The FIRE uncertainty principle

[atmsmshr]

The more I read about financing retirement the less I know. Every time over the past two years something starts to click, a new or completely unknown perspective pops up. Its like the Heisenberg uncertainty principle of my nightmares; every retiree has different circumstance and desires, and the financial advisor community has a dozen solutions for each variable.

I now understand why some pay to put their trust in a financial advisor, but I'll be darned if we are going to pay 1% p.a. on top of low index fund costs and transaction costs.

Please point out any omissions from the topics shown below so I can read up on new topics and confuse myself further:

• When to retire and how much do we really need (depends on our budget and spending habits)
• Do we plan for a legacy, or if it happens that is just a nice thing for the kids
• When is the best time of year to retire (after annual bonus for me)
• Pension or lump sum annuity with joint survivor (a 6.4% payout on an overfunded plan makes it an easy choice)
• Healthcare before 65 (lucky to have a retiree medical vested)
• Healthcare after 65 (don't have a clue yet)
• Long Term Care planning (To insurance or self insure is the question - DW is disabled)
• When to collect Social Security, 67 or 70?
• Payoff the mortgage (at 3.125% we are carrying that one to the grave)
• Which withdrawl rate strategy to use (currently favoring Boglehead VPW tweaked with minus 0.5% of age but changing my mind monthly)
• Do we use Megacorp matching funds for Net Unrealized Appreciation for capital gains (voting yes on that one)
• Defining the optimum Roth conversion strategy
• Tax optimization strategy
• To use or not to use changing spending patterns in retirement for planning
• Optimal asset allocation (leaning towards 70/25/5 considering we will have a safe floor covering 90% essential expenses)
• QLAAC or no (leaning towards no)
• How to invest the Social Security bridge (TIPS seem like a good idea)
• What amount to save for the Fickle Finger of Fate?
• What else to get DW for Christmas??

Dilly Dilly,

Atom

 

[Big_Hitter]

sounds like you should read some steve vernon?

https://www.retirement-resource-center.com/training-and-consulting/presenters/steve-vernon

 

[REWahoo]

It's the Rumsfeld conundrum:

...there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.

You'll never know all you don't know.

 

[Big_Hitter]

the big known unknown, for most of us anyway, is time until death

 

[MRG]

It's the Rumsfeld conundrum:



You'll never know all you don't know.

+1

It's much worse to think you know what you don't know.

Knowing you don't know what you don't know is less dangerous.

YMMV

 

[atmsmshr]

the big known unknown, for most of us anyway, is time until death

Forgot to add to the list when the reaper shows up. Probably subliminal editing.

 

[braumeister]

Don't forget the Will Rogers quote:

It isn't what we don't know that gives us trouble, it's what we know that ain't so.

 

[NW-Bound]

It's the Rumsfeld conundrum:

...there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.

You'll never know all you don't know.

Don't forget the Will Rogers quote:

It isn't what we don't know that gives us trouble, it's what we know that ain't so.

What gets us is either what we do not realize that we do not know, or what we think we know, but don't.

And then, there are unknowable things too, like when we are going to croak.

Are there other words of wisdom that I do not know? Probably a lot.

 

[Marita40]

Yes, your list sums up the million things I think about too as I move toward retirement. I'll just add what amounts to my first-ever post on this forum:

--how to get over bag lady syndrome

 

[Midpack]

You can read all you want, but you'll never wrestle all the unknowns to the ground, so why bother, why worry? I am not suggesting you don't bother reading, that may be what it takes for you to recognize what you can plan for and what to do about those things you can't. It took me of lot of reading and thinking for me to be at peace with retiring, but I've not had any regrets yet.

There will be uncertainties, so you plan for the worst you can imagine, and take the leap. That's where SWR comes from. If you're convinced the future will be worse than last 140+ years and can't sleep at night with a 95% probability of success, don't retire until you reach 100-200% (save/invest more and/or spend less) or whatever it takes to get you comfortable.

