The Retirement Planning/ Investment/ Savings Thread (2 Viewers)

[MatB]

Tldr: Don't panic sell your investments, be a buyer when others sell. You will likely live longer than you expect and should plan for it. Old people need a healthy dose of investment risk.

If there is a self-inflicted financial wound related to the debt ceiling in the USA in the next month or two, that is a buying opportunity not the end of the world.

As a reminder, the US markets dropped ~15% in less than a week in 2011 - the last time the debt ceiling was a crisis. The markets fell 7% in one day after the 2008 dysfunctional vote in congress to ignore the banking / financial sector crisis. The point being that these sorts of situations often lead to massive swings in market values as panic overwhelms the financial markets.

Long term investors shouldn't be panicked and simply ride the wave. Easy to say, "don't panic". Hard to keep cool when everyone seems to have lost their minds. Lots of people damage their self interest in such times.

From Warren Buffett on 05-06-2023 "What gives you opportunities is other people doing dumb things," Buffett said. "During the 58 years we've been running Berkshire, I would say there's been a great increase in the number of people doing dumb things — and they do big dumb things. "

Retirement is a long-term project. Most of us will live far longer than we expect. The average person at age 65 can be expected to live 18 more years (age 83). But the mere fact you are part of this discussion likely means your life expectancy skews to the longer end of the spectrum. Savey enough to take care of your physical health. Financially capable to pay for "preventative" health care. A couple should be assuming at least one of them will live past 90 and invest accordingly.

Conventional wisdom is "old people" should significantly moderate their investment risks. That might not be right for everybody. Expecting to live 20+ years means someone can safely invest pretty aggressively. Keep in mind there are hidden consequences for avoiding investment risk. You will be lucky to tread water after inflation and taxes when your portfolio is designed to minimize risks.

Both my wife and I are 65. We have an aggressive investment strategy - very roughly a third in equity market indexes, a third in long-term income-oriented securities, and the last third in real property / oil & gas interests. It is all pretty volatile, but the synergy of the portfolio works out pretty well. Still see regular swings in value in the six-figure range, but these average out. < exception is oil & gas, which can have astonishing swings in value that might not "average out" >

Be conservative in your spending and aggressive with your investments -=- DrStrange

Thanks Scott

I’m new to the ‘shit, I guess I have to retire sometime, wtf am I going to do ‘ crowd.

It’s amazing how much varied advice there is on all financial things
Keeping everything in perspective is difficult.

 

[Darson]

I was gonna say that anyone who is "concerned where our economy is going" should sell everything, buy gold and bury it in the garden. But Dr Strange put it far more eloquently. If you try and time the market, you're likely to fail (ask me how I know).

Fidelity guidelines that says you should have saved 10x your annual income at retirement aged 67. This doesn't work if you're retiring early as some expenses such as medical will be different. Try the NerdWallet calculator to see if you're on track to save enough for your target expenditure at your desired retirement age: https://www.nerdwallet.com/investing/retirement-calculator. Knowing your "number" gives you a good feeling for how close you are.

The biggest impact on the "saved amount" is the age you want to retire. For every year you get closer to retirement, the less saving opportunity you have and the less time there is for your current investments to grow. For example, say I have 10x annual income saved and I plug this into NerdWallet to retire now aged 48 it says I'm behind and should have 19x annual income saved. If I say I want to retire in 8 years, the calculator says I should have 16x annual income saved by 56 (and am on track to do that). So I would pick an age and work out how much you need to give you an estimate on how close you are to hitting your desired goal.

 

[JustDave]

Try the NerdWallet calculator to see if you're on track to save enough for your target expenditure at your desired retirement age: https://www.nerdwallet.com/investing/retirement-calculator. Knowing your "number" gives you a good feeling for how close you are.

I really like this thing: https://firecalc.com/

It has kinda a learning curve for the different tabs across the top but it lets you put in a bunch of different inputs for various retirement revenue streams and the runs monte carlo style projections for a time window to tell you how likely you are to achieve whatever goal you are out for.

