Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

How to Marry a Millionaire… And Not Die a Pauper

Personal_Finance / Money Making Sep 03, 2013 - 02:30 PM GMT

By: Don_Miller

Personal_Finance

A recent article penned by Jeff Sommer for The New York Times noted that in 1953, when How to Marry a Millionaire – one of Marilyn Monroe's more endearing comedic performances – debuted, $1 million was worth much more than it is now. It was the equivalent of $8.7 million in today's dollars.

Much like the old gray mare who is past her prime, a million dollars sure ain't what it used to be. In 1953, a family with a net worth of $1 million easily resided in the top 1% of all US households; now they're just in the top 10%.


For many decades, folks imagined that being a millionaire meant never having to worry about money again. Millionaires were living on easy street, or so people thought. Sommer and I agree – that idea is an illusion. For retirees, $1 million certainly does not make one wealthy, especially if a large part of that money is wrapped up in one's home.

There's a Good Chance You Will Outlive Your Money

Sommer goes on to write:

"[C]onsider this bleak picture: A typical 65-year-old couple with $1 million in tax-free municipal bonds want to retire. They plan to withdraw 4 percent of their savings a year – a common, rule-of-thumb drawdown. But under current conditions, if they spend that $40,000 a year, adjusted for inflation, there is a 72 percent probability that they will run through their bond portfolio before they die. …

f they withdrew 3 percent, or $30,000, a year, rather than that standard rate of 4 percent, inflation-adjusted, there is still a one-in-three chance that they will outlive their money, under current market conditions."

As an aging stallion who has spent many years pulling the load with his wonderful mare, I know that the solution to our predicament is more complicated than simply changing a number in a computer projection. Retirees need to look beyond the old retirement formulas if they want their money to last.

The old formula was simple: Retirees could expect a 6% return on their portfolios, factor in a 2% rate of inflation, and still net a 4% return to live off of without touching their principal. That was easy when CDs and high-quality bonds could be counted on for at least 6%.

The foundation of that formula was the adage, "live off the interest and never touch the principal." For several generations it was nothing short of gospel. If your principal remained intact, you never had to worry about running out of money. I do not know anyone who would be comfortable watching their nest egg dwindle away every year. It is terrifying!

A Retirement Formula for 2013 and Beyond

Consider the three variables in the old formula: expected return; rate of inflation; and the percentage one can withdraw each year. These days the numbers we can safely assign to those variables are all moving at the same time.

To begin with, retirees can no longer expect a 6% return on ultra-safe investments like CDs and top-rated bonds. Not anymore; the yields are not even close. That means retirees have to put much more of their money at risk.

Then there's that ridiculous 2% inflation rate. Regular Miller’s Money Weekly readers will recall our inflation survey, in which 98.6% of the thousands of folks who participated thought inflation was much higher than the government-reported rate of 2%. At the end of the day, we each have to plan for increases to the goods and services we actually spend our money on. For seniors, that means paying particular attention to health care and long-term care costs – and if we're lucky, greens fees and baseball tickets too. Whatever your personal inflation rate is, I highly doubt it's only 2%.

Planning becomes difficult when we don't know which numbers to plug in. If we believe inflation is 5% and we still want to withdraw 4% from our portfolio each year, we must earn 9% to keep our buying power intact. Even if our inflation estimate is correct, a 9% return from conservative investments is an ambitious goal.

Don't Plan Your Retirement Around Expectations

The Times article also points out the recent increase in the yield of 10-year Treasury notes and states:

"Rates are expected to rise... Yet yields remain extraordinarily low on a historical basis. The yield on the benchmark 10-year Treasury note is just under 2.2 percent, compared with more than 6.5 percent, on average, since 1962, according to quarterly Bloomberg data."

While guaranteed yields may be rising, are they rising fast enough to make a difference in our retirement plans? With the government creating $1 trillion a year in new money, we can't start thinking "happy days are here again" until we are comfortable that these yields are – and will remain – well above the inflation rate.

If the inflation rate is higher than the return on our investments, then we have several uncomfortable choices:

  • Put more money in moderate-risk investments in hope of a higher return.
  • Move money already in moderate-risk investments into high-risk investments.
  • Take out less money from one's portfolio each year to supplement Social Security, and adjust one's lifestyle accordingly.
  • Tap into principal and watch the nest egg dwindle.
  • Continue to work.

As my colleague John Mauldin likes to say, the technical term for any of the choices is "screwed."

Is It Still Possible to Enjoy Retirement?

Sure it is! If you're in the top 1% in terms of net worth, you probably have enough money to last a lifetime, even if you do tap into the principal. For the rest of us mere mortals, the retirement game has changed, but it's still playable.

On a side note, I caution anyone working with a financial planner not to be lulled to sleep by their projections. Their calculations may be mathematically accurate, but the variables they plug in to their fancy computer programs may not match the ever-changing real world, and those projections certainly have a short shelf life. Financial projections should be regularly revised; otherwise they become stale very quickly.

Nevertheless, no matter where we fall in terms of net worth – top 1%, top 10%, or top 50% – we want to maintain our lifestyle during retirement without having to constantly worry. That is a common thread we all share.

In my opinion, the key is becoming self-educated. At Money Forever, we offer a library of educational resources for our subscribers. Even folks who have professional help need to learn as much as possible about investing. The more we know, the less we worry.

While this old grey stallion ain't what he used to be, my mind is still intact (thank goodness). The government bailed out banks at the expense of an entire generation. But we can still adjust our investment strategies and enjoy retirement. We cannot, however, allow ourselves to be fooled by the illusion of wealth.

If you’ve got about a half hour to spare on Thursday, September 5th I suggest you mark your calendar to join me in an exclusive premiere of America’s Broken Promise: Strategies for a Retirement Worth Living. I'm bringing together some of today's top minds to help make sense of the challenges facing savers and seniors alike and to give you actionable recommendations on how you can make sure your retirement is about thriving, and not just surviving.

The presentation will be hosted by my colleague, David Galland of Casey Research, and will feature John Stossel, formerly on ABC's 20/20 and now with Fox Business Network, David Walker, former Comptroller General of the United States, Jeff White, President of American Financial Group, and me of course.

This is the one event you won't want to miss. Use this link to find out more and to sign-up. I look forward to you joining us on the 5th. Good ahead and reserve your spot here.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014