Retirement - Managing your money

[thomm225]

Originally Posted by Lucky Luke 1

Damn. I go out for a 5 hour race and i get back with sore legs and arms. Doesn't matter if its inshore or offshore. The ocean race i went on a couple years ago i was sore for a week!

You have to do it constantly.

If you don't do a particular sport or exercise frequently, you will be sore afterward especially after you get older.

It's definitely a crap shoot once you are mid 60's on up. You have to really be careful.

On some of my 3 mile jogs, I can sometimes actually run at near 3/4 speed near the end of the run after everything is warmed up. If I tried that at the start, I probably pull something.

In my 40's and 50's. I could race 5 hours a day one or both weekend days and be tired but not overly sore, but we raced most every weekend.

Plus I raced beach cats so you were trapped out also. Photos were of buoy races in Penascola Bay, Sound, and on a lake in South Carolina.

We also did a 100 mile race each year that took up out in the Gulf plus the two Seabuoy races each year.

During the week there was always running the trail or doing weights at the gym plus cleaning up the boat from the weekends racing

[wsmurdoch]

I worked as a chemical engineer, my wife as an insurance agent. We retired in 2003 (she age 52) and 2004 (me age 53) after living our lives a bit below our means. We raised two daughters both now happily married with children. My wife had a quite serious health scare in late 2004 but fully recovered, and we then bought a Pacific Seacraft 34 which we have sailed from its home in NC to and from the Bahamas thirteen times so far. We have kept our house on a lake in the mountains of East Tennessee where we still sail and race a Tanzer 22 we bought in 1981. In retirement I hiked the Appalachian Trail from Georgia to Maine in 50 to 250 mile sections finishing in 2016, and I continue to do volunteer AT maintenance work. This year rather than spend 5 months in the Bahamas, we chose to stay home and instead took a Viking Cruise from Valparaiso, Chile around Cape Horn to the Falklands and finally to Bueno Aires with several stops along the way. Retirement has been fun and rewarding.

Now since this thread is about managing money in retirement... Being retired, I limit my investments to passive investments and avoid any that require my active participation. I have used financial planning services in the past, have managed my affairs myself for years, and intend to turn them over to others in the next few years, perhaps when I am 75. I was introduced to the work of Harry Markowitz and others in graduate school which shaped my understanding of markets. I read one or two financial planning / investing / retirement books annually. I have found "A Random Walk Down Wall Street" by Burton G. Malkiel the one most read. I think I have read almost every edition with the newest now on my bedside table. "Where Are the Customers' Yachts" by Fred Schwed is a warning (and a fun read) from 1940. "A Good Financial Advisor Will Tell You..." by Luna and Kisner discuss what the title says. "The Essential Retirement Guide" by Frederick Vettese is a real life look at retirement with statistical data on spending habits, needs, mortality and (the big one) morbidity. As I said up thread, I have found Firecalc useful in finding "The Number" (that's another book) and so far in my case accurate. I used BlackRock's Social Security Benefits Estimator to choose the best SS options for our situation. I try to maintain a constant US income tax marginal rate balancing withdrawals from Roth IRAs, Traditional IRAs, and pre-tax investments to achieve that goal. A charitable giving account and IRA QCDs are also useful in minimizing my tax burden. But, money is only a part of retirement; just a part.

While a successful retirement is a noble goal, I believe it is important to leave your children in a better situation than you began, to remember religious and charitable causes, and to do more for others than you do for yourself.

[dannc]

Originally Posted by wsmurdoch

... As I said up thread, I have found Firecalc useful in finding "The Number" (that's another book) and so far in my case accurate.

...

While a successful retirement is a noble goal, I believe it is important to leave your children in a better situation than you began, to remember religious and charitable causes, and to do more for others than you do for yourself.

Good post.

I have run dozens and dozens and dozens of models in FireCalc and put the results in a spreadsheet so I could study the results. What was interesting was if we kept our money in the market, took out 4% or less in retirement, we would not run out of money and would almost certainly grow the investment.

If we took out 4.5-5%, running out of money became possible, but not likely.

It was interesting to see that 4% number pop up over and over and over again. For retirement, the plan is to limit with drawls to 4% or less until RMD kicks into play or if there some other tax issue that occurs.

We want to get SS as soon as possible so we can save OUR money and leave it to whom we choose.

Later,
Dan

[Captain Graham]

Originally Posted by Captain Graham

Thank you all for your thoughts.
I think I have settled on my plan.
To start with I do not like bonds so I will not have any bonds.

