Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Low Interest Rates Make It A Tough Time to Retire
Old 09-21-2014, 09:17 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,983
Low Interest Rates Make It A Tough Time to Retire

Nothing earthshaking, but a decent balanced summary of one retirement income academic's (Pfau, he has fans and detractors both here) outlook. Where his blog/papers usually advocate his preferred retirement income recommendations, the article below mostly presents the various options. FWIW

Low interest rates make it a tough time to retire
Quote:
Q. In a recent article, you noted that now is a tough time to retire given today's low interest rates and high stock valuations. Why is that?

A. It's simply because the higher the returns one can expect to earn from their investment portfolio, the more they can sustainably spend from their portfolio throughout retirement. But low interest rates and high stock market valuations both suggest that we should expect lower investment returns in the future, which means we have to spend less as well.
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-21-2014, 02:58 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,696
It seems the title of the article is somewhat at odds with the body of the text. In the last question Phau seems to say that now is not necessarily any worse then other eras to retire.

It may not be a good time to retire if (1) the retiree is somewhat narrowly funded, and (2) the retiree is an "income investor". Many of us here do not fall into that mix. Maybe a few do.

If one retires and has 20 to 30 years to plan for, isn't the low rate environment most likely to be only a small percentage of those years? For example, you retire at 60 and figure on maybe 30 years to go with the next few (5 years or less?) being low rate years.

My feeling is this rate structure will probably not last too long, but then again I would not have expected this coming in late 2009 after we were past the low in the stock market. In the next 20 years I'd expect a lot of different yield curve scenarios making this period just another in a long string of economic variations.
__________________

__________________
Lsbcal is offline   Reply With Quote
Old 09-21-2014, 06:10 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
it is almost becoming a flavor of the month thing as the parameters change that should determine your course of action.

it took 35 years for rates to get this low , it can take a very long time to bounce back so anything i do will be based around low rates and high valuations.

of course what to do changes monthly with pfau,kitces and blanchett.
__________________
mathjak107 is offline   Reply With Quote
Old 09-21-2014, 08:25 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,327
From the article (the italics are mine) -

"The worst-case scenario is just that they ended up playing it too safe. The scrimped and saved and missed out on enjoying retirement as much as they could have, because they were too worried about negative events that ended up not happening."

I am not sure that people with a safety first approach are the ones who are worried about negative events. The safety first folks are choosing safety and lower returns in exchange for not having to worry so much about bear markets, sequence of returns risk or running out of money. So I didn't really get that part.

I guess the implication is also that more income makes people happier, but is this really true? At least some research shows that beyond a certain income level, additional income may provide diminishing returns on the happiness front:

The 10 Things Economics Can Tell Us About Happiness - The Atlantic
__________________
daylatedollarshort is offline   Reply With Quote
Old 09-21-2014, 08:33 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,445
Quote:
Originally Posted by daylatedollarshort View Post
...
I am not sure that people with a safety first approach are the ones who are worried about negative events. The safety first folks are choosing safety and lower returns in exchange for not having to worry so much about bear markets, sequence of returns risk or running out of money...

I guess the implication is also that more income makes people happier, but is this really true?...
While I do not practice your approach to portfolio safety - I kind of like volatility as it adds spice to life - I agree with you that if a person is happy with a potentially lower return, who is to argue with that?

I like to have more money, but if I end up with less, I am sure it is not going to kill me. Diseases can, yet I cannot do much about that!
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 09-22-2014, 07:57 AM   #6
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,948
Quote:
Originally Posted by Lsbcal View Post
It seems the title of the article is somewhat at odds with the body of the text. In the last question Phau seems to say that now is not necessarily any worse then other eras to retire.
I am waiting to see an article saying that this is a absolutely terrific economic environment in which to retire, and that anyone thinking of retiring soon should RUN to HR and get it done right this minute.

It sure has been a terrific retirement for us from 2009 to now, low interest rates or not. The market has been booming the whole time so far.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 09-22-2014, 08:05 AM   #7
Thinks s/he gets paid by the post
DFW_M5's Avatar
 
Join Date: Sep 2003
Posts: 4,982
Quote:
Originally Posted by W2R View Post
It sure has been a terrific retirement for us from 2009 to now, low interest rates or not. The market has been booming the whole time so far.
This sounds too much like a whee in sheep's clothing
__________________
Doing things today that others won't, to do things tomorrow that others can't. Of course I'm referring to workouts, not robbing banks.
DFW_M5 is offline   Reply With Quote
Old 09-22-2014, 08:21 AM   #8
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,948
Quote:
Originally Posted by DFW_M5 View Post
This sounds too much like a whee in sheep's clothing
Possibly, although I haven't had an all time high net worth since the first of the month, a whole three weeks! I should say AFAIK, since I haven't been looking every day.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 09-22-2014, 10:25 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,535
I thought I read a Kitces article a while back that pointed out it wasn't the low interest rate periods that were dangerous to a portfolio, but rather the high inflation periods.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 09-22-2014, 10:28 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,370
I don't see much difference: low rates or high rates, we're still only going to earn a few percentage points above inflation.
__________________
GrayHare is online now   Reply With Quote
Old 09-24-2014, 03:50 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
historically though rates had real returns on cd's in the 2% area vs negative rates now. that makes a big difference in results.
__________________
mathjak107 is offline   Reply With Quote
Old 09-24-2014, 07:57 AM   #12
Full time employment: Posting here.
 
Join Date: Nov 2008
Posts: 728
Every article points out the need for diversification to me. ......CNBC guest reported that every 1% increase in the Fed's interest rate costs the government 150 billion a year.....and, they (we) can't afford an increased deficit of that size. So, CD's just won't give enough income in the near future. When will it change? I don't know. So, I buy muni bonds.....short to long term, dividend ETF and mutual funds and REITS. It's not as simple as it used to be but my goal is income with minimum fees and taxes......So far, the past few years, this is working. BUT I do remember the high interest rates of the 80's.....and the high inflation that resulted. Interesting years......too bad no one has a crystal ball.
__________________

__________________
jerome len is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Low interest rates throw wrench into retirements bondi688 FIRE and Money 42 09-03-2012 04:57 PM
Low Interest Rates until 2014! Chuckanut FIRE and Money 12 01-28-2012 09:43 PM
Low Interest Rates and Banks Investments chinaco FIRE and Money 4 07-16-2011 02:29 AM
Low Interest Rates Here To Stay? Donner FIRE and Money 23 02-13-2005 03:02 PM
Low interest rates Whisper9999 FIRE and Money 29 12-01-2004 06:03 AM

 

 
All times are GMT -6. The time now is 09:43 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.