Big mistakes in retirement

[athena53]

I expect my kids to be there for moral support only, am glad nothing else needed or expected. Good luck all.

Years ago, DS (my only child) told me he'd take me in when I got too frail to live independently. It warmed my heart when he made the offer, but at the time he was unmarried. That's a huge promise to make for you AND your future family! He's married now, with a wonderful wife and a new baby daughter. As I noted earlier, I may move nearer to them when I'm much older, but it will be a CCRC, and I hope they visit me a lot!

 

[bulbar]

Really good thread on retirement mistakes. I was considering retiring to a rural location but will think about one closer to hospitals, etc after reading this. I'm thinking of retiring to the Texas hill country and near the town of Wimberley. I think that's close enough to San Antonio. But my wife will probably want to stay in Houston, so maybe not. Either way we'll buy something used and small. I've made some big investment mistakes along the way but nothing like what i read here - day trading your retirement - wow. I am sick of working tho and wish i was closer to being able to quit. My advisor says we need $3mm. Maybe another 7 years but then i'll be 60....

 

[WestcoastRN]

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...

 

[bulbar]

You have to wonder who raised these people? Thankfully I had conservative financial parents I guess. My dad recently passed but had set up my mom well financially by never living above our means. I've only bought 1 new car in my whole life and that was when got my 1st job out of college. Even that made me nervous. Never had any debt except the house. I don't know how you could live any other way unless I guess you are loaded.

 

[Options]

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...

It could be said that two of the biggest mistakes in retirement, as in all financial planning, are overconfidence and confirmation bias. Brian Tracy has wisely advised to always consider the possibility that your most precious ideas and beliefs are flat out wrong. This advice has served me well over the years and continues to do so.

 

[Calico]

You have to wonder who raised these people? Thankfully I had conservative financial parents I guess. My dad recently passed but had set up my mom well financially by never living above our means. I've only bought 1 new car in my whole life and that was when got my 1st job out of college. Even that made me nervous. Never had any debt except the house. I don't know how you could live any other way unless I guess you are loaded.

I agree that sometimes fiscally irresponsible behavior is learned in the home, and then repeated. However, that is not always the case.

My father was a complete spendthrift; in debt most of his life, and died still owing money. At a young age I observed how he (mis)handled money, and then did the exact opposite my entire life. I learned what not to do from my parents.

 

[bulbar]

Good on you calico. I will say that my brother is loose with his money and has sizeable debt but then he's loaded. I just wish costs were not going up so much. Food, energy, you name it. Makes it that much harder to RE.

 

[robnplunder]

R I was considering retiring to a rural location but will think about one closer to hospitals, etc after reading this. I'm thinking of retiring to the Texas hill country and near the town of Wimberley. I think that's close enough to San Antonio. But my wife will probably want to stay in Houston, so maybe not. Either way we'll buy something used and small. I've made some big investment mistakes along the way but nothing like what i read here - day trading your retirement - wow. I am sick of working tho and wish i was closer to being able to quit. My advisor says we need $3mm. Maybe another 7 years but then i'll be 60....

Need $3 million to retire? Really? I didn't know living in Texas was so expensive. I am thinking $2M is enough for retiring in Northern California with good balanced portfolio. Perhaps, you can open a thread to have RE.org members to weigh in on your situation if you are so willing.

 

[Calico]

Good on you calico. I will say that my brother is loose with his money and has sizeable debt but then he's loaded. I just wish costs were not going up so much. Food, energy, you name it. Makes it that much harder to RE.

I know what you mean. I have two siblings, and neither one knows how to hold on to a dollar (and they are not loaded). Funny how siblings raised in the same house can turn out so differently. There are threads on this forum about that very subject.

 

[Walt34]

Retirement mistake part II in the making...

I've often wondered about this and other strange behavior that flies in the face of even loose logic and grade-school arithmetic by otherwise apparently normal and reasonably intelligent people. If you're curious about people's behavior then law enforcement is a good career because you get a front-row seat to some of the weirdest.

Anyway, I've tentatively concluded that with rare exceptions (and present company excluded of course) people are nuts and no amount of analysis will ever determine why.

 

[haha]

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

 

[Amethyst]

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...

Amethyst

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

Ha

 

[Rustic23]

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.

 

[haha]

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...

Amethyst

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.

Ha

 

[samclem]

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.

 

[haha]

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.

 

[samclem]

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.

 

[haha]

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

 

[samclem]

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.

People are very defensive about things that are important to their survival or comfort.

I'm done on this issue, thanks.

 

[Andre1969]

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!

 

[SoClose]

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.

 

[meierlde]

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.

 

[WestcoastRN]

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.

 

[Katsmeow]

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.

 

[2B]

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.