Retirement - Managing your money

[dannc]

Originally Posted by Jetx

...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.
...

I knew a retired guy back in the late 80's or early 90's who sold his stock when we had a pretty bad market crash. He only had a paper loss, but he panicked, and turned the paper loss into a real loss.

Later,
Dan

[Captain Graham]

Originally Posted by dannc

I knew a retired guy back in the late 80's or early 90's who sold his stock when we had a pretty bad market crash. He only had a paper loss, but he panicked, and turned the paper loss into a real loss.

Later,
Dan

Today I know a few people who are in the same situation.
They decided to retire when they got a magic number in their nest egg and did not factor in the possibly the market my drop 20-30%.
They are panicking and not sleeping well.

[clamshack]

Speaking to state pensions. I always find the aversion to immigration by pensioners to be amusing.

[wingssail]

Originally Posted by Jetx

...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...

We have lived through three of these "drops" since we retired (Quit) and went cruising.

We have never lost money because we never sold. We didn't "lose our nerve", we just hung in there and the market went back up. So the market is down now, our portfolio is down about 8% since the peak a few months ago, (up from the bottom a month ago) but we have not lost anything. We own the same number of shares as we did at the peak, they just don't have as much market value as before, but so what? Buy and hold. Buy carefully and hold. Our income, from income funds, about 40% of our portfolio, still produces the same income, maybe a bit more now, so we can be patient.

For 13 years since we last worked our investments have grown AND we have had a good monthly income the whole time.

So, be conservative, diversify, buy carefully, and hold. Don't lose your nerve and don't touch the capital.

[Captain Graham]

Originally Posted by catalystcat

An oft overlooked option - iBonds from Treasurydirect.gov. Current yield is 6.89%. (for freakish reasons, it was 9.62% earlier this year.)

You are capped at $10k annually unless you use a refund to add an extra $5k.

The article below it points out.
1. The 9.62% is only fixed for 6 months then twice a year it get adjusted to market rates. So it is a variable rate bond.
2. You can not sell the bond for 1 year.
3. If you sell it before 5 years you lose the last 3 months of interest.

Some my decide they still want to own this bond but I do not like that the bonds interest rate changes twice per year.
I generally do not like bonds so naturally I would not like a variable rate bond.

https://www.cnbc.com/2022/10/18/how-...-november.html

[Captain Graham]

Originally Posted by Captain Graham

The article below it points out.
1. The 9.62% is only fixed for 6 months then twice a year it get adjusted to market rates. So it is a variable rate bond.
2. You can not sell the bond for 1 year.
3. If you sell it before 5 years you lose the last 3 months of interest.

Some my decide they still want to own this bond but I do not like that the bonds interest rate changes twice per year.
I generally do not like bonds so naturally I would not like a variable rate bond.

https://www.cnbc.com/2022/10/18/how-...-november.html

I just checked the ibonds interest rate info (see link)
The final interest rate is called the combined interest rate.
It has 2 parts a fixed interest rate plus the inflation interest rate.
The fixed interest rate is very small and is locked in when you buy the IBond.
The inflation interest rate changes twice a year based on the CPI and is the biggest part.
So the article posted is correct the Ibond is a variable rate bond

https://treasurydirect.gov/savings-b...nterest-rates/

[NPCampbell]

Originally Posted by 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. !!!

I am hoping your state pension is considerably better than social security?

For most skilled or degreed workers, social security represents the single worst investment in their lifetime from an opportunity cost standpoint.

The IRR for social security is under 2% (assuming AWI $65k, retiring at 67, living to 83). The inflation adjusted CAGR of the S&P 500 over the past 45 years is 8%. Even the yield on 30 year treasuries has only been below 2% for 1 year out of the past 45. For the same cohort, money deposited into SS over a career of 45 years represents a current value loss of around $1.5 million compared to the S&P 500.

If you want to retire with money, don't rely on SS.

[wingssail]

Originally Posted by NPCampbell

I am hoping your state pension is considerably better than social security?

For most skilled or degreed workers, social security represents the single worst investment in their lifetime from an opportunity cost standpoint.

