Archives For Retirement Planning

From today’s WSJ

Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.

I found the report and thought this graphic that breaks down savings by age group was troubling:

EBRI 2013 Retirement Confidence Survey Results

Only 42% of those 55 and over have a $100,000 or more in retirement savings. Wow! What kind of retirement, if any, can they (or the other 58%) plan on having?

Even worse is the fact that a lot of people have no idea how much they will need during retirement. Here is a quote from one part of the report:

Forty percent of all workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. Twenty-one percent feel they need between $250,000 and $499,999, while 29 percent think they need to save less than $250,000 for a comfortable retirement…

Consider this:

A lump sum of $250,000 placed in a 20-year fixed immediate annuity with a 3% to 5% interest rate, will produce an annual income of $16,000 and $19,000. Even combined with social security income, that’s hardly a comfortable retirement.


A friend of mine asked me to help her allocate her 401(k) contributions.

Here are her choices (click on the graphic to see a PDF version):

As you can see, they’re all expensive choices. I’m sure this is because it’s a small company and one of the ways providers make the plan “cheaper” for employers is by giving the employees higher-cost choices. Unfortunately, a lot of employers don’t have the time or the desire to research their options.

These plans are more often sold than bought.

Good advice from the Wall Street Journal:

Your First Job? Think About Retirement.

I know a lot of younger people will say, “Yeah, right…” but time is a precious commodity and the one huge advantage young poeple have when it comes to saving for retirement is time.

Read: The Cost of Waiting One Year, which is a post I wrote several years ago but the findings are still important.

The maximum dollar amount an employee can contribute to their 401(K) is increasing $500 to $17,500 for 2013. Those who are 50 and older can contribute as much as $23,000.

Let’s break down $17,500.


$1,453.33 per month.
$47.95 per day.
$1.9977 per hour (based on 8,760 hours per year).
$.0333 per minute.

Better get to saving.

Oh, and in case you’re interested…

The geometric average monthly rate of return for the S&P 500 Index since 1926 is .779%. If a person invests the maximum of $1,453.33 per month for 25 years and gets that kind of return, they could have $1.75 million.

Something to think about.

This is good but he misses one point. I’m not sure if it’s true of all 401(k) plans but interest on a 401(k) loan usually is paid into the 401(k) account. In other words, the interest is your money. It’s as if you borrowed from the Bank of You. Also, some companies do allow contributions while paying back a loan.

I agree with everything else he says.

I posted a similar piece the other day but Jack pointed out that it accounted for inflation twice. So, I removed that post and went back and looked at the numbers.

The attached PDF is a summary of what I found. It was an interesting study. I’m going to go back and include a fixed income class and see where that leads.

To run these numbers, I used the following assumptions:

• I assumed $1,000,000 on the first day of retirement.

• I deducted an income amount based on the initial withdrawal rate (3% – 10%).

• I invested the remainder in the S&P 500 Total Return Index (no fees are transaction costs were deducted as this was based on the actual index and not a product).

• At the end of each year, I calculated the inflation amount based on the CPI for that year and adjusted the next year’s income based on that number. I deducted that income from the current balance and invested the rest in the S&P 500.

• I performed this calculation for each thirty year period.

• For those periods when the funds were exhausted before the thirty years was up, I took the balance available as income for the final year. Sometimes that number was really low.

Here is the summary of all the data:

Retiring on the S&P 500 Index - How Long Will Your Money Last?

UPDATE: For those who are interested, here is a 15-page PDF that looks at the numbers in depth at a 4% inital withdrawal rate. I was going to make them all available until I found out how big the files are.

Interesting interview with William Berstein in MONEY.

Tell me what you think of this piece from the article:

So how should I be investing near and after retirement?

You want to end up with a portfolio that matches your liabilities, meaning the amount you’ll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses — that is, the yearly shortfall you have to make up after Social Security and any pension.

This portfolio should be in safe assets: Treasury Inflation-Protected Securities, annuities, or even short-term bonds.

Anything above that, you can invest in risky assets. That’s your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn’t do well, at least you’re not pushing a shopping cart under an overpass.

That’s a pretty sizable chunk of change. Based on that number and NOT including social security, my wife and I are about 10% to 20% of the way there. OUCH! Granted, my goal is lofty. We’ll do what we can and not worry about it.

I also think Bernstein is pretty conservative. I don’t see a lot of people having that much money by the time they retire.