 

[MatB]

I was gonna say that anyone who is "concerned where our economy is going" should sell everything, buy gold and bury it in the garden. But Dr Strange put it far more eloquently. If you try and time the market, you're likely to fail (ask me how I know).

Fidelity guidelines that says you should have saved 10x your annual income at retirement aged 67. This doesn't work if you're retiring early as some expenses such as medical will be different. Try the NerdWallet calculator to see if you're on track to save enough for your target expenditure at your desired retirement age: https://www.nerdwallet.com/investing/retirement-calculator. Knowing your "number" gives you a good feeling for how close you are.

The biggest impact on the "saved amount" is the age you want to retire. For every year you get closer to retirement, the less saving opportunity you have and the less time there is for your current investments to grow. For example, say I have 10x annual income saved and I plug this into NerdWallet to retire now aged 48 it says I'm behind and should have 19x annual income saved. If I say I want to retire in 8 years, the calculator says I should have 16x annual income saved by 56 (and am on track to do that). So I would pick an age and work out how much you need to give you an estimate on how close you are to hitting your desired goal.

MY Income varies a lot so those calculations are hard to do.

My plan is to sit down and figure out what I'll need every year with some buffer amount. Then multiply that by estimated years of life.

Then get really depressed by the withdrawal rate/ year needed from retirement accounts. 4% growth in those accounts fighting 3% inflation?

 

[MatB]

I really like this thing: https://firecalc.com/

It has kinda a learning curve for the different tabs across the top but it lets you put in a bunch of different inputs for various retirement revenue streams and the runs monte carlo style projections for a time window to tell you how likely you are to achieve whatever goal you are out for.

Hmmm. Does this factor in SS?

Ok I found the tabs Ty

 

[DrStrange]

@MatB The assumption of 4% market returns typically implies after tax, inflation adjusted returns. That is a conservative, reasonable assumption.

 

[CraigT78]

If you try and time the market, you're likely to fail

How do you know?

 

[CraigT78]

MY Income varies a lot so those calculations are hard to do.

My plan is to sit down and figure out what I'll need every year with some buffer amount. Then multiply that by estimated years of life.

Then get really depressed by the withdrawal rate/ year needed from retirement accounts. 4% growth in those accounts fighting 3% inflation?

You are going to have to decide if you will play poker in retirement.

Because if you do, you're going to need A LOT more money.

 

[MatB]

You are going to have to decide if you will play poker in retirement.

Because if you do, you're going to need A LOT more money.

You can find me grinding the .05/.10 tables.

 

[JustDave]

You are going to have to decide if you will play poker in retirement.

Because if you do, you're going to need A LOT more money.

Something I struggle with is the calculators that say that you need to have enough money to have returns to cover 80% of your current income. But I don’t live off of the majority of my income. I drive the same kind of car and live in the same house that I did when I made 20% of what I do now. When I retire I’m not going to live like a pauper, but I’m not going to start spending like a baller.

I think everyone’s mileage varies. Spending, saving, tolerance of risk, and how long they expect their retirement savings to last. Like I plan to never have a negative slope to my retirement savings because while I don’t come from long lived stock my wife’s family members regularly live into their later 90s so I want her to be able to make it well over 100 without needing to worry.

 

[ekricket]

You are going to have to decide if you will play poker in retirement.

Because if you do, you're going to need A LOT more money.

My experience?
They say you need ~75% of your post retirement monthly income.
I say you need at least 125%.

You save now and watch your accounts grow. You spend them later and watch them close out one by one.

You have to wrap your head around that’s why they are for and that’s what they do. You pay attention to the big picture.

Healthcare will eat you up with no company helping with premiums.
Travel will make a dent. You got time now and places to see


But everyone’s situation is different. Everybody has paths available that others do not. If you aren’t exploring those then you are missing out.

 

[Darson]

MY Income varies a lot so those calculations are hard to do.

My plan is to sit down and figure out what I'll need every year with some buffer amount. Then multiply that by estimated years of life.