The IRR for social security is under 2% (assuming AWI $65k, retiring at 67, living to 83). The inflation adjusted CAGR of the S&P 500 over the past 45 years is 8%. Even the yield on 30 year treasuries has only been below 2% for 1 year out of the past 45. For the same cohort, money deposited into SS over a career of 45 years represents a current value loss of around $1.5 million compared to the S&P 500.

If you want to retire with money, don't rely on SS.

I don't look at SS as an investment. I don't consider SS taxes to be deposits on which we can expect earnings, like an investment. If it were an investment it would be a poor one, as you point out.

But instead SS payments are supposed to be a safety net for retired folks. The SS payroll taxes we pay during our working lives are meant to fund those payments for people retired already, and who will in the future. Our SS payroll taxes don't go into individual investment funds set up for each of us, which we would hope grows as we spend our working lives contributing to it. And by law those SS payroll taxes which are collected cannot be invested in ways which might produce higher returns, they must be put entirely into U.S. Treasury securities.

So it makes little sense to look at Social Security as an investment. It isn't.

We must recognize that SS will not fund a comfortable retirement, but it might keep us from starving. We might be better off if we could opt out of SS and invest the money in private investment funds but as for me, I am happy with the current system

For the comfortable retirement we must make other provisions, for ourselves, such as investments or pensions. But if we don't, or cannot, at least SS is there and many people are very thankful for that.

[Captain Graham]

Originally Posted by wingssail

I don't look at SS as an investment.

I agree SS is a poor invest.

Looking at the big picture when I retire I will
1. Reduce my cost of living before I retire.
Paid off my home, pay off all debts, have a good fully paid car and have the major home repairs completed.

2. Diversify my nest egg.
a. SS is a guaranteed source of income.
Kind of like an annuity but it increases with inflation.
b. A nice real estate investment-My paid off home
Yes if I live in it I will not earn any income but it protects me from inflation and if I need to I can always downsize.
c. Retirement saving in the stock market growth mutual funds, some cash and some bonds.

3. Have a withdrawal plan for my retirement saving what can withstand a large market correction.
The bucket strategy or maybe using dividend paying mutual funds.

And if all else fails I can still live on my sailboat.

[Kd9truck]

Originally Posted by clamshack

Speaking to state pensions. I always find the aversion to immigration by pensioners to be amusing.

Not sure what your point is?

Share the amusement please, we could all use to smile

The pensioners have an aversion to immigration into their state?

The state pensioners have an aversion to imagination into another state?
(I know a lot of pensioners that have moved from NY to NC, SC, FL, Porto Rico

Are you saying state pensioners do not like the current National immigration policy? And what does imagination have to do with the OPs post?

[MicHughV]

The BIG problem is that nobody knows when their number is up.

All too often people save for their " retirement" and never make it much beyond that.

One must consider health is a # 1 priority.

So, I'd like to share another story.

Some years back now, I came across this couple cruising in an old boat. Turns out, that both the man and his wife had been diagnosed with terminal cancer and were giving around 6 months to see out their days.
They didn't have much in the line of retirement savings, but thought....wtf....let's buy a boat and head for the B'mas and let life take it's course.

So they did, and with their meagre funds they bought a delipidated old boat and headed east.

The cruising community embraced them and basically took care of them, and the 6 months turned into 12 months.. and last I saw them, the 6 months had grown into 18 months.

Between the two of them they didn't have 2c to scratch together, but they had a zest for living that few "retiree's" could manage.

Having a fat bank account does not assure you of having anything, rather a zest for life is priceless.

[goboatingnow]

Originally Posted by NPCampbell

I am hoping your state pension is considerably better than social security?



For most skilled or degreed workers, social security represents the single worst investment in their lifetime from an opportunity cost standpoint.



The IRR for social security is under 2% (assuming AWI $65k, retiring at 67, living to 83). The inflation adjusted CAGR of the S&P 500 over the past 45 years is 8%. Even the yield on 30 year treasuries has only been below 2% for 1 year out of the past 45. For the same cohort, money deposited into SS over a career of 45 years represents a current value loss of around $1.5 million compared to the S&P 500.



If you want to retire with money, don't rely on SS.

