Worrying about money lasting?

[Finance Dave]

Probably offend someone here, but what's the point of retirement income? Is it to have absolutely the most possible to spend each year, hopefully well beyond what you may have spent before retirement (in other words God forbid you die with more the $5 in your pocket)(then annuities it all)? Or is it to be sure you have enough to do all the things you want to do and live comfortably; and if the pile seems to be not evaporating as fast as you thought as you age is that just hunky dory, you can pass on to heirs or charity and have lived out your life the way you wanted? I'd like to think I'm in the second category. I can see being pissed off that you died young and missed the chance to do the things you wanted with your stash. I can't see being pissed that markets were better than you expected toward the end and your grumpy because you could have had that new Porsche ten years ago after all. That's not to say I don't have some screwy ideas about money security myself, just a thought.

Not offended here.

For me, I plan to spend more in FIRE, but not because I want nicer things...more because I'll have more time to spend it. For example, we currently only go on one vacation per year...not due to money constraints, but vacation time at w*rk constraints. In FIRE, that constraint will be removed. I am a car hobbyist...and I'll be able to go to more car shows.

I plan to spend more because of the additional number of fun activities we'll be able to do. Wine train tours, cruises, woodworking hobbies, car shows, growing a garden, plays, concerts, ice sculpture contests in Colorado, the Albequerque hot air balloon festival...the list goes on and on. In FIRE we'll be hitting things like that all the time...whereas today we don't have time.

 

[Independent]

I vaguely remember a survey (not on this board) that concluded that retirees with meaningful pensions reported less financial worry. No surprise there.

Regarding your planning, there's the issue of how you invest money that you plan to spend during the "bridge" years between when you quit work and when you start SS or a pension. I started a survey on this board a couple years ago on that topic. IIRC, about half the people left that money in their regular AA. The other half had designated assets, presumably with less short term market risk.

I'm in the second group. We had a CD and I-bond ladder to provide bridge income.

 

[Nords]

Is the worry factor related to guaranteed income or it is related to emotions/personality (as in, yes I tend to be a worrywart ) ?

Yes.

If the guaranteed income helps you worry less then you should buy an annuity. Spouse and I take comfort in having a good understanding of asset allocation and how we'll rebalance.

Probably offend someone here, but what's the point of retirement income? Is it to have absolutely the most possible to spend each year, hopefully well beyond what you may have spent before retirement (in other words God forbid you die with more the $5 in your pocket)(then annuities it all)? Or is it to be sure you have enough to do all the things you want to do and live comfortably; and if the pile seems to be not evaporating as fast as you thought as you age is that just hunky dory, you can pass on to heirs or charity and have lived out your life the way you wanted? I'd like to think I'm in the second category. I can see being pissed off that you died young and missed the chance to do the things you wanted with your stash. I can't see being pissed that markets were better than you expected toward the end and your grumpy because you could have had that new Porsche ten years ago after all. That's not to say I don't have some screwy ideas about money security myself, just a thought.

I think the point of retirement income is to be able to quit work the moment you have enough. I'd be pissed off if I worked "just one more year" longer than I had to and then watched my assets keep growing in ER.

 

[flyfishnevada]

Man, these thread grow so fast! What? Are you all retired with nothing better to do than post on forums?

Anyway, I have a pension and I still worry but it's probably slightly irrational. My state pension system is in good shape and has been for many years. Still I worry one day they will run short and I'll be left without a livable income. They have 22 billion in assets and I live in Nevada where retirees are measure in thousands, not hundreds of thousands or even tens.

I am also young and drawing a pension for 50 years (a possibility) makes me wonder what might happen several decades from now. On the other hand, SS had been around for like 80 years and my pension system has been around since the 50s or 60s.

Now health insurance, that I'm worried about. Retired less than two years and already went from a pretty normal insurance situation (copays, prescription coverage, low deductibles) to basically high deductible catastrophic with higher even premiums. I feel like I'm uninsured. I hope when the economy and out state's unstable tax base gets better so will my insurance.

 

[Ally]

The knowledge that my husband is eligible for a pension, that will also continue for me if he should die before me, is a huge factor. However, if we hadn't had that, I know we would have saved even more, plus he would have probably earned a higher salary in a private sector job.

 

[Chuckanut]

If the guaranteed income helps you worry less then you should buy an annuity. Spouse and I take comfort in having a good understanding of asset allocation and how we'll rebalance.

I tend to lean in this direction, also. While I appreciate my small, partially COLA'd pension and SS, I think there is always the possiblity that they could be reduced. Just a few weeks ago, some of my state representatives wanted to skip a payment to the pension fund to help balance the state budget (Note: employees have no option to skip their paymens to the fund when things are tight for them!). Thankfully, that failed and it will save the taxpayers anywhere from 400 to 800 million dollars down the road (to make up for the payment and its earnings.) But, that also could have been used as an excuse to say "Poor pension fund. It is underfunded. We need to cut your benefit". Who would remember that they skipped payments 15-20 years ago

So, I figure the money in my control is my best bet against living in poverty in my last years. But, I won't totally bet this way. I will spend some of it to delay SS and get it at 66 or a bit older. It's not wise to put all our eggs in one basket, even one's own.

