Useful Links

serie1926 · 07-20-2011, 07:55 AM

http://www.chron.com/disp/story.mpl/business/7660517.html

growing_older · 07-20-2011, 08:01 AM

I think this article is confused about SWR. It suggests that younger retirees plan a SWR of about 1.8% and older retirees use 4-5%, so younger retirees need a portfolio of 4x or more that of older retirees, because of SWR differences and social security.

ziggy29 · 07-20-2011, 08:02 AM

He lost me at the end:

Quote:

Working longer is what savvy (and fortunate) older people are doing.

Yuck.

rescueme · 07-20-2011, 09:19 AM

"When the going gets tough, the tough go to work."

I'm glad I'm not tough

...

I'd rather be "smart"

...

IMHO, he (again) is "pandering to the masses". IOW, he's giving hope to those that have little/none.

It may not apply to many of us on this board, but than again, we are fortunate (at least, I think we are)...

Nords · 07-20-2011, 10:00 AM

What a surprise. Scott Burns still wants to keep working-- pretty good deal for an author and nationally-syndicated writer who has no incentive to ever retire.

Quote:

Originally Posted by growing_older

I think this article is confused about SWR. It suggests that younger retirees plan a SWR of about 1.8% and older retirees use 4-5%, so younger retirees need a portfolio of 4x or more that of older retirees, because of SWR differences and social security.

Quote:

The large amount is needed because current investment yields are so low — about 1.77 percent for a 50/50 portfolio of stocks and Treasury obligations. If you are young, you can't take the chance of making principal withdrawals because you would have to do it for many decades. All of your spending money has to come from dividends or interest income.

I think he's just saying that he'd never touch the principal, and he's certainly not willing to take on more equity risk for more yield. Yet a lot of SWR analysis is based on principal consumption and a 75/25 stock/bond AA.

Quote:

Originally Posted by ziggy29

He lost me at the end:
Yuck.

Quote:

So what can you do to reduce that risk? Not much. There are only two big levers.
Spend less, work longer
First, you can spend less. That's easier from an affluent starting point than a poor starting point.
Second, if possible, you can work longer. One small paycheck is the equivalent of a whole lot of common stock.
Working longer is what savvy (and fortunate) older people are doing. As I pointed out recently, the labor force participation rate for men 65 and over has risen over the last 10 years. Ditto, the participation rate for women 55 to 64.

I might be wrong, but my initial impression was that by "fortunate" he means they're physically & mentally capable of earning a paycheck-- instead of reducing their spending to the level of their SS check.

Those labor force rates are out of context. I can't tell if he's claiming that they're "soaring to new highs" or "returning to historical levels".

The whole article seems to be a rehash of the PE10 and "relative valuation" debate. I'm surprised that H0cu$ hasn't chimed in yet.

MasterBlaster · 07-20-2011, 10:05 AM

Oh so true.

Quote:

When it comes to retirement and living without a paycheck, older people have a sublime advantage. It's called death

per the article the very low SWR's for young people are based on very long retirements that young people would have, and very low current stock and bond yields.

From Scott Burns article the previous week, the "safe" withdrawal rate is defined:

Quote:

Here’s how the index is calculated. Every year I assume that a would-be Life of Riley person puts half his money in a 5-year Treasury note. He puts the other half in the Standard & Poor’s’ 500 Index stocks. I calculate the income yield on the portfolio. Then I go to the Internal Revenue Service statistics of income and check how much income you would need to be at the threshold for the top 25 percent of all households. (Note: I estimate the figure for the current year because the last IRS figure is based on tax returns from 2008.)
Divide that income figure, $72,377, by the portfolio yield—a piddling 1.77 percent this year— and you know how big a nest egg you would need to live on its dividend and interest payments. This is the way we might live if we had been more attentive when we selected our parents

BigNick · 07-20-2011, 11:57 AM

Quote:

The large amount is needed because current investment yields are so low — about 1.77 percent for a 50/50 portfolio of stocks and Treasury obligations. If you are young, you can't take the chance of making principal withdrawals because you would have to do it for many decades. All of your spending money has to come from dividends or interest income.

