How far will $1 Million go in retirement in your state?

[GON]

It’s an interesting example, for certain. Liquid assets are the easiest to plunder, but hard assets, like land, have been taken by governments in the past. Nothing is certain. Perhaps a small side investment in precious metals? I was thinking, forged steel, brass, and lead…

But the question in the back of your mind is what shapes your risk tolerance.

This post, the subsequent one in this thread, along with many of your other posts, suggest that you do not trust financial markets or investments. Your posts reflect that lack of trust, and the many reasons behind that lack of trust.

So, your risk tolerance is low. That’s not a value judgment, but a fact that shapes how you should plan for your future. You’re not alone, my friend, @JeffKeryk and @billt460 make a similar argument, without stating it quite that way.

In your case - and theirs - a paid off mortgage, unencumbered property, may be far more valuable, based on that understanding of what risk is acceptable, than the arbitrage of investing in stocks, or other assets, while holding a low interest rate mortgage.

Ultimately, you have to be able to sleep at night.

Of numerous data points, over the years two people made comments that have kept my "awareness up".

About 20 years, I was working in Nicaragua. My lodging was a nice room in a former palace, the palace was converted into a hotel. One evening while eating in the bar, I struck up a conversation with the proprietor. He was an expat from the U.S. - really nice guy. I commented how nice the hotel was and praised him on his conversion of a dilapidated old palace into a hotel. He stated he loved what he had built. But he said he is always aware and prepared- to get a knock on his door and told by the whoever the currently elected office holders are- that he no longer owns the hotel. Reality that as Americans we have be immune from.

Another was a conversation from a person who talked of a federal government plan, in case of a currency crisis that would nationalize 401ks, etc, (in case of a deep crisis). I google searched this and was unable to verify any of this. I am aware of a plan years ago of "Argentina's plan to nationalize private retirement accounts".

https://www.ipi.org/ipi_issues/detail/as-argentina-goes-so-goes----your-401k

As heads of household, I believe we have a duty and responsibility to protect our family, community, and nation. It is much easier to protect a family than a nation. But, protecting a family in the long-haul aides in protection of a community, and indirectly a nation.

 

[Astro14]

This is why I don't understand these experts saying that 3.7% is the new 4% safe retirement withdrawal. I'm not greedy. I can happily live off 5% of my nest egg plus social security. No need to risk it hoping for stronger returns. If I can live off 5% returns, I can preserve my nest egg indefinitely and leave money to heirs.

Living off 5% of your nest egg will slowly (or quickly, in the case of a bear market for a few years) deplete your nest egg as inflation and withdrawals eat it up.

The trick, then, is to die before it hits zero.

4% allows you a much better chance of the nest egg outliving you, through down markets and modest inflation. This planning assumption is based on ups and downs in the market, as well as a balanced portfolio returning more like 7%, perhaps a bit more.

With higher inflation, and stock market volatility, many experts are revising the 4% down to a lower number, to allow more resilience in the portfolio. 3.7, perhaps even 3%, improves the chances that your portfolio lasts your life.

My wife is a picture of health, now that her breast cancer is well behind her, and both her mother and grandmother lived to 95. She retired at 63. Our planning assumptions are based on carrying her through her late 90s.

In other words, the portfolio has to last her over 30 years. You simply can’t spend 5% each year and have anything left over that time horizon. Now, in our case, there are three* defined benefit pensions, plus SS, plus the portfolio, so, we have a very different asset allocation and risk tolerance than most in our planning.

The pensions are, quite literally, the “fixed income” portion of the portfolio, so our asset allocation within the investment accounts is quite aggressive, with quite a bit of tech, along with industrials, pharmaceuticals, financials, transportation, and others.

But we are planning a very modest withdrawal rate from our investments, since it is one of our goals to provide for our children, as well as self-insure any assisted living, should that be necessary.

So, perhaps 3% in our case.

Also, we are in the end game. I retire in 3 1/2 years. The pensions are set. There isn’t a great deal I can do to affect the trajectory of our portfolio, that trajectory was established through decades of investing, but we are making some financial moves to best use my remaining income.


*We both served in the US Navy, and are both getting a pension from that. Additionally, she served as GS for 17 years, and gets a pension from that. Three in total, all being received at the moment.

 

[GON]

Living off 5% of your nest egg will slowly (or quickly, in the case of a bear market for a few years) deplete your nest egg as inflation and withdrawals eat it up.