 

[Midpack]

Probably offend someone here, but what's the point of retirement income?

Option A: Is it to have absolutely the most possible to spend each year, hopefully well beyond what you may have spent before retirement (in other words God forbid you die with more the $5 in your pocket)(then annuities it all)?

Option B: Or is it to be sure you have enough to do all the things you want to do and live comfortably; and if the pile seems to be not evaporating as fast as you thought as you age is that just hunky dory, you can pass on to heirs or charity and have lived out your life the way you wanted. I'd like to think I'm in the second category.

They are both legitimate goals, so I don't know why anyone would be offended. Are you offended by those with no heirs who lean toward Option A? Regardless which goal any of us are trying to achieve, most likely we'll land somewhere in between when we go poof...

 

[obgyn65]

IMO an SPIA should be bought later in life - 70s, early 80s. However a deferred annuity should be bought much earlier (40s, 50s) to take full advantage of huge compoundings.

IMO the more important question is when to buy the SPIA. If you FIRE at 50...do you really want to buy it then? Or should you instead wait until 70 when payments are much higher due to shorter remaining lifespan?

 

[sheehs1]

Don't have a pension but do have K1 from a family business and monthly board fees, that if they continue, function like 3 or more pensions. However, since it is not a guarantee, it is not worry free. So...we will continue to save K1 income, investment income and his SEP contributions until we are 65/66 which will be 7 more years after I officially retire (2013) and before he says he will retire. During those years, if I get nervous or business doesn't do well, I'll take a portion and route to an SPIA, although that depends on interest rates at the time. Collecting SSN will be a year by year call.
I don't think I will worry too much in the beginning. The real test for me will be what the situation is 5 to 10 years into retirement and how things are going.

 

[Animorph]

IMO an SPIA should be bought later in life - 70s, early 80s. However a deferred annuity should be bought much earlier (40s, 50s) to take full advantage of huge compoundings.

SPIAs are still a bond vehicle, so the compounding woun't be super, particularly with current low interest rates. Given 20-30 years of deferral, I'd rather be in equities for those years, and buy the SPIA later.

 

[haha]

My answer is "absolutely". I have a very small pension and no SS, plus I am a very conservative investor (e.g. 0% stock). Therefore I need to build a significant financial cushion.

What is the nature of your employment and pay that you live and work in the US, but presumably do not pay SS tax or gain a claim on SS? Some kind of religious exemption? IF so, don't they provide a pension? Do you pay Medicare taxes?

 

[Gotadimple]

What is the nature of your employment and pay that you live and work in the US, but presumably do not pay SS tax or gain a claim on SS? Some kind of religious exemption? IF so, don't they provide a pension? Do you pay Medicare taxes?

Ha,
He lives in Canada.

 

[haha]

Ha,
He lives in Canada.

Ah, thank you Rita. But presumably he then qualifies of Canadian retirement schemes, and of course their health system which as I remember is "no pay at point of contact".

 

[Alan]

What is the nature of your employment and pay that you live and work in the US, but presumably do not pay SS tax or gain a claim on SS? Some kind of religious exemption? IF so, don't they provide a pension? Do you pay Medicare taxes?

Ha,
He lives in Canada.

Ah, thank you Rita. But presumably he then qualifies of Canadian retirement schemes, and of course their health system which as I remember is "no pay at point of contact".

Good questions. (His location is listed as Mid-west so I'd also missed that he lived in Canada).

 

[W2R]

Good questions. (His location is listed as Mid-west so I'd also missed that he lived in Canada).

A while back he posted

I have one home in the US and one place in Europe.

From his public profile and what he has chosen to tell us in his public posts on the forum, it seems possible that he lives in Canada also, though. Wherever he lives, he has mentioned that he spends much time away from home working on his charitable health missions. Personally I consider our mysterious obgyn65 to be a citizen of the world, and leave it at that.

 

[martyb]

Not too worried (what's the point if I can't do anything about it anyway?) mainly because I'll have 2 COLA'd federal pensions. Neither are going to be huge but together, even if I blow through the TSP & IRA's, we should still be able to sustain life. I can take the first, and biggest of the 2 pensions starting in 9 months from now, if I choose. Not huge, around $45k (gross, before health ins., taxes, life ins. & survivor benefit deductions). Probably will end up around $28k net. No state taxes where I'll retire. The 2nd pension kicks in 5 yrs later at age 60, and is my military reserves retirement. Estimate is somewhere between $15k & $18k gross. I need to do the math again, now that I'm actually retired from the reserves. Both pensions will have survivors' bens for the wife.

