strongly tapered retirement sending

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strongly tapered retirement sending

Postby wildspender » Fri Aug 30, 2013 3:33 pm

Hi
I'm new to this forum, so let me know if I'm not in the right area, or whatever.

I'm within a year or two of retirement. All of the retirement literature I see for people in that position seems to use the following general approach:
Find your total annuitized income (Social Security, any defined-benefit pension annuity, etc)
Take a specific percentage of your total savings (generally near 4%) as the income per year you can draw from your savings (and increase this by inflation in each successive year)
Adjust your spending to that total amount/year (and spend that same amount in real $ for all your retirement)
The underlying assumption is that with the right asset allocation and constant spending (in real $) you won't run out of money for your entire retirement, right up to your mid 90's (or whatever other age you choose).

I'm questioning the need for a plan with constant spending from the day you retire to the day you die (or really to a statistically extreme estimate of the day you die). I understand that for some people the constant spending assumption is a good plan. I realize that discretionary spending in early retirement often gets replaced by medical expenses later in retirement. If the annuitized portion of your income is near or below the poverty level where you live, then "running out of money" (i.e. spending all your savings early) has an extreme penalty. But for those for whom living on their annuitized income only doesn't involve refrigerator boxes under bridges or cat food (other than for the cat-) I'm wondering why this is the right plan. It would seem there is a small but non-trivial part of the population (including us) for whom SS and a pension represents a plausible standard of living, especially for a couple on their 80's, even if it is much less that the spending we can afford earlier in retirement using our savings. In that case it seems like a plan which spends down retirement savings (or at least risks spending down retirement savings) by 80 or 85 (rather than 90 or 95 in traditional planning) is a smart choice. We would rather take an extra vacation early in retirement, when we know we are alive and healthy, than skip that vacation to fit in a 4%-based budget, under the assumption that we might be alive and healthy enough to take that vacation (or whatever) in our 80's. On the issue of medical care later in life, the "constant spending" assumption appears to assume that discretionary spending early in retirement roughly matches medical spending later. But for the somewhat more affluent, discretionary spending may be significantly higher (especially not following the 4% rule), while medical expenses don't change a lot with income. In our case our annuitized income seems enough for a reasonable lifestyle in our 80's, so spending down our savings to nothing sounds reasonable, but even for others where that isn't the case but who have a substantial nest egg, a plan with significantly more spending in early retirement and less later sounds attractive.

So what is wrong with this thinking? Have others gone through the same thought process? Have there been previous Bogleheads discussions on this? Why don't I see any discussion of this kind of approach in the literature (or did I just miss it)? Are there few enough of us with either good SS and a modest DB pension or a respectable nest egg that it is not worth writing about?
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Re: strongly tapered retirement sending

Postby Cut-Throat » Fri Aug 30, 2013 5:22 pm

Most people don't have a Pension anymore.

If you got one that you think will be there for the long haul, then spend all you want.....

You don't see that much talk about it, because it doesn't take a lot of planning to do. My neighbor has a Pension and spends it every month. He could not tell you what an SWR is, if his life depended on it. He has no clue and doesn't need to know. He has very little in savings, but eats filet Mignon every week.
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Re: strongly tapered retirement sending

Postby ourbrooks » Fri Aug 30, 2013 5:42 pm

In fact, there's a whole school of thought about retirement spending that has an essential idea splitting your financial requirements into two parts: critical spending and discretionary spending and managing your funds accordingly. Look for books by Nobel prize winner Robert C. Merton, Zvi Bodie, Moshe Milevski and William Bernstein (who posts on this forum as wbern and just started a new thread).

