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Big mistakes in retirement
Old 08-07-2014, 07:40 AM   #1
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Big mistakes in retirement

Anyone see any big mistakes they, or those they know have made in retirement (early or otherwise?)

I have two acquaintances who "blew it" during retirement. Here's what they did:

1) Megacorp DB pensioner mortgaged his house in order to buy huge RV, motorcycles and some other toys. Pension would not quite cover new mortgage and living expenses, so he decided to "day trade" to make up the difference. Bzzzt. He lost the house and motorcycles. It was actually quite tragic.

2) Dot com coworker made it big in the late 90's with company options. He "retired" at 40. Decided that investing a million or so in restaurant was a great idea. Bzzzt. Lost it all in a matter of a year and had to go back to work.
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Old 08-07-2014, 08:03 AM   #2
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When I was working for a sub of Prudential in the 1980s, they had an Early Retirement incentive program that a lot of long-time employees in their late 40s/early 50s accepted. It sounded good on paper, but I wondered how many of them would realize at age 70 that their pension and SS weren't enough to support them. They were mostly clerical types who probably weren't making much to start with. (One woman, an executive in an area that actually brought in business, took her retirement package and joined a competitor. The company was most unhappy!)

I had a coworker who joined us after early retirement followed by a loss of a chunk of their retirement funds due to his day trading. He worked part-time from home so it probably wasn't a bad deal for him; he was making good money again but had some flexibility in his schedule.
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Old 08-07-2014, 08:19 AM   #3
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We sold a good portion of our taxable investment account at the depths of the market low and refinanced our paid for primary home to buy and fix up a vacation rental. Now we will get to take a loss on the vacation rental assuming we can sell it.
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Old 08-07-2014, 08:25 AM   #4
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Subtract "We sold a good portion of our taxable investment account at the depths of the market low and" - and you have our situation. We bought the vacation rental in 2003 just as prices were heating up and mortage rates were going down. We've never gotten even vaguely enough in rent to pay for what the place costs to own, and we've never gotten to stay there ourselves. Plus, like all rentals, it is a perpetual worry. One of those "it seemed like such a good idea at the time" things. Also one of those "no risk, no gain" things, which are supposed to show you have confidence in yourself and all that!

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We sold a good portion of our taxable investment account at the depths of the market low and refinanced our paid for primary home to buy and fix up a vacation rental. Now we will get to take a loss on the vacation rental assuming we can sell it.
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Old 08-07-2014, 09:59 AM   #5
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Nobody that blew it in retirement, but some that did make it so they will never be able to retire.

Case 1.
Former co-w*rker. Her husband picker was broken. Two divorces from guys that had no assets. A large portion of her 401k was given to each, no prenuptials.

Case 2.
DWs former co-w*rker. He was an extremely intoverted man worked as a well compensated pharmacist in a distributor or lab setting. He gets fired, something about mishandled nuclear medicine. Never seeks another job in 6 years! Instead he tells her he's daytrading. She has no clue what that means and trusts him 100%. Finally he admits he's lost most everything. The last sum he cashes out, goes to the casino, comes home with nothing. They're now homeless.

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Old 08-07-2014, 11:26 AM   #6
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I have met many early retirees while traveling around the world. I met a few who panicked in 2008-2009 and sold many/most equities as the stock market was crashing and did not get back in the market in time. They are either no longer retirees or dealing with a permanently lowered standard of living.
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Old 08-07-2014, 12:07 PM   #7
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I can think of two tragedies, right off the top of my head...

1) Former coworker, who I worked with in the late 90's. He made a little more than me, but was also 13 years older. He was married, had two daughters. Lived in a townhouse. His parents lived in a single family home that was free and clear. Well, they decided to all move in together, in one big house with an inlaw suite. So, they had a big $400K house built in 1999, used the paid-off house as a down payment. Had no equity in the townhouse. Well, as home values went up, they kept cashing out equity, buying frivolous toys...antique cars, trading the new vehicle way too often, putting in a heated pool, etc. I found out later that they were getting a lot of their money from his father, who was a retired Chrysler exec, and pretty well-loaded. Well, the father passed away, and it turns out the mother wasn't as loose with the purse strings. He took on a second job that was practically full-time. Wife, who was collecting disability, was watching kids under the table (not literally ), yet despite all their efforts, they couldn't afford to keep up the payments.

