Retirement Reality

[samclem]

Maybe we could get Americans to save more for their retirement if we made it more appealing.

Isn't the very idea of retiring (i.e. not having to work) pretty appealing in itself? The idea of avoiding cat food is also appealing (to me). If a person lacks the imagination to figure out why money will be useful if they get all their working hours to use as they please, I don't know if anything I could tell them would help. They may be best off staying in the traces and paying SS to keep that system afloat for others.

 

[FI by 2024]

anyhoo one thing I noticed is that 90% of the information about retirement is doomsday and fear.

One of the first questions I asked here was anyone actually "happy" retired lol

Rarely did I come across article (before) here where people said they saved money to actually enjoy life.

As someone who has been watching this site for about 3.5 years and posting for about 2, I don't see this as an accurate representation AT ALL. We discuss travel...what people do everyday in retirement (actually fun to read)...movies, books, food...very little doomsday and fear there. I've been following your posts here as well as another forum where I've identified you. One needn't spend hundreds of dollars on dinner and Wicked to enjoy themselves, though they are free to do so if they choose. My impression of the people who stick around here is one of general satisfaction and content with their lives, absent much of the financial stress many people live with on a daily basis.


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[papadad111]

If buying a SPIA to establish a floor was anywhere near a neutral expense, more people would do so. There's a high probability you will pay a substantial premium for the payout your SPIA will provide, especially at present interest rate/yields. That premium, and forever limiting your options after buying a SPIA (a big chunk of $ is gone), is the reason buying an annuity doesn't make sense to many, though it may for others.

Even those (self included) who never plan to buy an annuity, might if their nest egg falls too far too soon. I'd consider an annuity only when/if my nest egg starts to approach my annuitization hurdle at any given age. Linked here several times http://www.schulmerichandassoc.com/Modern_Portfolio_Decumulation.pdf

Most here didn't retire at that threshold...

People who retire at/near or below their annuitization hurdle may indeed be best served by a SPIA. Otar is another discipline like Pfau.

Not to mention the added risk of inflation when buying an annuity that lacks an inflation adjustment clause. Most lack one.

 

[CaliforniaMan]

Phew, I read everything and got to the end (so far) of this thread. Can't figure out what it is about though. All I know is that my financial plan is that I live a long time and my day to day activities plan is to do it now, because I don't know how much longer I will have to actively enjoy life. So worst case I live long, best case I die soon. Wait... that can't be right can it? Anyway, so not knowing the future what else can one do? In short my plan is always to not die today! If my plan doesn't work out, well I probably won't know it didn't.

 

[UpAnchor]

Not to mention the added risk of inflation when buying an annuity that lacks an inflation adjustment clause. Most lack one.

That's certainly a concern. However another way to address that would be to ladder a few smaller SPIAs at, say, 3 to 5 year intervals. Such would allow use of the simplest and most basic of annuity products while one tailors the sizes/intervals of the subsequent purchases to accommodate changing inflation rates (and with the added benefit of spreading default risk across multiple insurers.) I don't know that we'll ever go the SPIA route but if we do, I lean toward doing something of this nature.

 

[shotgunner]

Not to mention the added risk of inflation when buying an annuity that lacks an inflation adjustment clause. Most lack one.

My father had a small pension from the electric utility company, he worked for them for 30 years. It was not inflation adjusted. He had contributed 5% of his gross income towards it. In my mind he bought an annuity without an inflation adjustment clause on a 30 year installment plan.

 

[Moneygrubber]

Firstly all should know I have the utmost respect for all those that visit this forum. I have learned a great deal and have a fascination with money and investing, hence my "handle". I have reached my retirement goals using many if the techniques discussed on this board by very intelligent and capable folks. I was simply reflecting on the high standard we , including me, place on portfolio success. My experience has seen those in their 90's with significant portfolios in nursing homes watching their funds drain away in a bed next to someone on medicaid receiving the same level of care. We expect to live into our 90's with a life that we can enjoy our hard earned savings, it is my hope we all achieve this goal. Cheers!


