We’re All Millionaires! (on average)

December 3, 2023 – When I wrote my post on the “Die With Zero” philosophy in October, I dug through the Survey of Consumer Finances (SCF). I used the detailed wealth distribution data to study the extent of asset overaccumulation late in retirement. The Federal Reserve releases the SCF only every three years, and just a few weeks ago, we got another survey covering 2022 and providing a wealth of information – pun intended. Quite amazingly, in 2022, for the first time in history, the average household net worth crossed one million dollars, now standing at about $1,060,000. Of course, wealth is unequally distributed, so while we may all be millionaires on average, the number of millionaire households is much smaller.

Then, what’s the percentage of millionaires? Is it a tiny elite, like the wealthiest 0.1% or 1%? I remember reading years ago that the share of millionaires was in the high single digits. So, I was surprised that more than 18%(!) of households were millionaires in 2022. That’s across all households and all age groups, and it is significantly higher for older folks. Also, the overwhelming majority of millionaires are homeowners. Homeownership can’t be such a terrible investment after all.

Since I did all that work, writing a Python program to dig through all those datasets, I thought I might as well write a blog post and share the results with you. Let’s take a look…

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How Crazy is Dave Ramsey’s 8% Withdrawal Rate Recommendation?

November 12, 2023 – If I wanted to comment on every piece of bad advice in the personal finance community, my quiet, relaxed early retirement would be busier than the corporate career I left in 2018. So, I usually stay out of the daily Twitter/X spats. Last week, though, an incident caught my attention, and it was egregious enough that I weighed in. In a recent Dave Ramsey show (original video here, starting at the 1:13:50 mark, Twitter discussion here), Dave doubled down on his recommendation of the 8% safe withdrawal rate in retirement, calculated as 12% expected equity returns minus 4% inflation (his numbers, not mine – more on that later). And several people pinged me and wanted me to comment. Safe Withdrawal Rates are my wheelhouse, given that I wrote a 60-part series looking at the topic from almost every angle I can think of. So here is my analysis, more detailed than I could do in a tweet: Don’t use a 8% Withdrawal Rate! That recommendation is crazy in more than one way. Let’s see why…

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How useful is the “Die With Zero” retirement approach? – SWR Series Part 60

October 6, 2023 – There’s been a lot of chatter about the Bill Perkins book “Die With Zero” and its approach to life and retirement planning. Most recently, just yesterday on the awesome Accidentally Retired blog. After several readers asked me about my views on the “Die With Zero” idea, I finally relented and decided to write a piece in my Safe Withdrawal Rate Series on the topic.

I’ll briefly describe the areas where I agree with Perkins. But then I also go through all of the fallacies in this approach. Let’s take a look…

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Flexibility is Overrated – SWR Series Part 58

June 16, 2023 – I wonder if I’ll ever run out of material for the Safe Withdrawal Series. Fifty-eight parts now, and the new ideas come faster than I can write posts these days. This month, I initially planned to write about the effects of timing Social Security in the context of safe withdrawal simulations. But one issue keeps coming up. It’s almost like a personal finance “zombie” topic that, after I thought I put it to rest once and for all, always comes back when you least expect it. It’s flexibility. If we are flexible – so we are told – we don’t have to worry much about sequence risk. We can throw out the 4% Rule and make it the 5.5% Rule. Or the 7% Rule or whatever you like.

Only it’s not that easy. In today’s post, I like to accomplish three things:

  1. Provide a simple chart and a few back-of-the-envelope calculations to demonstrate the flexibility folly.
  2. Comment on a recent post by two fellow personal finance bloggers and showcase some of the weaknesses of their approach.
  3. Propose a better method for modeling flexibility and gauging its impact on safe withdrawal amounts. Hint: it uses my SWR Simulation tool!

Let’s take a look…

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May 2023 Macro and Market Musings: Monetary Policy and Inflation

May 17, 2023 – Since early 2022, the Federal Reserve has been raising its policy interest rate at breakneck speed by a full five percentage points. Inflation has indeed subsided a bit, but both price levels and percentage changes remain stubbornly high. When will inflation finally go back to normal? What’s the path forward for monetary policy? Will there be a recession? So many questions! Let’s take a look…

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Accounting for Homeownership in (Early) Retirement – SWR Series Part 57

April 14, 2023 – Welcome to a new installment of the Safe Withdrawal Rate Series. Please check out the SWR landing page for a summary of and a link to the other posts.

