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Old 08-13-2014, 05:46 PM   #161
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Two of my closest couple-friends retired from the military about 10 years ago. They retired after 25 years of service, with really nice military pensions and healthcare. Upon retiring they bought 2 new cars, a 42 ft. motorhome, took multiple European trips, and refinanced their house not once but twice to help pay for it all. They also cashed out their TSP accounts because “it’s better to use that money now when you really need it.” They lasted less than 6 months. He ended up having to go find work, and was really lucky when he found a civil service position (using his military connection). With their escalating debt, she had to find a job as well.
Now that they are in their mid-50’s, they are talking about trying retirement again, though their spending habits are just as bad, if not worse. Those 2 pensions plus 2 additional paychecks have given them a false sense of wealth. The car loans have been extended, including the motorhome. And I think they recently refinanced their house for a third time. Now they are talking about selling their home and moving to a more expensive cost of living state to build their dream home. Retirement mistake part II in the making...
Well, those pensions are wealth. Wealth that cannot be cancelled by the recipients' stupidity or poor character. Government work, nothing like it.

Ha
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Old 08-13-2014, 06:19 PM   #162
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Now, that would be interesting. You earn your pension (if you're military) or pay into it (if you're civilian), but it could get canceled later on in life if you don't show sufficient moral character! I wonder how long I would keep my pension. Guess it'd depend on who's sitting in judgment. Next, we'll apply severe moral standards to inherited wealth...

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Well, those pensions are wealth. Wealth that cannot be cancelled by the recipients' stupidity or poor character. Government work, nothing like it.

Ha
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Old 08-13-2014, 07:24 PM   #163
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Bulbar, $3 Mil, you do need to start a thread. That is $90,000 a year at 3% SWR and $120,000 at 4%. If my math is right your are 17 year from full SS, much less some of the drawing options prior to that. Of course we don't know your spending habits, but that sure sounds high to me.
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Old 08-13-2014, 07:51 PM   #164
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Now, that would be interesting. You earn your pension (if you're military) or pay into it (if you're civilian), but it could get canceled later on in life if you don't show sufficient moral character! I wonder how long I would keep my pension. Guess it'd depend on who's sitting in judgment. Next, we'll apply severe moral standards to inherited wealth...

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Well, that is the point I was making. This board is full of people who earned and saved plenty money. But if they make some serious mistakes, they can be out on the street. Some of the mistakes detailed here are due to cognitive issues, but more of them to character issues. That is what this thread is about.

Robust entitlements are way better than private wealth that might produce similar income. What is more reliable and less volatile? One's invested assets, or her federal cola'd pension?

Re: inherited wealth, it costs me nothing. In fact there are taxes on it that help us all, especially those on government payrolls.

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Old 08-13-2014, 08:24 PM   #165
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Well, those pensions are wealth. Wealth that cannot be cancelled by the recipients' stupidity or poor character. Government work, nothing like it.
Ask a GI what happens to the "cannot be cancelled" pension he's accrued if he steals a candy bar from the PX after 19 years of active duty.

Or if he gets killed or just mustered out of the service short of 20 years: Not a penny of pension. Are there a lot of civilian pensions that don't vest until 20 years?

And there's this: In a divorce, a former spouse automatically gets a portion of a servicemeber's pension if the couple has been married for 10 years of military service. It doesn't matter if the spouse cheated on the soldier, shot the soldier, or just decided to run off with the mailman and leave the servicemember with the kids: a judge can't amend the provisions of the FSPA: the spouse gets a prorated portion of the pension, up to 50%. Hmm--are there any private sector pensions with those "protections"? No.

So, some of these pensions CAN be cancelled "for stupidity or poor character"--or those of a spouse.

Anybody who wants a steady monthly check to "stupidity-proof" their retirement can just buy an annuity.
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Old 08-13-2014, 10:40 PM   #166
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Ask a GI what happens to the "cannot be cancelled" pension he's accrued if he steals a candy bar from the PX after 19 years of active duty.

