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Old 05-20-2009, 06:33 PM   #41
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I'm all ears. What are your favorites?

Ha
Related to the quote, "never a borrower or lender be (apropos an ongoing thread), there is a reason you won't see me in the Stockpicking Forum.
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Old 05-20-2009, 06:36 PM   #42
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Originally Posted by Medit8 View Post
Related to the quote, "never a borrower or lender be (apropos an ongoing thread), there is a reason you won't see me in the Stockpicking Forum.
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Originally Posted by Medit8 View Post
You are of course referring to the US stock market. There are other markets in the world where this is not necessarily so.

Without a willingness to even mention markets where you assert that valuations are better than in the US (as you did above), your comment is difficult to evaluate.

Ha
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Old 05-21-2009, 06:29 AM   #43
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I'm at 3.39% last month. However, one of my rental properties is due to escalate in a few months bringing in some more money and the wife was just offered a job, and those combined would bring us down to 2.39%.
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Old 05-21-2009, 06:37 AM   #44
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Without a willingness to even mention markets where you assert that valuations are better than in the US (as you did above), your comment is difficult to evaluate.

Ha
Okay Ha, I'll bite. Stocks-certain Swedish stocks, Hong Kong stocks and Korean stocks are undervalued and worth holding. I have invested.

Also, a number of Euro denominated bonds are yielding upwards of 14%. And yes, they are investment grade.
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Old 05-21-2009, 08:14 AM   #45
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I'm all ears. What are your favorites?

Ha
You must have quite good hearingl

Personally, I prefer other body parts...
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Old 05-21-2009, 09:03 AM   #46
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Old 05-21-2009, 10:43 AM   #47
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I'm spending about 5% of current balance right now. I'd be much more comfortable with 3-4%, and will likely end up taking on some work to bring my spending down to that range.
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Old 05-21-2009, 11:09 AM   #48
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......I wish I could be funny in the a.m..... I'm going back to bed....
I was trying to be serious. As for bed...
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Old 05-23-2009, 07:56 AM   #49
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My model and plan is this
Finance in retirement has two parts, withdrawals from your portfolio and cash flow within that portfolio
Near 0% net real late life return after inflation, volatility, investing costs, more bonds, poor timing, taxes
Expecting relatively level spending as rising healthcare costs offset child care and work related expenses

Expected spending need = net income personal investing - mortgage payment + replaced benefits
Divide both after tax fixed pensions and mixed portfolios annually over single or joint IRS life expectancy
Spend up to the lesser of the new division or the previous yearly division + inflation, smoothing changes
Portfolio balance unused for annual withdrawals is used as savings for large purchases and emergencies

The result is a variable withdrawal rate of 3.3% at 30 years, 4.0% at 25 years, 5.0% at 20, etc. with a late life spend down as life expectancy shortens.
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Old 05-23-2009, 11:16 AM   #50
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While I understand the theory behind the 4%, in actual retirement years it is not that simple a rule to enforce.

I retired at age 59. My wife was to retire the same age, but has yet felt comfortable enough to do so (even if financially, she's OK).

Currently, my withdrawal rate against our combined retirement portfolio is 2.7% (in the third year of retirement). Since my income was higher during working years, and continue to be during retirement it make sense (rather than a 2% & 2% = 4% rate). BTW, all calculations for our portfolio's are "merged" - that is our AA is based upon all holdings in our combined portfolios (I'm more agressive; my DW not so), along with witdrawl forecasts.

However, my wife is expected to retire and claim SS at age 62 (next year). I will not take SS till age 70; that's another subject, and I won't go into the reasons here.

My wife will have two small pension payments (single life) starting at age 65, in addition to her SS and portfolio withdrawals.

So what does this all mean? Simply, you can't follow the "4% rule" unless all your retirement income sources are available on day one of retirement. Additionally, if your plan is based upon a combined plan of both partners, both should retire within the same year (just to make it easier to measure that 4%).

I have/will have a total of four income sources. My wife will also have four. The important thing is that my income sources (starting at age 59) will not come "on-line" till age 70, when my SS starts. My wife? SS at age 62, two pension payments at 65. This leads to an 11 year span of increasing income, as our "sources" become available.

Projections show from the current 2.7% withdrawal, it will increase over the years till a bit over 10% at age 70. At age 71 (the first full year of my SS income) it drops to less than 4% and stays there till our late 80's, early 90's (with the plan going to age 100).

So should we spend less now, and for the next years to keep it at/under 4%? Of course not. If we did, our estate will certainly be large, but it will be at the "expense" of not having a good early retirement lifestyle, as we do now.

Again, the 4% is a good starting point, but it must be observed in your own personal life as to how rigidly you need to follow it.
I call this the "Social Security Gap" - the period from when you quit work till the time you start SS. I think it's interesting enough that I've considered a poll to see how people cover it.