The trick, then, is to die before it hits zero.

4% allows you a much better chance of the nest egg outliving you, through down markets and modest inflation. This planning assumption is based on ups and downs in the market, as well as a balanced portfolio returning more like 7%, perhaps a bit more.

With higher inflation, and stock market volatility, many experts are revising the 4% down to a lower number, to allow more resilience in the portfolio. 3.7, perhaps even 3%, improves the chances that your portfolio lasts your life.

My wife is a picture of health, now that her breast cancer is well behind her, and both her mother and grandmother lived to 95. She retired at 63. Our planning assumptions are based on carrying her through her late 90s.

In other words, the portfolio has to last her over 30 years. You simply can’t spend 5% each year and have anything left over that time horizon. Now, in our case, there are three* defined benefit pensions, plus SS, plus the portfolio, so, we have a very different asset allocation and risk tolerance than most in our planning.

The pensions are, quite literally, the “fixed income” portion of the portfolio, so our asset allocation within the investment accounts is quite aggressive, with quite a bit of tech, along with industrials, pharmaceuticals, financials, transportation, and others.

But we are planning a very modest withdrawal rate from our investments, since it is one of our goals to provide for our children, as well as self-insure any assisted living, should that be necessary.

So, perhaps 3% in our case.

Also, we are in the end game. I retire in 3 1/2 years. The pensions are set. There isn’t a great deal I can do to affect the trajectory of our portfolio, that trajectory was established through decades of investing, but we are making some financial moves to best use my remaining income.


*We both served in the US Navy, and are both getting a pension from that. Additionally, she served as GS for 17 years, and gets a pension from that. Three in total, all being received at the moment.

Would a course of action be reasonable to only live off of 90 percent of the returns generated from the investments? The other 10 percent of the returns rolled back into the principle. Thus, the principle grows year over year, never at risk of depletion, and in theory investment returns grow at a higher rate than inflation (assuming inflation doesn't exceed ten percent). Very crude COA, as ROI can be dynamic and other factors, but worth looking into? Based on family history, and gains in healthcare---sounds like your bride could easily live into her 100s.

 

[Pablo]

When we bought our house in 2021 the rates were so low it would have been nuts to tie up $500K

So darn shootin we have a mortgage. If I pay it off tomorrow I would feel foolish and not a bit more secure. So yes we are definitely different

And for the record I don’t count this money in our retirement savings.

 

[Patman]

At the end of the day if someone lives in a state where they can’t afford to retire on a million dollars then maybe they should consider moving to a different area. Of course that can be difficult if they want to stay close to where their children/grandchildren live. But even in my area there are towns that are just 2-3 hours away from Toronto that have a much lower cost of living with homes that are less than half of what they cost in the Toronto area and it’s close suburbs.

I moved out of the more expensive area 4 years ago and I have a condo that is fully paid off and have no debt of any kind. I would not have been able to do that if I still lived in Oakville (one of the most expensive areas near Toronto). So I can easily afford to live on about $2500 a month out here.

 

[billt460]

No doubt California has outstanding opportunities.

Not sure a senior citizen with $1 million USD in the bank, and social security as their only income, should pack up the truck and move to Beverly Hills, CA --- or any place in CA.

I have been stuck at SFO from time to time, sometimes a 12+ hour flight delay. I have ventured to Southern San Francisco waiting out the flight delays. I did see older apartments that a senior citizen might be able to rent. Plenty of little coffee shops, tiny grocers, and little restaurants. The issues include can a senior citizen walk upstairs to their apartment, live without a vehicle, and most importantly not get mugged? The airport area in Southern San Francisco (just outside the airport freight area) might be a unique match that is possibly affordable for some select senior citizens on a fixed income. But this scenario is not likely a good fit for senior citizens on a MACRO basis.

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I think in time California is going to undergo a major financial shift / change / adjustment. As it sits now, housing is very expensive, and good paying jobs with benefits are drying up seemingly more and more every year. (The big aircraft industry no longer exists, as all of it has moved to other cheaper states).

Taxes are astronomical across the board. Property tax, state income tax, gasoline tax, and a few hundred more I'm forgetting, are bleeding all but the rich dry. Last I heard they're trying to get rid of Proposition 13 because the state desperately "needs" more revenue. All of this as people are leaving in droves,

Wasteful government spending took what was once a surplus, and turned it into a multi billion dollar deficit. A major real estate adjustment is coming. When it will hit, and how hard are the only questions that remain.

