The Retirement Nest Egg Basket Case – These People Actually Live on Earth

by David Ning · 23 comments

Reading can really open your eyes. In some cases, it can even make you jump off your chair and yell NO WAY.

An article in the recent Money magazine really caught my attention.

…by 58 (when the couple wants to retire), [they] will have $1.7 million…That should get them most of the way, but there are still things they can do to ensure that they can maintain their lifestyle…

If $1.7 million isn’t enough, shouldn’t we be worried that we will never be able to retire? Wait, there’s more…

Jim, who works for the Department of Defense, will get retiree health benefits and a pension [worth $60,000 a year].

There’s also no mention of children in the article. So, a couple with social security, $60,000 a year in pension plus a $1.7 million nest egg will need part time income to be able to retire comfortably. (Honey… I’m going to faint…)

The Truth in the Numbers

The article does mention that the couple has chronic medical conditions that require extra buffer in retirement savings, but the numbers are mind-boggling because the majority of the population will never come close to what the couple in the article will have come retirement time.

The financial planner estimated that the couple will need $134,000 a year in order to maintain their lifestyle, so that’s why the numbers are so high. But I have to wonder why any couple needs to maintain your lifestyle when most of the pre-retirement life was spent at work? In retirement, some expenses actually go down. Here are a few:

  • Commute – Car expenses go way down in retirement, gas consumption goes down and insurance will be reduced as well. If you manage your risk and finances, you can probably increase your deductible to save even more. You may argue that a new car is warranted come retirement time to celebrate, but that is called an increase in lifestyle as opposed to maintaining one.
  • Eating Out – Sitting in front of the TV is hardly sustainable for 10+ hours a day for decades. Many retired people find joy in gardening and cooking and end up eating out less.
  • Travel All Over the World – You may have a point, as seeing the world requires huge sums of money. However, there’s no need to let the empty mansion gather dust while you can’t even tell if your roof is leaking or not. The 5,000 square feet custom home is great, but it’s only fun when you are actually living in it. Many people find that downsizing actually makes them happier.
  • $134,000 a Year – With inflation, the number does seem to shrink but I just can’t quite imagine spending $134k every single year. I know some very wealthy people who spend $10k a month and their lifestyle is interesting enough to be on TV shows. Personally, I would actually have difficulty to spend $10,000 every 30 days unless I start buying stuff without much control.

Statistics have shown that people tend to spend less in retirement. It’s only natural that when you are 80, you tend to go out less often.

Next time you see ultra high retirement numbers, don’t worry because reality can’t be that bad. Quite often, you have to read magazine articles with a grain of salt. Sometimes, you have to empty a whole bag.

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{ read the comments below or add one }

  • AJ says:

    I just LOVE conversations like this one. Seth and Marci are my heros! I’ve been frugal, simplifying and making/growing my own way before the financial crisis hit. Seth, stories like your’s comfort me in that I can and will be able to retire comfortably. Thank you!

  • Austin says:

    I know that I am a little late in commenting. I am reading through old posts. But my goal in retirement is not to have just enough to live on. While I may not need 100K+ a year to retire happily, I would love it and am working towards it, so that I may use extra money to continue to build my nest egg, to donate to charities, and to leave more for my kids when I die.

  • Lee says:

    I could comfortably retire on the $60k alone, nevermind the Β£1.7m in the bank. Some people have their priorities so backward if you gave them $100m they’d probably still struggle.

    Our society is too… too … something. Whatever it is, it’s too much of it. Simplify, Frugalise and Reduce. Then you’ll be happy.

  • Wilson Pon says:

    To be honest, although both of my parents are over 60, and have claimed the pension, but they’re still need to do some part times jobs to sustain their living, as the current pension is merely enough for the house and car mortgage.

  • marci says:

    RB – yep the income tax is a dis-incentive to make more money πŸ™
    But watch out for the sales tax in WA.
    Gorgeous country out here tho – in either state πŸ™‚

  • Marci – Oregon rocks. I may retire to Seattle, to save on state income tax πŸ™‚

    Better safe than sorry. Shoot for $134,000/yr to get $90,000 a year.

  • Assuming their mortgage is paid off, $134,000/yr in retirement sounds a bit excessive, but hey, I would take it . . .

  • marci says:

    RB – To retire on little, I think you need to be debt free AND have your housing paid for – ie, no mortgage and little taxes/insurance. I paid cash for my little house and paid cash for the upgrades – so no mortgage. My insurance is under $400/yr and my prop. taxes are under $800/yr – so at the moment, that’s well under $100 month for taxes and insurance. My utilities run $80-$100 month – water, sewer, electric. It’s a 1000 sq ft 2 bedroom 1.5 bath with a nice attic for storage.

    I live in the beautiful Pacific NW – coastal NW Oregon. Temps are mild and cool – but winters are VERY rainy πŸ™‚ Have to be able to deal with a lot of rain. Gardens grow great, and the bay, rivers, and forests provide a lot of food and firewood, as well as recreational activities. There’ s not a shopping mall within 50 miles…. so it’s not for everybody – but there is a great hospital so we do ok. πŸ™‚

    There are a lot of rural places that provide low cost alternative lifestyles… but I’d guess you have to forgo the big city for them.

  • $68,000 is not enough if you live in San Francisco, LA, NYC, and perhaps Chicago. Other cities, it’s probably enough… but for two people? I think it’s a stretch.

    Two bedroom apartments cost $4,000/month to live in Manhattan for example. That’s $48,000 in after tax income right there. How is $68,000 enough? Downgrade to a 1 bedroom, and it still costs $2,500, or $30,000/yr.

    Marci/Seth/David – Where do you guys live?

