"Dabbling" in the stock market

[Nords]

1. No. Unless you find the stock market absolutely fascinating, don't change your investment allocation just because you feel compelled to do so. Some of us enjoy doing so-- some of us even make money at it-- but if you enjoyed it then I suspect that you'd already be doing so.

Raising your allocation to stocks would theoretically allow an (otherwise undercapitalized) portfolio to generate more returns. However that certainly raises volatility risk. With a third of your 401(k) locked up in the company, you have more than enough single-stock risk without taking on volatility.

2. Roll the 401(k) over to an IRA when you retire and strongly consider divesting yourself of the company stock for a more diversified portfolio. (If you wanted more exposure to the stock market, this would be the place to do so.) Rolling to an IRA will also probably reduce your investment's annual expenses. You can also withdraw more easily from an IRA using 72(t) rules until you're over 59.5 and (I think) have done so for five years. But 72(t) can be incredibly complex and should be attempted only with professional advice (some of which can be found here).

3. Will your spouse collect a pension? Are you including medical/long-term care expenses in your $5.4K/mo? When you try FIREcalc with your portfolio, reduce the expenses until you're warm & fuzzy. Then see if you could live on those expenses.

 

[mickeyd]

Re: Hi, Snowbird here...

Hey Snowbird,

Sounds to me like you have a well thought out retirement plan there.  I especially like the fact that about $40k of your needed $65k annually comes from pension/ss.  In addition your wife's SS will be about $7k. This is about 80% of your expenses.

Does you spouse also have a pension? If so, this will boost the above numbers.

Your IRA/401k/403b assets only have to produce about 20% of your $5.4k monthly expenses.

You say that you can rollover the 401k when you retire however I am confused about the company stock.  Are you saying that you can rollover your 401k BUT not the company stock part?  This doesn't make sense to me.  You might want to review this with your 401k administrator as it seems questionable.

As for getting into the stock market, I assume that you are refering to individual stocks rather than mutual funds.  Do not feel obligated to begin buying individual stocks unless you are comefortable with this aspect of investing.  There are thousands of excellent mutual funds out there that will give you diversified positions without giving you the added risk that individual stocks present to the novice investor.

If you do not need the 401k money to live on, I would recommend rolling it over to an IRA with a no-load family like Vanguard, TR Price or Fidelity. They all have many funds to select and their web sites have sections that will assiest you in determining asset allocation etc. I use Vanguard and have been very satisfied with their costs, variety of funds and customer service (things that are important to me).

 

[Brat]

Re: Hi, Snowbird here...

There are tax considerations with employer's stock that were held in a 401k. I don't know what they are, but the holdings are $$ it is a matter to research with a tax professional before doing anything.

 

[snowbird]

Re: Hi, Snowbird here...

Nords, mickeyd & Brat,

Thanks for the info. Based on the info/questions you guys had I updated the original note to provide additional info. That way anyone else who responds will have the updated info in one place.

Nords, I will take your advice if I roll over to an IRA and do my dabbling there and reduce my company stock investiment. It has been pretty good to me over the years but I'm not likely to keep 30% in it. Probably more like 5-10% unless I select a mutual fund that carries Aerospace holdings. I also noted that I have included additonal $$$ for medical & long term care ins.

mickeyd, the rollover would be a complete rollover to an IRA including the company stock. Wife has no pension. I would rather invest in mutual funds and would appreciate any suggestions to get my feet wet. I do feel I will need to dip into my 401k or rolled over IRA as soon as I retire cause I don't think I'll have enough. I'm worried about ages 55-61 before I start collecting SS.

Brat , I will check with my 401k administrator about the company stock in the 401k and what tax implications there are.

Again, thanks guys for the quick feedback.

Snowbird

 

[Telly]

Re: Hi, Snowbird here...

Snowbird,

I fed your situation into FireCalc, and only got 80% probability of success.

