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Worrying about money lasting?
Old 04-11-2012, 12:48 PM   #1
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Worrying about money lasting?

I have been reading this site for a couple of months now and I am wondering if a pension makes a difference in how much you stress about your money lasting....

If you retire with a good old fashioned pension and are guaranteed at least 50% of your preretirement income and a reasonable amount of savings, (define that as what FIRECALC projected as necessary to live your live as you choose), do you think have fewer worries about money?

I am guessing that since most of us have been through some bad markets, if one's only source of income were investments, you would worry much more than someone with a large guaranteed income stream. Do those of you with no pension worry? Or do you give yourselves extreme financial cushions?

My question is due to my hybrid situation--and I am sure I am not alone. I plan to retire 5 years prior to taking the first pension payments, 8 years prior to the (smaller) second pension payments, so I can get the full amounts. The combined pensions at age 65 would take care of 25% of my projected retirement spending. So since the first leg of my RE would be on my investments, I get stressed just thinking about it!

I have been saving like mad for 10 years so I can have a comfortable retirement and not stress out whenever the DJ drops 20%. One thing I am considering is purchasing an immediate annuity upon retirement with 10-20% of my savings to eliminate the "worries", even though I have read enough about asset allocation to realize if I do it right, I should have enough in cash to weather an extended low in the market. (BTW, my DH says I am crazy to even consider an annuity since I understand the principles of asset allocation during retirement.)

So I am curious to hear what you veterans of retirement say? Is the worry factor related to guaranteed income or it is related to emotions/personality (as in, yes I tend to be a worrywart ) ?

Norma
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Old 04-11-2012, 01:04 PM   #2
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Since we really don't know:

1) How long we'll live
2) Future inflation
3) Future market and investment performance
4) Future tax rates
5) Future government benefits and their sustainability

It's hard to know anything with certainty. That's when people start to worry.

I haven't yet retired but I can assure you that no matter what income and savings you have those topics will cause some degree of concern/worry in anyone.
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Old 04-11-2012, 01:19 PM   #3
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I do like having additional cash as I navigate through those initial years before SS kicks in. 10 years is not a long time in market terms. I would tend towards extra cash and short-term bonds that I would spend down in those years, leaving my equities alone unless they were doing well. Worst case you only need enough extra cash to make up the missing SS/pension payments for those initial retirement years. The rest should be in your long-term AA plan.
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Old 04-11-2012, 01:21 PM   #4
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2moreyears - there is aonther thread with lots of views on how much you can draw from your investments if you have a pension or annuitized source of income. you can check it out at:
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Hope the link comes out ok.
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Old 04-11-2012, 01:39 PM   #5
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As part of our retirement plan, I've scheduled anywhere from 9% to 18% from my IRA as my withdrawal rate for the first few years. As additional sources come online, the rate goes to 0% for several years. I figure the average withdrawal rate will fall between 3.5% to 4%. My projections show that the plan will survive for 35+ years even if we have an average return of 1% over that time. The most comforting knowledge is that even if the IRA goes to $0, we'll continue to have income that should support a reduced comfortable lifestyle. Also, I just can't conceive our expenses will rise as much as my plan shows. Expenses are inflated, but I think lifestyles changes will make expenses go down in later years.

So, for the most part, I'm not worried we won't be able to retire on schedule or that we'll run out of funds. The pensions and SS help with this.
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Old 04-11-2012, 01:50 PM   #6
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If you retire with a good old fashioned pension and are guaranteed at least 50% of your preretirement income and a reasonable amount of savings, (define that as what FIRECALC projected as necessary to live your live as you choose), do you think have fewer worries about money?
For me the answer is a resounding "Yes".

The main reason I hung on until age 55 was to get the retiree health insurance plan, but it also meant that I was able to immediately get a non-COLA DB pension, instead of waiting until age 62. I also started drawing a small non-COLA pension from a previous employer.

The fact that the pensions initially cover all the basics has definitely removed a lot of worries. (they cover just under 50% of what we have actually spent each year and means we don't have 2nd thoughts about all the traveling we do).
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Old 04-11-2012, 02:46 PM   #7
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I am guessing that since most of us have been through some bad markets, if one's only source of income were investments, you would worry much more than someone with a large guaranteed income stream. Do those of you with no pension worry? Or do you give yourselves extreme financial cushions?
I'm a fairly new retiree, but not having a pension is somewhat of a concern. Neither DW or I will ever have a pension (other than Soc Sec, which might provide about 1/3rd of our expenses though that's 13 years from now). You could say we gave ourselves an extreme financial cushion with a WR of about 2.5%, and 0% so far.