Then get really depressed by the withdrawal rate/ year needed from retirement accounts. 4% growth in those accounts fighting 3% inflation?

To work out your "number" it's not your income that really matters, it's your spending. How much do you think you'll need per year to live off? The reason the calculator asks for income is that is then assumes you'll need 60% of income (or some other %) in retirement.

I think the 4% is based on a very conservative calculation something like 10% average stock market returns, a 50/50 portfolio in retirement (50% in stock and 50% in bonds), bonds assumed inflation neutral and stocks gains reduced by 2% for inflation: (10% stock returns - 2% inflation)x50% + (2% bond returns - 2% inflation)X50% = 4%.

The "4% rule" is a guide to understanding your number and is based on a 30 year time frame - if you spend 4% of your savings every year, they will last at least 30 years. So if you want a 100k/yr retirement budget for 30 years, you'll need $2.5M saved. Note that this is pretty conservative but almost guaranteed to succeed. To put it in perspective, say the 100k/yr is 60% of your current income, then the $2.5M target is 15x current income. Way higher than the 10x that Fidelity suggests. But this is assuming retirement at 65. If you want to retire early, the number is certainly is higher.

 

[MatB]

Where does SS fall in with those numbers?

100k/yr x 30yr = 2.5ml

2.5 + SS?

I’m not looking to spend 100k a year so that makes me feel a little better but curious about SS factor

 

[Darson]

Where does SS fall in with those numbers?

100k/yr x 30yr = 2.5ml

2.5 + SS?

I assume that I'm going to get nothing from SS. I expect that when I retire that one of two things will happen:
1, social security will decrease payments, especially to people who already have sufficient retirement savings
2, the tax rates will increase such that the pre-tax savings vehicles like the 401k won't actually give you a lower tax as although your income has decreased, the tax rate has increased.

This is probably overly conservative but you can't trust those mf'ers.

 

[MatB]

I assume that I'm going to get nothing from SS. I expect that when I retire that one of two things will happen:
1, social security will decrease payments, especially to people who already have sufficient retirement savings
2, the tax rates will increase such that the pre-tax savings vehicles like the 401k won't actually give you a lower tax as although your income has decreased, the tax rate has increased.

This is probably overly conservative but you can't trust those mf'ers.

For me SS is a big factor though.

Based on current calculations my wife and I will be able to collect about 55k ( combined) per year at FRA
Not an insignificant factor.

 

[Darson]

For me SS is a big factor though.

Based on current calculations my wife and I will be able to collect about 55k ( combined) per year at FRA
Not an insignificant factor.

Is that in today's money? Say you're 20 years from FRA, that 55k is 36k in today's money @2% inflation or 30k@3%. Still not insignificant but nearly half what you may think it is.

 

[MatB]

Is that in today's money? Say you're 20 years from FRA, that 55k is 36k in today's money @2% inflation or 30k@3%. Still not insignificant but nearly half what you may think it is.

you're supposed to make me feel better,

But yes, it's good to be realistic about the numbers. I think i'll be 'ok'.
I just need to make sure I can do 3 to 5 meets ups a year and I'll be happy.

 

[bergs]

You can find me grinding the .05/.10 tables.

With a $12,000 stack 18 betting preflop.

 

[bergs]

For me SS is a big factor though.

Based on current calculations my wife and I will be able to collect about 55k ( combined) per year at FRA
Not an insignificant factor.

I’m looking at retirement assuming SS won’t be there at all. If it is, that’s just gravy. I’m not convinced that democracy won’t shoot itself in the face sooner rather than later.

 

[bergs]

Weird flex, but okay.

I have modest goals. A lot of people my age want to travel the world or get an RV and drive across country. That’s great but that’s not me.

