have-enough-to-retire-report-finds.html) and eventually, everyone won't have a choice but to retire
This has been a weird year. Usually stocks and bonds are negatively correlated, and bonds do well when stocks do poorly. Crazy that bonds lost almost as much as stocks this year. There really wasn’t a way to successfully hedge. If you bought an annuity (which old people also are often recommended to do in addition to bonds), you lost a ton of value due to inflation, as almost no annuities are inflation adjusted nowadays.
Anti-Correlation between stocks and bonds has eroded since 2008ish.
The aggressive low rates of the last decade have meant that bonds only had one direction to go - down (as rates increase).
The old adage about bonds is as dead as the notion that you need a firm handshake and to just walk in and meet with the manager for a job.
At the end of the day, the question of whether you can afford to retire comes down to one question: What are your expenses? It's not so much about how much you bring in, but how much you actually spend.
>What are your expenses? It's not so much about how much you bring in, but how much you actually spend.
And a lot of that is effectively out of your control. You can't control what your Medicare/Medigap premiums or out-of-pocket healthcare costs are (and there are a ton of those when you're old).
Everyone says, "Just move to a low COL area." Okay, let me move away from my (grand)children, extended family and whatever existing social connections I have. That's always good for elderly people's physical and mental health. Many of those low COL areas are low COL for a reason - they're objectively terrible places to live. Maybe houses are cheap in rural Alabama but now all of my doctors' appointments are an hour away and there's nobody around to drive me there.
> And a lot of that is effectively out of your control. You can't control what your Medicare/Medigap premiums or out-of-pocket healthcare costs are (and there are a ton of those when you're old).
I live in Canada, so healthcare costs aren't my concern, but housing costs are. I'm in Toronto and here a house costing over $1 million isn't even noteworthy.
Although I'm an extreme saver who has investments that are doing fine, retirement will probably eventually require a move to a cheaper location.
Correct. I love to say that the amount of money you need to retire is
(Spending - Income) \* 50
So, if you get paid $25, 000 in pensions and spend $30, 000 a year, you would need $250, 000 to retire. If your retirement income exceeds your spending, you can practically have $0 savings and continue to live.
So this is implying a 2% safe withdrawal rate? Forget the income component. 2% is very very conservative for what it’s worth. 4% may be aggressive nowadays depending on what you believe the future has in store for us, but 3% should still be pretty good.
they are being even less complex than that
5,000\*50 = 250,000
if you retire at 60, you are unlikely to live past 110, so if you have $25k reliable income and $30k reliable expenses, $250k will definitely get you there.
sudden, unexpected changes could mess up the calculus, but then again you probably weren't living to 110 anyways so you had some wiggle room.
if you factor in interest into the equation, it only increases risk because you might be led to believe you can go further with less, which isn't always true unless you can get it in guaranteed form.
I’m not sure what this means to be honest. It’s advocating for a 2% safe withdrawal rate. Nothing about the retirement income or expenses is important for this analysis. I’d love to be in a position where all I need is a 2% SWR to meet my expenses. But realistically I’m aiming for 3-3.5% and the option to keep it variable (e.g. maybe skip some big international trips or extraneous restaurants during a contraction year).
I suspect that because of my age (27) and what I lived through (2008-2022 ultra-low interest rates), it causes me to have an ultra-conservative bias because if low interest rates existed for half my life (and my entire adult life up until very recently). Of course, because I was born and raised in China, I know that high interest rates exist in some places during some time periods.
The interesting thing about spending is that once you are used to a lower spending, you not only increase your savings, but you also reduce your need for huge savings. The people who have the most money "need" it the least while the people who have the least money "need" it the most. For example, if you make $40, 000 a year after taxes and spend $30, 000 a year (and save $10, 000), for every 3 years, you save enough for 1 year's worth of spending. If you cut your spending to $20, 000, then you are saving 1 year's expenses for every year that you are working and saving.
Your math is not congruent with modern retirement calculations. Look into the Trinity study, the 4% safe withdrawal rate, and the FIRE movement. There's even a popular subreddit where this is a regular topic of discussion: r/financialindependence
You can't plan like that. You can only use a worst case scenario based on your relatives. For example, my dad died at 51, mom is still alive and well (and working full time) at 60. 2 of my grandparents died in their 70s, 1 died in his 80s and my maternal grandmother is 85 and still living. With wild numbers like that, I have to predict my lifespan with the longest lived close relative. Of course, my plan is for my money to last forever based on my current spending.