I think it makes sense to carve out some money and put it into ear-marked assets. For a single person retiring at 59 with a $24k SS benefit at 66, the carve-out would be 7 x 24 = $168k. The logical assets would be CDs and TIPS, assuming the interest would just offset inflation. Note that the withdrawal plan is to spend 100% of principle and interest during the 7 years.

Then the rest of the assets go into one of the long term AA and withdrawal strategies that get discussed around here.

Maybe someone can show this isn't "optimal", but I think it's pretty good and it produces and easy-to-understand plan.

Non-COLA pensions add complexity that I'm ignoring.
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Old 05-23-2009, 11:42 AM   #51
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I call this the "Social Security Gap" - the period from when you quit work till the time you start SS. I think it's interesting enough that I've considered a poll to see how people cover it.

I think it makes sense to carve out some money and put it into ear-marked assets. For a single person retiring at 59 with a $24k SS benefit at 66, the carve-out would be 7 x 24 = $168k. The logical assets would be CDs and TIPS, assuming the interest would just offset inflation. Note that the withdrawal plan is to spend 100% of principle and interest during the 7 years.

Then the rest of the assets go into one of the long term AA and withdrawal strategies that get discussed around here.
This is more or less my approach to the SS gap as well, Independent. My TSP (=401K) is invested in a fund that has no risk of loss of principal. This comprises some of the bond part of my AA.

I plan to take equal monthly payments from the TSP (CPI adjusted each year) as part of my fixed income just like my tiny pension. During the 4.5 years of ER before I receive SS, these equal monthly payments will be larger by the amount of my anticipated SS. So, you might say that 4.5 years' worth of COLA adjusted SS payments have been set aside within my TSP to cover the SS gap.

The rest of my portfolio will be handled separately and withdrawal rate will not be affected by presence of or lack of SS income. My overall AA will be adjusted each year when I rebalance.
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Old 05-23-2009, 01:40 PM   #52
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Hmm, Im not counting on getting much if anything from SS in 22 years
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Old 05-23-2009, 07:42 PM   #53
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I plan to take equal monthly payments from the TSP (CPI adjusted each year) as part of my fixed income just like my tiny pension. During the 4.5 years of ER before I receive SS, these equal monthly payments will be larger by the amount of my anticipated SS. So, you might say that 4.5 years' worth of COLA adjusted SS payments have been set aside within my TSP to cover the SS gap.
A modification of this has worked in my case. I retired at age 56 with a plan to use cash savings until I could draw Social Security at 62. As it turned out, my living expenses contracted a lot following retirement and I have quite a bit of my cash reserve remaining. This has been a very nice turn of events, allowing me to maintain some cash in the bank with no need to draw from my TSP account (yet), plus there is an added benefit that my (rather small) FERS pension qualified for the reduced COLA upon turning age 62.

This compares nicely with my older brother (shouldn't we always strive to compete with our siblings?) who took early retirement from BigCorp in a buyout at age 52. He used a CD ladder to "match" his estimated Social Security while using a 4% SWR to pay his bills. I had been a bit envious that he had chosen private industry, and had married well, which allowed a much earlier escape than I could manage from government service. However, I have no real regrets. As many posters have noted on this forum, a pension along with Social Security is certainly a good position to be in with the state of the world now.
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Old 05-24-2009, 11:27 AM   #54
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Thanks for the updates on the SS gap. I see two who explicitly planned for "no principal risk" assets to cover it, and one who simply isn't planning for SS. No votes yet for "simply withdraw more from my regular stock-heavy AA".
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Old 05-24-2009, 12:40 PM   #55
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Thanks for the updates on the SS gap. I see two who explicitly planned for "no principal risk" assets to cover it, and one who simply isn't planning for SS. No votes yet for "simply withdraw more from my regular stock-heavy AA".
I plan to RE in January at age 55 and I think I'll be keeping it simple and withdraw 3%/year on-going.

I have 7 years cash in a combination of I-Bonds, MMF and CD's to see me through to 62 when we plan on DW to start drawing SS. Private pension (non-COLA) will provide 70% of needs in year 1.
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Old 05-26-2009, 08:46 PM   #56
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I would like to add a few observations about "the social security gap".

It is obvious to me that you need a "guaranteed" source of funds to
cover your bare bones expenses during the interim before SS kicks in.

This could be in the form of a CD ladder, a Money Market or even a
fixed term immediate annuity covering the duration.

Less obvious, perhaps, is that you should have 3-4 years of cash you
can draw on during market meltdowns to avoid "eating your children"
(equity) until the market recovers. This applies throughout retirement.

Avoid going the 72t route as I did. The longer you can delay SS, the more
your SS is worth. It is like buying a gold plated inflation adjusted
annuity as others have said. Read Scott Burns of the Dallas Morning
News for details.

Finally, the most important thing in investing is to have clear goals.
Your asset allocation and everything else flows from this.

Cheers,

charlie

I ment to say don't use the 72t route to draw down your IRA early.
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