But you can buy a pension, that's what an annuity is. An annuity is part of our 'plan B' but if all works out as expected we'll buy an annuity at age 75 to never, so there's no need to worry too much (yet). YMMV
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Old 04-11-2012, 03:05 PM   #8
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As far as retirees go, I am quite a young pup. With no pension, my nest egg might have to last a good long time. Inflation-adjusted SPIAs are out of my reach for now (too young for most insurers) so I have had to build as much cushion as possible in our plan.

1) live on dividends and interests from taxable accounts until 59.5. Leave IRAs untouched.
2) live on dividends and interests from taxable accounts and IRAs after 59.5
3) take SS at FRA (unless the punch bowl gets taken away, SS alone should cover our recurring expenses).
4) sell some real estate properties as needed.

An inflation-adjusted SPIA could become an option at any time in the future (once I am old enough). Health care affordability is the biggest worry, but I am a European citizen and I always have the option to go back home if I can't afford it here anymore.
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Old 04-11-2012, 04:20 PM   #9
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The DW and I both have pensions, plus a modest portfolio, and 2 IRAS. So far, our pensions, more than cover our expenses. In fact, we are continuing to save, and invest on a regular basis. When I am eligible for SS, I will apply early. The DW did not contribute to SS during her working life, so she will not be eligible for any of mine, due to her pension. We plan to stash my SS into investing accounts. With that being said, you would think we have no worries.

However, the DW pension is through TRS in Illinois. As many know, this system is not in the best of shape. In fact, recent reports indicate that there may be modifications to existing teacher retirement packages. Does that create worry? (a rhetorical question.)

We have run the numbers through many calculators (I like FIRE Calc.), using different income variations (including the elimination of DW pension.), and all show that our spending models may change, but we will still survive.

This leads to the question of whether we wished we worked another year or two. NOT AT ALL!!

Even if we had, it would not solve the Illinois problem. We would still have the same issues only two years later. In fact, we may have been worse off. The package the DW retired with is not available any more. That would have made ER harder to achieve. All we can do now is move forward, confident in our abilities to adapt with our multiple resources, and potential income streams.
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Old 04-11-2012, 04:33 PM   #10
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As a former federal employee I have a tiny federal pension, which pays my health insurance premium and also provides a direct deposit in the lower 3 figures each month. Even that is very nice to have. I am also 63, so i can apply for SS any time I want to and that is great, too.

For those with no pension or SS possibilities, I'd probably suggest a larger cash cushion than otherwise, to be used in case of another stock market crash. I also think FireD made a good point in suggesting that one should spend dividends and interest only, instead of selling shares for income. If you can keep spending within your dividends/interest income, I think you'll have more confidence in your planning.
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Old 04-11-2012, 05:29 PM   #11
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For those with no pension or SS possibilities, I'd probably suggest a larger cash cushion than otherwise, to be used in case of another stock market crash. I also think FireD made a good point in suggesting that one should spend dividends and interest only, instead of selling shares for income. If you can keep spending within your dividends/interest income, I think you'll have more confidence in your planning.
Your point about the cash reserve and FIREd's about staying within investment income are both well made. I didn't focus much on either for a number of years because what matters is total return. That is true, but after two steep market declines, a portfolio that generates enough cash to fund the budget makes it much easier to deal with the volatility.
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Old 04-12-2012, 02:11 AM   #12
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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.
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Do those of you with no pension worry? Or do you give yourselves extreme financial cushions?
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Old 04-12-2012, 10:26 AM   #13
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Scanning through the posts in this thread it seems that the consensus to avoid worry is to live well below your SWR as determined by a number of methods (eg. FIRECALC). That approach requires years or decades of extra work to accumulate an appropriate nestegg. So I don't think that is a very good solution even though it will almost always work to keep you out of poverty.

I believe a better approach would be to re-plan every year and live up to your full SWR potential. Alternately, one of many variable withdrawal schemes would work well in this case.

Does anybody worry about dying with a huge unspent/unrealized nestegg ? That's another tragedy that's not discussed much on this forum.
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Old 04-12-2012, 11:58 AM   #14
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Quote:
Originally Posted by MasterBlaster View Post
Scanning through the posts in this thread it seems that the consensus to avoid worry is to live well below your SWR as determined by a number of methods (eg. FIRECALC). That approach requires years or decades of extra work to accumulate an appropriate nestegg. So I don't think that is a very good solution even though it will almost always work to keep you out of poverty.