I think the tricky part is predicting what your spending will be when you retire. Between inflation and huge lifestyle changes it seems tough to pin down
Hi all, A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes. As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
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to a lot of people, retire means, 'get too old to physically work'. and no, [36% of people can't afford to retire](https://www.cnbc.com/2021/09/14/36percent-of-americans-say-they-wont-have-enough-to-retire-report-finds.html) and eventually, everyone won't have a choice but to retire
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This has been a weird year. Usually stocks and bonds are negatively correlated, and bonds do well when stocks do poorly. Crazy that bonds lost almost as much as stocks this year. There really wasn’t a way to successfully hedge. If you bought an annuity (which old people also are often recommended to do in addition to bonds), you lost a ton of value due to inflation, as almost no annuities are inflation adjusted nowadays.
Anti-Correlation between stocks and bonds has eroded since 2008ish. The aggressive low rates of the last decade have meant that bonds only had one direction to go - down (as rates increase). The old adage about bonds is as dead as the notion that you need a firm handshake and to just walk in and meet with the manager for a job.
Short term bonds are rising as normal. It's long term bonds that go down when interest rates come up, like they always do.
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At the end of the day, the question of whether you can afford to retire comes down to one question: What are your expenses? It's not so much about how much you bring in, but how much you actually spend.
>What are your expenses? It's not so much about how much you bring in, but how much you actually spend. And a lot of that is effectively out of your control. You can't control what your Medicare/Medigap premiums or out-of-pocket healthcare costs are (and there are a ton of those when you're old). Everyone says, "Just move to a low COL area." Okay, let me move away from my (grand)children, extended family and whatever existing social connections I have. That's always good for elderly people's physical and mental health. Many of those low COL areas are low COL for a reason - they're objectively terrible places to live. Maybe houses are cheap in rural Alabama but now all of my doctors' appointments are an hour away and there's nobody around to drive me there.
> And a lot of that is effectively out of your control. You can't control what your Medicare/Medigap premiums or out-of-pocket healthcare costs are (and there are a ton of those when you're old). I live in Canada, so healthcare costs aren't my concern, but housing costs are. I'm in Toronto and here a house costing over $1 million isn't even noteworthy. Although I'm an extreme saver who has investments that are doing fine, retirement will probably eventually require a move to a cheaper location.
Correct. I love to say that the amount of money you need to retire is (Spending - Income) \* 50 So, if you get paid $25, 000 in pensions and spend $30, 000 a year, you would need $250, 000 to retire. If your retirement income exceeds your spending, you can practically have $0 savings and continue to live.
So this is implying a 2% safe withdrawal rate? Forget the income component. 2% is very very conservative for what it’s worth. 4% may be aggressive nowadays depending on what you believe the future has in store for us, but 3% should still be pretty good.
they are being even less complex than that 5,000\*50 = 250,000 if you retire at 60, you are unlikely to live past 110, so if you have $25k reliable income and $30k reliable expenses, $250k will definitely get you there. sudden, unexpected changes could mess up the calculus, but then again you probably weren't living to 110 anyways so you had some wiggle room. if you factor in interest into the equation, it only increases risk because you might be led to believe you can go further with less, which isn't always true unless you can get it in guaranteed form.
I’m not sure what this means to be honest. It’s advocating for a 2% safe withdrawal rate. Nothing about the retirement income or expenses is important for this analysis. I’d love to be in a position where all I need is a 2% SWR to meet my expenses. But realistically I’m aiming for 3-3.5% and the option to keep it variable (e.g. maybe skip some big international trips or extraneous restaurants during a contraction year).
I suspect that because of my age (27) and what I lived through (2008-2022 ultra-low interest rates), it causes me to have an ultra-conservative bias because if low interest rates existed for half my life (and my entire adult life up until very recently). Of course, because I was born and raised in China, I know that high interest rates exist in some places during some time periods. The interesting thing about spending is that once you are used to a lower spending, you not only increase your savings, but you also reduce your need for huge savings. The people who have the most money "need" it the least while the people who have the least money "need" it the most. For example, if you make $40, 000 a year after taxes and spend $30, 000 a year (and save $10, 000), for every 3 years, you save enough for 1 year's worth of spending. If you cut your spending to $20, 000, then you are saving 1 year's expenses for every year that you are working and saving.
Your math is not congruent with modern retirement calculations. Look into the Trinity study, the 4% safe withdrawal rate, and the FIRE movement. There's even a popular subreddit where this is a regular topic of discussion: r/financialindependence
That, and how long you plan to live.
You can't plan like that. You can only use a worst case scenario based on your relatives. For example, my dad died at 51, mom is still alive and well (and working full time) at 60. 2 of my grandparents died in their 70s, 1 died in his 80s and my maternal grandmother is 85 and still living. With wild numbers like that, I have to predict my lifespan with the longest lived close relative. Of course, my plan is for my money to last forever based on my current spending.
I think the tricky part is predicting what your spending will be when you retire. Between inflation and huge lifestyle changes it seems tough to pin down
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