They lucked out though, sold the house for about $660K. had just enough equity to get into a smaller, cheaper house for around $270K, and pretty much get out of most of their debt. They had learned their lesson. Or so it seemed. They bought a Dodge Ram Hemi, which he used for his ~80 mile round trip commute to work. Got tired of it, and bought a Chrysler 300C. Bought His & Hers Harleys, but hers didn't fit, so they traded them for something else. Then, he had a stroke, had to go out on disability. They sold the house, moved to Appalachia and are living in the boonies down there somewhere. Dunno what happened to the tightwad mother; she moved out and the family pretty much cut her off.

Now, I guess chances are, he would have had a stroke no matter what, but who knows? I'm sure the stress of pulling down two full-time jobs, and trying to manage all that debt will take its toll on you eventually. I pulled down around 80 hours per week for awhile after my divorce, but I started cutting back after about a year. And I was in my 20's when I did it. This guy was in his mid/upper 40's when he had to start it.

Ironically enough, my grandmother met this guy once, and he made a good first impression on her. She told me that I should do my damndest to learn everything I could from him...she had a feeling he'd be successful and would be going places. Well, in a way, I did learn a lot from him, and the mistakes he made. I learned NOT to be like him! Now that I think about it, at the age of 44, I'm now the same age he was, when his father took sick in 2001, which would ultimately set off the downward spiral. Even back then, I had a feeling something was up. We were supposed to go to a classic car show together, but he said he couldn't make it. But, he asked me to take his entry ticket, and drive his '66 Charger up to the show anyway. And, if anyone was interested in buying it, to get their number. This guy wanted a '66 Charger for as long as I'd known him, and only had this one about a year. So, I knew something was up, if he was thinking of selling it already.

2) There's a lady at work, who's finally retiring. I'm not sure how old she is, but I'd guess lower 60's. I used to work with her on another project, but haven't interacted with her regularly now in about 5 years. Well, even back then, we used to talk about retiring. Her husband was already retired. They bought a used motorhome, and had already taken a lot of trips together, but were looking forward to a life of leisure and travel, once she retired.

Well, about a year and a half ago, her husband up and died! So, there went their dreams of spending their golden years together.

I think case #2 here is the real wakeup call for me. With #1, I could see the trainwreck coming for a long time, and, if nothing else, he and his wife are still together. And, in a roundabout way, retired. Or, at least, not working. But with co-worker #2, it really drove home the point to me that, it's later than you think!
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Old 08-07-2014, 12:20 PM   #8
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Our neighbor, who always considers herself as being the smartest person in the room, proudly announced---on Feb 23, 2009 (!!) that she had "sold everything I have in the stock market".... she never got back in.
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Old 08-07-2014, 12:21 PM   #9
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Andre - I've seen many friends like your case #1. Not really retirement mistake - other than you can't ever get to retirement.

I saw a *lot* of cash out refi's in the early/mid 2000's for lifestyle upgrades... New pools, expensive vacations, fancy cars. It's hard for a lot of people to live within their means, let alone below their means.
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Old 08-07-2014, 12:23 PM   #10
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Death, sickness, divorce. Some of these are semi-preventable or delayable, but not always. Still an interesting part of the discussion.

But the other dumb stuff is what I'm really interested in. I see three mentions of "day trading." That's an interesting trend. I'm wondering if it isn't an excuse for a gambling problem in reality.

We like to argue or discuss the mortgage vs. payoff situation. Opinions differ, and that's fine. But another trend I see here is taking out second mortgages to buy other stuff, usually toys. That doesn't seem too smart to me.
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Old 08-07-2014, 12:35 PM   #11
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Apparently it's becoming hard for people over 50-55 or so to find work in certain professions, than it was when they were younger.

Because of that, I think that for many of us it would be a mistake to retire with a less than optimal retirement income, with the idea of working a little if necessary to supplement it.
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Old 08-07-2014, 01:00 PM   #12
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Apparently it's becoming hard for people over 50-55 or so to find work in certain professions, than it was when they were younger.

