Retirement - Managing your money

[Captain Graham]

Talking about using an investment advisor.
I had a few meeting with 3 Fiduciary Advisors.

I do not like they way they take their fees.
They all wanted to charge me about 1.75% of by total retirement balance.
They all claimed that they only make money when I make money but this is misleading.

Example 1
$1,000,000 balance that increases 10% ending balance $1,100,000 before fees.
Fiduciary Advisor fee would be $19,250 (1.75% of the balance)
So I paid $19,250 to earn $80,750 or 24% of my earnings.
My new balance after fees would be $1,080,750 (110,000-19250)

Example 2
$1,000,000 balance that lost 10% ending balance $900,000 before fees.
Fiduciary Advisor fee would be $15,750 (1.75% of the balance)
So I paid $15,750 and lost $115,750. (15,750 + 100,000)
My new balance after fees would be $884,250

If I decided to use an advisor I will find one where I pay them for their advice by the hour.

[Captain Graham]

Here is a good video explaining how dividends work.
Basically if a stock issues a $1 per share dividend the stock price drops by $1 per share.
So dividends does reduce your portfolio the same way that selling shares does.

https://www.youtube.com/watch?v=FEH8kZxaWS4

[goboatingnow]

I find it easier to whinge to my politicians to raise my state pension. Going up by 7% now and in Q1 2023

Cant beat those bank transfer every two weeks. !!!

[Kinkircating]

I think the fear of running out of money for those who’ve been prudent savers over the course of their lives is vastly overblown. Just like if there’s a giant storm system that Predict Wind shows will be on your course in 4 days, you adjust course based on the circumstances. Nobody actually pulls out the exact 4% every year, it ebbs and flows based on real life.

What I think is a much better calculator for people to use and help visualize the reality of retirement and their mortality is Rich Broke or Dead. Mine shows me I have a 15% chance of being dead in 20 years and a zero percent chance of running out of money if history is anything like the past 160 years.

Moral of the story is let go of the rope and get busy living because tomorrow isn’t guaranteed.

[Captain Graham]

Originally Posted by Kinkircating

I think the fear of running out of money for those who’ve been prudent savers over the course of their lives is vastly overblown. Just like if there’s a giant storm system that Predict Wind shows will be on your course in 4 days, you adjust course based on the circumstances. Nobody actually pulls out the exact 4% every year, it ebbs and flows based on real life.

What I think is a much better calculator for people to use and help visualize the reality of retirement and their mortality is Rich Broke or Dead. Mine shows me I have a 15% chance of being dead in 20 years and a zero percent chance of running out of money if history is anything like the past 160 years.

Moral of the story is let go of the rope and get busy living because tomorrow isn’t guaranteed.

This is a very good point.
Once retired most people do not stick to a fixed withdrawal amount but instead adjust their withdrawal amount based on many conditions.
In our case (my wife and I) we are thinking we will spend about $5k a year on travel for the first 5-10 years of retirement.
But if we could reduce our travel budget in retirement and still have a great quality of life.

And as you said how many people are going to live past 90.

[Jetx]

Originally Posted by Captain Graham

Bucket1 - Out of the stock market to handle a typical bear market
4 years of expenses = 40,000 *4 = $160,000 (16% of your savings)
Bucket2 - Designed to handle a longer bear market but also have a average return on investment.
60 stocks/ 40 bonds
Another 4 years of expenses = 40,000 *4 = 160,000 (16% of your savings)
Bucket3 - Long term growth - 100% in stocks
$1,000,000 - $160,000 - $160,000 = $680,000 (68% of your savings)

Retired financial advisor here.

Historically, the stock market experiences a drop of +\- 50% once (sometimes twice) every decade or so. With your proposed allocation of approx 87% in equities, that will be mighty terrifying for someone in the withdrawal phase. When (not if) it happens, the pundits and the press will be screaming “this time is different, we can’t see the bottom, only a fool would be in stocks”, just like they have many times before. Most retirees will lose their nerve and sell at the worst possible time. So ask yourself if you really have the stomach for that kind of volatility in retirement/withdrawal. Most do not… I don’t.

Also, the 4% rule originally came from a paper published by Bill Bengen back in the 80’s. He assumed a 60/40 portfolio, and an “average” withdrawal period of 30 years. Today, expected returns are lower, and life expectancies are higher. More recent research would probably lead you to a safe withdrawal rate of more like 3-3.5%, which of course is crappy news if you don’t like taking big risks.

Agree with keeping a few years worth of expenses in cash or cash-like vehicles. Beyond that, bucketing is just playing a behavioral game with yourself. Nothing wrong with that, but do try to look at and think about the whole as well.

[Leighpilot]

Well right now you can get close to 5% from CDs. So that’s the next few years taken care of.

[Captain Graham]

Originally Posted by Jetx

Retired financial advisor here.

Historically, the stock market experiences a drop of +\- 50% once (sometimes twice) every decade or so. With your proposed allocation of approx 87% in equities, that will be mighty terrifying for someone in the withdrawal phase. When (not if) it happens, the pundits and the press will be screaming “this time is different, we can’t see the bottom, only a fool would be in stocks”, just like they have many times before. Most retirees will lose their nerve and sell at the worst possible time. So ask yourself if you really have the stomach for that kind of volatility in retirement/withdrawal. Most do not… I don’t.

Also, the 4% rule originally came from a paper published by Bill Bengen back in the 80’s. He assumed a 60/40 portfolio, and an “average” withdrawal period of 30 years. Today, expected returns are lower, and life expectancies are higher. More recent research would probably lead you to a safe withdrawal rate of more like 3-3.5%, which of course is crappy news if you don’t like taking big risks.