Or if he gets killed or just mustered out of the service short of 20 years: Not a penny of pension. Are there a lot of civilian pensions that don't vest until 20 years?

And there's this: In a divorce, a former spouse automatically gets a portion of a servicemeber's pension if the couple has been married for 10 years of military service. It doesn't matter if the spouse cheated on the soldier, shot the soldier, or just decided to run off with the mailman and leave the servicemember with the kids: a judge can't amend the provisions of the FSPA: the spouse gets a prorated portion of the pension, up to 50%. Hmm--are there any private sector pensions with those "protections"? No.

Anybody who wants a steady monthly check to "stupidity-proof" their retirement can buy an annuity.
This is an argument I won't continue. You won't convince me and I won't convince you.. People are very defensive about things that are important to their survival or comfort.

By character flaw, I did not mean crime or naughty acts as implied by another respondent. I do not assume a judge or a law or rule. I meant things like uncontrolled fear or greed that can in the natural course of life make it hard to hang on to your money. Some people are just predisposed to interpret things oddly, which is not useful in investing. And your divorce example is the same for anyone who gets divorced. Divorcing spouse may be the town tart, she will still take half of a pension. Likewise the philandering husband. IMO, this is as it should be. When you get married, you don't get title to your spouse. Slavery is not allowed in the US. But she may well be awarded more than half of your wealth. As I may have mentioned before, the only adequate defense against this is to remain unmarried. I have no knowledge of private pensions, but I very much doubt that any of them are immune to division, other than social security. Which is another good reason to put off SS until age 70.
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Old 08-14-2014, 09:57 AM   #167
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And your divorce example is the same for anyone who gets divorced. Divorcing spouse may be the town tart, she will still take half of a pension.
Just to clarify: In the case of private pensions, the judge decides how much the spouse gets. If the spouse makes $500K a year and has a pension of his/her own, and the pensioner is flipping burgers, then the spouse will likely get less. The judge has some discretion, and will include many factors. Not so in the case of a servicemember: Pat Schroeder's FSPA says exactly how it will be divided, circumstances are not a factor.

Anyone who is envious of a monthly retirement check can convert their lump sum into one with no trouble. And, anyone who wants to convert their monthly check into a lump sum can also do that. Both options have costs.
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Old 08-14-2014, 10:24 AM   #168
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I imagine that you realize that it would be from very expensive to impossible to re-create a federal pension by buying an annuity. Two factors -US government behind the pension, and the biggie, high class COLA.

Anyway, my original point has been ignored, which was that federal pensions are not a "false sense of wealth" as mentioned in post # 153, but very real wealth and wealth which is highly resistant to various threats including but not limited to errors (the topic of this thread) but also market volatility and poor business conditions.

It's a great tactic to try to obscure these facts, but beside the point if the point sought is reality. Also, attack terms such as "envy" are meant as discussion killers. I am surprised that you feel the need to go there.

Ha
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Old 08-14-2014, 10:37 AM   #169
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Also, attack terms such as "envy" are meant as discussion killers.
An implication that a person is making a point for self-serving reasons is another thing that takes us away from an illuminating discussion of the issues.

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People are very defensive about things that are important to their survival or comfort.
I'm done on this issue, thanks.
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Old 08-14-2014, 10:51 AM   #170
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I imagine that you realize that it would be from very expensive to impossible to re-create a federal pension by buying an annuity. Two factors -US government behind the pension, and the biggie, high class COLA.

Anyway, my original point has been ignored, which was that federal pensions are not a "false sense of wealth" as mentioned in post # 153, but very real wealth and wealth which is highly resistant to various threats including but not limited to errors (the topic of this thread) but also market volatility and poor business conditions.
Ha
In time though, there will be fewer and fewer of those fat federal pensions around. IIRC, they transitioned from CSRS to FERS in 1983-84. So, nobody hired in the past 30 years will get one of those nice 80% pensions. And you only get that 80% once you hit something like 40 years.