    • MoneyNing says:

      I live in Orange County (Southern California) and Emma and I can be happy with about $3k a month. This includes utilities, rent, groceries and everything else.

      $68,000 is plenty for two people even if you are in LA, especially if you have your mortgage paid off.

  • marci says:

    Seth – THANK YOU. So good to hear someone actually doing what I planned on doing – and knowing that it works πŸ™‚

  • Seth says:

    I’m retired and living on $30,000 a year. I golf almost every day, I surf the web and laugh whenever I read retirement articles like this one talking about needing so much money.

    It’s never enough no matter how much you have because you can always find a way to use it, but you will need surprisingly little if you actually use your head before you spend.

  • fern says:

    While some studies have shown costs tend to drop in retirement, others show it can easily rise, especially since so many people say they want to travel in retirement, and yes, travel (airfare) will remain quite expensive, even if the country destinations have a low cost of living.

    Rather than arguing whether your costs go up or down in retirement, it’s more accurate to say that your costs in retirement can actually be segmented into 2 or 3 categories: higher expenses in early retirement years of say, 60 to 70, when your health is hopefully still good and you do all that travel so many say they want to do; then costs drop somewhat in your 70s as you stay home more and then costs could easily rise in your 80s and beyond due to healthcare issues. There are a lot of things that Medicare doesn’t cover; I’ve read in several places that a healthy 60 year old woman with no chronic conditions should expect to set aside $250,000 to cover out of pocket expenses for the rest of her life and have a 90% chance of being able to pay for it all.

    You say that retirees will want to eat in more; well, some may, but i know i will enjoy eating out more.

    So no, i don’t think $1.7 million is way out of line for a young (58) couple to live on. they should be quite comfortable with that pension, but with so many variables including taxes, inflation and unexpected health issues, i don’t think you can play it too safe, especially since, should you find halfway into retirement that you’re depleting your stash too quickly, you can’t exactly go back to f/t work.

  • marci says:

    And WHY does it take $68,000/yr to live? That’s more than triple my income…. and I am debt free and save money every month πŸ™‚ I just redid my roof, windows, plumbing, electric, woodstove – all new – and the house should not need major maintenance til I die πŸ™‚ I don’t want to have to worry about anything on the house when I retire.

    My planning is living til 103…that’s what I have my money set up for…and I plan to retire anytime between 58 and 62 – 62 at the latest.
    With SS, small $450/mo pension, IRA’s, and investment income off the $200,000, and remaining debt free – ie, no mortgage, and taxes/insurance/utilities/food now running $400 month, there should be plenty…that’s WAY more than I take home now.

    But then most people couldn’t live on what I make – let alone live well and SAVE every month, and enjoy life like I do πŸ™‚ And I’m happy and content and days are jam packed with activities, family, and friends. It’s a great life in a great place.

  • $134,000/yr is more than enough if their house is paid off. The key is to replicate one’s existing income in retirement years. You’ll make more then than now, b/c expenses, except for healthcare will be lower.

    Most people won’t have pensions, so for most people, $1.7million is barely enoug, b/c that will only generate around $68,000/year.

    • MoneyNing says:

      I think $68,000 is more than enough in today’s dollars. The amount is probably more than the median household income in the country and if you don’t have a mortgage payment or rent to pay, it’s plenty to live off of.

  • The thing is, you could live into your 90’s, so if you plan on retiring around the age of 60, you would need quite a nest egg. I agree that the $60k pension should give them more than enough security (unless the company goes under), but when I retire I want to be certain I won’t be forced to work some low-wage job when I’m in my late 80’s.

    Also, I worry about the inflation hitting these nest eggs. If inflation is around 8% per year, even if we don’t see a flood of dollars back into our country (which is possible if we lose reserve currency status) the retirement nest egg must be diversified in a way that hedges inflation (let’s say some foreign dividend paying stocks looking to gain on the dollar, some gold – both physical ownership and etfs). Protecting wealth isn’t what it used to be.

    • MoneyNing says:

      If inflation is 8%, I don’t think there’s much that can help us. I believe having a paid off house and a sizable nest egg is enough to weather most storms. Many retirees that have a nest egg north of $1 million only live off of their interests, so saying $1.7 million + $60,000 isn’t enough illustrates the fact that the financial planner haven’t retired (or know many) retirees.

  • marci says:

    I figured $200,000 for an emergency retirement nest egg to just let sit and reinvest the interest.
    With my SS, pension, and IRA’s, I will be bringing in more than I make now, (under $20,000/yr), and the house/rigs paid for, I will be living in luxury πŸ™‚
    I can’t see spending oodles when I don’t spend it now. Why would I change?

    • MoneyNing says:

      Exactly marci, exactly my point. I just hope that people will be less worried about their retirement after reading this piece because we will be slaving away for decades if $1.7 million plus a $60k pension isn’t enough.

  • Joe says:

    > Travel All Over the World – You may have a point, as seeing the world requires huge sums of money.

    Travel isn’t necessarily more expensive than staying home. There are many countries with far lower standards of living (still) where the dollar will get you much further than in the states..

    • MoneyNing says:

      When I say travel, I mean visiting other countries as opposed to living there. It’s absolutely true that it’s cheaper (but not necessarily worst) to live in most other countries but if you just visit, the hotels, lack of ability to know where to get deals etc makes traveling much more expensive.

  • Vicky says:

    The costs of utilities, gas, food, insurance have all escalated. What is astronomical is the health care costs with Medicare? I am so looking forward to health care reform. (sarcastic). You are required to be a part of the Medicare group and the coverage is less. The supplemental insurance is a joke and the medicines that are not covered in the magical drug bill is huge. People saved all their lives but their costs are outliving their nest egg. They looked forward to retirement so that they could travel and eat out. They are not able to do either with the rising costs.

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