The constant 4% is not real advice; it's just an accident of the easiest way to do simulation studies. No one actually spends a constant amount every year.
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Re: strongly tapered retirement sending

Postby freebeer » Fri Aug 30, 2013 7:18 pm

I think there's another more psychological factor. If there was a mantra for a typical Boglehead's psychology I think it would be a variation of The Boy Scouts: "Be Prepared... Be REALLY Prepared". I believe that the over-saving and uber focus on completely "safe" withdrawal rates is also in some ways a way to deny mortality and attempt to have something one can control and one risk-free refuge in an otherwise chaotic world - one's financial situation. So the idea of planning in advance to taper off spending in late retirement goes against the grain of some of this psychology because it both is a "bet" against needing to fund LTC and other expensive things in late retirement - a good bet given studies of retirement spending but a bet nonetheless - and an acknowledgement that an end to the road lies ever closer. Last but not least there's a strong theme of self-sufficiency which planning to depend on SS/pension in late retirement goes against as does the idea of implicitly planning to deplete assets and then depend on Medicare/Medicaid for nursing home and other late-retirement medical care (even though the majority of Americans do just that).
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Re: strongly tapered retirement sending

Postby BestWishes » Fri Aug 30, 2013 7:42 pm

There are many variations of theoretical modeling, 4% SWR is just one of them. Theory is not real life and sometimes even far from it. Everyone's situation is different. Depending on your situation, you can come up with a plan that you are comfortable with and adjust as you go.

There are many moving variables:
Your expenses.
Your income (SS, pension).
Your portfolio size, asset allocation.
Your heirs inheritance (if you want to leave any).
Your mind set (what kind of risk you want to take). For some they want 100% success, for some maybe 80% is good enough.
Inflation.
Portfolio return.
Etc, etc ...

If you think you can/should spend more early on, then model your plan after that.
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Re: strongly tapered retirement sending

Postby Peter Foley » Fri Aug 30, 2013 8:49 pm

Welcome wildspender!

You are raising a question that is often debated here. Here is a quote from another thread (Hebler's Marriage Between 4% rule and RMD) that I think is pretty succinct:

Mel Lindauer said:

EmergDoc wrote:Why not spend more in good years and less in bad years?

Seriously, all these mental exercises on developing withdrawal rules seem to be trying to do too much with very limited data that may have little to no relationship to future data. The point of the SWR studies was to show the number isn't 8%, not to figure out if it is 3.5% or 4%. If 4% of your portfolio is $50K, and you spend $38K or $53K, what's the big deal? As long as you're not spending $70K-100K I think you're okay. I plan to just reassess each year, see how I'm doing, and if I'm doing particularly well, ramp up my lifestyle a bit. If I'm doing badly, well, I'll take cheaper trips and give less to the grandkids. If you have to obsess about the withdrawal plan, perhaps you should have worked a couple more years.


Great common sense post, EmergDoc. Basically, we've been flexible all our working life, adjusting spending as life circumstances dictated (loss of job, pay increase, receiving nice bonus, etc.), so there's no reason the same principles shouldn't apply when it comes to our retirement spending.


To which I would add, as long as you stay somewhat near the 4% or a willing to reset your spending after a few years, spending more on entertainment in the first few years of retirement when you are healthy enough to enjoy it is ok. Just be willing to flex your spending a bit as Mel and EmergDoc suggest.
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Re: strongly tapered retirement sending

Postby curmudgeon » Fri Aug 30, 2013 9:15 pm

One challenge is that it is hard to look out 20 or 30 years to predict what our spending/travel desires are likely to be. The SWR stuff gives a solid baseline to use, but it's no magic number. As I look at retirement, I really see a number of phases, all blending to some degree, and with uncertain timelines. The start may include quite a bit of travel, but that travel may often tend towards the budget side (camping in a modest RV in US, renting apartments or other lower-cost stays overseas). It's quite possible as we get older that the desire for more assistance/services might start pushing us to more expensive hotels/cruises for travel. And while it is highly likely that we will hit a phase where travel and other expenses don't interest us nearly as much, it's hard to predict when that might occur.