I believe a better approach would be to re-plan every year and live up to your full SWR potential. Alternately, one of many variable withdrawal schemes would work well in this case. For example? Seriously, I am always interested in better WR schemes.

Does anybody worry about dying with a huge unspent/unrealized nestegg ? I worry about it because we have no heirs, so I'm always looking for a 'die broke' but on time approach, even though I know it's not practically possible, so close is good enough. That's another tragedy that's not discussed much on this forum.
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Old 04-12-2012, 12:10 PM   #15
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Midpack:

As a veteran around this forum, I am surprised you aren't at least somewhat aware of alternate SWR techniques.

But I'll indulge your question...

There are as many variable withdrawal schemes as there are investors. The problem with the oft-mentioned 4% SWR techniques are that retirees almost never follow it. When markets are down they may take less and vice-versa.

The other problem with traditional fixed-SWR methods is that you will almost certainly die with a huge unspent/unutilized nestegg. The financial academia is chock-full of different methods for various nestegg withdrawal schemes. The different techniques vary withdrwals based on their algorithm and optimize one or more criteria over a retirement span to get what, in their opinion, is a superior withdrwal method.. This topic is quite extensive.

here is but one link to a number of methods:

Variable Withdrawals in Retirement

Quote:
~~~
Table of Contents
StrategyAuthor
Floor and CeilingWilliam Bengen
Sensible Withdrawals Peter Ponzo (Gummy)
Decision Rules with Guardrails Jonathan Guyton
Rational Investing Bob Clyatt
Endowment Formula Robert Carlson
Five Year Plan Ben Stein & Phil DeMuth
Flexible Withdrawal Rate Paul Merriman
Maximize Withdrawals Cut-Throat & LBill
Withdraw Maximum Gains Cut-Throat
Prosperous Spending ModelWilliam Bengen
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Old 04-12-2012, 12:17 PM   #16
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A few years ago I would have said YES!
But lately federal pensions are under attack and I just don't know how much I will be able to rely on it.
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Old 04-12-2012, 12:24 PM   #17
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Does anybody worry about dying with a huge unspent/unrealized nestegg ? That's another tragedy that's not discussed much on this forum.
The tragedy for DW/me is if we pass without having a large remaining estate, having a disabled adult "child" to worry about.

Not all cases are the same.

Even if we didn't have our "challange", I've always said that I would rather die with money than live without it.

Money left on the table will not go to waste. Remember that money is for the living, not the dead. There will always be those folks/organizations that you can help (assuming you have taken care to document your desires) after you are gone.
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Old 04-12-2012, 01:33 PM   #18
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Does anybody worry about dying with a huge unspent/unrealized nestegg ? That's another tragedy that's not discussed much on this forum.
I would only call that a tragedy if the reason for the huge unspent nestegg was that we both died young.

If we ran out of money and had to live in poverty, and/or be a burden to our children, then that would be a tragedy.

I currently don't worry about leaving a large nestegg because it would hopefully mean that the investments had done much better than we had planned for, and our kids were going to be secure in their retirements.
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Old 04-12-2012, 02:04 PM   #19
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For me the answer is definitely that having a pension equals no worries about money in retirement. I have a fully COLA'd federal pension and good health insurance. DW has a state pension with COLA capped at 3% per year. DW also gets a modest social security payment. These three combined cover all of our regular living expenses. In addition we have a 7 figure investment portfolio. If the stock market went down to zero we would have to be a bit more careful about discretionary spending but that's about the only impact.

We are in a position to fully fund college costs for the grandchildren as they come along (currently just 1). I have been gradually reallocating our investments to minimize the risk of losses even if that means we don't keep pace with inflation. Since we don't need that money, I would rather protect it than see it grow.
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Old 04-12-2012, 03:57 PM   #20
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If you retire with a good old fashioned pension and are guaranteed at least 50% of your preretirement income and a reasonable amount of savings, (define that as what FIRECALC projected as necessary to live your live as you choose), do you think have fewer worries about money?
Norma
Is the "good old fashioned" pension COLA'd? Many I know are not. My dad worked for AT&T and retired in the late '80s. What seemed like a large pension then, barely pays for gas for his car now.

Otherwise I don't see the pension any different then purchasing an SPIA as you mentioned. I plan to use a small portio of my assets to do the same thing....maybe 15-20% of assets to buy...but will depend on the discount rate at the time.

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? I see the SPIA as a sort of "longevity insurance"...so I'll likely wait until about 70.
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