Retiring for the Second Time - Financial Concerns in this Economy.

[ziggy29]

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.

 

[ShokWaveRider]

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?

 

[REWahoo]

What is the Ballpark magic number?

You should be able to find the number by plugging your info into FIRECalc like MichaelB did.

 

[ShokWaveRider]

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

 

[REWahoo]

Click on the tabs shown along the bottom of this page view:

 

[ShokWaveRider]

Click on the tabs shown along the bottom of this page view:

Thanks I figured it out. Still seem to come up with 0 failures but show a low that is scary.

Thanks

SWR

 

[clifp]

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.

 

[Lsbcal]

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.

 

[Nords]

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..."

I would love to die penniless.

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?

 

[Katsmeow]

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. )

 

[Nords]

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...

 

[ShokWaveRider]

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.

 

[REWahoo]

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?

 

[obgyn65]

Welcome back.

 

[ShokWaveRider]

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]

 

[W2R]

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.

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]

Yes, you are right - - necessities such as food, utilities/energy, and healthcare have all experienced considerable inflation compared with more optional items. So, inflation can be more of a factor for those who are not buying a lot of optional stuff or spending much. Older people generally have higher medical expenses and thus might reasonably expect higher inflation than others.

Also, inflation has been quite low in recent years compared with inflation previously in my lifetime. So, IMO it would be prudent to expect and prepare for significant inflation to come, especially since you seem to have a conservative philosophy regarding money.

 

[ERD50]

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.

I'll be blunt. You seem hell-bent on discounting the effects of inflation. Three cents per year is skirting the issue, it is the overall % increase of the things you buy that is the point. It's hard for me to believe that you don't 'get that' - it seems to me that you just don't want to accept it. Are you really ready to retire a second time?

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

What do you mean - you 'applied an inflation to the Firecalc'? Using the defaults, FireCalc provides its own inflation adjustments, and does it in the best way possible (IMO), using actual numbers which interact with actual returns. If you were using the static choices on the "Your Portfolio" tab:

A portfolio with consistent annual market growth of %, fixed income returns of %, and an inflation rate of %

A portfolio with random performance, with a mean total portfolio return of % and variability (standard deviation) of %. Assume an inflation rate of %.

well, I don't put much stock in those. Any spreadsheet could spit that out. The real value of FireCalc is in its historic data.


-ERD50

 

[utrecht]

I have just so many friends that lost so much of their nest eggs in the market crash and ups and downs have NOT returned them back to status quo. It is VERY hard to accumulate at our age, but very easy to loose.

SWR

If most of your friends are like most of my friends, they took on way too much risk when everything was great and they lost way more than they should have when the market tanked. Then they got scared and put all of their money in CDs and money markets, earning next to nothing, and they missed the bull market that came next. They bought high and sold low, which is most people do.

Pick an AA and stick to it. In your case maybe 30 / 70 is good, but you can forget about getting 4% risk free anytime soon.

 

[Katsmeow]

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.

The real point of his inflation analogies is that inflation can kill you. It won't do it dramatically and all at once but it will still kill you.

To put it in perspective I went to Firecalc and on tab 1 put in spending of 40000, portfolio 1000000 and 30 years. Then I went to Your Portfolio. In the section called total market where it has percentage of portfolio in equities, I changed 75% to 55% (which is my own percentage) and then hit submit. 5 cycles failed for a success rate of 95.5%. Now, for some here that is good enough. Many would want that to be 100%. If I reduce spending to $36,900 I get it to 100%.

OK I put spending back to 40000 then went to Your Portfolio and changed percentage of equities to 0%. 67 cycles failed, for a success rate of 39.6%. But, you can get it to 100% if you reduce spending to $25,400 a year.

But with just 25% equities you can get to 100% with $34,800 spending which as you can see is very close to what you get with 55% equities.

You think you are reducing risk and increasing your chance of success with 0% equities but you aren't. Now, if you can live with spending whatever 100% success would be at 0% equities then fine but recognize what it is costing you and if your expenses increase more than you expect then you could still fail.

 

[REWahoo]

SWR, it's obvious you don't believe inflation will have an appreciable impact on your retirement even though history says otherwise. I sincerely hope you are correct because the consequences of getting it wrong aren't pretty.

My work here is done...

 

[ShokWaveRider]

SWR, it's obvious you don't believe inflation will have an appreciable impact on your retirement even though history says otherwise. I sincerely hope you are correct because the consequences of getting it wrong aren't pretty.