God no social security pension is in unbeatable it would cost millions of contributions over30 years to build a compatible pension. Not to mention the other benefits thst also accrue. Tbd free public transport is worth thousands a year alone

[Captain Graham]

Again looking at the big picture.
The real risk of running out of money is the risk your investments will drop just after you retire.

Let me explain.
Example You retire when you just barely have enough and the market is in a bull market.
You are about to retire and you have $1,000,000 in the stock market and the stock market is in a bull market.
You look at your spending and income sources and figure you can retire if you limit your withdrawal rate to $40,000.
You think great that is 4% of the $1 million so you should not run out of money.
But after you retire the stock market drops 30% you now have only $700,000 in your retirement fund.
You still need the $40,000 withdrawal to live.
The $40,000 is now 5.7% of your $700,000 putting you at risk of running out of money.
If the market comes right back quickly not a problem but if the market stays down for a few years you may be in trouble.

If you are looking at retiring soon here are some solutions.

Solution1 just blindly use the 4% rule and do not change anything.
After all it has been tested for all kinds of market conditions.
Knowing my personally this solution would not work for me.

Solution2 Do not retire when you have barely enough to retire on.
Before retiring assume your investment saving will drop 30% before deciding to retire.
So you will either have to wait until you have 30% more in your investments or you have to wait until you reduced your cost of living.
The problem is you may need to postpone retirement a few years and they are your healthiest years.

Solution3 Have a part time job for the first years of retirement and reduce your withdrawal amount.
Assume your investments will drop 30% to $700,000.
You can safely withdrawal 4% of $700,000 or $28,000.
But you need to $40,000.
So start withdrawing $28,000 and get a part time job where you can earn $12,000 a year.

Solution4 Invest in Dividend earning stocks and retire when you have $40,000 in dividends.
I am still thinking about the pros and cons about doing this

[MicHughV]

For the most part ....buying dividend producing stocks is a good idea.

Most people are not too savvy about investing in the stock market and tend to leave this to some or another mutual fund manager, stock broker, etc.
These fund managers don't work for free and syphon of a good bit of " your" money every year.

These days anyone can open on online trading account and do their own thing. True, it takes a bit of homework, but there are umpteen venues where own can read, study or otherwise join online investing forums, etc.

Picking dividend producing stocks is not difficult. Dividend returns are all over the map, ranging from 2% to 9% or thereabouts. Selecting a variety of dividend paying stocks can earn you an average of around 5% per annum. No fuss, no muss. on a million dollar portfolio that is $50K. Even on a $500K portfolio, that is $25K....add in your SS income, and you are likely to have $50K a year. Assuming you have no debt, $50k per annum is quite manageable to allow you to have a reasonable stress free retirement.
Off course, the big bugaboo is health care insurance. On this, I can offer no advice. Staying fit and healthy is certainly one way to combat this. Hey, you are retired, nothing stops you from playing golf everyday, go sailing, walking, biking, etc....

[valhalla360]

Originally Posted by NPCampbell

I am hoping your state pension is considerably better than social security?

For most skilled or degreed workers, social security represents the single worst investment in their lifetime from an opportunity cost standpoint.

The IRR for social security is under 2% (assuming AWI $65k, retiring at 67, living to 83). The inflation adjusted CAGR of the S&P 500 over the past 45 years is 8%. Even the yield on 30 year treasuries has only been below 2% for 1 year out of the past 45. For the same cohort, money deposited into SS over a career of 45 years represents a current value loss of around $1.5 million compared to the S&P 500.

If you want to retire with money, don't rely on SS.

Depends greatly on how much you make during your working career (inflation adjusted).
- If the top 35yrs of earnings are around $12-15k, you do great as they replace 90% of the first ~$1000/month in average earnings.
- If you earn more after the first ~$1000, it drops to 32%.
- After around $6000, it drops to 15%.
- This also doesn't account for people who have 45-50yr working careers. After 35 yrs, they start dropping credit for the lowest earning years but they still keep making you pay into SS.

If you want the exact numbers search "bend points" as they get updated annually.

For people who are moderately successful in their career, the ROI is drastically worse.