Born in the USA

We’re on our annual holiday to the U.S. (arguably the home of FIRE) doing a road trip of the Western states. We’ve currently stopped in Scottsdale, Arizona, which is essentially one massive shopping mall and seems to offer a pretty pleasant lifestyle – if you have the cash. And, from what we can see, there’s a lot of it about, judging by the Porches, Bentleys, Ferraris and Range Rovers being driven around. A lot of them are driven by pensioners too, which made me wonder what the average pension income is like over here for the “average” American? A quick search on Google brought up this:

Avg US Pension

You have to say that this looks quite good – a median income of $47k, or almost £35k a year for those households aged between 65-74. From the article, it looks as if the State Pension part is somewhere around $12,000 a year, not dissimilar to what we receive in the UK, and the rest will be coming, I assume, from private pensions, employment and investments. (as an observation, there do seem to be a lot of older workers here, in department stores, restaurants and the like.)

The next big question – here in America – will be how much is your medical insurance out of that? At this point, I’ll stop the comparisons because there are far too many differentials to take into account in comparing the US and UK, but given that the US possibly inspired FIRE, I thought it was worth a look see.

In my Google search though, I found that the definitive report on comparing pensions worldwide is done by an Australian consultancy – Mercer – and they came up with this ranking of countries in 2016.

pension ranking

I’m not a big fan of data, really, in the sense that I see it as “the drunk holding onto the lamppost” – it’s used more for support than illumination. Choose your argument and then pick the data that shores it up. Singapore scores highly, but I wouldn’t want to retire there, thanks very much. Too crowded, too hot, too controlled, too far away. I’d be sitting in Raffles Bar, pining for home and a decent pint in decent pub, which is what I was doing years ago when I visited the place.

All the same, it’s an interesting analysis and at the very least it’s good to know that someone is taking a serious look at this as society grows older (I’d read recently that Japan is doing some pioneering work on the pension funding issue with reference to its ageing population, but it doesn’t score well here.)

I should read the whole report I suppose, but Ye Gods I’m on holiday! Plus I’ve already decided that I’m not going to retire abroad, one of the subjects frequently up for debate in FIRE discussions. No doubt I’d have a great standard of living in Panama or the Philippines but so what? You’d never be a local, you’d always be an “ex pat” along with the rest of them, an outsider wondering when and if you’d ever feel fully settled in an adopted homeland later in life.

Having longtime friends, family and a community that you’re settled in is supposed to be worth its weight in gold in retirement and I suspect there’s a lot of truth in that. Britain’s not perfect, but it’s home and it’s funny how much I miss it when I’m away. As I sit here writing this, incessant American news coverage of the Royal Wedding drones on in the background, but even that can’t spoil some of the scenery being broadcast of Windsor and England in the sunshine. “That lot won’t have to worry much about their pensions”, I muse to my wife, who rolls her eyes and tells me to go and get a beer. 

Good idea.

Unsafe Withdrawal Rate

I was writing last week that I had been listening to the Dave Ramsey podcast which, I guess, would be an acquired taste for most UK listeners or a taste that they’d rather not acquire. But I like his straightforward bluntness and bluster that disguises an essentially decent bloke underneath.

Anyway, while listening to one show last week, a middle American called in wondering how he should figure out a Safe Withdrawal Rate on his pension.

“Where have you the money invested?”, barked Dave.

“Well, gee whiz, I guess mostly in mutual funds Dave…”

“And what have they returned since you’ve been invested”.


“You don’t know? You don’t know how your money has grown? I know how my funds have performed for the last twenty, thirty, forty years”, and Dave proceeded to quote the numbers.

Suitably chastised, the caller mumbled, “Well, I reckon maybe ten or twelve percent Dave’.

“Okay”, thundered Dave, “I doubt that. But let’s say it’s ten percent. And you’ve half a million invested. How much can you safely withdraw? Per year? How much? You’ve been returning 10 percent on five hundred thousand, how much can you withdraw without eroding that capital”?

“Reckon it should be fifty thousand a year Dave”.

“Exactly”, snapped Dave, and cut him off.

So there you have it. That’s how Dave calculates a Safe Withdrawal Rate – and I like it. Of course, this is full of holes even for those of us who aren’t mathematicians, but I’m sure Dave would take a sledgehammer to the naysayers. I’m sure he’d argue: “Right, your fund has returned 10%, on average, for the last twenty years. It’s a good bet that it will probably continue with this. Okay, some years it will return 1%, or lose money, and some years it will return 40% or 50% but who gives a damn about the detail? The 10%, over time, is what it’s returning. End of discussion.”

Dave often takes a sledgehammer to crack a nut. You know that he knows the devil is in the detail, but he’s little time for nit picking on it and likes the big sweeping statement that contains an essential truth. Keep It Simple Stupid, is his mantra.

Is he wrong, I wondered? Yes, of course, nobody can predict the future, and a fund that has returned 10% growth for twenty years could turn tomorrow to produce a loss for the next twenty. And tomorrow I could get run over by a bus, driven by Dave Ramsey. These things could happen. But what are the chances? That’s what you’ve got to try and figure out – and that’s the frustration, and possibly the attraction, of investing.

I’ve listened and read the endless discussions about timing the market, about the bloke who started saving his money in 1994 versus the bloke who put in the same amount but started three years later blah blah blah. The data is the data and you can manipulate it how you like. That’s manipulate it how YOU like. Not anyone else. Choose that stats and argument that suits YOU.

This is the core of investing. What type of person are you? What is your attitude to risk? Is the glass half full, or half empty? You can put your money wherever you like and every FI who ever drew breath will advise you while pointing out that in the end this is your decision and the market can go down as well as up. Really? So, what you’re saying is, Mr Financial Adviser, is that essentially you have not the slightest idea what will happen in future? You’re telling me that past performance isn’t necessarily a reliable indicator of future performance while advising me with data that’s based on past performance? Well, what am I to make of that?

And there you have it. Here is what investing boils down to. It’s a game of chance. So to quote another American icon, do you feel lucky? Well, do you? If you do, take out that ten percent, or more, each year from your half a million pension fund. If you don’t, then take out 2% and feel safe. Or put it all in cash and then fret about inflation. Whatever, make a decision that you’re comfortable with and then, much more importantly, go out and live your life.