Looking at an ER, it clearly makes sense to plan to draw more from my assets up until the point we start drawing SS, but it can be painful to look at the predicted drop in balances.
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Re: strongly tapered retirement sending

Postby Iorek » Fri Aug 30, 2013 9:23 pm

Firecalc does offer alternative models for spending, one of which is constant real dollars and one of which (IIRC) involves a gradual decrease in spending down to a new baseline.
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Re: strongly tapered retirement sending

Postby bobcat2 » Fri Aug 30, 2013 9:24 pm

wildspender wrote:Hi
All of the retirement literature I see for people in that position seems to use the following general approach:
Find your total annuitized income (Social Security, any defined-benefit pension annuity, etc)
Take a specific percentage of your total savings (generally near 4%) as the income per year you can draw from your savings (and increase this by inflation in each successive year)
Adjust your spending to that total amount/year (and spend that same amount in real $ for all your retirement)
The underlying assumption is that with the right asset allocation and constant spending (in real $) you won't run out of money for your entire retirement, right up to your mid 90's (or whatever other age you choose).
Frank

The economics and finance approach to retirement planning is to determine a reasonable level of aspirational spending in retirement and a floor level of spending in retirement and attempt to have enough retirement income to reach the aspirational goal and definitely have enough retirement income to achieve the floor spending goal. In other words, the retirement income goals drive the plan - It is not simply whatever, when you get to retirement. :D

Now moving on to your question of constant income and spending throughout retirement. There is a substantial body of work close to that in academia, but it rarely gets discussed at Bogleheads etc. I think there are two reasons it doesn't get discussed much. It is somewhat morbid, and there is no easy rule of thumb solution.

It's perhaps easiest to see by stylized example. Consider a single 65 year old male retiring on his birthday. Unless he is particularly unhealthy on his 65th birthday, there is over a 99% probability he will be around to celebrate his 66th birthday one year later. However, there is a less than 50% probability he will live to celebrate his 86th birthday. His chances of celebrating his 90th birthday are much lower than 50%, and his chances of living to 100 are less than 2%. So the question becomes, do you want to plan on spending the same amount in a year where you have a 99% chance of being alive as a year when you have a 40% chance or less of being alive?

There is no neat solution to this. It depends on your preferences (your utility function). If you are very averse to longevity risk you will plan to have the same income from your initial retirement year to age 100 & beyond. If you are not very risk averse to longevity risk you will plan to spend considerably more in early retirement, but every year you survive you will taper down your current and future income & spending plans as you continue to survive. How much, however, is up to you. It depends on your longevity risk preference.

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Re: strongly tapered retirement sending

Postby nisiprius » Fri Aug 30, 2013 9:36 pm

It seemed to me when I was attempting to do retirement planning that there is a gazillion times as much actual serious nuts-and-bolts information available about the investment and income side as there is about the spending side, even though even the most casual look at retirees around me suggested that uncertainties in spending dwarf the (daunting enough) uncertainties in income.

As for the idea that spending tapers in retirement, I know there was some study that said so, but my reaction is, in the words of the Church Lady, "very conVENient." I wonder if it's even true. If true, you have the problem that however useful averages may be in setting public policy, you experience a sample of one, not an average. You have to prepare for at least the pretty-bad-case scenario.

As for travel being restrict to early retirement, I remember my mom deciding to take a cruise at age 62 and coming back not having enjoyed herself much because the average age of her fellow passengers was so much older than hers... here's one of those unavailable data points: what is the age distribution of people who take those Alumni Tours Abroad we keep getting brochures for?

Health and age are a great unknown, but it is not at all rare for people to be very healthy and perfectly capable of traveling well into their late seventies and early eighties.

The Fidelity rep who walked me through the Fidelity Retirement Income Planner kept asking me all these questions about how many cars I thought I'd be buying and how much I'd be spending on them and how much travel I'd be doing, and of course I gave him answer, but I felt about as well informed and that my answers were about as reliable as those of a fourteen-year-old kid when asked what career he wants and how much money he expects to make as a rock singer...
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: strongly tapered retirement sending

Postby curmudgeon » Sat Aug 31, 2013 3:45 am

This is a topic I've been giving consideration to lately, in various forms. It has made me reflect on how my parents and grandparents and others I've known have tended to live out their retirements. My family has tended to be fairly long-lived, and you can see quite definite trends that apply to their levels of activity and expenditure. I'm starting to think of this as phases; for some reason they actually make more sense to me when I consider them starting from the oldest phase.

