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Old 10-30-2007, 06:50 AM   #41
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Re the inflation question - I just finished Alan Greenspan's new book. His opinion is that the low inflation we saw globally in the last 20 years is an historic anomaly largely attributable to the fall of communism in the eastern block and the (relative) liberation of the Chinese economy. He sounded less optimistic about what the next 20 years would bring.

Out of curiosity I chose your timeframes (27 and 20 years ) and looked at the period up to 1990, roughly the start of what Greenspan considers the historically anomalous period.

For what its worth, the 27 years up to 1990 inflation averaged 5.57%. The 20 years up to 1990 it averaged 6.3%.




Now, back to your original question, I say go for it! 8)
What is the source of those inflation numbers you use? Also see my previous response #11.
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Old 10-30-2007, 08:06 AM   #42
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I used the data from your link.

The 7 year lock in sounds good. Also, the above post was not meant to criticize your decision, we all have different risk appetites. I just thought Greenspan's comments were something all of us should consider, regardless of the makeup of our portfolios.
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Old 10-30-2007, 09:38 AM   #43
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I guess we were talking about two different things. I track CPI (which, in the earlier years of my now 28 year military 28 year retirement, was under a different (although, much better) method). Inflation is real but, IMO, it impacts all of us differently. I think as one gets older the inflation impact becomes less relevant as long as one can or has added significant savings the nest egg. This appears to be what the OP has done and it looks like, based on his expenses, he will be able to continue to do so. Of course if you are looking at a 30 to 40 year early retirement inflation can become very relevant.
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Old 11-26-2007, 05:03 PM   #44
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(yes, I know this is probably too much in cash at my age, but I can sleep at night, so I don't want to discuss this part...I know the pros and cons of this)
My parents immigrated here in the 40/s - 50's (one earlier than the other and didn't know how to play the stock market/mutual funds game. They invested in CD's for the most part and were happy with their 3% - 5% returns (although I remember 12% in the late 70's or whenever that was). When they passed away, they had a house worth about $725K that was paid off and about $225K in cash. It can work. And yes, they could have made so much more, but in the end, they were taken care of with everything they needed and wanted.
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Old 11-26-2007, 05:20 PM   #45
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If you are happy with your return - good for you.
That is the acid test, isn't it?

While a significant cash position is very unlikely to result in an optimal longterm return, if the relatively low income is sufficient for the investor's needs and he or she is leery of volatility, that's really all that matters.
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Old 11-26-2007, 09:41 PM   #46
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That is the acid test, isn't it?

While a significant cash position is very unlikely to result in an optimal longterm return, if the relatively low income is sufficient for the investor's needs and he or she is leery of volatility, that's really all that matters.
I confess to being more risk averse than most forum members. I reduced my stock mutual fund holdings to about 13% a couple of years ago and have slept better since then.
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CD Real Return
Old 11-26-2007, 11:33 PM   #47
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CD Real Return

Significant cash is fine if it can support your needs. This is appropriate when your withdrawal rate is low, say 1 to 2%, for those with generous COLA pensions from the federal/state/city government or the military. For the rest of us who require about 4% withdrawal rate from our portfolio, a 100% cash or CD portfolio will not suffice since inflation and taxes will literally wipe out its return (as illustrated by the attached table) though the tax rate may be too high but still valid to demonstrate its effect to CD return.
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Old 11-27-2007, 09:10 AM   #48
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... For the rest of us who require about 4% withdrawal rate from our portfolio, a 100% cash or CD portfolio will not suffice since inflation and taxes will literally wipe out its return (as illustrated by the attached table) though the tax rate may be too high but still valid to demonstrate its effect to CD return.
Spanky,

Thanks for posting the chart. I suspect it was created by an investment company. A few observations:


(1) My tax rate since retiring has been considerably lower than the tax rate used by the chart -- about half.

(2) I shop for CD rates and usually get higher interest rates than those shown in the chart.

(3) Even using the chart's inapplicable assumptions, CDs kept pace with or beat inflation and taxes during 14 of the last 20 years.

(4) The chart doesn't quantify peace of mind for those of us trying to avoid risk during retirement.


I have a somewhat small ($31K) non-COLA pension and figure the approx $2M nestegg will last until we croak. Most of that money is after tax (i.e., outside any 401K or IRA).
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Old 11-27-2007, 10:53 AM   #49
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Template,

As suspected, the tax rate is questionable in the chart. Sleeping well at night without worrying about the volatility of the markets is definitely something that many would die for. As long as the income generated form a CD (or laddered CD) portfolio satisfy one needs, there is no reason to take on more risk. Congrats on your financial achievement and enjoy your journey.

