Retirement - Managing your money

[Captain Graham]

Let me know what you think about what we are going to do.

We getting ready for retirement and thinking about how to manage our retirement savings.
During our working years it is easy just stay in the market, keep adding money to your 401k and ride out any bear market drops.
After all the stock market always comes back.
But in retirement you are taking money out not adding to your retirement account (401k) so you need a withdrawal strategy so you do not run out of money.
What you do not want to do in retirement is sell stocks when the market is down.
I like the bucket system to help manage our money in retirement.
Please note all 3 buckets are still inside your 401k or retirement account.
It is just a way of organizing your money.
Assumptions for this example
1. Retirement saving is $1,000,000 (this number is picked just to make the math easy)
2. We will be taking out 4% or $40,000 each year to spend.
4% is the considered a normal withdrawal rate.
If your expenses are less you can take out less.
If you take out more then 4% you are at risk of running out of money.
4% assumes you will live 30 years in retirement.
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)
Here are 2 videos explaining the system.

https://www.youtube.com/watch?v=PiRdPryT8Jc

https://www.youtube.com/watch?v=vKMGjb1Myv0

[wingssail]

With $1,000,000 invested you should be able to avoid any withdrawals for normal monthly or annual expenses.

Assuming you are not yet eligible for Social Security or other government sponsored retirement funding, so you have to do it completely on your own, you could still manage without touching your principle. If you put 75% into managed income funds at 4.5% which is possible with careful fund selection, you could get close to $3000 to live on. That's admittedly tight for some folks but doable for many.

However, if you are eligible for social security then you can add that income to your monthly, it easily could be $2500/month, and live quite nicely, or shift some of your investment into more conservative funds and even see some growth in the investment total.

The nice thing about income funds is that they don't stop producing during bear markets.

Where you choose to live during retirement plays a big role in determining the feasibility of this financial plan. Countries with high living costs and living in marinas full time make you manage your expenses more carefully.

We live in beautiful part of the world, in a nice marina 9 months/year (cruise 3 months), have a car and live on income from very much less than your total investment and SSA. We haven't touched the principle in 13 years.

[Rumrace]

Only silly folks retire. They drag us back in. Half the liveaboards are burning through inheritance money dad worked so hard to plan out. I’ve met 6 claim to be financial experts all involved in bit coin.
One Admin on another forum was giving financial advise and threatening to ban anyone else who did from the thread.
You mention a 401 K that’s for some 360 million Americans and has zip to do with the other 7 billion of us. In fact we have de invested. November 2018 the US Fed admitted the US dollar was no longer a stable vehicle.
Did you know there are laws on giving financial advise to people from outside you country or even your state.
I like your plan op I hope it works better than you hope for.

[letsgetsailing3]

One word: Bitcoin.


Just kidding.


The one word is: Diversification. Your bucket system works for this.

[boatpoker]

Originally Posted by Rumrace

Only silly folks retire. They drag us back in. Half the liveaboards are burning through inheritance money dad worked so hard to plan out. I’ve met 6 claim to be financial experts all involved in bit coin.
One Admin on another forum was giving financial advise and threatening to ban anyone else who did from the thread.
You mention a 401 K that’s for some 360 million Americans and has zip to do with the other 7 billion of us. In fact we have de invested. November 2018 the US Fed admitted the US dollar was no longer a stable vehicle.
Did you know there are laws on giving financial advise to people from outside you country or even your state.
I like your plan op I hope it works better than you hope for.

kettle ... black.

[valhalla360]

So:
- 16% Cash equivalents
- 6.4% Bonds
- The rest in stocks.

It's OK but a little more conservative than I would go and it ignores inflation. If you want to play the 4% rule, it assumes the annual amount taken out is increased annually to offset inflation.

Honestly, very rare for a downturn to last more than 3yrs and if it was that bad, I would compensate by reducing withdrawals rather than lock in lower returns. In fact, in such a bad situation, there is a good chance of deflation and you don't need the annual inflation increase anyway.

Personally, I would split the budget into need vs want and cover the need portion, so I can benefit from the higher returns on a larger portion of the account.

And as someone else said, you have to include Social Security and pensions.

Keep in mind also that the vast majority of the time the 4% rule results in your accounts actually growing faster than inflation. The 30yr running out of money is basically a worst case scenario and the author who came up with it believes it's too low. A better solution would be 4% of the end of year balance. It can never run out and if the market does well, you get a raise.

But what did this have to do with cruising and boats?

[Shrew]

Social Knowledge LLC owns this site, however they also have sister sites related to investing for retirement:

https://www.early-retirement.org/

https://www.firecalc.com/

These are worth looking at. Personally I don't ask boating questions on financial websites. YMMV.