Because of that, I think that for many of us it would be a mistake to retire with a less than optimal retirement income, with the idea of working a little if necessary to supplement it.
i have a friend who's starting to find this out. He's 49 now, but I think he's afraid of the coming years. He's been trying hard to look and act younger...dying his hair, and his facial hair. Going for that Maynard G. Krebbs look, with just a goatee, but no mustache. Something you'd expect on a younger person, for the most part. Buying this crap that you spread on your face and then take this thing that looks like an electric razor, but it sends a slight electric charge into you, which supposedly takes away wrinkles.

I didn't make the connection at first, but he got passed over for a promotion, and now has to answer to a younger guy, and he's not liking it. He also made a comment "The world has no place for old people", which again, I didn't make the connection at first. But, I think he's in the process of being squeezed out at work. He can be very stubborn and argumentative, and is good at alienating people, but not so good at stepping back, seeing the big picture, and how he's affecting people's perceptions of him. I'm getting the feeling that his company might be looking for some fresh blood, and sensing he's yesterday's news.

This guy makes about twice what I do, but lives a much more extravagant lifestyle. I don't know how much he has saved up, total. He had about 300,000 in his 401k in May of last year. I only know this because I had been getting on him to check his retirement plan and rebalance it, in case anything was getting out of whack, and he logged onto it one day, and asked me to check it out for him. So in theory, I guess he could have about $400K by now, maybe a bit more? But, at the same time, he probably owes about $350K or more on a condo that also carries a $500/mo mortgage. Plus property taxes. And he lives in DC, where nothing is cheap...not groceries, booze, eating out, etc.

I have a feeling that if he gets squeezed out of his company, he's going to have a hard time finding a comparable salary. And that's one thing that brings me back down to earth, when I get those wild burrs under my saddle. Even though I'm not all *that* highly paid, if I was to quit, I wouldn't be able to find another job at this salary level that's so close to home, has flexible hours, and an easy workload.

**and yeah, I know I'm making myself sound old by referencing Maynard G. Krebbs...
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Old 08-07-2014, 01:11 PM   #13
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Close friend of mine was a HR VP for Anadarko. He retired at 55 and got a nice lump sum. I don't know how big, but probably 2 million or so. This was ~2004 or so and he was living "Big". Routinely bragged about 2 week vacations in Scotland playing golf, etc, had kitchen upgraded @ $70K, new car(s), trips to Vegas, personal trainer, etc. Had a FA that told him to "sell" all mutual funds in early 2009 and he said he lost 1/2 million. Sucks!

Then, after market comes back, FA talks him into a variable annuity for 1/2 Million. So he meets us (the old guys at Burger King) for our daily breakfast and announce this VA purchase. You could have heard a pin drop. One astute fellow in the group (retired CPA) asks him what the internal rate of return is of the VA? (deer in the headlights look)....

Well, he still has enough left, and DW is a retired teacher, but no more high on the hog spending.
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Old 08-07-2014, 01:20 PM   #14
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"Big mistakes in retirement"

It seems to me many of the tales told in previous posts had their seed of sorrow planted during the culprits' working years. The results only surfaced in retirement with the income drop.
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Old 08-07-2014, 01:43 PM   #15
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But the other dumb stuff is what I'm really interested in. I see three mentions of "day trading." That's an interesting trend. I'm wondering if it isn't an excuse for a gambling problem in reality.
You think there is a difference between gambling at the casino, after-hours club or online as different from day-trading. Behavioral reactions and chances of coming out ahead are probably similar enough that it can be considered more or less the same thing I would think.
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Old 08-07-2014, 01:49 PM   #16
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Originally Posted by W2R View Post
Apparently it's becoming hard for people over 50-55 or so to find work in certain professions, than it was when they were younger.

Because of that, I think that for many of us it would be a mistake to retire with a less than optimal retirement income, with the idea of working a little if necessary to supplement it.
+1

Age discrimination is a reality. I know several people who had to work and none of them made much above minimum wage. Getting a good paying job (part or full time) in their area of expertise was very difficult if not impossible.
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Old 08-07-2014, 01:57 PM   #17
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I'll add two stories:
#1.) A coworker about my age bemoaned the fact that she will have to work until she is 66. Apparently, they have a huge mortgage on their house that they have owned for over 20 years. Yup, they refinanced several times to pull money out and take advantage of the appreciation. So, now, instead of having a trivial mortgage that they will pay off soon, they have a huge mortgage and they were (maybe still are) underwater on the house.