Agree with keeping a few years worth of expenses in cash or cash-like vehicles. Beyond that, bucketing is just playing a behavioral game with yourself. Nothing wrong with that, but do try to look at and think about the whole as well.

Thank you for your post.
I think I still like the bucket system and my allocation.
1. Cash - Bucket1 - 16% or $160,000
2. Stocks - Bucket2 - 60% of 16% or 9.6% or $96,000
Bucket3 - 68% or $680,000
Total stocks 77.6% (9.8+68) 0r $776,000
3. Bonds - Bucket2 - 40% of 16% or 6.4%

This will make my allocation heavy on cash, heavy on stocks and light on bonds.

So when the market drops 50% as long as it starts to come back after 2 years and comes completely back in 8 years I will be ok.
That does not mean I will not adjust my plan based on market conditions.
For example if the market drops a large amount like 50% but it stays down for 2 years I may decide to reduce my spending and make bucket1 last 5 years instead of the 4 and bucket2 last 6 years instead of 4.

Basically as long as I have thought about a problem (market drop) and developed a reasonable plan I will sleep well at night.

[Jetx]

Originally Posted by Leighpilot

Well right now you can get close to 5% from CDs. So that’s the next few years taken care of.

The REAL return -- the nominal rate of return minus inflation -- is what matters. In today's inflation environment, 5% CD's sadly have a negative real return.

So while the FDIC guarantees that your balance won't go down, you're also guaranteed to be poorer in purchasing power terms when the CD matures than you were when you bought it.

[Captain Graham]

Originally Posted by Jetx

The REAL return -- the nominal rate of return minus inflation -- is what matters. In today's inflation environment, 5% CD's sadly have a negative real return.

So while the FDIC guarantees that your balance won't go down, you're also guaranteed to be poorer in purchasing power terms when the CD matures than you were when you bought it.

The way I look at it the cost of keeping cash (losing value due to inflation) is like buying insurance against a market drop.
I pay the price for the insurance but I hope I will never need it.

[girdasso]

I would never advise anyone how to plan their financial future. I can only tell you what has worked for me.
Continue working part time as long as you can to stretch out the working part and shorten the retired part.
invest only in solid companies with a proven track record of paying dividends/and or rising income over the long term.
Diversify so that any one bad investment does not cause a major problem
Keep enough cash or safe liquid assets for 1 to 2 year's expenses.
Do not pay high fees for investment advice which is available for very low cost from online advisors.
Do not trade shares. You cannot beat the computer traders, the short sellers, and the hedge fund operators.
This has worked for me over 22 years of retirement.

[wsmurdoch]

Originally Posted by girdasso

I would never advise anyone how to plan their financial future. I can only tell you what has worked for me. .... This has worked for me over 22 years of retirement.

In my case from our 18 years of retirement living on a sailboat maybe five months out of twelve and from observations of my peers.

0. Spouse, children, grandchildren, and friends matter. They are what you have.
1. Live below your means.
2. Diversify, buy the market, stay the course, be conservative, if you can't identify the losers in an overly attractive scheme - you are fixing to be a loser. Costs matter.
3. https://firecalc.com/ for investment probabilities - expected duration and optimum stock/bond split.
4. https://engaging-data.com/will-money-last-retire-early will add the chance that you might die earlier or later than average. with more or less money than you expected You will.
5. Don't forget that morbidity matters as well. Cancer, heart, lung, injury, arthritis, dementia, and such when they come will make a huge change in your life. Beware. Be ready.

[Simi 60]

Originally Posted by Captain Graham

Talking about using an investment advisor.
I had a few meeting with 3 Fiduciary Advisors.

I do not like they way they take their fees.
They all wanted to charge me about 1.75% of by total retirement balance.
They all claimed that they only make money when I make money but this is misleading.

.

I always wonder why, if they are so good, are they still behind a desk instead of on a big boat behind an island sipping a refreshing adult beverage

My old man spent most of his working life as a financial advisor and judging by the wall of awards he was a good one.
But he retired at 65 and me in my early 40's
I took no financial advice from him, did pretty much the opposite.

[Captain Graham]

Some free easy to use tools I like are
if you need help using these tools youtube has many videos that will help.

Portfolio Visualizer - Main Page lists all the tools
https://www.portfoliovisualizer.com/

Back test specific stock or mutual fund portfolios based on history.
I use this 3 ways
1. Compare single mutual funds vs a S&P index fund to find good solid mutual funds that do better then the S&P
2. Compare different portfolios against each other.
3. I like to pick the year 2000 as the starting point to see how well they handle a big bear market.
https://www.portfoliovisualizer.com/backtest-portfolio

Monte Carlo simulation - Tests withdrawal strategies.
Please read up on Monte Carlo simulations before using it.
https://www.portfoliovisualizer.com/...rlo-simulation

[OldManMirage]

Originally Posted by Simi 60

I always wonder why, if they are so good, are they still behind a desk instead of on a big boat behind an island sipping a refreshing adult beverage

My old man spent most of his working life as a financial advisor and judging by the wall of awards he was a good one.
But he retired at 65 and me in my early 40's
I took no financial advice from him, did pretty much the opposite.

Come now, I'm sure that was a rhetorical comment ? Some people just really enjoy what they do.

The broker who helped me sell a majority of my business is quite wealthy and in his 60's. Yet he continues to do what he does. If I had a tenth of his money I would be long retired.

Of course you know this Simi.