Tags: million | retire | rates | saving

NYT: $1 Million Just Isn't a lot to Retire on

By    |   Tuesday, 11 June 2013 07:42 AM

A million dollar isn't what it used to be. In the past, if you had $1 million, you could consider yourself rich with no qualifications.

While it's still a good sum now, it's not really a lot — especially not a lot to retire on.

Inflation, of course, has gradually decreased the value of money over the years. In 1953, $1 million equaled $8.7 million in today's dollar, The New York Times notes.

Editor’s Note:
Put the World’s Top Financial Minds to Work for You


Plus, super low interest rates are squeezing retirement incomes — even incomes from relatively large nest eggs.

"We're facing a crisis right now, and it's going to get worse," said Alicia Munnell, director of the Center for Retirement Research at Boston College. "Most people haven't saved nearly enough, not even people who have put away $1 million."

Traditional financial thinking holds that workers should hold more savings in bonds as they age because bonds are safer than stocks. But because low interest rates mean low returns, retirees are more likely to burn through their savings faster as they are forced to withdraw savings to pay expenses.

A common guideline says to withdraw 4 percent of savings a year, but with bond yields so low now, retirees doing that will be sure to see their bond portfolios vanish over time. They may even burn through their savings before they die.

"The probabilities are remarkably grim for retirees who insist on holding only bonds in the belief that they are safe," Seth Masters, chief investment officer of Bernstein Global Wealth Management, tells The Times. "Because we live in this world we tend to think of it as 'normal,' but from the standpoint of financial market history, it's not normal at all. And that's very clear when you look at fixed-income returns."

Balancing portfolios with stocks will offset some risks, as stocks usually outperform bonds over the long term, although they have greater short-term volatility. In fact, many economists believe stocks will outperform bonds over the next decade, The Times notes.

In addition, bond values will fall when interest rates increase, a scenario many economists believe is inevitable.

Interest rates will rise sharply and stay higher, predicts Fortune

"When that happens, it will make the pain being sustained by bond investors today seem as gentle as a mother's kiss," writes Fortune Senior Editor at Large Allan Sloan.

Although supposedly safe, a bond mutual fund can see its entire year of income wiped out in weeks since they never mature, he says.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Economy
A million dollar isn't what it used to be. In the past, if you had $1 million, you could consider yourself rich with no qualifications.
million,retire,rates,saving
433
2013-42-11
Tuesday, 11 June 2013 07:42 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved