How much is enough to retire?

The New York Times ran an article discussing the possibility that a retirement account of $1 million might not be enough to see a family through the end of their lives. The article says that if a family has a portfolio of $1 million invested solely in tax-free municipal bonds and draws down 4% plus inflation annually, there is a 72% chance that they will outlive their portfolio. That article and its follow-ups drew nearly 800 comments from NYT readers. It’s a self-selected sample, but it provides insights into the way people think about their own retirements, their investment and savings strategies, and more importantly into the way this group thinks about other people and our economic system.

A number of comments pick at the premises of the main argument. Some point out that this article only applies to a few people. The article suggests that about 10% of households have a financial net worth of at least $1 million, meaning that the fair market value of their stocks, bonds and similar financial assets less their related debt is equal to at least $1 million.

Then there are people who didn’t read the part about inflation and argue that if you took out 4% of $! million every year, even with no interest, you’d get 25 years. This group is matched by the group that says that if you get $30K from Social Security, that’s worth $1 million at 3%, so that should be part of your financial net worth. This group needs to make friends with the annuity class of assets.

There are plenty of people ready to adjust the portfolio with dividend bearing stocks, real estate and other assets, without consideration of the increased risks they bear. Another group suggests that you move to a cheaper town, in Oklahoma, say, or Mexico. As one commenter put it, if you think I worked for 45 years so I could live in Houston, you are sadly mistaken.

A lot of people offer the same advice. Save money every year. Live well below your means, invest conservatively. Then there are the people who explain how they did just that and lost huge chunks of money in the stock market crashes of 2001 and 2008. Or how they got laid off from a 6-figure job, lost their health insurance, got sick and were forced into bankruptcy to deal with the hospital bills. One person asks how they should manage with poor aging parents and a disabled child. And then there’s this from a young saver, jamreg of Illinois:

… I feel like my only hope of ever being able to retire revolves around paying off my mortgage ASAP and continuing to live below my means (and also not having kids).

There are a number of explanations for this sorry state of affairs. Here’s Lucy from Atlanta:

Well it is too bad everything has gotten worse in the last 5 years (3 more years to go). If only we had a president who knew anything and could help with jobs instead of tax, spend, more free stuff, repeat. We all will be eating dog food, waiting in line for mobama free health care and wondering how this happened.

Its just sad and everyday it just gets sadder.

We will all work till we drop dead to support those that can’t help themselves and pay for all of the babies they bring into the world, who need food, housing , healthcare, education and head of the line employment rights.
When will it end?

Barbara from Virginia explains that the government favors the elderly at the expense of the young, and that no one is thinking about people who aren’t retiring in the next 10 years. Of course, all payments to retirees come out of the money generated by people who are currently working, as Richard Navas of Bellingham WA points out. If too many people move out of Detroit, the tax revenues won’t pay either interest or principle on Detroit municipal bonds, and holders of those bonds are going to lose money. If a company goes out of business because consumers don’t buy their products, people lose money on the stocks and bonds of the company. Only in a thriving economy will any of these bonds and stocks pay off.

There are better explanations. One group points out that current monetary policy hurts retirees. A good example is jb from MI. These comments point out that zero real interest rates are terrible for current savers as well as retirees. Inflation hurts both groups, especially with zero real interest rates. Kelli from Denver and others point out that individuals as a group do not do well at investing, and making us responsible for our own retirements may not be smart. And there are a number of comments suggesting that helping banksters was a terrible idea and that jail would be better.

Two things eventually emerge. First, the people who have done well don’t recognize the amount of luck that goes into success. They seem to think that if everyone followed their excellent practices, everyone would be as rich as they are. That’s obviously not true. One person’s spending is another person’s income. If a few people save more than others, they will succeed. If everyone saved at the same level, the outcome would be quite different. This is the Paradox of Thrift, described by John Maynard Keynes. So, first they have to be lucky that others didn’t save. Then they have to be lucky in their investments, and lucky not to get sick or injured, lucky not to have to support disabled kids and poor parents, and then lucky that the rest of the population is able to produce enough to pay them for use of their savings.

Second, although there is criticism of the political system that allows these wildly disparate outcomes for people in the same circumstances, only a few people say that some alternative to US style capitalism might produce better outcomes. All of the alternatives are based on the European social welfare systems, and there are plenty of naysayers about those. There is no broader discussion about the way we arrange our economic activity. Apparently everyone agrees that nothing can change on that front.



I read a lot of books.