Friday, June 29, 2007

Retirement Blues?

I've now ended my quarterly 401(k) enrollment marathon, and so my thoughts are (unsurprisingly) on retirement issues. Now that I have time to breathe, I'll put up this down trip from the Wall Street Journal:

...If you retired today with $1 million and invested that money in 10-year inflation-indexed Treasurys, you could lock in a yield of around 2.7%, which means your initial annual income would be just $27,000. By contrast, if you had bought newly issued 10-year inflation-indexed Treasurys in early 2000, you would have garnered $43,000...

I take a little issue with Jonathan Clements, author of the Wall Street Journal piece, because he spins his scenario in the gloomiest possible terms. And his terms aren't, I don't think, tethered securely to real-world results.

Like, if you put the mill into a short term treasury bond fund, you'd pull down 4.5-5%. (Over the past ten years, Vanguard's short-term treasury fund has paid 4.83%. Last year it was 4.68%.)

If you put the mill into laddered Certificates of Deposit, you'd be collecting over 5%.

If you put the mill into, say, Fidelity Asset Manager 20% (80% bonds, 20% stocks), you'd have gotten a return of around 6.5% over ten years.

And if you had put the million into Vanguard's Wellington Fund (which has a 60% stock, 40% bond mix), you would have collected almost 10% on your money over the past ten years. (Since the fund's start in 1929, the yearly earnings have averaged 8.49%.)

To sum up, if you'd deposited that million into Wellington ten years back, you'd have collected just under $100,000 (averaged) per year. The very conservative Fidelity Asset Manager would have made you 65 thousand per annum. Vanguard's short term Treasury fund -- which pays the least of any of its short-term funds, would have gotten you $46,800 each year.

Sure, a million dollars doesn't go as far as it used to, but a lot of animation veterans who've been around for twenty or thirty years probably have a net worth that's close to a mill, counting the equity in their houses. And I know any number of artists in their twenties and thirties who've managed to build up savings in their 401(k)s and are already vested in the Motion Picture Industy's Pension Plan. Those things put them in the middle of the road to finanacial independence.


Anonymous said...

As always, good info to know. Thanks! :^)

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