It's been a pretty definite trend that by around age 85, the desire for travel and other expensive experiences has pretty well died off. Even for those who are still fairly healthy and mobile, the bothers and hassles of travel just aren't worth it. Even traveling to visit family starts to become less of interest. On the other hand, this is also a point where preparing meals has gotten old as well, and living someplace that provides at least two meals a day is the norm. The hassles of owning and managing a house are also not of interest to most folks at this point (there are exceptions on this one, sometimes people have a really strong tie to their house). There's also the potential for needing more extensive assisted living/nursing care for some period.

For the 75 to 85 age range, I see more variance. Some are still wanting to keep their house, others are ready to let go of all that. Travel is definitely of interest for some, but it generally needs good convenience factors and services to make it worthwhile (cruises are popular). Bare bones travel options, camping etc aren't popular. Even the dedicated RVers are usually starting to slow down on RV camping. Depending on health, a lot of times significant travel/entertainment expenses are winding down by age 80.

The 65 to 75 age range in my family has tended to be pretty active. It's a big travel phase, but it also tends to have a fair bit of volunteer or other easy work, maybe still some substantial projects around the house. Most were ready to give up the 9-5, but still wanted a sense of purpose beyond just entertaining themselves. This, and any ER years, tends to have substantially the highest travel budget, and may also tend to have high hobby or other activity expenses.

Not everyone follows this pattern, but I'm looking at my drawdown rates as high in the late 50's to 65 (travel plus medical ins), still fairly high from 65-70 (travel, and holding off on SS). I expect SS to likely cover all our day-to-day expenses after 70, so then the drawdown is limited to mosty travel or other exceptions. The jokers in my personal calculations are how long we keep our current house, which is larger than we need and comes with $12K/year property taxes, but which we really enjoy. Our kids are scattered, and we are somewhat uncertain on whether or how long we want to stay in the area. If I were to retire today (54), we'd probably sell the house and buy someplace less expense and closer to the kids. I still generally enjoy my work, though, so we'll review in a few years.
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Re: strongly tapered retirement sending

Postby SGM » Sat Aug 31, 2013 4:59 am

Dad lives off company pension with a cola and SS, continuing to do so for the last 23+ years. House long paid for and real estate taxes lowered for the elderly helped. He never saved much. Children supplement his support by doing small repairs, taking him on paid short vacations, sending gift cards for his favorite haunts. These supplements don't amount to much. He still seems to have an excess of income and uses it for gifts to grandchildren. Only real assets are house, used car and some insurance proceeds. In his late 60s early 70s he blew through the small amount of IRA savings. At this late date he will never be eating Alpo. He will lose the house if he requires a long nursing home stay.

Pensions are great if you can get them. Sounds like a case for living off income only. Most think. going forward, retirees in private industry will not get as good a deal.
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Re: strongly tapered retirement sending

Postby DaleMaley » Sat Aug 31, 2013 7:02 am

curmudgeon wrote:This is a topic I've been giving consideration to lately, in various forms. It has made me reflect on how my parents and grandparents and others I've known have tended to live out their retirements. My family has tended to be fairly long-lived, and you can see quite definite trends that apply to their levels of activity and expenditure. I'm starting to think of this as phases; for some reason they actually make more sense to me when I consider them starting from the oldest phase.


My small sample size real-life observations with relatives and acquaintances supports your phase ideas. I do not know of any studies that have tracked a significant size of real people as they pass through the de-cumulation phase. There is population data that shows there is a correlation between age and annual spending, with the relationship being the older you get, the less you spend. Of course the kicker is, do they spend less because they want to, or did their real income decline so they had to spend less?
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Re: strongly tapered retirement sending

Postby dickenjb » Sat Aug 31, 2013 8:12 am

I believe it was Ty Bernicke who researched this and found that spending did fall with each decade of retirement. The FIREcalc option to decrease spending is based on Ty's research.
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Re: strongly tapered retirement sending

Postby MnD » Sat Aug 31, 2013 9:29 am

I tend to agree with the OP but my mother spent the last few years of her life in a really really nice assisted living place that she could never have afforded without a significant spend of her investment savings. I am phobic about old folks homes but this place was amazing - they had nice hotel quality guest rooms for visiting family and we would stay in those when in town. Everybody had their own apartment of varying size depending on their budget - the base unit was a small studio or one bedroom but many residents including my Mom rented adjoining one of each and they would convert those so you had a large two bedroom or a large 1 bedroom with an extra room for hobbies or whatever. Many residents were active and still drove, golfed, dined out, traveled independently etc. You always stayed in your apartment even if you needed care up to full nursing home care level. All that changes is the cost - more care needed, more cost.

