The Retirement Worry We All Wish We Had!

     Smart Money published an article on March 11, 1011, titled "5 Biggest Retirement Myths" (also picked up in the Wall Street Journal today). The article opens with the sad tale of a retired dentist who left Colorado with his wife for warmer climes in Arizona five years ago with a nest egg of $3 million. Between the stock market crash, higher than expected insurance costs, and unanticipated travel expenses, the couple finds it must make do on 20% less than originally planned. "The golden ages aren't always golden," laments the former dentist. I know, cry me a river...
     Let's look at the numbers. A rule of thumb says it is generally safe to withdraw about 4% of your retirement assets for living expenses (then adjust a bit each year based on how the accounts are doing). On $3 million that comes to $120,000. The article didn't say whether the couple - both of whom had working careers - had started drawing Social Security benefits yet, though at full retirement age you can bet they would claim $4,000 per month or better, some $48,000 yearly. That's $168,000 total per year. Now they face a 20% reduction which would bring them to the tight budget of $134,400 annually. We should all have such worries!
      While I am certainly happy for the dentist's good fortune - and good fortune it is, whatever the relative reduction in cash flow - it contrasts rather sharply with the prospects for the vast majority of aspiring retirees. A February 19, 2011 article in the Wall Street Journal ("Retiring Boomers' 401(k) Plans Fall Short") cites data that households whose head is aged 60 to 62 have a mean value of $149,400 in 401(k) accounts (remember: "mean" means half of all such households have more and half have less...). That amount is 1/20th (5%) of the nest egg held by the dentist and his wife. Yet that is the condition of the vast majority of folks approaching retirement.
     So, if you find yourself with a financial profile that looks less like that of the dentist and more like that of, well, just about everyone else nearing retirement (otherwise known as "the rest of us"), this is disheartening news. However, don't despair. Retirement may not be nearly as out-of-reach as it seems. We'll explore alternatives in the days ahead. In the meantime, keep your dreams alive!