Q&A: "I Have $500,000 in Retirement Accounts and Contribute $25,000 per Year. How Much Income Should I Expect at Age 65 and for How Long?"

Question and background: 

I'm married male 50 and have $500,000 in retirement accounts plus a paid off house. I also save an additional $25k that is added to retirement accounts each year. How much income I should expect from retirement accounts at age 65 and for how long?

Answer:

Well done, you're in great financial position. 

The answer to your question will depend entirely on what your retirement accounts earn between now and age 65, and then on what they earn through the rest of your life.

Run from advisors who simplistically give you a number based on average stock market returns over the decades or who assume your portfolio's going to double every "x" number of years based on the "Rule of 72." Such things may be useful for back-of-the-envelope estimates but completely underplay the seriousness of retirement income planning and the variables that can derail your plan. 

The truth is nobody gets the "average returns" of the financial markets. Instead, they get returns that are all over the map above-and-below the average. And virtually nobody gets anything close to the average returns for an extended period, when the starting point for measurement is the "high water mark" of overpriced financial markets like it is today with US stocks and most bonds.

Historically, when longer-term measures of the US stock market have been at current overpriced levels, the next 7 to 10 years typically see terrible returns (1% to 3%, for example). My (seemingly minority) view is that future stock returns have been pulled into the present. Even bonds of various types and other income-oriented investments have been bid-up to overpriced levels and will take a hit when we finally see interest rates rising in earnest. 

I agree with [Michael] that you could be well-served working with a financial advisor who'll help you run projections and "stress test" them with different scenarios, as well as review the rest of your financial picture (tax, estate, risk management through insurance, etc). But I'd urge you to make sure that whoever you work with shares the understanding and philosophy above. Otherwise, I think you may end up disappointed over the next several years.

Hope that helps. All the best.