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[RunningBum]

Yes indeed I especially liked the annuity hurdle post. I did notice one response seemed angry, almost as if you touched a nerve of someone still working (and probably doesn't want to be). OMY syndrome is real.

Another incorrect assumption, assuming you were talking about my post. I just thought it was a stupid premise, and still do.

Another analogy I've heard used is seat belts. I use seat belts when I drive, not because I plan to have an accident, but rather just in case I do.

I'm set as best I can for age 95 (actually older), not because I know I will live that long, but because it's reasonably possible I might. 5-10% chance is not one I want to bet against. These are not lottery odds.

An annuity is not a fool proof solution. Inflation is a risk. You've also made a long term bet that the insurer will stay in business for the duration.

OMY syndrome is real, but if work is so awful that you can bear to stand it to better insure against a reasonable chance of making it to old age, maybe you ought to try to address that issue.

Besides, the OP admitted this is a troll thread in post #45.

Full disclosure, stirring the pot, saved well, retiring at 55 in a few months, adhere to diversification, withdrawal rate strategies and 95 planning

 

[bclover]

Isn't the very idea of retiring (i.e. not having to work) pretty appealing in itself? The idea of avoiding cat food is also appealing (to me). If a person lacks the imagination to figure out why money will be useful if they get all their working hours to use as they please, I don't know if anything I could tell them would help. They may be best off staying in the traces and paying SS to keep that system afloat for others.

ok so then I'm one who "lacks" imagination. lol I know I've always accomplished my goals when there was a tangible fun "carrot" dangled in my face, so to say.

If you told me to save money for a rainy day, which my parents always used, that meant very little to me. If you told me to save money so in 2 years I can spend the summer in Paris, my results were better.

 

[bclover]

As someone who has been watching this site for about 3.5 years and posting for about 2, I don't see this as an accurate representation AT ALL. We discuss travel...what people do everyday in retirement (actually fun to read)...movies, books, food...very little doomsday and fear there. I've been following your posts here as well as another forum where I've identified you. One needn't spend hundreds of dollars on dinner and Wicked to enjoy themselves, though they are free to do so if they choose. My impression of the people who stick around here is one of general satisfaction and content with their lives, absent much of the financial stress many people live with on a daily basis.


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I said, that this site was one of the exceptions.

 

[W2R]

I said, that this site was one of the exceptions.

Yes, you did, and I agree completely.

Isn't the very idea of retiring (i.e. not having to work) pretty appealing in itself? The idea of avoiding cat food is also appealing (to me).

Retirement has been such an amazing experience. I love knowing that for the rest of my life I can afford to eat well, live well, and also not live in a refrigerator box under a bridge.

I'm set as best I can for age 95 (actually older), not because I know I will live that long, but because it's reasonably possible I might. 5-10% chance is not one I want to bet against.

That's what I am doing, too. I expect to live to around 85, and I will feel like I won life's lottery if I live to 90. Still, I have planned to about age 95 just in case.

If/when I live to 85, I'm going to re-evaluate my plans and needs at that time, and assume that I will live past 95. I might cut back a little bit in anticipation of living to, say, 105. Or, if SPIA's still exist and are both available to me and a reasonably good deal, I might buy one at 85.

 

[Willers]

Good question, be pragmatic i guess, i have helped settle several estates with millions left behind due to these unreasonable longevity expectations.

I'll come at this from a different direction. So, you've seen several estates where millions were left? My questions: so what?

If things work out according to historical averages, I (and many on this board) will die with substantial estates. Why is that bad?

I've spent my whole life LBMM and enjoying every minute of it so why would I suddenly race to spend every penny now? If I wanted to spend more I would have done that all along and maybe worked a little longer. I have no need for a McMansion and a yacht.

If the people with those estates led happy lives then their worst case ending is that their grandchildren may get college paid for, or their kids get some money for a down-payment on a better house, or a favorite charity is blessed or their alma mater gets funds for a new capital improvement...

I guess I'm not understanding why having the means to protect against below-average returns is a negative.

Nice job stirring the pot by the way. You were very successful.

