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.
How far will $1 Million go in retirement in your state?
- Thread starter gfh77665
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GON
$150 Site Donor 2025
I fat fingered the math, should have been $4,000 per month, made the rest of my figures erroneous. Sorry I made the error.
Break- a commonly held belief is a senior citizen with only $1 million in total liquid assets, should only "invest" in government guaranteed investments, such as a FDIC insured savings account. I can't condone a senior citizen risk their nest egg, regardless how small the risk might be, in equities, annuities, etc. I have seen first hand a very conservative, well run community bank go into receivership in 2008 because the bank placed their reserves in Fannie Mae (or Freddie Mac can't recall) exactly. There was an assumption Fannie Mae/ Freddie Mac were government guaranteed paper, only to discover in a crisis they were not.
Supplemental information returned from a Google search:
There are two notable risks to be aware of (in addition to the other generic risks associated with bond investing):
- Fannie Mae is not a Government Agency, like Ginnie Mae or the FHA. It is a quasi-public, government sponsored enterprise, which means it is not backed by the full faith and credit of Uncle Sam.
- Though it may be likely the Government would bail out FNMA in the event of a possible default, that is not a certainty.
- Consequently, FNMA bonds should be diversified against default: the same way you would diversify other high quality corporate bonds.
- Mortgage-backed bonds are nothing like ordinary Treasury and Corporate bonds. They are not for amateurs—or, for that matter, most professionals (myself, included)— and really require a significant degree of expertise to capably manage.
- Among other details, they have pre-refunding risk. People tend re-fi their mortgages when rates drop. That means that the bond that you thought would give you 5% for 15 years can suddenly turn into a 2 year bond…and at the worst possible time.
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Well said and there is no way to know who is more happy. It can be your mom or it can be your in-laws.
Also money can’t buy you health.
Nick1994
$100 site donor 2024
Agreed.
Another thing to think about is the human ability to follow the budget accordingly. Let’s say they want to withdraw $4k a month in retirement. If they’ve got a $1,500 mortgage still, they’ll probably spend to that amount every month. If they’ve liquidate $100k in savings to pay off the mortgage, they may still spend the $4k withdrawal every month, which won’t last as long.
Debt scares me as well. There is a very solid sense of security that living in a paid for home gives you. Because you own it...... Not the bank. Not to mention if you are worried, you can protect it by placing it into a trust if you so desire. And no one can take it away from you, regardless of what happens.
And as far as all of this supposed, "cheap mortgage money" goes, you have to subtract the appreciation of your home, from all of this money you are supposedly making, by keeping a mortgage, and investing the money elsewhere.
In most cases you're not making what you think you are. For example, the house we're living in now we paid cash for. It has over doubled in value since we purchased it, back in 2019. It would have been impossible for me to achieve that kind of gain in any other type of investment, without taking on tremendous risk. Plus, we lived in it all that time rent / mortgage free.
The older you get, the less financial risk you should be exposing yourself to. Now yeah, I'll admit that it is not common for real estate value to more than double in 6 years.
But even if it appreciated only half that, it still would have been difficult to earn that much in the market, or anywhere else with that amount, without taking on much added risk. And even if I did, it wouldn't have amounted to much after subtracting the additional 50% value increase of the home.
The other advantage that staying debt free gives you, is the ability to save at a much faster rate. Too many people today lose track of how much of their money is going out the door every month. In many cases it's more than they realize.
Mortgage payments, car payments, credit card debt, etc. It adds up fast. Before you know it there isn't much left of your paycheck.
GON
$150 Site Donor 2025
Thanks for sharing your thoughts in this reply.. numerous points of importance to include risk, property in trust, implied discipline, implied less to worry about with no mortgage.
One comment, did your property really double in price in six years, or did the value of the USD change? I like home ownership for numerous reasons, one is as a hedge against a ever changing buying power of the USD, and inflation.
It's amazing just how inexpensively you can not only live, but live well, if you are debt free. I can't even imagine "needing" a million dollars to retire.... Insane.
I have more money coming in now, than I did at any time that I was working. And we live very inexpensively, and want for nothing. A big factor to be considered about retirement location is not so much the state, but rather the property taxes where you want to retire. Which in many areas are completely ridiculous.
The home we sold back in Illinois in 1991 when we moved out here, now has a property tax bill of over $14,000.00 annually. It was just $2,600.00 annually when we moved in. My current property taxes amount to less than $1,500.00 a year.
You can save a vast sum of money by retiring in a area that has reasonable taxes and home insurance costs. This is what is forcing a lot of retired people out of Florida today. Between the rising insurance costs, along with the rocketing property taxes, it is quickly becoming unaffordable for many people.
