Huzzah! Living the Life of Riley Costs $1 Million Less.

The cost of retiring to the good life has fallen.

In the Burns household, we pop champagne corks for their own sake. But there is a curious lack of cork popping elsewhere, so I’m wondering why there isn’t more celebration.

Today, you need a lot less money to live well without working than you needed just two years ago. This is good news.

How much less? That’s even better news. Try a cool million.

Yes, the amount of money you need to live the good life without the indignity of work has fallen by a tad more than a million dollars over the last two years.

Alas, this is not a matter of pure joy. Just two years ago the cost of retirement was pretty much impossible. It required a nest egg of about $4.7 million. Today you still need a formidable $3.6 million.

I learned this while updating my Life of Riley Index, an index I created years ago to track the savings you’d need to be better off than most Americans. Basically, I was looking for an income level that would make most people feel comfortably well off. But it was also important that the level of income shouldn’t be too high. We don’t want your head would roll if the guillotines come out during a truly serious discussion of tax reform. So I settled on an income at the 25^th percentile. That’s where you have more income than three out of four American households.

This year, I estimate the dollar amount at $82,201. This isn’t an official government statistic because my source of the percentile rankings of income is the Internal Revenue Service. Their figures are based on completed years of tax returns. We aren’t going to have the 2018 income figure for quite a while. To get a figure, I fudge a bit. I add changes in the consumer price index to the last year the IRS has reported.

Why did the required savings plummet by a million bucks? Simple: for the first time in years— decades, actually— interest rates rose. They didn’t rise by some piddling amount, either. From a low of 1.16 percent in 2016, the yield on a 5-year Treasury more than doubled, rising to 2.75 percent. Some think it will be higher by the end of the year.

So if you happen to be a 20-something with $3.5 million, you can invest half of it in the S&P 500 and put the rest in 5-year Treasuries. Then you can collect the dividends and interest. You’ll be living off the fat of the land.

If someone asks what you do, you can smile and say, “As little as possible.”

But wait; there’s more good news.

For the rest of us, the savings needed is a lot lower. Why? Because we plan to work a long time. And we’ll retire when we’re pretty old. So we can safely take a bit more from our stash, about four percent. That takes our needed nest egg down to a bit over $2 million.

But wait! It gets even better!

We still haven’t accounted for our invisible savings, the lifetime income from Social Security that most people start to receive when they retire. Typically, this is about 40 percent of earlier earned income.  That means our required savings are lower, about $1.2 million.

The most important thing here isn’t interest rates, dividend yields or arguments about whether 4 percent is a safe withdrawal rate. The important thing isn’t the next Federal Reserve meeting, changes in world trade, or changes in the tax code.

We can’t control such events.

The important thing is one word. It’s when we can say “enough” to spending. The less you “need” to spend, the less you “need” in savings. My bet is that the majority of the retirees who have less income than the Life of Riley Index still manage to be pretty happy campers.

But let’s not take my word for it. Tell me how it’s going for you, let me know if you feel like you’re living the Life of Riley, but with less money.