We are going to have a significant annuity-like income in retirement but I don't think we could afford a place like that on just that portion, so I do see the value in having significant spendable income from investments even later in life. One thing we might do that's counter-intuitive but along the lines of "enjoy more sooner", we may significantly upgrade the price and quality of our home when we retire in a few years. Not in size but in location, efficiency, neighborhood, quality, ease of maintenance and in amenities. Hopefully have a couple of decades or more to enjoy that and then be able to reinvest the proceeds from the sale back into our investment account to support something like what my Mom had if/when needed or desired.
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Re: strongly tapered retirement sending

Postby livesoft » Sat Aug 31, 2013 9:59 am

For folks looking for demographics, spending, etc, there is always the Survey of Consumer Finances for data mining. Here is a pdf overview: http://www.federalreserve.gov/pubs/bull ... /scf12.pdf
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: strongly tapered retirement sending

Postby wildspender » Sat Aug 31, 2013 4:44 pm

Thanks for all the comments.

Cut-Throat- I have a modest pension, but not enough (with SS) for a retirement which includes much discretionary spending, so I need to manage our savings so they at least last for whatever interval we guess we will be healthy for.

Freebeer- In fact I am also a "Be REALLY Prepared" Boy Scout. My wife is the wild spender. Through most of my accumulation phase I was married to my 1st wife. At that time our nest egg was large enough to comfortably provide more spending in retirement than we were spending while I was working. She passed away 10 years ago. A few years later I remarried. This one is the wild spender. Before anyone gets the wrong idea, she is the best thing which ever happened to me. She is a social butterfly, which nicely balances my introverted, quiet tendencies. Her "lets take a 3rd trip this year" approach nicely balances my tendency to spend as little as possible, "just in case". She isn't a jewelry and clothes spender, but likes to spend on things I (now) enjoy, like large parties for family and friends, European travel, helping grandkids, etc. But her decisions to spend are mostly emotional, leaving it to me to worry about money later in retirement. I started out trying to fit into a 4% (or even a 3-3.5%) spending plan, while she was saying to spend it now while we are healthy enough to enjoy it, and by now I have mostly drunk the Kool Aid. I chose Bogleheads for a 2nd opinion precisely because I expected conservative and analytical opinions, and if I can convince at least some of you I'm not being irrational I will be more confident.

Peter Foley- In fact we are looking at spending closer to 8% than 4%. I am 68, and if my employer remains willing I expect to work (part time) until I am 70. I expect that 8% of my initial nest egg per year is reasonably likely to get us into our early to mid 80s. I don't need the same 80-90% confidence for this assessment as is usually applied to "don't run out of money" analyses. If the market is nasty and we need to transition to less spending when we are 78 or 79 it won't be the end of the world (like running out of money, at least for some). We can of course make mid-course corrections. If we spend like drunken sailors for the 1st 4-5 years and/or the market is lousy we can adjust spending to some intermediate amount which still give us me extra into our early 80's. If we see some impending medical conditions which will make travel, etc, less likely we can double down and increase spending.
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Re: strongly tapered retirement sending

Postby curmudgeon » Sat Aug 31, 2013 9:11 pm

I'm starting to think about a model for our retirement assets as having several buckets. Just like there are likely to be different phases of spending and activity, I'm thinking of dividing the investment pool according to the target phase (maybe into actual separate accounts, maybe just into logical investment portfolios). I haven't really fully developed the model, but the idea is to ensure that each phase (or goal) has appropriate assets reserved to it, while allowing more comfort/flexibility to spend down the funds aimed towards the earlier phases. Some phases or goals can be more flexible depending on market performance or changing circumstances; for example it is a goal to leave an inheritance to my children/grandchildren, but that is not critical, nor is there a need for it to be a particular amount.