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Old 11-28-2007, 12:00 PM   #50
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A related article that may perhaps be of interest: How big a 'nest egg' do you need to retire? - Cracked Nest Egg - MSNBC.com.

Extract:
Quote:
“The traditional methodology is giving very bad advice,” said Lawrence Kotlikoff, an economics professor at Boston University. “The targeting for how much to plan on spending in retirement is being done by people that are trying to sell securities and insurance policies. That right there is a conflict of interest.”

Kotlikoff, who has developed his own methodology (more on that later), argues that for some people, the typical method of shooting for a fixed minimum income for life creates a savings target that is higher than it needs to be. But that suits the financial services industry just fine, he says.

“I’m not suggesting that everyone is oversaving or that we don’t have a saving problem with a lot of the population. We do,” he said. “We also have an oversaving problem with a lot of the population. They’re different people.”
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Old 11-28-2007, 12:18 PM   #51
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A related article that may perhaps be of interest: How big a 'nest egg' do you need to retire? - Cracked Nest Egg - MSNBC.com.

Extract:“The traditional methodology is giving very bad advice,” said Lawrence Kotlikoff, an economics professor at Boston University. “The targeting for how much to plan on spending in retirement is being done by people that are trying to sell securities and insurance policies. That right there is a conflict of interest.”

Kotlikoff, who has developed his own methodology (more on that later), argues that for some people, the typical method of shooting for a fixed minimum income for life creates a savings target that is higher than it needs to be. But that suits the financial services industry just fine, he says.

“I’m not suggesting that everyone is oversaving or that we don’t have a saving problem with a lot of the population. We do,” he said. “We also have an oversaving problem with a lot of the population. They’re different people.”

Hmmm... it may be bad advice, but I think oversaving is a better way to go than to follow this Kotlikoff guys advice:

“For a lot of people who are young and have mortgages and have college tuition to save for and a lot of mouths to feed what the program is saying is, ‘Don’t save a whole lot when you’re young, and save a lot right before retirement — which is what most people do,” he said.

Yep, spend now save later... definitely the route to a happy retirement
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Old 11-28-2007, 01:17 PM   #52
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Hmmm... it may be bad advice, but I think oversaving is a better way to go than to follow this Kotlikoff guys advice:

“For a lot of people who are young and have mortgages and have college tuition to save for and a lot of mouths to feed what the program is saying is, ‘Don’t save a whole lot when you’re young, and save a lot right before retirement — which is what most people do,” he said.

Yep, spend now save later... definitely the route to a happy retirement
Bots, I understand your point but I think the reality is more like what Kotlikoff is reacting to. Some young people fail to save even when they can (fancy cars, house, etc.) and others fail to save cause they can't (debts, prolonged schooling, family issues and a million other reasons).

Of course it's best to start saving early but if you can't, all is not lost. You can start in your 40s, and turn up the FIRE big time, and still retire at least somewhat early.

I'm in between, mostly the latter. In hindsight, I could have save a little bit more when young, but educational debt repayment (at the 1980s inflationary interest rates) really trumped all other after-expenses priorities. Family not wealthy, kids early, wife mostly home with the kids, etc.

Wait to you're 50 and you'd better pray for that inheritance or lottery ticket, or else you're likely to be working until you're 65-70.
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Old 11-28-2007, 01:35 PM   #53
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Bots, I understand your point but I think the reality is more like what Kotlikoff is reacting to. Some young people fail to save even when they can (fancy cars, house, etc.) and others fail to save cause they can't (debts, prolonged schooling, family issues and a million other reasons).

Of course it's best to start saving early but if you can't, all is not lost. You can start in your 40s, and turn up the FIRE big time, and still retire at least somewhat early.

I'm in between, mostly the latter. In hindsight, I could have save a little bit more when young, but educational debt repayment (at the 1980s inflationary interest rates) really trumped all other after-expenses priorities. Family not wealthy, kids early, wife mostly home with the kids, etc.

Wait to you're 50 and you'd better pray for that inheritance or lottery ticket, or else you're likely to be working until you're 65-70.
Agreed. I'm just not sure how many folks would have the discipline to start saving after a couple decades of spending everything they make. For those with the discipline I can see a somewhat early retirement is still possible.
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Old 11-28-2007, 02:21 PM   #54
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With cash I can get a guaranteed 5% (I'm actually getting more right now)
Do you mind if I ask where your cash is that is getting you over 5% a year? And how liquid is it?
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Old 11-28-2007, 02:49 PM   #55
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My question is: Do I have enough savings/investments to retire on?