But I doubt that anyone would argue today that California's best days are behind them. It's the place to be from at this point. I think New York could be in for much the same.

 

[GON]

I think in time California is going to undergo a major financial shift / change / adjustment. As it sits now, housing is very expensive, and good paying jobs with benefits are drying up seemingly more and more every year. (The big aircraft industry no longer exists, as all of it has moved to other cheaper states).

Taxes are astronomical across the board. Property tax, state income tax, gasoline tax, and a few hundred more I'm forgetting, are bleeding all but the rich dry. Last I heard they're trying to get rid of Proposition 13 because the state desperately "needs" more revenue. All of this as people are leaving in droves,

Wasteful government spending took what was once a surplus, and turned it into a multi billion dollar deficit. A major real estate adjustment is coming. When it will hit, and how hard are the only questions that remain.

But I doubt that anyone would argue today that California's best days are behind them. It's the place to be from at this point. I think New York could be in for much the same.

What I speculate may be overlooked/ missed in California is multi-generational households.

I think California maintains its "status quo" with a transition of one generation in a home to multi-generations in a home. California homes that were built in the 1960s, 1970s, 1980s, etc., and housed one generation very comfortably, going into the future will likely house three to four generations in that same house. Many legal immigrants into California are from Asia. In Asia, multi-generational households are the norm.

Multi-generational households may likely shield California from a housing price downturn.

 

[JHZR2]

A paid off house is not one of my retirment goals. I'd rather use that capital elsewhere.

If you bought with a mortgage at 1.x%, got it. But having a big note at a high rate like today, 6.x% seems silly.

To pay the bank 2-3x the value of the home in interest by hanging onto a mortgage, or to make another person’s mortgage and tax payments for them plus profit, all seems silly. Not sure the long term prospective returns are great. And I’m not a real estate fanboi. It has been established that even well-appreciating re doesn’t really give that great of returns after all the costs are factored in…

 

[JHZR2]

What I speculate may be overlooked/ missed in California is multi-generational households.

I think California maintains its "status quo" with a transition of one generation in a home to multi-generations in a home. California homes that were built in the 1960s, 1970s, 1980s, etc., and housed one generation very comfortably, going into the future will likely house three to four generations in that same house. Many legal immigrants into California are from Asia. In Asia, multi-generational households are the norm.

Multi-generational households may likely shield California from a housing price downturn.

And the fact that it is generally a nice climate, a massive economy (what, fifth largest in the world, maybe higher, just as a state?), and huge population base.

Implosion of CA will be from the residents doing it to themselves. One can only hope that the exodus of folks from CA doesn’t result in their same mindset destroying the locations they go to.

 

[JeffKeryk]

I think in time California is going to undergo a major financial shift / change / adjustment. As it sits now, housing is very expensive, and good paying jobs with benefits are drying up seemingly more and more every year. (The big aircraft industry no longer exists, as all of it has moved to other cheaper states).

Taxes are astronomical across the board. Property tax, state income tax, gasoline tax, and a few hundred more I'm forgetting, are bleeding all but the rich dry. Last I heard they're trying to get rid of Proposition 13 because the state desperately "needs" more revenue. All of this as people are leaving in droves,

Wasteful government spending took what was once a surplus, and turned it into a multi billion dollar deficit. A major real estate adjustment is coming. When it will hit, and how hard are the only questions that remain.

But I doubt that anyone would argue today that California's best days are behind them. It's the place to be from at this point. I think New York could be in for much the same.

I 100% disagree with your thoughts on California.
I would not live anywhere else. Opportunity abounds like nowhere else. I am evidence of that. Today I struggle with the "problem" of what to do with my estate upon death.

Is CA for everyone? No. Is it expensive? Yes, but that's because there is a lot of money here.

 

[JeffKeryk]

What I speculate may be overlooked/ missed in California is multi-generational households.

I think California maintains its "status quo" with a transition of one generation in a home to multi-generations in a home. California homes that were built in the 1960s, 1970s, 1980s, etc., and housed one generation very comfortably, going into the future will likely house three to four generations in that same house. Many legal immigrants into California are from Asia. In Asia, multi-generational households are the norm.

Multi-generational households may likely shield California from a housing price downturn.

Wealth often comes from generational wealth. Not just CA.

