Best of the Week
Most Popular
1.Gold Price Trend Forecast, Where are the Gold Traders? - Bob_Loukas
2.Stocks Bear Market of 2017 Begins? Shorting the Dow At its Peak! - Nadeem_Walayat
3.Betting on President Trump Leaving Office Early, Presidency End Date - Betfair Market - Nadeem_Walayat
4.Why Stock Market Analysts Will be Wrong About 2017 - Clif_Droke
5.Is This The Best Way For Investors To Play The Electric Car Boom - OilPrice_Com
6.Silver Price 2017 Trend Forecast Update - Video - Nadeem_Walayat
7.Gold Price Set For Very Bullish 2017, Trend Forecast - Austin_Galt
8.10 Things I learned From Meetings With Trump’s Transition Team - - John_Mauldin
9.How Investors Can Profit From Trumps Military Ambitions - OilPrice_Com
10.Channel 4 War on 'Fake News', Forgets Own Alt Reality Propaganda Broadcasting - Nadeem_Walayat
Last 7 days
Underperformance in Gold Stocks Argues for Interim Peak - 25th Feb 17
Watch What Happens When Silver Price Hits $26...  - 25th Feb 17
Gold Futures Buying Yet to Start - 25th Feb 17
When the Stock Market Flying Pig Tops - 24th Feb 17
Gold, Second Fed Hike and Interest Rates - 24th Feb 17
Bitcoin Price Hits Record High! - 24th Feb 17
Another Stock Market Bubble? Bring it On! - 24th Feb 17
What Investors Need To Know About U.S. Money Market Funds? - 24th Feb 17
When Was America’s Peak Wealth? - 24th Feb 17
The Oscars – Worth Their Weight in Gold? - 24th Feb 17
The Best Reasons to Buy Gold in the Age of Trump - 22nd Feb 17
Silver, The Return of Stagflation - 22nd Feb 17
Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - 22nd Feb 17
Gold: Short End US Rates Matter More Than Long End Real Yields - 22nd Feb 17
CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry - 22nd Feb 17
Here’s Proof Rising Rates Are Good for Gold - 21st Feb 17
Gold and Silver Weekly Update - 21st Feb 17
US Dollar and Gold Battle of the Cycles - 21st Feb 17
NSA and CIA is the Enemy of the People - 21st Feb 17
Big Moves in the World Stock Markets - Big Bases - 21st Feb 17
Stock Market Uptrend Continues - 21st Feb 17
Brent Crude Oil Price Technical Update: Low Volatility Leads to High Volatility - 20th Feb 17
Trump’s Tax System Could Spark The Wave Of Self-Employment - 20th Feb 17
Here’s How to Stay Ahead of Machines and AI - 20th Feb 17
Warning Signs Of Instability In Russia - 20th Feb 17
Warning: This Energy Investment Could Wreak Havoc On Your Portfolio - 20th Feb 17
The Mother of All Financial Bubbles will be Unimaginably Destructive when it Bursts - 19th Feb 17
Gold’s Fundamentals Strengthen - 18th Feb 17
The Flynn Fiascom, the Trump Revolution Ends in a Whimper - 18th Feb 17
Not Nearly Enough Economic Growth To Keep Growing - 18th Feb 17
SPX Stocks Bull Market Continues to make New Highs - 18th Feb 17
China Disaster to Trigger Gold Run, Trump to Appoint 5 of 7 Fed Governors - 18th Feb 17
Gold Stock Volume Divergence - 17th Feb 17
Gold, Silver, US Dollar Cycles - 17th Feb 17
Inflation Spikes in 2017, Supporting Gold Prices Despite Increased Odds of March Rate Hike - 17th Feb 17
Roses Are Red... and So's Been EURUSD's Trend - 17th Feb 17
Gold Trade Note Sighted - 17th Feb 17
Gold Is Undervalued Say Leading Fund Managers - 17th Feb 17
NSA, CIA, FBI, Media Establishment 'Deep State' War Against Emerging 'Trump State' - 16th Feb 17
Silver, Gold Stocks and Remembering the Genius of Hunter S. Thompson - 16th Feb 17
Maps That Show The US’ Strategy In Asia-Pacific - 15th Feb 17
The Trump Stock Market Rally Is Just Getting Started! - 15th Feb 17
Tesco Crisis - Fake Prices, Brexit Inflation Tsunami to Send Food Prices Soaring 10% 2017 - 15th Feb 17
Stock Market Indexes Appear Ready to Roll Over - 15th Feb 17
Gold Bull Market? Or was 2016 Just a Gold Bug Mirage? - 15th Feb 17
Here’s How Germany Buys Time From China - 15th Feb 17
The Stock Trader’s Actionable Guide to Trump - 15th Feb 17
Trump A New Jacksonian Era? The Fourth Turning (2) - 14th Feb 17
Stock Market Yet Another Wall Street 'Witch's Brew' - 14th Feb 17
This Is Why You Don’t Own A Lot Of Stocks - 14th Feb 17
Proposed Tax Reforms Face Enormous Headwinds - 14th Feb 17

Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

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

© 2005-2016 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

Catching a Falling Financial Knife