The odds you'll get everything right to "optimize" your financial retirement are very slim. As they say 'don't let the perfect be the enemy of the good.' And there's WAY more to retirement than just the financial aspect, or there should be IMO.

And your list doesn't account for adjustments along the way. For example, whatever withdrawal method you choose, you'll want to re-evaluate over the course of your retirement as you may have to adjust up or down. It could go worse than you expect, but you could be pleasantly surprised too - imagine that!

Life is uncertain before you retire, that doesn't change once you do. Worry about things you can change, and plan for things you can't - that's all any of us can do.

 

[atmsmshr]

To know some of the unknowns and take reasonable steps is what spurs me to read on about retirement finances.

Our parents are at opposite ends of the scale - Prefer to have DW and I somewhat in the middle of the fairway. Both sets of parents dislike the stock market for different reasons.

My parents lived a frugal lifestyle and as a teacher and nurse joined the double comma club. Whole Life insurance and more recently CDs are their friend.

In laws lived it up grandly and now FIL works as a Walgreens cashier at age 83. Too high a withdrawal rate and lost his portfolio in 2010.

On the other hand, we just held a celebration of life last week for a dear friend who was 2 years younger.

DW says whatever date I choose we will make it work.

Maybe I just need to listen to her.

 

[SecondCor521]

Please point out any omissions from the topics shown below so I can read up on new topics and confuse myself further:

...

Dilly Dilly,

Atom

First, your list is pretty darn complete, so I think you're doing a good job.

Omissions I see when comparing it to my plan and retirement:

1. What are you going to do all day? Make a list of things you want to do. You'll end up doing different stuff anyway, but if you get bored you can just go to the list and pick something.
2. Since your DW is disabled, you should have a specific plan for her care if you die first. Mostly I'm thinking financial and medical here.
3. Backup plans. It gives me great comfort to know that I have a trigger and backup plans. If things go to far south, I already have thought through what I will do in a fair degree of specificity.
4. Make sure your will, power of attorney, living will, and those sorts of documents are in place.
5. If you have kids, your plans for them financially after you retire - are you going to help with college, weddings, cars, houses?

Going through the list you gave, first it seems like you've already thought through and made decisions on various items. Many of the rest come down to personal choice. If it's helpful, here's what my answers are for your list on the ones that you haven't made a decision on. Of course, my situation and goals are different.

• When to retire and how much do we really need (depends on our budget and spending habits) - 25 times current expenses as tracked in Quicken over a six month or longer period, adjusted upward and downward for items that I knew would increase or decrease, which for me included child support and income taxes.
• Do we plan for a legacy, or if it happens that is just a nice thing for the kids - Personal decision. Nice if it happens. I'm conservative so there will likely be a fair amount left, but I don't let that drive my financial decisions at all.
• When is the best time of year to retire (after annual bonus for me)
• Pension or lump sum annuity with joint survivor (a 6.4% payout on an overfunded plan makes it an easy choice)
• Healthcare before 65 (lucky to have a retiree medical vested)
• Healthcare after 65 (don't have a clue yet) - Me neither, but I loosely believe Medicare plus a supplement will work for me since it seems to be working very well for my Dad.
• Long Term Care planning (To insurance or self insure is the question - DW is disabled) - I self insure via assets and a paid off house.
• When to collect Social Security, 67 or 70? - 70 unless the market is tanking badly any time in the few years before then.
• Payoff the mortgage (at 3.125% we are carrying that one to the grave)
• Which withdrawl rate strategy to use (currently favoring Boglehead VPW tweaked with minus 0.5% of age but changing my mind monthly) - I follow the Taylor Larimore method mentioned here: http://www.early-retirement.org/for...drawal-strategy-thread-85413.html#post1838777
• Do we use Megacorp matching funds for Net Unrealized Appreciation for capital gains (voting yes on that one)
• Defining the optimum Roth conversion strategy - Convert up to and including paying 20% on any conversion amounts. Prioritize conversions over LTCG harvesting.
• Tax optimization strategy - Too vague, but in general I like living very simply on a fairly low income and paying no taxes.
• To use or not to use changing spending patterns in retirement for planning - I use FIREcalc and others which have the ability to enter in changing spending patterns and use those features to check surviveability of my spending levels, aiming for at least 95% success. I only enter items that are significant relative to my overall budget (child support ending, Social Security starting, etc.)
• Optimal asset allocation (leaning towards 70/25/5 considering we will have a safe floor covering 90% essential expenses)
• QLAAC or no (leaning towards no)
• How to invest the Social Security bridge (TIPS seem like a good idea)
• What amount to save for the Fickle Finger of Fate? - I saved to 25x expenses then kept working another two years. The BS bucket filled up and I left.
• What else to get DW for Christmas?? - I have no clue. More presents are usually better.