As for "false sense of wealth", I think it's just a matter of semantics. While the pension is real, in the sense you'll get that money, consistently, it can still create a feeling of a false sense of wealth, causing people with poor financial skills to over-spend. Sort of like lottery winners who think they have it made, but end up bankrupting themselves after a few years. Only difference is that you'll keep getting a pension, whereas a lottery windfall, even if you take the annuity, eventually stops. Still, you can bankrupt yourself even with reliable income coming in. Never underestimate the power and ingenuity of fools' abilities to do themselves in!
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Old 08-14-2014, 11:00 AM   #171
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Bulbar, $3 Mil, you do need to start a thread. That is $90,000 a year at 3% SWR and $120,000 at 4%. If my math is right your are 17 year from full SS, much less some of the drawing options prior to that. Of course we don't know your spending habits, but that sure sounds high to me.
I don't think his $3 mill is too high. A $60,000 a year spending increases dramatically, when you add in paying you're own healthcare and income taxes on what needs to be withdrawn from retirement accounts.
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Old 08-14-2014, 11:21 AM   #172
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While I think your builder is crazy, it is encouraging that there are people who still work on a handshake. My commercial construction jobs come with 75 pages of contract and 2000 page of specifications that you have to have a law degree, engineering degree and construction science degree to understand.
Much more typical of a small town where word of mouth can kill a businesspersons reputation far faster than a big city.
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Old 08-14-2014, 11:21 AM   #173
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While the pension is real, in the sense you'll get that money, consistently, it can still create a feeling of a false sense of wealth, causing people with poor financial skills to over-spend. Sort of like lottery winners who think they have it made, but end up bankrupting themselves after a few years. Only difference is that you'll keep getting a pension, whereas a lottery windfall, even if you take the annuity, eventually stops. Still, you can bankrupt yourself even with reliable income coming in. Never underestimate the power and ingenuity of fools' abilities to do themselves in!
This was my point, that funds from pensions can be mismanaged just as easily as any other money. With essentially 4 incomes at their disposable, my friends only increased their spending and continue to exhibit poor money management.
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Old 08-14-2014, 01:45 PM   #174
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I don't think his $3 mill is too high. A $60,000 a year spending increases dramatically, when you add in paying you're own healthcare and income taxes on what needs to be withdrawn from retirement accounts.
Well, I live in the Houston area (which is where the person in question lives) and there is no way that DH and I need $3 million to retire. For one thing, you seem to assuming that they never will receive any SS which for most people isn't the case.

In our case, the bulk of $60,000 would be covered by SS even if DH and I both took it at 62 (it would be about $46,000 leaving only $14,000 to come from the portfolio if we wanted to spend $60,000).

Further, we have retiree medical and it is more expensive than insurance was before DH retired but still isn't all that much more (DH is now on Medicare but wasn't when he retired).

Income taxes are way lower than they were when we were working. When we were working we were always in at least the 33% tax bracket. This year we are in the 15% tax bracket. I would think that most people with $60,000 a year spending would end up in the 15% tax bracket so taxes really aren't all that much.

Now, it is possible that someone might want $3 million to retire, but it isn't because a $3 million portfolio is needed to support $60,000 a year in spending. On the other hand, if you wanted to spend $120,000 a year for the next 30 or 40 years then it might be needed, particularly if young enough that SS was many years away.
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Old 08-14-2014, 02:00 PM   #175
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Now, it is possible that someone might want $3 million to retire, but it isn't because a $3 million portfolio is needed to support $60,000 a year in spending. On the other hand, if you wanted to spend $120,000 a year for the next 30 or 40 years then it might be needed, particularly if young enough that SS was many years away.
My plan has a sinking fund to pay pseudo SS and Medicare benefits to me and DW until I reach 70 (SS) and each of us reach 65 (Medicare). DW starts SS at 64 (half of mine). With a $3MM portfolio, that would result in me having a 5% variable spending rate starting at $200,000/yr in year 1. My pensions and our SS adequately cover our basic living expenses so the variable spending plan makes perfect sense to me. I can certainly cut lifestyle if the market tanks.