Retire at 60-62, work part time as a golf course ranger, confiscate beer out of kids golf bags and keep a great buzz on while I finish out the morning playing low stakes Big O at the casino and enjoying my $6 casino breakfast (paid for on points). Spend most of the afternoon in the pool and on the patio. Spend the evenings watching movies with the CLB and our bulldog(s) and take dips in the hot tub. Occasionally go out for ice cream. When I’m not working on the course during the non-summer seasons, play 18 holes in a cart for free. On weekends, go to a baseball game and spend $4 for a program so I can keep the scoring book.

God, that would be fucking great.

 

[DrStrange]

Use your SS and/or pension money to reduce the amount you need from investments per year.

E.g, You nominally need $100,000 / yr for retirement. You get $24,000/yr from SS and your spouse gets $28,000. Total of $52,000/yr from SS. Thus you need to get $48,000 from investments. It is a big deal.

SS isn't likely to vanish. But it might be means tested or subject to further taxation. On the same line, your investments could also suffer some calamity. SS + investment is another form of diversification.

As a general rule, you are best off deferring SS the longest time possible. Not as clear cut if you are married and your spouse also has SS.

 

[Darson]

you're supposed to make me feel better,

But yes, it's good to be realistic about the numbers. I think i'll be 'ok'.
I just need to make sure I can do 3 to 5 meets ups a year and I'll be happy.

I mean, I just looked at my SS projection and its about the same as yours... I think we'll both be "ok".

As a general rule, you are best off deferring SS the longest time possible. Not as clear cut if you are married and your spouse also has SS.

Very true if you expect to live to a decent age. If you expect to die at 75, you're better off taking SS at 62. If you expect to die at 80, you're better off taking SS at 67. But if you expect to live beyond 80 then it's best to start at 70 which I think is the latest start date.

 

[JustDave]

Use your SS and/or pension money to reduce the amount you need from investments per year.

E.g, You nominally need $100,000 / yr for retirement. You get $24,000/yr from SS and your spouse gets $28,000. Total of $52,000/yr from SS. Thus you need to get $48,000 from investments. It is a big deal.

SS isn't likely to vanish. But it might be means tested or subject to further taxation. On the same line, your investments could also suffer some calamity. SS + investment is another form of diversification.

As a general rule, you are best off deferring SS the longest time possible. Not as clear cut if you are married and your spouse also has SS.

I could see “retiring” early but delaying SS for a while.

To echo bergs above, retirement for me is not doing nothing. It’s just doing less/doing something different. And doing something that doesn’t require a big outlay of capital. I’ve seen people “retire” and open a restaurant or b&b and they end up working their ass off and losing money.

 

[CraigT78]

My experience?
They say you need ~75% of your post retirement monthly income.
I say you need at least 125%.

You save now and watch your accounts grow. You spend them later and watch them close out one by one.

You have to wrap your head around that’s why they are for and that’s what they do. You pay attention to the big picture.

Healthcare will eat you up with no company helping with premiums.
Travel will make a dent. You got time now and places to see


But everyone’s situation is different. Everybody has paths available that others do not. If you aren’t exploring those then you are missing out.

Our first trip in retirement will be an 'around the world cruise', which we are planning for in our retirement goals. It will likely be a ~$150k expense, but like you said - we saved it to spend it.

It's hard to determine what our 'regular' spending is right now. I've got 5 teenagers, with three of them in college next year. Our yearly spend is nits right now. Do we hope that cuts back in the next 10 years? Absolutely. Do I expect it to? Not so sure. Every year brings new challenges, and I don't know what I don't know.

 

[CraigT78]

I have modest goals. A lot of people my age want to travel the world or get an RV and drive across country. That’s great but that’s not me.

Retire at 60-62, work part time as a golf course ranger, confiscate beer out of kids golf bags and keep a great buzz on while I finish out the morning playing low stakes Big O at the casino and enjoying my $6 casino breakfast (paid for on points). Spend most of the afternoon in the pool and on the patio. Spend the evenings watching movies with the CLB and our bulldog(s) and take dips in the hot tub. Occasionally go out for ice cream. When I’m not working on the course during the non-summer seasons, play 18 holes in a cart for free. On weekends, go to a baseball game and spend $4 for a program so I can keep the scoring book.