Good luck!

 

[4legsgood]

Growing up in a predictable financial situation (Dad was a fireman, early retirement, livable pension that included COLA, health insurance and forever long term care), I've been very ill at ease trying to figure out 401k retirement on my own.

I kind of envy the retired people I know who have an advisor, though I feel like I know better. They have faith, feel like they are safe, and don't worry. Me, I will reach an age at some point and buy a SPIA, and until then...worry the market.

Thank goodness for forums like this one!

 

[racy]

And, don't forget Yogi Berra's quote:
"You’ve got to be very careful if you don’t know where you are going, because you might not get there".

 

[4legsgood]

...In laws lived it up grandly and now FIL works as a Walgreens cashier at age 83. Too high a withdrawal rate and lost his portfolio in 2010. ...

I know this is supposed to sound terrible, but he's 83 and able to do this job, pretty impressive.

 

[USA]

I’m two years into RE and it looks like the list of questions/thoughts are good. Answers are individual. DH is also FIRE and we spent some time in September at Coste d’Esta in Vero Beach, FL. Sweet spot, but I may have seen your FIL. Before I made the decision to RE, I was overthinking it.

 

[l8_apex]

I think Midpack already captured my thoughts pretty well.

I would only emphasize: Figure out you current budget by tracking all expenses for a couple of years. Then create your budget post retirement (adding in new hobby costs, one time costs like a new roof, etc. and of course removing expenses that won't occur) Then figure out how much of a nest egg you'll need to do that, then add as much padding as makes you comfortable.

You can dive a lot deeper, but what really is the purpose in doing that? You can't prepare for every contingency, so don't go off the deep end trying to do it.

I didn't include a lot of 'padding' in my numbers as I know I can cut back on my lifestyle. I personally preferred to get out of the workforce asap, and if a strong economic downturn happens, I'll reduce my lifestyle expenses and not regret it. If you love your j*b, you may see things differently.

Pretty much everybody that I worked with that are in my age range (I'm 49) haven't retired. I know a few of them well enough to know that they've got the savings to retire now, but none of them want to. I don't understand that mentality, but it's the majority opinion of the folks that fit that demographic.

 

[atmsmshr]

Omissions I see when comparing it to my plan and retirement:

1. What are you going to do all day? Make a list of things you want to do. You'll end up doing different stuff anyway, but if you get bored you can just go to the list and pick something.
2. Since your DW is disabled, you should have a specific plan for her care if you die first. Mostly I'm thinking financial and medical here.
3. Backup plans. It gives me great comfort to know that I have a trigger and backup plans. If things go to far south, I already have thought through what I will do in a fair degree of specificity.
4. Make sure your will, power of attorney, living will, and those sorts of documents are in place.
5. If you have kids, your plans for them financially after you retire - are you going to help with college, weddings, cars, houses?

Going through the list you gave, first it seems like you've already thought through and made decisions on various items. Many of the rest come down to personal choice. If it's helpful, here's what my answers are for your list on the ones that you haven't made a decision on. Of course, my situation and goals are different.