I'm looking towards the backstop for the 85+ years as being the last house or condo we would own. If we hit that stage without other assets, that would be when we sell the property, use most of the proceeds to buy a SPIA, and expect to live of of SS and the annuity income. I would still have a chunk of our current assets aimed towards this phase, but it would be a relatively smaller portion, invested with a long-term focus. If the market does reasonably well, these assets and the house proceeds end up in the inheritance bucket and we would be living off of unspent gains from earlier phases instead of drawing on them.

There is also an early bucket, that in our case would cover known baseline early retirement expenses. This is a period that would involve no pension or SS income, and the bucket would need to cover fixed taxes/medical coverage/living expenses. This bucket needs to be held in conservative investments like CDs or short-term bonds.

I look at the baseline "middle retirement" baseline as being effectively covered by SS/medicare. If we have a paid-for house, we should be able to sustain a reasonable basic lifestyle on the projected income.

This leaves the third bucket as being for travel and other retirement "luxuries". It can be invested somewhat aggressively, and has the more limited drawdown horizon (in theory it can be drained by early 80s). We can adjust expenditures up or down based on investment outcomes without fretting over coverage for the other buckets.
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Re: strongly tapered retirement sending

Postby wildspender » Sun Sep 01, 2013 2:11 pm

curmudgeon said:
I'm starting to think about a model for our retirement assets as having several buckets.

I think we are headed in a similar direction. I tend to think of buckets as being oriented toward when the spending happens rather than a particular purpose for the funds, but thinking or a "discretionary spending" bucket and an "age 85 maintenance" bucket works too, and is another way to describe what I am saying. I don't need a "get to Medicare + SS" bucket as you apparently do, since I am 68, but that idea works as well if you need it.

I do have trouble assessing what we will need at 85, for the backstop budget, as you call it. It is hard to separate what part of our current spending is baseline and what part is discretionary. I expect we won't live in our current 5 bedroom suburban house, but exactly where we will want to live is more fuzzy (we are pretty sure it is in NJ, but is it a condo, 55 and over, or what?). I have a (not particularly generous) AT&T Retiree medical plan, but is does include an out-of-pocket maximum, even for out-of-network services, so I think I have a cap on medical costs, except for LTC. The cap is large, but not an especially large fraction of our SS+pension. I'm still kind of waving my hands that living on our SS and a modest AT&T pension will cover most or all of our baseline costs in our 80's, and that by 85 or so we are not going to be into much discretionary spending (or at least I am willing to spend most of the money now when I know we are alive and healthy enough to enjoy it, rather than saving the money for the low probability that we are both alive, healthy enough, and interested in travel or whatever in our late 80's). Although I talk about possibly spending it all by the time we are 80-85, I expect I will arrange to keep a few years of LTC expenses in the kitty, just in case. I agree that this part of our assets can be invested for the long-term, but I expect I will do that by tweaking our asset allocation rather than having a separate bucket.
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Re: strongly tapered retirement sending

Postby burt » Sun Sep 01, 2013 7:32 pm

SGM wrote:Dad lives off company pension with a cola and SS, continuing to do so for the last 23+ years. House long paid for and real estate taxes lowered for the elderly helped. He never saved much.
Pensions are great if you can get them. Sounds like a case for living off income only. Most think. going forward, retirees in private industry will not get as good a deal.


Ahhh the good ole days.
I'm one of the few hoping to realize a modest pension from my private employer.
I thought I saved fairly aggressively the past 36 years, but the pension is what allows me to retire at 60.

Pensions aren't evil, just math, statistics and actuarial tables. This works until they are manipulated and corrupted.

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Re: strongly tapered retirement sending

Postby wildspender » Tue Sep 03, 2013 10:11 am

Burt said:

Pensions aren't evil, just math, statistics and actuarial tables. This works until they are manipulated and corrupted.