 

[JHZR2]

https://www.visualcapitalist.com/ma...aUb-GKYd6qxTX7S-Og_aem_3YuOy4VwJbfV-al5JlyUWA

I find this an extremely helpful guide for quantifying and comparing the cost of retirement in the 50 states. It's methodology uses the
national average expenditure costs for retirees from the Bureau of Labor Statistics Consumer Expenditure Survey. The Home values as of November 2024 were sourced from the Zillow, calculated using a 10% down payment and a 30-year fixed mortgage rate.

I have to wonder why anyone at retirement would be buying a home with 10% down and be authorized a 30 year mortgage. If they couldn’t afford a home before, they won’t now. If they want to downsize they will.

This would be more helpful if the stupid real estate portion of it was taken out, and it was just relative cost of living, fees, and taxes.

For example, NJ and PA have about a half/double relationship on this. RE is expensive in NJ as are taxes. I can find homes for $75k depending upon where in PA, with lower taxes. That’s not helpful.

What would be is an assumption of $1MM, $x/yr of SSI, then how does it get taxed and how does COL affect? PA doesn’t tax SSI or pensions, while NJ does, IIRC. That would be a better example than trying to figure out how much of your savings is eroded paying a bank interest for 30 years on a huge purchase…

 

[JeffKeryk]

If you bought with a mortgage at 1.x%, got it. But having a big note at a high rate like today, 6.x% seems silly.

To pay the bank 2-3x the value of the home in interest by hanging onto a mortgage, or to make another person’s mortgage and tax payments for them plus profit, all seems silly. Not sure the long term prospective returns are great. And I’m not a real estate fanboi. It has been established that even well-appreciating re doesn’t really give that great of returns after all the costs are factored in…

Not so sure... My take is, I am either paying my mortgage or someone else's. Have a place to live free and clear is a great feeling.

 

[GON]

If you bought with a mortgage at 1.x%, got it. But having a big note at a high rate like today, 6.x% seems silly.

To pay the bank 2-3x the value of the home in interest by hanging onto a mortgage, or to make another person’s mortgage and tax payments for them plus profit, all seems silly. Not sure the long term prospective returns are great. And I’m not a real estate fanboi. It has been established that even well-appreciating re doesn’t really give that great of returns after all the costs are factored in…

I struggle with this simple math problem. Others on BITOG will not- but I do.

Eight months ago, Wife and I purchased a home. The home had an assumable solar loan, original balance of $50k USD, we assumed the balance of $48k USD, 1.99 percent interest, for 30 years ($212 monthly payment). The original purchaser of the solar likely overpaid, and the solar parts and labor should have been in the $15-20k USD. It appears the purchaser of the solar received a check from U.S. taxpayers for $15k USD, solar rebate. The original purchaser of the solar likely went for the deal, as their electric bills were about $200 USD monthly. So, install solar, reduce your electric bill from $200 to $12 per month, and get a check in the mail courtesy of U.S. taxpayers for $15k.

So, here is my dilemma. Pay off a $48k loan, on a solar system that new should have cost no more than $20k USD? I have the money set aside to pay off the loan at any time (currently earning four percent at a NCUA insured financial institution). I am very tempted to pay the loan off. Or keep making payments, for 28 more years, where the total interest over 28 years will likely be in the high five figures.

I know the expert/ savvy/ smart money method is to keep the money in the bank, make four percent interest, and keep making the payment. But I am not so smart and hate paying potentially a high five figures in interest.

Caveman GON here.

 

[Pablo]

Not so sure... My take is, I am either paying my mortgage or someone else's. Have a place to live free and clear is a great feeling.

Why? It’s a feeling I am glad you admit that. But it’s not always the best financial decision.

 

[Patman]

Not so sure... My take is, I am either paying my mortgage or someone else's. Have a place to live free and clear is a great feeling.

I will never have a mortgage ever again or a car payment for that matter. Being 100% debt free is the best feeling.

 

[JeffKeryk]

Why? It’s a feeling I am glad you admit that. But it’s not always the best financial decision.

It is part of the larger financial strategy. Home ownership value is highly regional. As is wealth in general.
Today I live dirt cheap; that didn't happen over night. Again, my strategy was to minimize recurring costs because then I could survive a downturn.

Contingency planning... I cannot guarantee market performance, but I am pretty sure I need a place to live. So home ownership (no mortgage) was a key component in the larger plan.