Assumptions
1. Retirement saving is $1,000,000 (this number is picked just to make the math easy)
2. Retire at 68 but do not take SS until 70.

The plan
1. Phase 1 - 1st 2 years of retirement take $40,000 (4%) from my retirement funds and have a retirement job earning $30,000.
2. Phase 2 - At 70 when I take my SS, take $20,000 (2%) from my retirement funds and still have a retirement job earning $30,000
3. Phase 3 - At 75 stop working completely and start taking $30,000 from my retirement funds.

My retirement funds will be put into buckets to handle a bear market as follows.
Notice how the buckets change with the 3 phases of retirement.

During Phase 1 - first 2 years of retirement
Bucket1 - Out of the stock market to handle a typical bear market
3 years of expenses = 40,000 *3 = $120,000 (12% of the savings)

Bucket2 - Designed to handle a longer bear market but also have an average return on investment.
100% Income ETF Funds (Dividend funds) less swings.
Another 3 years of expenses = 40,000 *3 = 120,000 (12% of the savings)

Bucket3 - Long term growth - 100% in stocks
$1,000,000 - $120,000 - $120,000 = $760,000 (76% of the savings)
40% Large Cap / 30% Mid Cap growth / 30% small cap growth

During Phase 2 - At 70 when I take my SS
Bucket1 - Out of the stock market to handle a typical bear market
3 years of expenses = 20,000 *3 = $60,000

Bucket2 - Designed to handle a longer bear market but also have an average return on investment.
100% Income ETF Funds (Dividend funds) less swings.
Another 3 years of expenses = 20,000 *3 = 60,000

Bucket3 - Long term growth - 100% in stocks
The remainder
40% Large Cap / 30% Mid Cap growth / 30% small cap growth

During Phase 3 - At 75 stop working completely
Bucket1 - Out of the stock market to handle a typical bear market
3 years of expenses = 30,000 *3 = $90,000

Bucket2 - Designed to handle a longer bear market but also have an average return on investment.
100% Income ETF Funds (Dividend funds) less swings.
Another 3 years of expenses = 30,000 *3 = 90,000

Bucket3 - Long term growth - 100% in stocks
The remainder
40% Large Cap / 30% Mid Cap growth / 30% small cap growth

Above is my retirement plan.
It does not take into account the details like inflation, taxes and required distributions from my 401k.
This is too much detail for me to do it with a simple spreadsheet.

So I have decided to take the next step and sign up for retirement software package.
No I am not going to tell you which one I will be using since a few posts where wondering if I was using this thread to sell something.
I will say it takes into consideration these details and it is not free.
It may convince me to do some changes to my plan.

[Captain Graham]

Some has decided to take their SS early but in my case I am going to take is at 70.

Here is a video explaining some of the numbers.

Notice each option makes sense depending on what assumptions you make.
But it does not take into consideration other factors like
1. When you want to retire?
2. If you are going to work when you take your SS early.
If you take SS before your full retirement age and you are still working your SS is reduced $1 for every $2 your earn.
3. Peace of mind if the stock market drops and does not come back for years.
4. How long will you live?

Again both options make sense under different conditions.
There is not one answer that fits all.

https://www.youtube.com/watch?v=Bmy6pMHdL0Q

[sailorboy1]

Don't get financial and retirement advice from a boat forum,U-Tube video, or a retirement expert who in still working in their 70s.

[Joli]

Originally Posted by Captain Graham

Some has decided to take their SS early but in my case I am going to take is at 70.

Here is a video explaining some of the numbers.

Notice each option makes sense depending on what assumptions you make.
But it does not take into consideration other factors like
1. When you want to retire?
2. If you are going to work when you take your SS early.
If you take SS before your full retirement age and you are still working your SS is reduced $1 for every $2 your earn.
3. Peace of mind if the stock market drops and does not come back for years.
4. How long will you live?

Again both options make sense under different conditions.
There is not one answer that fits all.

SS isn't means tested, yet.

[Captain Graham]

Originally Posted by Joli

SS isn't means tested, yet.

I do not understand, can you explain.

[Captain Graham]

I have posted about protecting myself from the next bear market.
My solution is to use the bucket system but others have posted other ways.

But how do you protect yourself from inflation?