I stopped reading right there. What a stupid, dogmatic thing to say. Apparently he doesn't understand concepts as simple as present and future value, so he's chosen what is essentially the OCD (or "grandma said") solution.

It reminds me of my mother, who until recently, when the thresholds were raised, had a net wealth very close to the point at which succession taxes would have been payable - by her descendants - on the excess. It would have been something like 1% of her estate, because she was 5% over the threshold and the tax rate was 20% or something. She was jumping through all kinds of hoops because she had decided that if she, sorry, her heirs paid a penny of succession tax, it would mean that the government had "won" and she had "lost". She was happy for her portfolio to go down below the threshold even though it meant that the total net return to her kids would be less.

There are so many fetishising tales like this out there, we don't need so-called financial gurus getting into it as well. Of course, you should avoid spending more capital than necessary, but for certain plausible medium-term scenarios it may be the most rational thing to do.

ziggy29 · 07-20-2011, 12:14 PM

Quote:

Originally Posted by Nords

I might be wrong, but my initial impression was that by "fortunate" he means they're physically & mentally capable of earning a paycheck-- instead of reducing their spending to the level of their SS check.

OK, but in this era of blatant and rampant age discrimination in employment and hiring, they'd better prepare to be self-employed, regardless of how "physically & mentally capable" they are.

I'd certainly agree that it's good to have the capacity to find work again if it all hits the fan and you need it, but these "you *should* work longer" arguments wear thin with me, again especially in the face of a terrible job market, 17% "real" unemployment and widespread age discrimination.

bbbamI · 07-20-2011, 12:40 PM

unclemick · 07-20-2011, 12:40 PM

Sooo - once ago - on this very forum - someone grinned up a Curmudgeon Certificate.

Thus are we due for an honarary 'Cheap SOB' award.

heh heh heh - fugal, LBYM, and thrifty just won't quite measure up.

With a lot of scroll work.

.

Nords · 07-20-2011, 01:21 PM

Quote:

Originally Posted by ziggy29

OK, but in this era of blatant and rampant age discrimination in employment and hiring, they'd better prepare to be self-employed, regardless of how "physically & mentally capable" they are.
I'd certainly agree that it's good to have the capacity to find work again if it all hits the fan and you need it, but these "you *should* work longer" arguments wear thin with me, again especially in the face of a terrible job market, 17% "real" unemployment and widespread age discrimination.

Good thing you and I were willing to "take one for the team" and voluntarily remove ourselves from the pool of available labor...

ziggy29 · 07-20-2011, 01:30 PM

Quote:

Originally Posted by Nords

Good thing you and I were willing to "take one for the team" and voluntarily remove ourselves from the pool of available labor...

I unfortunately am still a wage slave to the man. But there's no way I see myself w*rking all the way to my first Social Security check, let's put it that way. However, given age discrimination (and bound to stay bad with high unemployment) I need to make damn well sure I don't need a paycheck again before I call it quits.

chinaco · 07-20-2011, 04:07 PM

Here is the first installment on the Life of Riley.

Life of Riley Index Reaches New Record: $3.1 Million - Registered Investment Advisor

I get the point he is making.

bssc · 07-20-2011, 04:14 PM

Quote:

Working longer is what savvy (and fortunate) older people are doing. As I pointed out recently, the labor force participation rate for men 65 and over has risen over the last 10 years. Ditto, the participation rate for women 55 to 64.

When the going gets tough, the tough go to work.

And here I thought it was because people these age didn't save enough to live comfortably.

W2R · 07-20-2011, 05:32 PM

So, it only takes $700K for a senior to live the Life of Riley? So much for all the talk from other columnists about millions being required to retire.... Suze Orman would have a fit!