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Old 07-03-2012, 05:29 PM   #21
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SWR, if the loss you see (loss of principle) concerns you more that the one you don't see so clearly (inflation) you do need to take steps to minimize the impact. I think REW overdoes it when he says not to retire. You can retire with relative financial security, but you need to work at least another 10 years, and during that time you must keep your portfolio growing with inflation after taxes. At that point, if your entire fixed income is in short term treasuries you would have a reasonable chance of lasting 30 years.

If you want a probability of success at the 90%+ level or longer than 30 years, like other members here, then REW's advice to not retire is sound.
Oops. I didn't intend to say "don't ever retire". My intent was to say "Don't retire now, wait until you have a larger nest egg." I edited my post to make that point clear.
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Old 07-03-2012, 05:32 PM   #22
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Not to mention that you could lose much of those double digit rates to taxes even when they didn't keep up with inflation. If you earned 10% when inflation was 12%, that 10% probably became 7% after taxes -- meaning you lost out to inflation by 5%. Even with *zero* interest rates today, we're much better off than that scenario because there's almost nothing to tax.
An added example of why I don't have fond memories of those days.
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Old 07-03-2012, 05:33 PM   #23
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Oops. I didn't intend to say "don't ever retire". My intent was to say "Don't retire now, wait until you have a larger nest egg." I edited my post to make that point clear.
I figured that. But I also ran the numbers through FIREcalc and saw that at age 65 things are still iffy for a fixed income only portfolio with a 3.3% WR. Even at that age, either more money, lower expenses or shorter life expectancy is needed for a 90% probability. Work 'til 70 might do it but that is forever IMHO.

Edit to add: it is amazing what even 25% stocks will do to improve the likelihood of better outcomes
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Old 07-03-2012, 05:35 PM   #24
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I figured that. But I also ran the numbers through FIREcalc and saw that at age 65 things are still iffy for a fixed income only portfolio with a 3.3% WR. Even at that age, either more money, lower expenses or shorter life expectancy is needed for a 90% probability. Work 'til 70 might do it but that is forever IMHO.
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Old 07-03-2012, 05:39 PM   #25
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I think TIPS may provide some of the answer. As described elsewhere one can have a three-legged retirement stool: TIPS, Social Security, and Single-Premium Immediate Annuity.

I don't think working counts as a 4th leg because then it wouldn't be retirement.
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Old 07-03-2012, 05:41 PM   #26
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I don't think working counts as a 4th leg because then it wouldn't be retirement.
Yes, this would be like incorporating a cheeseburger into a vegan diet.
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Old 07-03-2012, 05:43 PM   #27
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Oops. I didn't intend to say "don't ever retire". My intent was to say "Don't retire now, wait until you have a larger nest egg." I edited my post to make that point clear.
Which begs the next question... Based on this year being the date. Myself and my DW life expectancy is ~another 30 years max based on family track record. The cash has to last till then. No Kids to leave anything to. I would love to die penniless.

Given our current Lifestyle we need $25 to maintain our current lifestyle with no frills (This includes EVERYTHING except Health insurance), and another $15k to $20k for the Frills. We have Zero Debt, a home 2 cars etc. all paid for and relatively new. So we need $40 - $45k (Today) unencumbered to live well. Also bearing in mind that 65-70% of our nest egg is AFTER tax. Assuming a modest 2 - 3% over the next 7 years till Medicare Kicks in etc.

What is the Ballpark magic number?
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Old 07-03-2012, 05:48 PM   #28
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What is the Ballpark magic number?
You should be able to find the number by plugging your info into FIRECalc like MichaelB did.
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Old 07-03-2012, 06:51 PM   #29
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You should be able to find the number by plugging your info into FIRECalc like MichaelB did.
I did the FireCalc in the page above and it came up with 0 failures but did not give me the option to put in fixed income, interest rate etc. I could not find the complete FirCalc, just the one that asked for Amount needed per year, total investment and Time. I seem to remember a FireCalc with lots and lots of parameters. Am I missing something?