I agree with your comment about being too young to plan on SS in the near future.
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Old 08-14-2014, 02:11 PM   #176
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You're correct. Exhibit 1: the COLA'd government pension called Social Security. (Which I do not qualify for).
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Robust entitlements are way better than private wealth that might produce similar income. What is more reliable and less volatile?
Ha
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Old 08-14-2014, 02:55 PM   #177
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My eyebrows raised as well by the suggestion of your "advisor" that you need a $3M nest egg. Given that 50% of American's make less than $50K annually, that even if you were in the top 1% of wage earners this year (which is all of a few hundred people, incidentally), but quite possibly be unemployed the next, that $3M figure looks suspect given that it is suggested by only one source.

It you read the statistics put out this past week by the conference of mayors you will find that only the top 5%--at most--could have $3m to retire. That study also showed how wealth inequality has increased in the past several years, will continue to increase, perhaps dramatically, by city, by US region. Studies by the CIA, the British equivalent of the CIA and the OECD all say the same thing. Then there's the Fed's release this week showing that 40% of Americans are in some type of financial trouble, that most couldn't come up with $400 if an emergency arose, and that the average retirement savings is miniscule.

This thread is testament to the fact that success/happiness amounts to successfully navigating a series of constant life events. Life events do have a tendency to impact our financial lives (i.e., divorce, job loss, serious health issue). Setting unreasonably high retirement savings goals only compounds these issues, and the disappointment/psychological dislocation that can ensue. Boglehead polls show the majority don't have anywhere near $3M in savings when they retire. If you don't think this is true, just ask

It is far easier to reduce spending/cut costs than to save. In fact, it's been repeatedly shown that only those able to delay gratification by having a healthy relationship with materialism are able to retire, and stay retired, successfully. A rather startling example is John McAfee, of McAfee anti-virus, whose net worth fell from $200M to just $4M, due to overspending in real estate (among other mistakes).

Your Money or Your Life by Dominguez is a good place to start thinking differently about all this.
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Old 08-14-2014, 08:26 PM   #178
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My plan has a sinking fund to pay pseudo SS and Medicare benefits to me and DW until I reach 70 (SS) and each of us reach 65 (Medicare). DW starts SS at 64 (half of mine). With a $3MM portfolio, that would result in me having a 5% variable spending rate starting at $200,000/yr in year 1. My pensions and our SS adequately cover our basic living expenses so the variable spending plan makes perfect sense to me. I can certainly cut lifestyle if the market tanks.

I agree with your comment about being too young to plan on SS in the near future.
I thought the spouse had to be FRA to get spousal benefits. AFAIK, FRA is a range between 65 and 67, depending on the year of birth. How does it work at age 64? Wouldn't that still be a reduced benefit - and lock her into a reduced benefit? Does she have SS on her own record that she's holding off till 70?

I'll admit I still get confused by some of the spousal options.
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Old 08-15-2014, 11:28 PM   #179
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Read through much of this thread and now going to bed. Hopefully will not have nightmares .
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Old 08-16-2014, 12:27 AM   #180
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Read through much of this thread and now going to bed. Hopefully will not have nightmares .
It's good you went to bed an hour ago...

Here's a nightmare story - Some years ago an A/C-Heating guy I knew had a new helper. This helper was an "old guy" that didn't look like he should be working anymore. He had an unusual and sad story. He had worked for many years at a small manufacturing business, mainly mechanical stuff. He had socked away a lot in his 401k, as did some others. He planned to retire in the next year.

But the owners of the company wanted to sell it and retire themselves. So they sold the company to a businessman who had recently bought up a couple other companies just like theirs. At first, it seemed all was OK. Then trouble. The Mr. businessman had bought the companies, sold off all their stock and machinery, everything, on the sly. They were all suddenly out of work. Then they found out that their 401k s had been liquidated and stolen by Mr. b. And Mr. b disappeared.

The Mr. businessman was finally caught, and while out on bail, put a revolver to his head, and pulled. Nothing was recovered for the ex-employees. So he was old, out of a job, 401k $$$ all gone. And the perpetrator was dead. The end. Back into the job market to try to find anything that would pay a few $. No hope. Day after day after day...
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