WHO’S rich?

Occupy Wall Street has its 1 percent answer, of course. A consulting firm that studies the wealthy has a broader definition, based on millionaire status. Many financial planners have a cautionary third answer — that appearances, and account balances, can be deceiving, and you may not be as rich as you think you are.

The Occupy Wall Street forces focus more on income than on wealth. But if its 1 percent label were applied to assets, the dividing line between the 1 percent and everyone else would be $8.4 million.

Based on its research, the consulting firm, Spectrem Group, said about 8.6 million American households had a net worth of at least $1 million last year, not including their equity in a home — just over 7 percent of the 117 million American households.

George H. Walper Jr., the president of Spectrem, in Lake Forest, Ill., estimated that most of those in the low end of the millionaire class did not have most of their assets in formal retirement funds. “A lot of it is in other places,” he said, even if it is intended for retirement. Many people in that group are already retired, and their average age is 62.

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People planning decades of retirement based on $1 million need to recognize that that amount is not anywhere near what it was a century ago, and that they will never live like millionaires, said Larry Luxenberg, a fee-only financial planner at Lexington Avenue Capital Management in New City, N.Y.

So how do you make $1 million last?

Take, for example, a hypothetical couple about to retire who have assets of just over $1 million. To help them, assume they have no children who are financially dependent on them. Also assume that they will be entitled to maximum Social Security benefits, which are just over $30,000 a year each (this year) for people who start collecting at age 66. (Delaying the start of benefits for up to four years increases the amount to be received but might, for some, require earlier withdrawals of retirement funds that would be subject to income tax.)

On the minus side, assume that this couple has no other pension plans that will provide retirement income — although many people who entered the workplace 40 years ago have significant defined-benefit pension plans from corporate or government employers. Mr. Luxenberg said there was a one-in-four chance that one member of a couple who had reached 65 would live into his or her 90s. So that person will have to plan for 30 years of income, he said. A rule of thumb, he said, was to draw 4 to 6 percent of retirement assets, adjusted for inflation, each year. For a hypothetical millionaire, that would be $40,000 to $60,000 a year, plus Social Security benefits.

“Folks with $1 million in a well-balanced portfolio can be comfortable,” he said, but “it’s not a lavish lifestyle.” He added: “The idea of a millionaire being someone who is really rich, that goes back to the Roaring ’20s and the Great Depression.”

Inflation has eroded the value of $1 million considerably, and as Mr. Luxenberg noted, “Three percent inflation over 30 years means you need 2.4 dollars for every dollar that you’d need now.” Withdrawing 4 percent of a nest egg each year used to be a standard formula but is no longer considered a hard-and-fast rule, said Greg Daugherty, executive editor of Consumer Reports and a retirement columnist for the Consumer Reports Money Adviser newsletter.

Four percent might be too much for someone who retired early, or whose money was largely in fixed-income assets.

Credit Wesley Bedrosian

One strategy to prevent running out of money in old age is to buy an annuity, which gives the annuity seller a specified amount in return for a predetermined monthly payment for life.

Matthew Grove, a vice president of the New York Life Insurance Company and head of its annuity department, said of the 4 percent rule, “there’s no guarantee that it will work,” even if it feels safe.

An annuity “guarantees that you can’t outlive your money, but guarantees that you can spend more over the life of your retirement,” he said.

A $1 million New York Life annuity bought by a 66-year-old man, with payments starting immediately, known as a single-premium immediate annuity, would pay $65,666 a year — far more than a 4 percent withdrawal from a $1 million pot.

The downside is that someone who died at a relatively young age might have had unspent money to leave to heirs if it had not been put into an annuity. There are also annuities that provide death benefits and payments for spouses, although the monthly payments are lower.

Mr. Grove said someone with $1 million might consider using only some of it to buy an annuity. The goal, he said, is to have an annuity and Social Security benefits cover retirees’ most important expenses.

Mr. Luxenberg said annuity buyers were paying for guarantees in the annuities’ cost. But he explained that “after the period we’ve come through, people are craving certainty and guarantees, and they’re willing to pay for guarantees.” For those people, he said, an annuity “could work.”

For those who will keep their assets and figure out how much to withdraw annually, Mr. Daugherty said, “Try to figure out what your expenses are going to be in retirement” before retiring. “Make a budget, even if you never have before,” he added. “One advantage of doing that is that it might show the need to work a few more years, if that is feasible, to allow the desired annual withdrawals in retirement.”

“The value of the 4 percent rule these days, for one thing, is it keeps people from doing anything too crazy, like 8 or 10 percent,” Mr. Daugherty said.

For some people who have been diligent savers, the 4 percent benchmark might encourage them to dip into assets, rather than trying to live only on the income their assets yield. “Some people are terrified of any spending,” Mr. Daugherty said, but they should not deny themselves “the legitimate pleasures of retirement, enjoying things like travel.”

But for those millionaires on paper, while such legitimate pleasures will be theirs, the bottom line, as Mr. Walper of Spectrem put it, “They’re not buying a Duesenberg.”

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