First, thanks to youRe: Contemplating The Big Move
First, thanks to you all for taking the time to respond to my first post here. Your comments and observations have been quite interesting. In some ways they have been what I expected them to be and in other ways somewhat surprising.
It is no surprise to me that a lot of you think I need to keep working a bit longer to prepare to maintain our current lifestyle over a 30 year retirement period. After all, thats what I think, too.
I expected to get a lot more portfolio allocation questions. In particular, I thought Cut-Throat would checkmate me into a discussion of how I propose to handle risk in retirement. I dont want to put words in his mouth but he has impressed me in past posts with his appreciation that overall risk entails both market risk as measured by share price volatility but also inflation risk in the form of eroding purchasing power over time. I expected him to challenge me to choose my poison along the lines of you can protect against one or the other but probably not both. I expected to hear a lot more diversify, diversify, diversify admonitions. Believe me, I have been thinking long and hard about a 50/50 allocation with 30% S&P 500, 10% Small Cap, 10%International and 50% Govt Bond allocation. Another option is to throw the whole thing in the new life cycle fund the Govt TSP will soon be offering and just forget about it. Problem is, as you know, I just don’t like what the equity market has become over the years. We should have a whole thread on this topic alone.
I am truly surprised that nobody zeroed in on the $10k out of pocket health care costs that I have embedded in the projected retirement budget. I guess I just slipped that one past you all. This is no joke and is based on real experience. Wife and I both max out a Flexible Spending Account of 4K apiece and we blew through it by Oct of this year. When I spread sheet that out 30years at a 7% inflation rate the numbers would make you LOL. It is scary what it will do to a portfolio. This is the real dagger at the throat of our retirement
With a nod to Cut-Throat the effects of inflation on the portfolio are prodigious. Its interesting to observe the progression. At first the portfolio balance grows annually as the nominal earnings on the portfolio exceed the required draw for the first few years. Then that health care inflation catches up (not to mention property tax inflation) and passes both the less than COLAed annual income adjustments and the reasonably expected rate of return on the portfolio. As you get to the outyears the portfolio balance drops precipitously, portfolio income dries up, and annual draws start chewing great gashing holes in your stash. Pretty soon you are stuck 1500 feet from the summit of the Sierra Nevada, with 5 feet of snow falling. You are done, just like George Donner.
I am mildly surprised, but not totally shocked, at the life style cluck cluck clucking. I did warn many of you that we do indeed apparently live on different planets. For clarification, we live in a nice, but not too nice, neighborhood in Arlington, Va. which is inside the beltway. We live in a small 1952 2 bedroom brick rambler in near mint condition. We married late in life, my first, her second. Bought the place in 1990 for $280K. Today it has a $296K mortgage on it at 5 1/8%. Wont talk about the current market value. Its all illusory. We drive a 4 year old Chrysler. We dont consciously play keep up with the Jones. Dont wear fancy clothes or have expensive toys. Definitely not the yuppie type.
We both work, we both get hungry and we both like to go out to dinner when we can. Tell you what : 2 cocktails at $6.50 is $13; 2 appetizers at $6.50 makes it $26. 2 entrees at $25 makes it $76; Skip the dessert; add 8% tax (10 % in DC) makes it $84; add a 20% tip ( never on the tax friends, never on the tax) and bingo its $100. Now, if that is extravagant to you, well, we just have to agree that we are indeed on different planets. Dont you guys ever take your wives to dinner? No? Yes, but it costs you a lot less in your wonderfully scenic low cost area? What kind of ptomaine pits are you dragging the love of your life to anyway? You ladies let them get away with that?