1. SS is inflation adjusted so by waiting until 70 the inflation (COLA) increases with a larger amount will compound more.
In retirement SS payment for both my wife and myself will pay for all of our living expenses.
This does not include things like buying a new car or vacations.
2. Having our home paid off protects us from housing cost inflation and as an investment should go up with inflation.
3. The Stock market also goes up with inflation.
In general companies with figure out how to make money even in periods of high inflation.
So most of my retirement funds will be in growth stock funds and dividend stock funds.
4. It seems to me that bonds will do poorly when inflation is high because interest rates will go up.
But I do not really understand bonds so I will not be having any.
5. Gold/Silver is something I also do not understand so I will not own any.

So I think I am protected from inflation.

[Rusty123]

Having managed my aging parent's finances for the past several years, and being on the verge of retirement myself, I've developed a few opinions that might be relevant:

Financial simplicity is an underappreciated attribute, particularly as one ages, and/or becomes more interested in other aspects of life. Keeping track of and managing multiple accounts, strategies, thresholds, etc. becomes burdensome as time goes on, particularly if an unexpected death or mental diminishment transfers those responsibilities to someone less equipped to handle them.

The risks and concerns in the de-accumulation phase (retirement) are quite different than those in the accumulation (working) phase. Many principles remain relevant (spend less than you earn, avoid debt, etc.), but things like sequence-of-return risks, longevity risk, and inflation risk are much more significant as one's resources migrate from human capital to investment capital. Here's a recent article that does a good job explaining these risks and mitigation strategies: https://www.caniretireyet.com/investment-risks/

While fixed withdrawal methods (like the 4% rule) are very simple, they suffer from one major flaw -- if the rate of withdrawal is kept low enough to ensure a high likelihood of success (defined by not running out of money prematurely), there is also a high likelihood that one will die with a large unspent account balance. Using one of the variable withdrawal rate methods (there are several) helps adapt the rate of withdrawal to market conditions, at the expense of complexity and reduced predictability.

There is an overwhelming amount of resources and advice available online, much of which is contradictory. But some that I've found helpful include the writings of Wade Pfau, Mike Piper, William Bernstein, Larry Kotlikoff, and Jonathan Clements. Bogleheads.org hosts a very active community of DIY investors who lean towards low-cost index funds, as well as a useful wiki.

[Rusty123]

Originally Posted by Captain Graham

I do not understand, can you explain.

He is saying that currently, Social Security benefits are not adjusted based on one's other income sources (at least, not after "full retirement age"). However, this and all other aspects of SS benefits are on the table for future program changes, if/when congress takes action.

I, like you, am planning to defer SS until age 70, but it's possible that future program changes might make that strategy less compelling. Unfortunately, there's no way to know that until the time comes, at which point it might be too late to adjust.

[dannc]

Originally Posted by Rusty123

...
While fixed withdrawal methods (like the 4% rule) are very simple, they suffer from one major flaw -- if the rate of withdrawal is kept low enough to ensure a high likelihood of success (defined by not running out of money prematurely), there is also a high likelihood that one will die with a large unspent account balance. Using one of the variable withdrawal rate methods (there are several) helps adapt the rate of withdrawal to market conditions, at the expense of complexity and reduced predictability.
...

I don't see NOT running out of money as a flaw. In fact, it is a goal.

I could see that in some circumstances, one might want or need, more money early, and thus might want to withdrawal more early and plan to draw less later but it is danged hard to predicted when one is going to die, unless one plans to commit suicide.

Having a bunch of money "left over" is far better than running out of money, especially when one is retired.

We plan to leave money to our kids which we hope will then be used to help future generations. That is goal and not a flaw.

[Rusty123]

Originally Posted by dannc

I don't see NOT running out of money as a flaw. In fact, it is a goal.

I could see that in some circumstances, one might want or need, more money early, and thus might want to withdrawal more early and plan to draw less later but it is danged hard to predicted when one is going to die, unless one plans to commit suicide.

Having a bunch of money "left over" is far better than running out of money, especially when one is retired.

We plan to leave money to our kids which we hope will then be used to help future generations. That is goal and not a flaw.

Fair enough. Different strokes...

[sailorboy1]

Originally Posted by dannc

We plan to leave money to our kids which we hope will then be used to help future generations. That is goal and not a flaw.

Probably better to start giving to them early then and let them invest it. If you end up in nursing care all they will get is what is left IF you die before it runs out.

[dannc]

Originally Posted by sailorboy1

Probably better to start giving to them early then and let them invest it. If you end up in nursing care all they will get is what is left IF you die before it runs out.

Yep, part of "leaving" them money is having the resources to give as we see fit prior to death, or heaven help us, being in a nursing home.