Make your money last in retirement; 5 keys

[dex]

http://moneycentral.msn.com/content/Retirementandwills/Retireearly/P106449.asp
Make your money last in retirement; 5 keys
The thought of running out of money scares many retirees. Here's one who has a chance to avert outright disaster, though he has some hard choices to make.

Phil Horstman retired at 55 with a nest egg of $1.5 million and a lot of confidence his best years were ahead.

Seven years later, the Murrieta, Calif., resident is down to $300,000 and is, as he puts it, "running out of money and options."

Horstman takes $28,800 a year from his retirement accounts for living expenses, a withdrawal rate that once seemed paltry but that now will have him broke in about 12 years -- far short of the 25 or 30 years he's expected to live.

Horstman is a poster boy for almost everything that can go wrong in retirement, from a bear market early on, to a withdrawal rate that proved unsustainable, to questionable financial advice that kept him invested in risky assets even as his portfolio plunged.
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"My financial adviser didn't deliver in providing me with a secure retirement income," Horstman wrote me in an e-mail. "He kept telling me that the market would come back. Well, it hasn't in my case."

Hard-learned lessons
Horstman's situation, unfortunately, is "far too typical," said financial planner Bob Frey, a fee-only advisor in Bozeman, Mont. Retirees are often overconfident about how long their money will last and may fail to adapt quickly enough to changing circumstances. Horstman's goals now -- to grow his portfolio and get more income -- aren't realistic, Frey said.

"He seems to need a lot more income than the portfolio can supply under any reasonable assumptions and using any strategies at his age," Frey said. "His biggest worry should be the portfolio going to zero long before he runs out of time."

Horstman does have some options, and I'll detail those in a minute. But for right now, we'll use his situation for some object lessons in what retirees and near-retirees need to know to make sure they don't run out of money.

Go to the above link to keep reading

 

[peggy]

It's hard to comment on this because the article doesn't provide any specifics on what exactly is in the guy's portfolio, but it sure sounds like the portfolio allocation was horribly wrong for a retiree.

I don't like the guy's whiny, blaming attitude--everything's the planner's fault, not his. Did he not do any research on his own? Did he not run any numbers himself? Did he not question any of the assumptions the planner made?

The moral of the story is, NOBODY has more interest in the fate of your money than you do. YOU need to keep on top of your money and investments, and question everything a planner recommends to you. Maybe not directly, but by refusing to sign or authorize any transaction until you've checked out the investment yourself.

 

[arrete]

FUD. I retired about 7 years ago, and my withdrawal rate was way higher than his (his started at less than 2% ). My assets are very close , even in constant dollars, to what they were then.

Another work forever scare story.

arrete

 

[Bob_Smith]

Yeah, these numbers don't add up. He starts with $1.5M, and seven years later he's at $300K. He must have been spending like a fool from a high expense portfolio that wasn't diversified - or some combination of that. It's difficult to imagine screwing up that badly, not to mention his failure to recognize and address the problem before 80% of his portfolio was gone. I don't see that there's much to be learned here, although it is somewhat fascinating to witness - in a freak show kind of way.

 

[Beachbumz]

If this guy only needed $28,000 a year, why was he in stocks at all? I also agree with Bob_Smith, why would anyone wait until he had lost 80% of his money to rethink his situation? It sounds like a self-inflicted tragedy to me!

 

[wzd]

Sounds like one of those who invested in company stock....and watched it tank.

 

[Beachbumz]

Hey Arrete, maybe you could write to Liz and get your story posted as a counter argument, but since the media always loves the bad stories, you might not have much of a chance.

 

[arrete]

maybe you could write to Liz and get your story posted as a counter argument, but since the media always loves the bad stories, you might not have much of a chance.

Ain't that the truth. You practically never see a happy retire early story, especially now with all this SS ruckus going on. All gloom and doom.

And their solutions! Annuities, reverse mortage or go back to work. Yechh. Maybe for this idiot, but not me.

arrete

 

[John Galt]

Well, I am a happy "retire early story". Almost everything of any significance to success in ER
exceeded my "plan" (once I had one). Net worth is higher than expected. Income is higher. Snowbirding (once thought out
of the question) is all in place. Plenty of dreams and
plans and adventures and interests. Enough to last a lifetime.

JG

 

[VoyT]

I find it a bit odd that the solution didn't include filing for Social Security .. according to the time frame, he's 62 and could get reduced benefits, which ought to help his income flow.

 

[dex]

I checked out the Vanguard intermediate anuity the return is about 3.45% pretty bad - why not just put it in a long term bond mutual fund?

 

[mark]

He takes out $28000 per year, yet his portfolio is down $171000 per year. He must have had a single stock technology stock as most of his wealth. As far as we know, the finacial planner may have said to diversify, yet the allure of possibly more money may have been stronger. Or, it may have been poor planning advice. If you pay a professional, you expect good advice. Without details, its hard to see what went wrong.

 

[John Galt]

Hello mark. Agree that without more details it's hard
to figure out what happened. It has to be more than just bad luck though. There is some plain old
stupidity in there somewhere.

JG

 

[wzd]

I knew several people where I used to work, who put too high a percentage of assets in the company stock. A double no-no as far as I am concerned. There savings took a comperable percentage hit, or even did worse. Some ended up with <20% of what they started with.

Stupid, ignorant, irresponsible, ... chose you term.

 

[Dawg52]

Hard to understand how that happened. A conservative mix of 40% stocks, 40% bonds and 20% cash should average 5-6% most years. I guess another example of getting caught up in the tech bubble.