[Rumrace]

Totally kettle black my bad. But I delegate stupid advise always have.
See I remember when you bought stock and the little company in town grew. Walmart had American flags on every end cap. They haven’t put up the Chinese flags.
Stock market growth is for banks and insurance companies getting more interests than ever.
Elk Grove village Chicago is a ghost town, so is Detroit and they are our friends you did in. Cooper laid off 1 million people in Chicago and Detroit from their tower of assumption in Houston. Turns a hundred brand names in tools lighting and automotive into yesterdays junk. But if you owned copper shares they split on the backs of the employees who created them. Don’t believe me check out a Wanger brake rotor , a champion spark plug, a Lufkin tape measure a Nicholson file all junk.
To get rich buy shares in companies destroying your neighbours future I am told. Personally I own no shares in any company who is Chinese or a Chinese enabaler. We even have a tariff to delete the Marco Polo products in former US brand packaging.
We had a group of condescending Dentists in Hamilton buy shares in Lloyd’s only to find out they bought high risk accounts from the well named fraudster and lost 1/4 million and their investment. I enjoyed that.

[goboatingnow]

Originally Posted by Rumrace

Totally kettle black my bad. But I delegate stupid advise always have.
See I remember when you bought stock and the little company in town grew. Walmart had American flags on every end cap. They haven’t put up the Chinese flags.
Stock market growth is for banks and insurance companies getting more interests than ever.
Elk Grove village Chicago is a ghost town, so is Detroit and they are our friends you did in. Cooper laid off 1 million people in Chicago and Detroit from their tower of assumption in Houston. Turns a hundred brand names in tools lighting and automotive into yesterdays junk. But if you owned copper shares they split on the backs of the employees who created them. Don’t believe me check out a Wanger brake rotor , a champion spark plug, a Lufkin tape measure a Nicholson file all junk.
To get rich buy shares in companies destroying your neighbours future I am told. Personally I own no shares in any company who is Chinese or a Chinese enabaler. We even have a tariff to delete the Marco Polo products in former US brand packaging.
We had a group of condescending Dentists in Hamilton buy shares in Lloyd’s only to find out they bought high risk accounts from the well named fraudster and lost 1/4 million and their investment. I enjoyed that.

Nice rant but sure I understood any of it.

[goboatingnow]

Spend it slowly , or else adopt the George Best maxim

“ George where did all the money go “ well drink and women the rest I just squandered.

[leecea]

One can certainly use guides like 4% or 60/40 splits, but you can also try to estimate your own needs and kinda back into a plan.

Select an end-point, such as 95 years old, and look at what you need pre-tax per month, factoring in a reasonable inflation estimate.

Then include any additional sources of income and determine the gap your savings needs to fill over the years. Perhaps you'll also add some type of contingency amount to try and account for unexpected expenses.

Now you can project roughly what interest rate you need so your savings don't run out. Knowing that will help direct how you invest the money.

[Captain Graham]

Originally Posted by Captain Graham

I like the bucket system to help manage our money in retirement.
Please note all 3 buckets are still inside your 401k or retirement account.
It is just a way of organizing your money.
Assumptions for this example
1. Retirement saving is $1,000,000 (this number is picked just to make the math easy)
2. We will be taking out 4% or $40,000 each year to spend.
4% is the considered a normal withdrawal rate.
If your expenses are less you can take out less.
If you take out more then 4% you are at risk of running out of money.
4% assumes you will live 30 years in retirement.
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)

I have assumed some general numbers just to help explain the bucket system.
Lets do another example
1. Your retirement saving is the same $1,000.000
2. After reviewing your situation you decide you need withdraw $20,000 from your retirement account each year.
Maybe you have your house paid off, SS income and a small pension.
This is only 2% of your retirement account.
Since the general rule is to limit your withdrawal spending to 4% or below 2% is good.

Now how would I setup my buckets
Bucket1 - Out of the stock market to handle most typical bear market
4 years of expenses = 20,000 *4 = $80,000 (8% 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 = 20,000 *4 = $80,000 (8% of your savings)
Bucket3 - Long term growth - 100% in stocks
$1,000,000 - $80,000 - $80,000 = $840,000 (84% of your savings)

wingssail posted another withdrawal strategy.
Invest in dividend stocks and only spend the dividends.
He has been doing this for 13 years and it has worked for him.
See his post.

Both withdrawal strategies have merit and it really come down to what you are comfortable with.

In my case I like the idea of having 4 years of withdrawals completely out of the stock market. Bucket1.

Any thoughts

[Rumrace]

You can’t help everyone. Stupid people have rights too.

[dannc]

Originally Posted by Shrew

...
https://www.firecalc.com/
...

I have used Fire Calc to model certain retirement ideas we have pondered.

For the models we have run, the 4% rule does not have us running out of money, and even at 4.5%, we would not likely run out.

Later,
Dan

[leecea]

Originally Posted by Captain Graham

Any thoughts

I know you're just giving examples, so maybe I'm going too deep into the weeds:

- You could factor inflation into the expense number and bucket sizes. B1 is for years 1-4 and B2 is for years 5-8. You mentioned assuming 3% inflation. SS has COLAs but most pensions are fixed so your savings withdrawals have to increase each year by 3% x (savings withdrawal + pension). So B1 and B2 will have to adapt.

- You mentioned that everything was in a 401K but at some point RMDs may mean withdrawing more than you really need and you'll have to setup some buckets outside the 401Ks. No big deal, just another factor to consider.

One thing I have yet to do is create a version of my financial plan that handles "what if" scenarios for one of us dying early