I know it's very specific to each individual, but I'd just like a few opinions on my situation.

I'm single, 51 years old, have about 1.2M in savings/investments with about 2/3 of it invested in cash investments (yes, I know this is probably too much in cash at my age, but I can sleep at night, so I don't want to discuss this part...I know the pros and cons of this) and the rest invested in individual stocks (not that much) and mutual funds. My house is paid off, I have no debt,....

What is your gut feel? Is early retirement a fairly safe bet for me at this point? Thanks in advance for any opinions.
It's good to see all the "cash fans" come out of the woodwork on this one. I'm mostly fixed-income, too. That's primarily so my wife can sleep at night. But I worry about inflation, so we're mostly in TIPS. They are inside qualified accounts, so I don't think about annual taxes on the gain.

I like the SS "bridge" concept. If I were in your position, I'd look up my "full" SS benefit first. That may be $15,000 at age 67. I'd figure I need (67-51) x $15,000 = $240,000 to bridge to SS. If I can put that somewhere where I can match inflation after tax, then I've got a base of $15,000, inflation adjusted, for life (the bridge for the first 16 years, then SS).

That leaves about $960,000 to provide income on top the $15,000 base. You only need to get inflation plus 1.6% to reach your $30,000 target without touching principle. So you've got the $960,000 as an emergency fund, for things like increasing medical costs and some future reductions in SS.

This calculation says "Retire Now".

In practice, I expect most people aren't that conservative. They'd probably figure they can do better than 1.6%. And they would split the $960,000 into a "spend down" fund and an "emergency" fund. That might add something like $10,000 of annual spending.
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Old 11-28-2007, 03:02 PM   #56
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I like the SS "bridge" concept. If I were in your position, I'd look up my "full" SS benefit first. That may be $15,000 at age 67. I'd figure I need (67-51) x $15,000 = $240,000 to bridge to SS. If I can put that somewhere where I can match inflation after tax, then I've got a base of $15,000, inflation adjusted, for life (the bridge for the first 16 years, then SS).
That's what I'm doing. At 66 my social security benefit would be $13,000/year before taxes. But in my case, I'll only have 55 months from ER to 66, so I will need about $41,800 for my bridge based on my benefit after taxes (but I plan to put my bridge in CD's, so depending on the interest rate, I might be able to get away with less than $40K due to the interest.)

I will not include that in my asset allocation, since it will be assigned to "paying myself" social security for those 55 months.

If I am doing really well financially at age 66, then I might try gathering some more cash together and making another bridge to last until age 70 (don't know yet).
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Old 11-28-2007, 04:09 PM   #57
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Yep, spend now save later... definitely the route to a happy retirement
Another extract from the article:

Quote:
If your retirement investments have a bad year, you can postpone buying a new car. On the other hand, if your returns are above average, that may be the year to splurge on a cruise. “Our dynamic programming model says people are going to adjust their spending based on how they do in the market every year,” he said.
I am not sure if he is saying "this is what people do" (in which case, you can probably save the $149 he charges for his planning software), or "this is what people should do". If the latter, I disagree. IMHO, retirement savings should be left alone to compound longterm, not treated like a piggybank whenever there are some paper profits.
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Old 11-28-2007, 04:16 PM   #58
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IMHO, retirement savings should be left alone to compound longterm, not treated like a piggybank whenever there are some paper profits.
Couldn't agree more. I think it's pretty easy for people to consider all their spending 'necessary' and let their expenses grow to equal their income.

These types of folks are going to have a pretty difficult time transitioning to 'saving' phase after a couple decades of spending it all.
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Old 11-28-2007, 05:58 PM   #59
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Spanky,

Thanks for posting the chart. I suspect it was created by an investment company. A few observations:


(1) My tax rate since retiring has been considerably lower than the tax rate used by the chart -- about half.

(2) I shop for CD rates and usually get higher interest rates than those shown in the chart.

(3) Even using the chart's inapplicable assumptions, CDs kept pace with or beat inflation and taxes during 14 of the last 20 years.

(4) The chart doesn't quantify peace of mind for those of us trying to avoid risk during retirement.


I have a somewhat small ($31K) non-COLA pension and figure the approx $2M nestegg will last until we croak. Most of that money is after tax (i.e., outside any 401K or IRA).
I like your thinking. Someday I will inherit some additional money and I imagine I will just keep it in cd's as it is right now. Taking that money into account, I will only have about 25% in stocks. But for now, I have closer to a 50/50 blend.
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Old 11-29-2007, 09:12 PM   #60
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100% CD for me too :-)
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