Wife's 401k won't be huge, but should provide around $500 per month when she retires in 3 yrs. She's eligible for SS at 62, but she's only 50 now so that's awhile to wait. I won't get much in the way of SS, due to WEP. If I take anything from my TSP, it won't be more than maybe another $500 per month, which is not even close to 4%. I was originally thinking I'd take the 4%, but I'm revising my position on that.

 

[poorgeezer]

I stopped working at 50 and I am now 58.

I do not have a pension.

I am a worrier by nature so my solution was and is CASH!

It does not make sense for many reasons but, it is a luxury that I can afford and it allows me to relax. Like J.P. Morgan said sell to your sleeping point. We all need to find a personal sleeping point and it will be different for each of us. My cash reserves will step down when I begin to collect social security and again when I qualify for Medicare. I will start to draw approx. 3% from my investments sometime after age 62 and prior to age 66. If I do go broke before I make it to the finish line I will do what millions of Americans do and that is live on Social Security and the kindness of others, content in the knowledge that at least I tried.

 

[foxfirev5]

I stopped working at 50 and I am now 58.

I do not have a pension.

I am a worrier by nature so my solution was and is CASH!

It does not make sense for many reasons but, it is a luxury that I can afford and it allows me to relax. Like J.P. Morgan said sell to your sleeping point. We all need to find a personal sleeping point and it will be different for each of us. My cash reserves will step down when I begin to collect social security and again when I qualify for Medicare. I will start to draw approx. 3% from my investments sometime after age 62 and prior to age 66. If I do go broke before I make it to the finish line I will do what millions of Americans do and that is live on Social Security and the kindness of others, content in the knowledge that at least I tried.

Poor Geez' I guess that's all we can hope for. In the end "we'll never make it out of this world alive" rings true. However I'm in it for the game and go through daily ups and downs regarding RE. Being FI allows me this freedom.

 

[Alan]

A while back he posted From his public profile and what he has chosen to tell us in his public posts on the forum, it seems possible that he lives in Canada also, though. Wherever he lives, he has mentioned that he spends much time away from home working on his charitable health missions. Personally I consider our mysterious obgyn65 to be a citizen of the world, and leave it at that.

... and I think I have tax complications with income and pensions/SS from only 2 countries...

 

[traineeinvestor]

Do you not have term life insurance for that purpose?

We do, but I intend to cancel the policy after I retire - by definition if we have enough to support the whole family after I FIRE, then we have more than enough to support the whole family minus me.

I'm not sure if I want to let the kids know that financially will be better off without me around?

 

[megacorp-firee]

What Me Worry?

Have a pension from mega-corp that covers our current basics. Taxable portfolio covers extras like travel and toys. 401k provides for the future, as we have not had to dip into this yet (almost 5 years FIREd).

YES it definitely alleviated our worries (except for 2008 when the 401k and portfolio went to H*ll in a handbasket). But both are back and we are truck'n along.

No pension would have meant a few more years in the saddle I think. I was lucky ... as it seems I have over-engineered my FIRE.

Although with inflation ...etc. and if we are lucky enough to live a long time, one never knows if it will last. Current course and speed though, it looks fine.

Best of luck to you.

 

[Koolau]

Having a pension (though modest and unCOLAd) is helpful in sleeping at night. Perhaps more sleep-inducing is MEGACORP provided group health insurance (and now Medicare which coordinates). True, my total out of pocket health insurance and co-pay bite is significant ($10K to $11K) last year, but at least that is a relatively "knowable" number which should not increase dramatically.

But it's the back-ups which help keep a born worry-wart like me more-or-less sane. First back-up is SS which I'm waiting on until 70 or when I might need it as a back-up for spending. Second back-up is spending cuts (e.g., eat out less, sell one car, cease funding kid's Roths, etc.) Third back up is moving to a lower cost area. I'm sure I can find a place (and life-style) which costs 30% less or even 50% less than my current situation. Included in such a move would be to sell my current dwelling for enough to buy 3 larger dwellings elsewhere.

I hope never to use any of these (or other back-ups) but knowing they are available is probably my number 1 strategy to reduce ER worries. YMMV

 

[BigE]

Good topic. As someone without a defined benefit plan, which as we know is the new "normal", I have definitely been in awe of the significant size of the yearly payout for these plans, especially state and government employees. And you don't have to be a rocket scientist to see why these plans are being phased out, reduced, etc. I have the comfort and sense of empowerment to know that my retirement monies are all in my name, but the pain in knowing that it takes a very large pile of retirement assets to meet the equivalent of some of the defined benefit plans (play around with firecalc and see what it takes to get you 60k/year, a not uncommon yearly payout from the gubment, etc). If I did get an annuity, I would wait until after I know what the greedy b*stards in Washington are planning to do to social security for those who actually saved; lets get real here now, there is a real likelihood that the "po" people (read: those who saved nothing, bought lotto tickets and a lot of beer) will NOT be penalized, but...
Anyway, I digress. I would not buy an annuity until I know the SS situation and only up to the point of my state's insurance guarantee. And therefore, probably around age 67-70.