saw a Bloomberg story on retirees outliving their money, a quote:
” From the U.S. to Europe, Australia and Japan, retirement account balances aren’t increasing fast enough to cover rising life expectancy, the World Economic Forum warns in a report published Thursday. The result could be workers outliving their savings by as much as a decade or more. “
In the FI movement we make our plans and tend to our knitting better than most I think, but the statistics are not as dire as advertised once you work through the assumptions:
For US males the average post age 65 retirement is 18 years and for women 20.6 years, the average savings for men’s retirement covers only 46% of what is necessary, and for women there is a 47% hole to be filled. The assumption is withdrawal rate is 70% of accumulation wages and does not take SS into account
This means according to this article if you start at 500,000K, made 87K/yr and withdrew 70% (61K) your money would last 10 years. When I inflation adjusted the withdrawal and grew the funds at 4% above inflation my longevity was closer to 8 years not 18. I calculate a 18 year retirement would cost 1.4M. 900K is missing to live 18 years @ 61K/yr inflation adjusted
What about SS? I’m going to guess the average worker who paid into SS for 40 years will get about 25K/yr. It’s likely his income was not 87K for 40 yrs but some smaller number for some decades, so 25K is a FRA thin air estimate, but it will illustrate the argument.
If you add inflation adjusted SS income as described, it would account for an additional 571K of the missing 900K, leaving you 329K short. The short amount you would have to make up with portfolio leverage and Asset Allocation. I Monte Carlo’d a 50/50 stock bond portfolio and for a 20 year withdrawal (the closest to 18 the program would allow) Adding 500K plus SS, 50/50 asset allocation portfolio worked out 99.76% of the time
you’d still have a 3/4 million safety net left in the account in the 10% case.
I don’t know about other countries and their Social augmentations, but in the USA an age 65 SS and half a million in retirement money will get you way down the road. The longer you go into retirement past age 85 the more failures occur, but even at age 95, 95% of the portfolio’s still survive. If you save at least 1/2 million dollars your chances of running out of money for an age 65 retirement are small.
I found this report very misleading to say the least.