• When to retire and how much do we really need (depends on our budget and spending habits) - 25 times current expenses as tracked in Quicken over a six month or longer period, adjusted upward and downward for items that I knew would increase or decrease, which for me included child support and income taxes.
• Do we plan for a legacy, or if it happens that is just a nice thing for the kids - Personal decision. Nice if it happens. I'm conservative so there will likely be a fair amount left, but I don't let that drive my financial decisions at all.
• Healthcare after 65 (don't have a clue yet) - Me neither, but I loosely believe Medicare plus a supplement will work for me since it seems to be working very well for my Dad.
• Long Term Care planning (To insurance or self insure is the question - DW is disabled) - I self insure via assets and a paid off house.
• Which withdrawl rate strategy to use (currently favoring Boglehead VPW tweaked with minus 0.5% of age but changing my mind monthly) - I follow the Taylor Larimore method mentioned here: http://www.early-retirement.org/for...drawal-strategy-thread-85413.html#post1838777

• What else to get DW for Christmas?? - I have no clue. More presents are usually better.

Good luck!

SecondCor521

Items 1 and 2 are covered. DW is not financially inclined and I worry about shuffling off before her so developing a strategy for her in writing. However, 3, 4 and 5 are only hazy notions. Good prompt.

Thanks for the link to Larimore.


Atom




Gotta sneak out for another present

 

[atmsmshr]

I think Midpack already captured my thoughts pretty well.

I would only emphasize: Figure out you current budget by tracking all expenses for a couple of years. Then create your budget post retirement (adding in new hobby costs, one time costs like a new roof, etc. and of course removing expenses that won't occur) Then figure out how much of a nest egg you'll need to do that, then add as much padding as makes you comfortable.

You can dive a lot deeper, but what really is the purpose in doing that? You can't prepare for every contingency, so don't go off the deep end trying to do it.

I didn't include a lot of 'padding' in my numbers as I know I can cut back on my lifestyle. I personally preferred to get out of the workforce asap, and if a strong economic downturn happens, I'll reduce my lifestyle expenses and not regret it. If you love your j*b, you may see things differently.

Pretty much everybody that I worked with that are in my age range (I'm 49) haven't retired. I know a few of them well enough to know that they've got the savings to retire now, but none of them want to. I don't understand that mentality, but it's the majority opinion of the folks that fit that demographic.

Good advice.

Fortunate to have decent j*b. But at 56, once I get off the merry go round I don't want to consult or contract. That's probably the driver for finding the right 'number' and where the lifestyle padding comes into play.

Like Marita40, I also have the recessive gene of irrational fear for living under a bridge with DW as a bag lady.

 

[Scuba]

One option that might give you peace of mind is to hire a CPA or FA on a one-time, fee only basis to validate your modeling/thinking and help ensure you’ve thought of “everything.” Cost is much less than an ongoing AUM arrangement and you would likely get some value from it. I viewed ER as an irrevocable decision, knowing that I was giving up mid six figure comp forever, so it was worth it to me to have multiple sources review our specific details and confirm we had a solid plan.

 

[W2R]

[*]When to retire and how much do we really need (depends on our budget and spending habits) Keep track of your spending. Once you know how much you need, it will probably take you about 1 second to decide on a retirement date. I'd suggest picking a backup date just in case.


[*]Do we plan for a legacy, or if it happens that is just a nice thing for the kids I pretty much just had/have a rough idea. Beyond that, it seems to be taking care of itself.


[*]When is the best time of year to retire (after annual bonus for me)
This one is easy. The best time of year to retire, is the first day when you can retire and support the standard of living you plan on having. Don't work a day longer! So what if you leave money on the table - - don't let greed take the rest of your life away from you when you already have enough.


[*]Pension or lump sum annuity with joint survivor (a 6.4% payout on an overfunded plan makes it an easy choice)
Yep, sounds easy. So you've pretty much got this figured out IMO.