#2) I've mentioned this guy before. He spent money on just about every imaginable piece of junk. His retirement plane was simple. He planned to inherit his uncle's gold coin collection which back then was worth about $50,000 at most. You can imagine the rest.
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Old 08-07-2014, 02:12 PM   #18
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Originally Posted by W2R View Post
Apparently it's becoming hard for people over 50-55 or so to find work in certain professions, than it was when they were younger.

Because of that, I think that for many of us it would be a mistake to retire with a less than optimal retirement income, with the idea of working a little if necessary to supplement it.
Yes, for many professions, that is probably a reality. BUT.....if you can spell "Oil" (O..I..L) and show up sober, you can find decent work at any age in Texas, Oklahoma, North Dakota, Wyoming, Montana, New Mexico, Colorado, Canada, and Louisiana.

(If you have a commercial drivers license, you can sign on with a crude oil or water hauler and make near, at or over $100K per year.)
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Old 08-07-2014, 02:12 PM   #19
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Worst almost-retired mistake: Building a retirement home rather than buying used.

We were planning on retiring early next year, this is now in doubt.

  1. Step 1: Write out detailed description of house; square footage, systems, finishes, rooms, room sizes, etc. This is called programming by those of us in building construction.
  2. Step 2: Set budget of X for lot, 3x for house, total budget 4X.
  3. Step 3: Wife falls in love with lot costing 2X, insist on purchase.
  4. Step 4: Deed restrictions for house require building size 16% bigger than planned. Agree to build 500 SF air conditioned closet in attic space to account for extra unwanted space.
  5. Step 5: Discuss building cost with 4 reputable builders, based on programming. All builders give cost of 4.2X to 4.4X (remarkable consistency). House is bigger than we expected, so we swallow additional cost.
  6. Step 6: Purchase Lot.
  7. Step 7: Draw up plans for house. No changes from original programming except 500 SF closet in attic.
  8. Step 8: Get project bid by builder. Did we say 4.2X? Actually, we meant 5.1X. Sorry, our bad.
  9. Step 9: Wife says don't worry, I am going to pick out very modest selections, the cost will go down. Pick out selections. Cost comes back at 6X.
  10. Step 10: Talk to second builder. Cost is 5.5X, slightly less than original builder. Decide to stick with current horse, as he has a great reputation, clients love him, he has been in business for a long time, and his houses are awesome (at this point I have watched about four being built).
  11. Step 11: Given the progression of cost from builder, recognize there is no way cost will stay the same once the bid is signed. I wise up and closely analyze the bid for stuff that is not included but will have to be added to make the site livable (landscaping, fence, media room equipment, etc). Cost is now 6.5X, total project cost 8.5X. Original budget 4X.
  12. Step 12: Try to remove cost from project; wife has new house smell and does not want to remove anything except some modest upgrades, removing about 0.2X. She is emotionally bound to the decisions that have already been made. Builder supports wife, saying we would be "crazy" to build anything less in the area, given how nice it is and how valuable out house is going to be.
  13. Step 13: Check comps in the neighborhood and find the house will cost 40-50% more than current sales prices ($220/SF vs. $160-180/SF). Our original budget was $174/SF (house plus lot). Builder says our house will be so nice and so awesome that it will still sell for cost of construction. At this point, builder has zero credibility, and I react poorly to this advice. He backs down and states that "it might take the market a year or two to catch up with the cost.".
  14. Step 14: Tell wife we need to sell lot and start over. Wife reacts poorly. She is ready to start nesting in new house tomorrow.
  15. Step 15: This is where we are at now. We have 9 months and 30K in the project (design fees, lot purchase commission, etc). I want to walk, my wife wants to build, compromise appears impossible.
I am just unloading/whining; this is really a first world problem. However, if we move forward, I am going to have to work an additional 1.0 to 1.5 years.
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Old 08-07-2014, 02:20 PM   #20
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Ouch. My sincere sympathies and thanks for re-enforcing my belief that I could never, ever cope with building a house for myself.
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