Conventional wisdom is that you need a nest egg large enough to satisfy the 4% rule.
In other words, millions of people expect to live off withdrawing 4% or so from a portfolio worth well over seven figures. Using this rule, a $1.46 million portfolio would give you $58,400 per year plus Social Security — provided you actually draw down on it.
But in reality, many seniors struggle to shift into withdrawal mode. After decades of diligently socking away cash — in investments or otherwise — while earning a regular paycheck, these seniors are reluctant to suddenly start draining their savings even when the paycheck stops.
That’s according to analysis of data from the Health and Retirement Study, by researchers David Blanchett and Michael Finke (2). Their report suggests that seniors lean heavily on regular income (such as pensions and Social Security benefits) rather than withdrawing from savings in retirement.
Withdrawal rates are significantly lower than the standard 4% rule, they found. In fact, a married 65-year-old couple withdraws at an annual rate of just 2.1% while single retirees hit a rate of 1.9%.
A large number of these people with over $1 million in assets are retired electricians, plumbers, and teachers. Some are small businesspeople. Their needs were bookkeeping daily and brown-bagging it. They have little understanding of money, investing, or economics. They were busy making their living. They are the prime target for the don’t tax us crowd who protect the $10 million yearly incomes for executives. Of course an unnecessary protections taking advantage of ignorance.
When I say the top income bracket should pay a higher rate, I mean there should be more brackets. Simplifying the tax code got rid of the top bracket so the rich could pay a middle bracket rate.
The problem is rampant in my experience - and there is a high correlation between those that saved successfully (and perhaps painfully) and those that are unable to make the switch from being a saver to being a spender.
Agreed, never blew wads on hot cars, did carefully travel the world after retiring, replaced cars for later technology, not for the flash, no bigger home, too much maintenance…Just common sense, I suppose, our parents got by on nearly nothing, but we’ve been able to help our kids, grandkids over rough spots, I doubt they even know our finances, just to keep ourselves from maybe a batch of really bad mushrooms!