Thanks
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Old 07-03-2012, 06:57 PM   #30
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Old 07-03-2012, 07:04 PM   #31
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Thanks I figured it out. Still seem to come up with 0 failures but show a low that is scary.

Thanks

SWR
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Old 07-03-2012, 07:38 PM   #32
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I'd look at using a longer than 30 year time span. This calculator shows that your wife has a 25% chance of living to age 89 (35 years) and there is a 25% that at least one of you will live to 91.

I'd also point that there is a 100% chance that savvy investors, including folks on this forum, but more importantly smart guys like Bill Gross, Warren Buffett, Jeremy Grantham etc, will continue to predict a period of higher future inflation and higher interest rates.

While we have all been wrong for several years, betting against these guys has not historically been a good way to make money.

Since you hate the stock market, and you live in Florida have you considered real estate? Prices have cratered there so much that I believe you can get near 10% returns on rental properties. They would be a good hedge against inflation although there is certainly a lot of work involved.
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Old 07-03-2012, 07:59 PM   #33
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Some thoughts:
1) The Fed is pushing us to be risk takers. No risk equals negative returns.
2) Even the Europeans are starting to learn the word "growth".
3) In the last 12 months the SP500 has returned 5.4%.
4) Sometimes the best stock markets to ride are the moderately up ones.
5) You do not want to measure the market's return possibilities by looking at the absolute number on the Dow.
6) With the market at this point I would not average into it but go all in. Averaging into it is likely to be a lower return option.
7) If you decide never to invest in stocks then don't wait and then change your mind. Pick a plan and stick to it.
8) I cannot think of a good plan for a 100% fixed income investor although the past decade has worked out well for them.

The above are just my opinions and they come with no cost too.
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Old 07-03-2012, 11:04 PM   #34
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I figured that. But I also ran the numbers through FIREcalc and saw that at age 65 things are still iffy for a fixed income only portfolio with a 3.3% WR. Even at that age, either more money, lower expenses or shorter life expectancy is needed for a 90% probability. Work 'til 70 might do it but that is forever IMHO.
Edit to add: it is amazing what even 25% stocks will do to improve the likelihood of better outcomes
Reporter: "So, Groucho, what are you investing in?"
Groucho Marx: "Treasuries."
Reporter: "Nobody can live off Treasuries!"
Groucho: "You can if you have enough of them..."

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I would love to die penniless.
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Still seem to come up with 0 failures but show a low that is scary.
You really need to find your comfort level somewhere between "love" and "scary".

One part of that is Social Security. Have you added that to your FIRECalc runs?
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Old 07-03-2012, 11:45 PM   #35
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If you are a Canadian citizen why are you worried about healthcare? Can't you just live in Canada and get healthcare if you need it?

(I know it can be scary to take any risk and it looks like equities are risky and fixed income isn't. But it is risky. Inflation risk is very real and you are totally discounting it. )
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Old 07-04-2012, 12:06 AM   #36
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Inflation risk is very real and you are totally discounting it. )
But, gee, it's just a tiny little nick each year instead of a great big amputation!

A slow chronic hemorrhage with anemia instead of a severed artery!

A series of tiny little annual concussions instead of a skull fracture!

I wonder what other analogies we could torture to drive the point home...
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Old 07-04-2012, 06:57 AM   #37
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LSBCAL:
CLIFP:


I am just loving all the opinions, thank you. And yes I did apply a small inflation to the FireCalc.

Nords:

I agree with your Inflation Analogies, overall it is relatively minor to us based on our current lifestyle, with the exception of House Taxes and Insurance our expenses are low'ish. Also inflation is somewhat localized and personal. If you buy a lot of stuff every year and are a huge consumer, then yes it is a big chunk, but as one gets older inflation also depletes somewhat from the posted numbers. Yes it is a factor but not a big as a lot of folk imply. And yes I am taking what meager SS that we will get into consideration.