I set your Withdrawal to 50K (assumed you and spouse work for a combined income of 15k a year from age 55 to 60), rather than the 65k withdrawal you need.
Added 401k/403b/MM for the portfolio amount.
Lifespan to 40 years.
14k SS for you at 7 years, 7k SS for wife at 8 years.
Reduced your withdrawal by the annual pension amount (negative number) starting at year 0, no inflation adjustment.
Boosted your withdrawal in year 5 by positive 15k, inflation adjustment on, for quitting part time work in 5 years.
I sold your condo in year 20 for a little bit more than what you paid, but it inflation adjusts for the future (assumption the real estate does not appreciate higher than the iflation rate).
I put you into a 60/40 stocks to commercial paper, .5% costs.
CPI.
First year withdrawal.
Set for 100% and ran it.

My $.02 guess is: Your desired withdrawal amount is high vs. your portfolio; That your pension that looks good in the beginning, gets eaten away by inflation. The low start portfolio (in relation to your desired income) is not big enough to make up for the declining pension.

I would suggest keep playing with FireCalc, and maybe revisit your desired income amount. And maybe... urk!... work another year, or two??

 

[snowbird]

Re: Hi, Snowbird here...

Telly,

Thanks. I hate to but it looks like I may have to put off ER for at least another year.

I've lost a father (52), brother (50) and sister (47) to heart disease and my oldest brother (58) just had a heart attack and stroke two weeks ago so I don't think I need to plug in a lifespan of 40 years. I'll use 30 max and see if it brings my odds up a bit. I hate to reduce the desired income if I don't have to.

Thanks again for your help and suggestions.

Snowbird

 

[unclemick]

Re: Hi, Snowbird here...

Wow

Snowbird - from your last post, it sounds like financial is the lesser problem of your ER plan. ? Have you researched any 'radical' diet,medical, exercise, or other lifestyle methods to increase your ER span? Enjoyable ones that is.

 

[snowbird]

Re: Hi, Snowbird here...

unclemick,

I try to stay in pretty good shape. Still play shortstop on my softball team (13 for 15 last 3 games with about 6 triples and an inside-the-park homer!!!).

I need to get away from the stress of everyday work, lay back and smell the roses for awhile in our new home (w/pool) and then maybe find some part-time work or volunteer somewhere. The only headache I should have after ER is getting back and forth from CT to FL with the wife, dog and 2 cats.

I haven't been thru all the postings in this forum and I'd like to know if anyone has ER'd with a similar situation and with around a 80% probability from FireCalc.

Thanks,
Snowbird

 

[unclemick]

Re: Hi, Snowbird here...

Snowbird

When I ER'd in 1993 - the only guide I had was some Vanguard retirement tables (withdrawal rates were higher and geared toward people 65 and older).

Other than the mental adjustment(it's real but easily managed for most) - I think you'll find your ability to control/budget expenses will give you more freedom/power over your life than you ever imagined. Take your time, read thru the old posts here and 'your' investment style/groove will emerge.

 

[cute fuzzy bunny]

Re: Hi, Snowbird here...

80% firecalc results are pretty simple to divine.

You probably didnt make it through the great depression or the nasty period from 1964ish through the late 70's/early 80's.

Hence, if we dont have a severe, long lasting economic situation...you'll be fine.

Hmm...stocks at high valuations, bonds paying next to nothing, interest rates on the way up, jobless claims bouncing around, inflation starting to warm up...

of course all those conditions are arguable. If we all agreed and everyone "knew" what was what, it'd take all the fun and drama out of it...

 

[Zipper]

Re: Hi, Snowbird here...

Snowbird, eat a huge bowlfull of oatmeal each morning with ground flaxseed and cinnamon. Keep your weight within BMI standards. I hope you aren't a smoker? Make sure you have a couple of helpings of nuts each day. And..........have a couple of glasses of red wine or a couple of cans of dark beer a day!

 

[Sheryl]

Re: Hi, Snowbird here...

80% firecalc results are pretty simple to divine.

You probably didnt make it through the great depression or the nasty period from 1964ish through the late 70's/early 80's.

Hence, if we dont have a severe, long lasting economic situation...you'll be fine.

Interesting comment. I've been a little frustrated by FIRECalc theory. If I have enough money to make the 95% safe level, I also have a much much higher chance of ending up with multiple millions when I die.

Which I don't want.