My work here is done...

Not really, it is just it is the least of my worries at this particular juncture. I am fully aware that rampant inflation over time can be devastating. Currently it is relatively low. That may change of course and will warrant attention at that time. It is still somewhat subjective though. I can deal with that after the major (in our minds) issues are covered.

 

[Mulligan]

Shok, I want mention, that I really respect the advice the posters are giving you and they need to be reflected on as it is excellent advice. However, I will give you a little moral support since you are getting beat up pretty hard with the pillows (just teasing guys). Not many people have the aversion to the market as you do, but I share somewhat your same feelings. It is kind of like all your friends telling you about the health benefits of eating fish, but you cant stand the taste of it. For what its worth, I am drawing my pension, but still consider myself in the asset accumulation stage of my life. I am working part time to fund this through CDs and IBonds mostly, instead of pumping all my reserves into the market. Is this the best thing to do? Maybe not, but I still have plenty of free time and don't mind the PT job, and I have no market worries.
Your concern is not without merits. Someone retiring in 1964 would have had a tough 18 year slog if their money was mostly in the markets and a person retiring in 2000 would have had some worries for a decade. I would find it hard to believe that many funds could have managed to beat your returns on average from 2000-2010 with your investment strategy. However unfortunately its the next 10 years you have to worry about, not the last 10. BTW- I forgot who posted that living off treasuries quote a few posts back, but I loved it!

 

[ShokWaveRider]

Mulligan:

Thanks for the support. I too like the treasury Q&A from earlier. I also respect the advice/opinions and agree the next 10 years are crucial. We are fortunate as are most of the folk on his site are flush with the "Treasuries" mentioned earlier, but perhaps their own form of them. Some have Market "Treasuries" others CD "Treasuries others Bond "Treasuries" others Money Market "Treasuries" Other may even have ACTUAL Treasuries and other combinations of them. I am of course using the word treasuries very loosely here.

I did some raw calculations on SPIA's and they are a potential solution if one does not mind giving all or part of their cash to an insurance company. For a $500k one time Premium, the return would be equal to only 16 years if just taken from the capital, but for a joint policy it may have to provide return for 30+ years. One would need almost double the premium to achieve that from raw cash. I personally do not care that when we die the insurance company gets the cash, if not them the government would take it anyway in our case.

 

[Katsmeow]

Not really, it is just it is the least of my worries at this particular juncture. I am fully aware that rampant inflation over time can be devastating. Currently it is relatively low. That may change of course and will warrant attention at that time. It is still somewhat subjective though. I can deal with that after the major (in our minds) issues are covered.

The numbers that I gave you about the failure rate for a 0% equity portfolio being hugely greater than one with even 25% equities was not based upon rampant inflation. It was based upon the various historical returns some of which had high inflation while many others did not. You seem to be saying that you will wait until there is rampant inflation and then change. But, here's the thing... you won't change then. That is because with high inflation you will see CD's, for example, paying a high rate and it will look great. But it won't be great since it is still being eaten away by inflation. And, by the time you wait for rampant inflation, you may have wasted many many years of inadequate returns resulting in failure. Do that if you want to and if you can afford the very low withdrawal rate that you will have to have, just do so with your eyes open not because the fact that inflation is low now means very much in trying to plan a long retirement.

The problem with SPIAs in my opinion is the risk of insolvency of the insurance company. The state guarantee funds are generally inadequate to rely on to save you in that event.

 

[Nords]

I am fully aware that rampant inflation over time can be devastating. Currently it is relatively low. That may change of course and will warrant attention at that time. It is still somewhat subjective though. I can deal with that after the major (in our minds) issues are covered.

The point which other posters are attempting to make is that it is very difficult to detect whether you appear to be even slightly aware that low inflation over time will also be devastating.

Take a look at the PDF linked below. If annual inflation stays at 3% for the next 30 years, then each of your dollars will be cut to 41 cents.

If annual inflation stays at 2% for the next 30 years, then each of your dollars will be cut to 56 cents.

Inflation over the last century has been about 3.5%. In 19th century Britain, with the gold standard in effect, it managed to stay at zero for most of the century. But I don't see anybody running back to the gold standard anytime soon.

How low do you think inflation's going to average for the next 30 years? You're gonna find out whether you care to know or not. Maybe it's a good idea to get ready for it now instead of when it's nearly too late.