[*]Healthcare before 65 (lucky to have a retiree medical vested)
This is a big deal. Good thing you already have it taken care of.


[*]Healthcare after 65 (don't have a clue yet)
This needs to be studied. For me, my federal retiree health insurance converts so that it supplements Medicare, now that I'm older.


[*]Long Term Care planning (To insurance or self insure is the question - DW is disabled)For me, this was easy. My mother had a great LTC policy with a highly regarded company, and they refused to pay a dime once she needed it and was eligible. Finally her grandson (a hotshot NYC lawyer) leaned on them and then she was magically able to collect. I don't have anyone to advocate for me so I'm self insuring. In your case, you might want to bring a trusted attorney into the picture due to your wife's disability.


[*]When to collect Social Security, 67 or 70?
Why not keep that time frame in mind, and then decide when you are 67? Your decision may be influenced by whether the market is good or bad.


[*]Payoff the mortgage (at 3.125% we are carrying that one to the grave)
See? You already decided on several of these issues.


[*]Which withdrawl rate strategy to use (currently favoring Boglehead VPW tweaked with minus 0.5% of age but changing my mind monthly)
I like the one where you take a percentage of your 12/31 portfolio on 1/1, and then rebalance. Simplicity is a Big Deal to me when it comes to withdrawing from my portfolio.


[*]Do we use Megacorp matching funds for Net Unrealized Appreciation for capital gains (voting yes on that one) Luckily it sounds like you decided.


[*]Defining the optimum Roth conversion strategy


[*]Tax optimization strategy You can work on this issue and the last after you retire.


[*]To use or not to use changing spending patterns in retirement for planning Just be realistic. That is what is important. I did not plan to spend less as I age because being old is bad enough without being short of money.


[*]Optimal asset allocation (leaning towards 70/25/5 considering we will have a safe floor covering 90% essential expenses)Yet another decision that has been made, of many in the list that you have already taken care of.


[*]QLAAC or no (leaning towards no) I have no idea what that is.


[*]How to invest the Social Security bridge (TIPS seem like a good idea) Yep, sounds good. Yet another decision already made.


[*]What amount to save for the Fickle Finger of Fate? "“You’ve got to ask yourself one question. Do you feel lucky? Well do ya punk?!” - - Clint Eastwood, in Dirty Harry


[*]What else to get DW for Christmas??
Diamonds are a girl's best friend.

Basically it sounds like you have already thought about most issues. I don't think anyone is ever given a "how to retire" handbook. We all sort of stumble along. For me, reading this forum every day for 2 years and 10 months before retirement, plus reading a half dozen books from the Bogleheads book list so that I felt more confident in my investment planning, provided me with all I needed.

We put a lot of thought and effort into deciding what town to live in after retirement, made up our minds, and then a year after we retired we changed our minds and stayed put.

 

[LOL!]

Jane Bryant Quinn's "How to Make to Make Your Money Last" covers many of the topics that were listed in this thread. The others probably aren't really that important for folks who don't worry too much by their very nature.

As long as you are not cutting it close, your portfolio will just go up so much every few years that you will be simply amazed.

 

[Independent]

Our unknown turned out to be financial support for relatives with health problems.

You may consider adding that to your list.

 

[jollystomper]

One option that might give you peace of mind is to hire a CPA or FA on a one-time, fee only basis to validate your modeling/thinking and help ensure you’ve thought of “everything.” Cost is much less than an ongoing AUM arrangement and you would likely get some value from it. I viewed ER as an irrevocable decision, knowing that I was giving up mid six figure comp forever, so it was worth it to me to have multiple sources review our specific details and confirm we had a solid plan.

+1

I am fortunate that Megacorp provides us with free access to financial planners. I have used them twice to check my retirement assumptions and plans, and that has been very helpful as a sanity check to ensure I had thought of all the bases to be covered.

 

[DrRoy]

It's not all financial. How do you think you will spend your time? Socialize?