I think I am willing to gamble with something like 75-80% success, and if the bad times come I'll either (a) work, (b) reduce lifestyle (c) become a ward of the state... depending on my age ability and how bad the bad times are.

Are others convinced you must hit 95% to feel safe?

 

[John Galt]

Re: Hi, Snowbird here...

Hi Sheryl.................Re. 95%, not me, but I am a risk taker in the extreme (except for my small pile). For example, I'm always amused when someone posts and says they have a
$2,000,000 portfolio and a paid off house worth
$500,000, and the kids are gone, and they have a
COLAed pension and lifetime health care. Then they
want to know when they can retire
Duh!

John Galt

 

[cute fuzzy bunny]

Re: Hi, Snowbird here...

My sequence of thinking on the % and survivability is this:

- Will we or wont we have a major long running bear/crash/whatever? Some say we understand economics better than we did and problems that came up in the 20's and 60's/70's probably wont happen again. I see and hear of enough different problems, and theres still enough potential for significant random influences that I wouldnt bet on sunny skies forever. If on the other hand your % failure years are during fairly benign periods, you probably need more principal before you retire.

- If a bad time happens, is your portfolio well diversified enough to come out the other side with enough principal left to take advantage of the eventual upturn? The holders of the traditional 60/40 index funds feel pretty good, but US stocks and bonds have had coincidental downturns that went on a long time.

- The ability to control your withdrawal rate and cover some/much/all of your expenses with some part time work without reverting to the 60 hour a week professional madness is key here. If you can only get your withdrawal down from 4 to 3 or 2.5%, you might eat your principal down a little too far for it to do you any good. My withdrawal rate is about 30k a year; I can drop to about 8k a year for a sustained period of time and still be enjoying a pretty good life.

- I've brought this up before, and so far cant say theres been much dialog on it. Would you have the guts to stick with an asset allocation through a decade+ long bear market because a table of historical results said you'd snap out of it? Historically even staunch managers of their money with a lot of investment knowledge eventually cracked and walked away. I saw a funny analog to this line of thinking. Guy has sampled president bush 350 times during his four years as president, and each of the 350 samples found him alive and still president. Is it therefore reasonable to presume he's immortal and will remain president for all of eternity because the historical data says so? No, because some event that hasnt happened before will very, very likely happen in either 6 months or 54 months, and another extremely likely event will happen in 20-30 years, ending both 'runs'.

So the keys, in my view, are to presume and prepare for a bad downturn, because we very well might get one. Pay attention to diversification of your assets. Configure your expenses to maximize your control over your costs and minimize external influences on your lifestyle. If things turn to crap, be prepared to take up a part time job to help things out, at least for a while. And hope that good times are just around the corner.

People in 1 or 2 asset classes (especially if those are US stocks and/or US bonds), with a lot of debt, that cant or wont work, that have a high withdrawal rate thats hard to throttle...hope you have your protective headgear on if there's a downturn...

 

[Cut-Throat]

Re: Hi, Snowbird here...

My withdrawal rate is about 30k a year; I can drop to about 8k a year for a sustained period of time and still be enjoying a pretty good life.

With a working wife aren't you saving $? I know I am. Still stashing about 30K per year.

 

[cute fuzzy bunny]

Re: Hi, Snowbird here...

That'll make a big diff once we're actually married and actually co-mingling our funds. My plan is just for both of us on my money. A big hunk of hers will end up going to our health care (~$400 a month for she and me and baby makes 3), she's maxing her pretax plans, and will be putting 6k a year into a roth for both of us. Might be enough left over to pay the monthly utilities. But 12-17 years from now when she does hang it up, her portfolio might be bigger than mine!

At least she wont have to worry about losing her job if theres a crash...there'll be enough people coming into the emergency room after jumping out of windows. Which wouldnt help me. I've got a single story house. I jump out of a window I just end up outside.

 

[John Galt]

Re: Hi, Snowbird here...

Hello. I'm not snowbird, but my working wife does not
mean we are still saving. Holding our own is more like it.
Of course, this is a function of what the spouse earns
and your lifestyle. In our case, it is more like
postponing the time when I have to get serious
about SWR, a good thing from an ER standpoint, I think.