 

[gerntz]

So everyone plans for a 30 40 or 50 year retirement, how many of your family members, friends, associates never made it to 50, 60, or 70, get real, life is short, we know how many years have past, we dont know how many lie ahead....

I don't get the thesis that because something may happen that damages/ruins your plans that you shouldn't plan as suits you.

 

[Moneygrubber]

I am not telling people to not plan, sorry for the double negative.. But if you planned on a 95% success rate for crossing the street you would never leave the sidewalk. We take all kinds of risks every day that are much higher than running out of money in retirement, maybe i am the only one that sees the absurdity of it.


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[Willers]

Everyone has a distribution of acceptable risk/reward ratios in different aspects of life. I'm a skier and I'm more than happy to accept some pretty serious injury risks with where and how I ski because of the huge adrenaline payoff. Others would call what I do absurd as you do with the 100% planning. On the other end of the spectrum for me: in retirement I have no interest in "living it up" now and taking my chances that I'm stuck with an SSI-only life later.

We all decide where we want to take our risks and where we don't. We make those decisions all the time and there are dozens each day/month/year that for one are sensible and for another nonsensical.

 

[samclem]

But if you planned on a 95% success rate for crossing the street you would never leave the sidewalk.

You aren't increasing your credibility. Do you think that 1 out of 20 people crossing the street gets hit by a car? Of course not. We plan for (and demand) a much higher than 95% probability of success when crossing the street.

The rational thing to do when evaluation options in an uncertain environment is to examine the 1) likelihood of various outcomes and the 2) consequences of various outcomes. If you could quantify these outcomes (i.e. assign numbers to the "chances" and the "goodness or badness" of each one) you'd then multiply the two factors and have a good way to compare them. Then you'd take a course that maximizes the overall "future happiness" by allocating resources to each option. That's what we do when we buy insurance--we spend a little to reduce the consequences of a low-likelihood event that would otherwise have devastating consequences. Setting aside resources for a possible long (above average) lifespan is the same thing.
Another thing: Monthly spending generally has diminishing returns. To a person with just a $1500 SS check, having another $1K/mo would be quite a huge improvement in giving them more options. If you're already getting $5K per month, another $1000 doesn't provide nearly the same increase in happiness/options. So, if I pay $1000 more to buy a first-class airplane seat for my trip to Cabo when I'm 55, and I run out of money when I'm 70 and have to live on a $1500 SS check, I'm not sure that I've done myself any favors. That $1000 would have bought a lot more happiness and options when I am broke than I enjoyed on that 3 hour plane trip.

 

[Moneygrubber]

You aren't helping increasing your credibility. Do you think that 1 out of 20 people crossing the street gets hit by a car? Of course not. We plan for (and demand) a much higher than 95% probability of success when crossing the street.

The rational thing to do when evaluation options in an uncertain environment is to examine the 1) likelihood of various outcomes and the 2) consequences of various outcomes. If you could quantify these outcomes (i.e. assign numbers to the "chances" and the "goodness or badness" of each one) you'd then multiply the two factors and have a good way to compare them. Then you'd take a course that maximizes the overall "future happiness" by allocating resources to each option. That's what we do when we buy insurance--we spend a little to reduce the consequences of a low-likelihood event that would otherwise have devastating consequences. Setting aside resources for a possible long (above average) lifespan is the same thing.
Another thing: Monthly spending generally has diminishing returns. To a person with just a $1500 SS check, having another $1K/mo would be quite a huge improvement in giving them more options. If you've already getting $5K per month, another $1000 doesn't provide nearly the same increase in happiness/options. So, if I pay $1000 more to buy a first-class airplane seat for my trip to Cabo when I'm 55, and I run out of money when I'm 70 and have to live on a $1500 SS check, I'm not sure that I've done myself any favors. That $1000 would have bought a lot more happiness and options when I am broke than I enjoyed on that 3 hour plane trip.

Cannot argue with the statistics of number crunchers, the human factor and the unquantifiable that we gain through life experience confounds those like you that look at only stats.



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[samclem]

Cannot argue with the statistics of number crunchers, the human factor and the unquantifiable that we gain through life experience confounds those like you that look at only stats.