KATSMEOW:

That is DEFINATELY an option unless the USA pulls it's finger out stops the partisan bickering and comes to agreement on a Single Payer system that works. I highly doubt it though. One thing I absolutely REFUSE To/will NOT do is give all our retirement money to an insurance company in case of a catastrophic occurrence, cold or no cold. The Highest cause of Bankruptcy in the US is Healthcare, remember. I wish they would just get that!

Currently with DW working it is not a huge deal, only if she decides she has had enough and currently that will be up for debate when I am 62. (~3 Years)

But Canada is Cold and Florida isn't. HOWEVER, it is a definite consideration. We really do not want to own 2 homes though along with their related expenses. If we down sized we could go that route, but we are not prepared to at the moment. As someone said earlier FLA real estate has been good to us, we are trying to enjoy the luxury while we can. Hopefully one day our home will be worth more than we paid for it, But we are not banking on it to be like SoCAL. But we did buy well and could get what we paid for it, and possibly could buy 2 smaller places if we had to, that is not in the cards yet though.

Once again I had almost forgotten how much fun this community was.

From a work perspective. It is also hard to give up the big chunk of change it returns for relatively little effort (at the moment, it is just boring now). We can live on DW's income, often and do, and simply bank mine. But there is no way I will work till 70 (Assuming I get that far, remember the pacemaker).

I am sure some time I will have to look at stocks, but I am still resisting while I have a choice. I have been treating my salary as the interest I "would" get at ~6% all taxes paid on our nest egg. But as some point that will stop.
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Old 07-04-2012, 08:25 AM   #38
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Nords:

I agree with your Inflation Analogies, overall it is relatively minor to us based on our current lifestyle, with the exception of House Taxes and Insurance our expenses are low'ish. Also inflation is somewhat localized and personal. If you buy a lot of stuff every year and are a huge consumer, then yes it is a big chunk, but as one gets older inflation also depletes somewhat from the posted numbers. Yes it is a factor but not a big as a lot of folk imply.
The nagging problem with inflation is it's not how much stuff you don't buy each year, it's the ever increasing price of the stuff you do buy - food, for example.

Here's a list of 10 common grocery items. All have at least doubled in price over the past 30 years, some have tripled or quadrupled.

You do eat, right?
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Old 07-04-2012, 08:42 AM   #39
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Old 07-04-2012, 09:33 AM   #40
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The nagging problem with inflation is it's not how much stuff you don't buy each year, it's the ever increasing price of the stuff you do buy - food, for example.

Here's a list of 10 common grocery items. All have at least doubled in price over the past 30 years, some have tripled or quadrupled.

You do eat, right?
OK I will bite, on average the stuff that is important has doubled in 30 years. And BTW Chocolate Chip Cookies, ICE Cream and Chips are not on my weekly list. Not that we do not partake occasionally but not often, and it will nor break us when we do. Milk is though and let us assume it is like butter and eggs.

Using Eggs as an example. Eggs have gone up say 90c in 30 years. (I know it is less but I am giving inflation the benefit of the doubt). That is 3c per year. I think we can afford that. Let us say we consume 1 dozen eggs every 2 weeks which is probably true. Our egg bill will go up about 6c per month per year. Again I think we can afford that. That is 72C per year vs 30 years ago, not a deal breaker. PS Canada's dairy and poultry prices are silly as they are regulated on the up side.

Gas, electricity and other forms of energy would be better examples but of course our illustrious leaders do not count those under inflation.

Food for us is the least of our worries. This again proves my point that inflation is subjective. We do not eat red meat only pork, Chicken and Fish, but I am sure the same applies to them. Fish probably the most.

Again for US personally. Food is not the issue, we eat too much anyway. It is healthcare that has far escalated all of those put together. For my personal circumstance, healthcare is the one I worry about the most, which is ironic as stress causes illnesses and the cures is causing it. [mod edit]
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