 

[GON]

Why? It’s a feeling I am glad you admit that. But it’s not always the best financial decision.

Let’s make up a fictional story in why it might be better to own a home free and clear, instead of making a $5,000 per month house payment, while collecting $7,000 per month in interest income (monthly net gain of $2,000).

You are a resident of the fictional prosperous western nation of Amsoil.

Amsoil hasn’t had a budget in years, and the nation of Amsoil continues to spend more money than it takes in. This spending has resulted in massive debts and deficits, so much so the nation of Amsoil is no longer able to borrow enough to pay the nation’s entitlements and obligations.

The elected officials of the nation of Amsoil have a dilemma. AMSOIL has to pay out social security, welfare, healthcare, and other things every month, or the elected officials will be kicked out of office.

So, the elected officials decide to nationalize all private pension plans, all individual 401ks, all individual savings, and all individual equity, annuity, and bond holding. In exchange for the nationalization of the private individual liquid assets, every adult in the nation of Amsoil will receive a lifetime monthly check of $2,500. And the elected officials are heroes to a majority of the population, and the elected officials of the nation of Amsoil are rewarded for this lifetime monthly payment to the population, by being reelected--for life.

A person that owns their home free and clear in the nation of Amsoil, is pretty happy. They are receiving a $2500 check per month. A person who had their liquid assets nationalized, is not so happy. Instead of a net gain of $2,000 per month by not paying off their house but earning interest---- must now go back to work to earn the $2500 to make the monthly mortgage payment ($5,000 mortgage payment--$2500 lifetime monthly check, results in a $2500 per month deficit, and another $2,000 per month in loss of income).

Just a fictional story of life in the nation of Amsoil.

 

[Pablo]

Let’s make up a fictional story in why it might be better to own a home free and clear, instead of making a $5,000 per month house payment, while collecting $7,000 per month in interest income (monthly net gain of $2,000).

You are a resident of the fictional prosperous western nation of Amsoil.

Amsoil hasn’t had a budget in years, and the nation of Amsoil continues to spend more money than it takes in. This spending has resulted in massive debts and deficits, so much so the nation of Amsoil is no longer able to borrow enough to pay the nation’s entitlements and obligations.

The elected officials of the nation of Amsoil have a dilemma. AMSOIL has to pay out social security, welfare, healthcare, and other things every month, or the elected officials will be kicked out of office.

So, the elected officials decide to nationalize all private pension plans, all individual 401ks, all individual savings, and all individual equity, annuity, and bond holding. In exchange for the nationalization of the private individual liquid assets, every adult in the nation of Amsoil will receive a lifetime monthly check of $2,500. And the elected officials are heroes to a majority of the population, and the elected officials of the nation of Amsoil are rewarded for this lifetime monthly payment to the population, by being reelected--for life.

A person that owns their home free and clear in the nation of Amsoil, is pretty happy. They are receiving a $2500 check per month. A person who had their liquid assets nationalized, is not so happy. Instead of a net gain of $2,000 per month by not paying off their house but earning interest---- must now go back to work to earn the $2500 to make the monthly mortgage payment ($5,000 mortgage payment--$2500 lifetime monthly check, results in a $2500 per month deficit, and another $2,000 per month in loss of income).

Just a fictional story of life in the nation of Amsoil.

You live life scared shirtless. This I can’t help.

While in some poor person’s pipe dream world your fantasy might be a strange strong wish- not going to happen. Especially without warning. Think about it. Period.

 

[Pablo]

It is part of the larger financial strategy. Home ownership value is highly regional. As is wealth in general.
Today I live dirt cheap; that didn't happen over night. Again, my strategy was to minimize recurring costs because then I could survive a downturn.

Contingency planning... I cannot guarantee market performance, but I am pretty sure I need a place to live. So home ownership (no mortgage) was a key component in the larger plan.

I certainly would not invest such monies in silicon valley stocks. I was in municipal debt for a few years then when talk of rate hikes started, MMs, T bills, CDs, agency debt made sense, plus some other higher interest rate payers makes me clear the loan rate by 4-5%+.

I mean even if RE values ever plunge I might be tempted to use that money to buy some land if I wanted to go super risky

It’s a nice position to be in IF you have saved more than enough for retirement and you have multiple income streams. I get that it’s a level above couch comfort so again to each their own but universal put downs of retirees with mortgages is just wrong