Actually, setting aside manipulation and corruption, pensions were a hidden savings feature of many jobs. In addition to the pay they told you about, the company was setting aside money in your name toward your pension. So they were paying you significantly more than what your paycheck said. In some cases they did this due to union pressure, in other cases they did it because pensions were common enough that businesses felt they needed to offer them to be competitive in hiring good people (my case-). But I think most people didn't pay attention to pension contributions as part of their income during a lot of their working life (I didn't, at least in my 20's and 30's), so businesses weren't getting much value for that added spending. As soon as it became possible to hire good people without offering a pension (since other companies were doing that too, by offering 401K/403B, etc), businesses were all too happy to lower costs by offering 401K matches (if that) to new employees. As the ball got rolling, capping plans for existing employees became feasible without causing people to run for the door (since competing businesses were doing the same thing).

Watching the evolution of retirement savings from a hidden part of compensation to an explicit one makes me wonder how quickly medical insurance will follow the same path.

On corruption and manipulation, the manipulated pension plans and bankrupcies got a lot of press, but I'll bet that the vast majority of pension plans over the years paid out the pensions they promised. Companies just stopped promising them at some point (for some, in mid-career). Actually, in recent years, Federal guarantees protect all private pensions up to something like $50K/year (which certianly includes my pension).
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Re: strongly tapered retirement sending

Postby Iorek » Tue Sep 03, 2013 10:16 am

wildspender wrote:Burt said:

Pensions aren't evil, just math, statistics and actuarial tables. This works until they are manipulated and corrupted.

Actually, setting aside manipulation and corruption, pensions were a hidden savings feature of many jobs. In addition to the pay they told you about, the company was setting aside money in your name toward your pension. So they were paying you significantly more than what your paycheck said. In some cases they did this due to union pressure, in other cases they did it because pensions were common enough that businesses felt they needed to offer them to be competitive in hiring good people (my case-). But I think most people didn't pay attention to pension contributions as part of their income during a lot of their working life (I didn't, at least in my 20's and 30's), so businesses weren't getting much value for that added spending. As soon as it became possible to hire good people without offering a pension (since other companies were doing that too, by offering 401K/403B, etc), businesses were all too happy to lower costs by offering 401K matches (if that) to new employees. As the ball got rolling, capping plans for existing employees became feasible without causing people to run for the door (since competing businesses were doing the same thing).

Watching the evolution of retirement savings from a hidden part of compensation to an explicit one makes me wonder how quickly medical insurance will follow the same path.

On corruption and manipulation, the manipulated pension plans and bankrupcies got a lot of press, but I'll bet that the vast majority of pension plans over the years paid out the pensions they promised. Companies just stopped promising them at some point (for some, in mid-career). Actually, in recent years, Federal guarantees protect all private pensions up to something like $50K/year (which certianly includes my pension).
Frank


This is a good point. I worked somewhere once that took it the next level and stopped doing an employer contribution to a 401k, and converted that $ to an increase in salary because they said they needed to get their salaries up to be competitive. Drove me nuts because I would rather have had the $ tax deferred but there was nothing I could do.
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Re: strongly tapered retirement sending

Postby Ged » Tue Sep 03, 2013 10:50 am

The downside of pensions is that the benefits are often heavily back loaded and that they are very uncertain.

I was in a fairly generous pension plan once. However it was a pinata for corporate management. In my 40's the plans was normalized. That is since like many corps there were multiple plans accumulated from a variety of mergers, some plans were better than others. Well the good plans were reduced down to the corporate standard plan, that is the worst of the bunch. Then the plans were frozen, that is no more contributions. Finally there was a corporate takeover. The upshot of this is people got to take their current vesting as an annuity. Right now. The result was I ended up with an actual benefit about 12% of what was originally described to me in the literature I was given when hired.

Fortunately I was also contributing about 15% to my 401K, so I was still ok.

Now I am getting mail from my former employer that describes how underfunded my existing pension is. These guys are just evil.

For retirement I would not trust any corporate pension. 401Ks and IRAs are portable and much more certain. Defined contribution is the way to go.
Lack of planning on your part does not constitute an emergency on my part.
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