There are a lot of low density places in California that's affordable enough like a middle of the road mid size town in the middle of America. You pick South of SFO, and any place not rent control there would be competing with tech workers or mid to high crime area.
I have a coworker working remotely from Strawberry, another one in suburb of Reno, another one in Mountain House. Sure they are not rich but they get by just fine. I'm sure if they make 2x they would love to live in Palo Alto but you have to make trade off. If they are not in tech they probably could go further east and live in the central valley as well. That's where farmers grow food, and that's going to be much cheaper.
Again, if you are retiree, there are places in California that's affordable enough. You may not be able to find affordable, low crime, and high income all together, because no matter where you go in the world you have to pick 2 of the 3.
About investing for senior citizen: no I don't believe they should only invest in gov bond. It also depends on how old they are and how much safety net they have. If they are rich they can take the risk, and invest in ETF. If they are about to run out of nest eggs then sure, but nothing can help you other than a lottery ticket or dying before running out of money.
I would say something like Ray Delio's all weather portfolio type of distribution works better. You have a mix of growth vs safe assets that would balance each other out rain or shine, and that also isn't taking on inflation risk like gov bond does. I personally follow a similar approach now by spreading between gold, ETF, individual stocks, T bills, real estates, etc. I can sleep at night no matter what happens.
Maybe retiring in a 3rd world country is a good idea too if that stretches the budget.
I would say something like Ray Delio's all weather portfolio type of distribution works better. You have a mix of growth vs safe assets that would balance each other out rain or shine, and that also isn't taking on inflation risk like gov bond does. I personally follow a similar approach now by spreading between gold, ETF, individual stocks, T bills, real estates, etc. I can sleep at night no matter what happens.
Maybe retiring in a 3rd world country is a good idea too if that stretches the budget.
GON
$150 Site Donor 2025
Your post about putting a primary residence in trust is well worth a discussion. I have lightly read about different trusts and seems certain trusts may provide some good protections for senior citizens, especially ones who might be vulnerable to numerous situations, from a lawsuit to children who talk their senior citizen parent into mortgaging their home for a temporary loan (that never gets repaid).
One only need watch the 1985 fictional comedy "Lost in America", about a couple that sold everything, built a nest egg to financially set them up for life, and live in RV. Except the couple lost their entire nestegg day two after selling everything, at a casino. Trusts may offer some protection from self-inflicted actions.
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OMG! $1mil now would easily last the rest of my life. Hopefully between all accounts and equity by 62 I have a third of that. (62 is the hard retirement age for me)
I must admit that while we are considering putting our home in a trust, we're still trying to educate ourselves about the process, along with what it costs, along with all the pluses and minuses.
Basically from a legal standpoint, the trust "owns" the home, not you. But there are disadvantages as well. There are also blind trusts, where it becomes extremely difficult, if not outright impossible, to even find out who the trustee is.
Today we keep hearing how identity theft is becoming all too common. There are even stories how people have lost title to their homes through massive identity theft. Although I have never met or heard of anyone that had that happen.
Most ads that promote identity theft protection, do so with scare tactics, that really hit home to seniors. With that said, it still does happen, and it is at least something to consider.
I guess it partly depends on how long you'll need the money in retirement.
I'm giving serious thought to retirement at 50. That requires a lot more money than doing it at 65, especially with a few weddings and other things to pay for, post retirement.
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.
GON
$150 Site Donor 2025
A question worth asking- what happens if you are no longer able to take care of yourself?
Assited living, nursing home? I haven't researched the cost, but informally I have heard even a marginal assisted living or nursing home is very expensive.
As we have moved about the U.S. for years--my Wife made and continues to make Christmas gift baskets for seniors in nursing homes and assisted living. Since we are almost always "new" to a community, she just does a hasty search, reaches out to the staff, gets an ok, and drops off the Christmas baskets. With my Wife, I carry in the baskets. From informal observations, the "standards" of nursing homes and assisted living are wide. I would hope I wouldn't need to be in a nursing home or assisted living. But think it is not responsible to assume I will be able to be independent until I take my last breath.
As part of our retirement and estate planning, we have a couple of trusts.
They each serve a specific purpose, but the house is in one trust.
This whole plan was structured with an estate attorney, with specific goals on our part, and in compliance with Virginia laws.
A trust should be done in consultation with a good attorney, and it will cost you some $$, but one should always be willing to pay for expert advice. In our case, the trusts, and the will, cost about $3,000 to execute.