John Galt

 

[Cut-Throat]

Re: Hi, Snowbird here...

Would you have the guts to stick with an asset allocation through a decade+ long bear market because a table of historical results said you'd snap out of it?

You just have to keep in mind that the lower the market goes, the less risk there is in it.

 

[cute fuzzy bunny]

Re: Hi, Snowbird here...

Oh sure...instinctively I know that. So do a lot of other people. But in year 7, 9, 12, etc of a bear or sideways after a big drop...would you patiently stay the course or start looking for some real estate or a small business to get into, or start looking for real 60 hour a week full time work?

Its more of a social question. I think most people will say "absolutely" and then bail a lot quicker than they thought.

In other words, it looks good on paper, but are you REALLY prepared to practice it.

 

[John Galt]

Re: Hi, Snowbird here...

Hi TH! I know I posted once that I would go back to work only if I was reduced to dumpster diving.
I was sincere and even knew what I would do, but as
the years pass that becomes less appealing and also less of an option (energy level - health issues, etc.) Man, if you can still hack it and don't mind I think
it is great. Just not too sure it's really an option for me any more. Of course, my spouse likes to point out that
I still manage to do whatever I really want to. She has
a point, but there is a whole bunch of stuff I can't do
under any conditions. Over time the list will increase.

John Galt

 

[snowbird]

Re: Hi, Snowbird here...

It's amazing how this post takes on a life of it's own!

Thanks to everyone for keeping the responses coming. It's interesting to see how everyone puts a different spin on things.

I've only seen responses from a few of you on whether you would ER on less than 95% FireCalc. It would be ineteresting to see more responses.

I'd also like someone to point me in the right direction relative to health insurance in ER prior to 65. My company provideds $7.5k toward ER health ins. until 12/31/06. I suspect a lot of companies are dropping HI for ER's. I also believe I have to remain in one of the company plans and have to pay the residual, which I hear is ~$425/mo. Seems like an awful lot of extra $$$.

Also, are there any other snowbirds out there that must supplement their incomes with PT work that are having difficulty finding PT jobs when moving back and forth to both places?

Thanks again for all the input so far.

Snowbird

 

[unclemick]

Re: Hi, Snowbird here...

I believe in 1993 to keep my COBRA was about $750/mo. I passed. It strikes me from past posts that health insurance is location specific along with age and individual health factors. I plan to research again late this month and decide at age 61 to continue to roll the dice until Medicare or get some high deductible as a bridge.

Caveat: the women in the household have medical: mom on medicare plus suppl. and the SO has union (Aetna).

I haven't gone back and run Firecalc with my 1993 numbers but I suspect it would have told me to go back to work. Luckily I just did it - with severance pay, sold and consumed our duplex, one year temp(95) job, pension in 98 at 55, and I'm a really cheap bastard among other things.

BTY - third post this morning, third cup of coffee, I love everybody - heh heh - still like dream police and blow me though.

Any other good ones?

 

[John Galt]

Re: Hi, Snowbird here...

Answering 2 questions (blingual here ...................

First, when I retired I never heard of SWR or FIRECALC
and it would not have mattered as I am pretty sure
any method of precalculating my chances would have
come up "keep working". So 95% or -0- % chance
made no difference in my case. I admire unclemick
for many things, having the guts to go without
health insurance being only one. If I was still single with 5 years to Medicare, I MIGHT take a chance. I do recall
that some coverage was so pricey I knew I couldn't
(wouldn't?) pay it. We have evolved into a
situation where my wife keeps both of us covered,
either through her work, or as currently with a
stand alone (non-employer sponsered) policy.
So far, so good.

John Galt

 

[Sheryl]

Re: Hi, Snowbird here...

Go on the African Safari, Buy that new Lexus etc. When it has a negative X% return you withdraw X% less from your portfolio. Eat more rice and beans and rent movies. Which in reality is what we probably do anyway.

Yeah, that's it in a nutshell. I sort of subconsciously modify spending that way - Since I spent a lot last month on unexpected airfare this month I'm taking it easy.

I think ER requires some intuitive or creative thinking as well as calculating.