God, that would be fucking great.

Sounds great. My plan is to be a nomad, traveling the world and crashing home games, while the wife drinks mimosas and reads her books.

 

[louBdub]

A difficult part, and new problem once retired…. Relearning Time.

You have all of it, but have no clue how to manage it, and you get bored.

So, I’ve made it a point to schedule things, manage my time in ways that don’t feel wasted and definitely learn how to stretch things out over said time.

Enjoying your moments, and not being in a rush is key.

 

[Poker Zombie]

Sounds great. My plan is to be a nomad, traveling the world and crashing home games,

No lie - that is exactly why I made the PCF map. When we retire, I plan to do a around the world trip that will start with a Thread "Do you want to meet the Zombies?".

Meet PCF'ers, and crash for a day or 2 at each spot seeing the world from the perspective of a local. It may be a pipe-dream, but it keeps me going.

 

[inca911]

As there has been a bit of SS discussion recently in this thread, here's a brief overview:

Your SS benefit is based on income earned during your 35 highest-earning years. You can download your exact annual earnings from the Social Security Administration (SSA) website. If you do not have 35 years of working time, they use $0 to fill up 35 years of earnings. Earnings and SS taxes are capped each year, currently capped at $147k and increasing soon to $160k. If you make $500k this year, SS will only tax $147k and record that earnings amount. SSA then uses an Index Factor to adjust previous years' earnings for inflation, with the Index Factor based on the year in when you turn 62 (i.e., the earliest retirement year). $50k earned in 1987 is about 5x the value as compared to $50k earned recently, which makes sense intuitively. The Index Factor used is available on the SSA site. Once earnings have been index-adjusted, they sum your 35 highest years and divide by 420 (i.e., 35 years * 12 months/year) to get your Adjusted Income Monthly Estimate (AIME). With some "bend point" math (i.e., essentially a weighting calculation using 90% for your first $1k + 32% of your next $5k + 15% of your remainder to the annual cap) they determine your Primary Insurance Amount (PIA) which is the basis for determining your SS benefits. Once they have your PIA for Full Retirement Age, that is then adjusted based on your actual retirement timing. If you start collecting benefits at Full Retirement Age, currently 67, you get the full amount. If you collect "early" at 62-67, they deduct up to 6% per year (yes, 30% less) from your payment. If you collect "late" up to age 70, you get an additional 8% per year you delay (yes, 24% more). This calculation is prorated by specific month of filing for benefits.

Many of the retirement age discussions you hear are around this 54% total difference from collecting SS early vs. late. I personally view SS as an uncertain insurance plan, so retiring at age 70 provides a bigger theoretical insurance policy. For those that view SS as income (or have shorter life expectancies), early retirement likely makes more sense. There are many discussions on collecting SS early and investing the benefit elsewhere. Sounds like a lot of work, but I understand the basis for the theory.

Note that there is some net gain in working a little longer to get 35 "good" years of earnings to eliminate $0 years in your calculation. It's easy math to do with your actual SSA data. In my case, working a couple years to clear out earnings from my high school grocery bagging days increases my SS benefit by $50-60/month. Not really worth it to me in the long run.

Reminder that SS is viewed as income for both federal (and state) tax purposes. Some states don't tax any SS benefits, some tax as much as they can, and others have fairly large exceptions that essentially result in no SS state tax (e.g., MN recently changed state law so my SS will no longer be taxed). At a federal level, there are some nasty traps that can result in >40% tax rates on SS benefits. If you are viewing SS as an income play, don't forget about paying Uncle Sam.

Edit: Please keep politics in the politics forum, thank you.

 

[bergs]

LOL @ SS being there for anyone over 50 years old today. I do all my financial planning assuming my wife and I will get $0 from this. If I do, great, that’s 5/10 PLO double board bomb pot money:

 

[MatB]

I remember when a President wanted to let people invest their SS in the stock market ‘so all
Americans can benefit from the robust economy’

Luckily that never happened as there was a crash 1 or 2 years later.