Today’s topic is homeownership. I’ve already made the case that not just rental properties but even homeownership can be a great tool in building assets (“See that house over there? It’s an investment!“). But what if you are already retired? What are some of the benefits of homeownership in the context of (early) retirement? Does homeownership reduce Sequence Risk? Do homeowners enjoy a lower inflation rate in retirement? If so, by how much can homeowners raise their safe withdrawal rate? How do we properly account for homeownership (with and without a mortgage) in the SWR simulation toolkit?

Lots of questions! Let’s take a look…

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March 2023 Market and Moral Hazard Musings

March 16, 2023 – After the tumultuous year 2022, it looked like 2023 was off to a great start. But banks threw a monkey wrench into the machine, with the S&P almost erasing the impressive YTD gains, several bank failures, and the prospect of a worldwide banking crisis that all changed. So folks contacted me and asked me if I could weigh in on this and some other issues.

Here are some of my musings about bank failures, government failures, moral hazard, and why the FDIC should eliminate the $250k limit and simply insure all deposits…

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Evaluating Annuities, Pensions, and Social Security – SWR Series Part 56

February 6, 2023 – Welcome to another installment of my Safe Withdrawal Rate Series. See the landing page of this series here for an intro and a summary of all the posts I’ve written so far. On the menu today is an issue that will impact most retirees: we all likely receive supplemental cash flows in retirement, such as corporate or government pensions, Social Security, etc. Some retirees opt for an annuity, i.e., transform part of their assets into a guaranteed, lifelong cash flow.

Of course, if you are a long-time reader of my blog and my SWR series you may wonder why I would write a new post about this. In my SWR simulation toolkit (see Part 28), there is a feature that allows you to model those supplemental cash flows and study how they would impact your safe withdrawal rate calculations. True, but there are still plenty of unanswered questions. For example, how do I evaluate and weigh the pros and cons of different options, like starting Social Security at age 62 vs. 67 vs. 70 or receiving a pension vs. a lump sum?

Also, you might want to perform those calculations separately from the safe withdrawal rate analysis, from a purely actuarial point of view. For example, we may want to calculate net present values (NPVs) and/or internal rates of returns (IRRs) of the different options before us. Clearly, NPV and IRR calculations are relatively simple, especially with the help of Excel and its built-in functions (NPV, PV, RATE, IRR, XIRR etc.). However, the uncertain lifespan over which you will receive benefits complicates the NPV and IRR calculations. How do we factor an uncertain lifespan into the NPV calculations? Should I just calculate the NPV of the cash flows up to an estimate of my life expectancy? Unfortunately, the actuarially correct way is more complicated. But Big ERN to the rescue, I have another Google Sheet to help with that, and I share that free tool with you.

Let’s take a look…

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Discussing Retirement Bucket Strategies with Fritz Gilbert – SWR Series Part 55

January 25, 2023 – Welcome to another part of my Safe Withdrawal Rate Series. Today’s topic: Bucket Strategies in retirement. As you know, my blogging buddy Fritz Gilbert has written extensively on this topic at his Retirement Manifesto blog, for example:

And likewise, I have written about my skepticism of bucket strategies in Part 48 of the series: “Retirement Bucket Strategies: Cheap Gimmick or the Solution to Sequence Risk?

Fritz’s most recent post on the Bucket Strategy started a lively back-and-forth on Twitter, and it seemed appropriate to pursue a more detailed discussion with more than 280 characters per answer in a “fight of the titans” blog post. So if you haven’t done so already, please check out our awesome discussion over on Fritz’s blog:

Is The Bucket Strategy A Cheap Gimmick?

The response was overwhelmingly positive, and we decided to craft a follow-up post here on my blog. We came up with two new questions, and we also need to address two major themes from the comments section in Part 1, specifically, the role of simplicity and behavioral biases in retirement planning.

So, let’s take a look…

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Passive income through option writing: Part 10 – Year 2022 Review

January 9, 2023 – Happy New Year, everyone! I haven’t written any updates on my put-writing strategy in a while, so I thought this is an excellent opportunity to review the year 2022 performance and some of the changes I have made since my last write-up in late 2021.

Let’s take a look…

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