I remain unconfounded--and unconvinced.

 

[Big_Hitter]

My father had a small pension from the electric utility company, he worked for them for 30 years. It was not inflation adjusted. He had contributed 5% of his gross income towards it. In my mind he bought an annuity without an inflation adjustment clause on a 30 year installment plan.

what kind of return did he get on the 5%? I bet more than 5%.

I love contributory DB plans.

 

[Big_Hitter]

Cannot argue with the statistics of number crunchers

no, you can't, the law of large numbers rules all

 

[kcowan]

Rarely did I come across article (before) here where people said they saved money to actually enjoy life. It is/was always "save" because when you turn 90 you'll be destitute and eating cat food or healthcare is going to be so expensive you won't be able to afford it.

Yes I think you are onto something. It seems that the industry uses fear of failure rather than an opportunity to leverage as motivators.

The problem seems to be that no one gets paid to showcase those of us who are happy in retirement. We don't need any more insurance, annuities or financial advisors! Even AARP is trying to sell you something.

We need an association of happy people who choose not to work anymore.

 

[Mulligan]

Firstly all should know I have the utmost respect for all those that visit this forum. I have learned a great deal and have a fascination with money and investing, hence my "handle". I have reached my retirement goals using many if the techniques discussed on this board by very intelligent and capable folks. I was simply reflecting on the high standard we , including me, place on portfolio success. My experience has seen those in their 90's with significant portfolios in nursing homes watching their funds drain away in a bed next to someone on medicaid receiving the same level of care. We expect to live into our 90's with a life that we can enjoy our hard earned savings, it is my hope we all achieve this goal. Cheers!


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That is funny you mentioned that... My 86 year old neighbor who I golf with is 25 years into a second marriage where they keep all finances separate. He said his wife is very frugal with her money. He said she does this because she says..." I have saved my money up, so if I have to go to The Home, I have plenty of money to have my own room for the rest of my life." At her age, that is way more important to her, than buying additional things. I am sure it provides a lot of comfort, as blowing it would actually cause her angst.


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[Cool_Sparrow]

I am not telling people to not plan, sorry for the double negative.. But if you planned on a 95% success rate for crossing the street you would never leave the sidewalk. We take all kinds of risks every day that are much higher than running out of money in retirement, maybe i am the only one that sees the absurdity of it.


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I agree. This is what William Bernstein also warns about relying too much portfolio success probabilities in Backtest based or Monte Carlo calculators. He specifically says planning beyond 80% success probability is futile as it only increases the probability of a non-financial event (like war, turmoil or disease) in ruining the retirement. I think Moneygrubber is simply saying that planning portfolio success probabilities beyond a reasonable level (say 80-90%) ignores other risk factors in life that don't support this probability of longevity. It is a thorny problem but then there is no universal right answer here. I aim for 95% success rates in my FireCalc projections just to avoid extreme skews of tail events but to each their own.


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[haha]

The rational thing to do when evaluation options in an uncertain environment is to examine the 1) likelihood of various outcomes and the 2) consequences of various outcomes. If you could quantify these outcomes (i.e. assign numbers to the "chances" and the "goodness or badness" of each one) you'd then multiply the two factors and have a good way to compare them. Then you'd take a course that maximizes the overall "future happiness" by allocating resources to each option.

This is what horse race bettors or other parimutuel bettors or poker players do routinely. The product is called the expectation of a bet. This idea is second nature to some of us, but exotic and foreign to others.

I also want to briefly comment on unindexed, fixed annuities, which are what almost anyone who is not some sort of government worker gets or buys. Some of us think that we can accurately assess the chances of meaningful inflation over many years. News flash- this cannot be done.

Best takeaway- if you possibly can, get and keep a government job, any government job. You will then have every taxpaying American worker working for you until you die, and maybe longer.

Ha

 

[Chuckanut]

The best solution to unwarranted negativity is to not watch or read the daily investment and stock market shows. Or the news. Or the interviews with politicians running for office. Or anything with 'wealth management' in the name.