Retiree lessons for accumulators

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sewall
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Retiree lessons for accumulators

Post by sewall »

Being 36, I am still in the first half of my accumulation phase. Therefore, I'm not so worried about current market conditions and even welcome the opportunity to buy low (yes, I am buying now: 401(k) contributions, first foray into REITs, and rebalancing).

However, I can tell from posts on this forum that this market is pretty rough on retirees, understandably. Question is: what should current accumulators (like me) learn from watching the experience of current retirees. That is, in 20-30 years, we accumulators will be near or in retirement and we will remember 2008 (and 2009...). How will this experience change our investment strategy when we're closing in on retirement?

As an example, I will probably put way more into CDs than I otherwise might have. Perhaps I will set up a CD ladder to have two or more years of cash in case I need to ride out a downturn like this.

Any thoughts?
muddlehead
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Post by muddlehead »

good question. got you by twenty years and retired. 50/50 allocation (until last 2 weeks). fixed income portion covers expenses with some wiggle room in case equity portion goes to zero. for simplicity's sake i ladder cd's only for fixed income. that's been a good investing model for my lifetime. 30 years from now - ??
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bob90245
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Re: Retiree lessons for accumulators

Post by bob90245 »

sewall wrote:Perhaps I will set up a CD ladder to have two or more years of cash in case I need to ride out a downturn like this.

Any thoughts?
You are on the right track. If you wish to follow the 4% safe withdrawal rate rule of thumb, then the total value of your portfolio will start with 25 years worth of expenses. A 50/50 equity-fixed split will mean that 12-1/2 years will be in fixed income (bonds, CDs, money market).
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Sheepdog
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Location: Midwest, retired 1998 at age 65

Things to ponder in your planning

Post by Sheepdog »

At retirement I had about 5 years of living expenses invested in CDs and savings bonds which allowed my regular investments to grow untouched. I also have 20% of my total investments in secure I Bonds. I expect to never touch those unless I live to 97 or my wife lives to 90 and we have to start selling. They are our income taking of last resort because of their safety.

When I retired I had a good mixture of traditional IRAs (2/3 or IRA accounts) and Roth IRAs (1/3). I did some IRA rollover to Roth to get to that ratio. When I started taking IRA distributions for expenses five years ago I take 2/3 from traditional and 1/3 from Roth. My other expense money comes from SS. I maintain that ratio today. That ratio means income taxes each year have been less than $1000 per year federal. That is a major retirement plus. So, I recommend that you have some tax free income, and Roths are one way to do so.

What I did not do and should have, and you should, was to maintain a minimum 3 to 5 year cash account balance so that I do not have to sell at investment low spots. More would be better. That includes some CDs. I did fine for 5 years after my cash account was depleted, but look at now. So, in retirement keep your cash account loaded in good times for bad times.

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Jim
Time is the school in which we learn, time is the fire in which we burn.~ Delmore Schwartz
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