List some positive aspects about financing retirement

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heyyou
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List some positive aspects about financing retirement

Post by heyyou » Tue Oct 10, 2017 7:07 pm

As an alternative to the marketing that toys with your insecurities, consider listing some positive remarks about financing retirement.

Most retirees here already have a couple of decades of experience at living within their means, and that just continues in retirement.

Our allocations often include ten years of retirement spending stored in bond funds, a decade of living before needing to sell any equity shares at reduced prices. Consider what follows periods of poor equity returns, periods of good returns.

Sequence of returns risk is almost a straw man, often used to steer clients to an advisor's business. Sequence risk only applies to those who start retirement, spending a fixed real % of the retirement day assets, without ever considering how each annual spending amount relates to the recent annual portfolio value. Who would do that, year after year? Besides other WD methods, if you do choose Bengen's SWR method, both Kitces and David Zolt have suggestions about skipping the inflation boost after any year when your portfolio has no equity growth. Also note that of fifty, 30 year retirement periods, only two had sequence risk, and there was an okay year, between the two worst years. Sequence risk is not sudden, you will see if it starts to develop in the first decade of your retirement, hopefully long before your senile years.

Take a look at the ending balances of Bengen's theoretical retirees, they often left multiples of their starting assets, not just another decade of spending, since the WD % was chosen to fit the very worst case.

In closing, financing that 31st year of retirement is less of a challenge, since very few of us guys will live that long. Yes, she will owe more taxes as a single taxpayer, but she will have less expenses than the two of you.

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LadyGeek
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Re: List some positive aspects about financing retirement

Post by LadyGeek » Tue Oct 10, 2017 8:00 pm

This thread is now in the Investing - Theory, News & General (general question).
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

MarginalCost
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Re: List some positive aspects about financing retirement

Post by MarginalCost » Tue Oct 10, 2017 8:16 pm

heyyou wrote:
Tue Oct 10, 2017 7:07 pm
Sequence of returns risk is almost a straw man, often used to steer clients to an advisor's business. Sequence risk only applies to those who start retirement, spending a fixed real % of the retirement day assets, without ever considering how each annual spending amount relates to the recent annual portfolio value. Who would do that, year after year? Besides other WD methods, if you do choose Bengen's SWR method, both Kitces and David Zolt have suggestions about skipping the inflation boost after any year when your portfolio has no equity growth.
Part of what sequence of returns risk includes is the possibility (risk) that you will need to adjust your spending to accommodate a smaller portfolio. It's not just the chance of running out of money at the end.

cherijoh
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Re: List some positive aspects about financing retirement

Post by cherijoh » Tue Oct 10, 2017 8:58 pm

heyyou wrote:
Tue Oct 10, 2017 7:07 pm
Sequence of returns risk is almost a straw man, often used to steer clients to an advisor's business. Sequence risk only applies to those who start retirement, spending a fixed real % of the retirement day assets, without ever considering how each annual spending amount relates to the recent annual portfolio value. Who would do that, year after year?
Sequence of return risk is hardly a straw man for many retirees. Especially for anyone who may end up retiring involuntarily - as many "near retirees" found out during the 2008-09 recession when they lost their jobs just when their portfolios were plummeting in value. You can postpone saving for retirement for too long and then have your "runway" abruptly cut short. Even with the current "strong" economy I have three friends/acquaintances who have recently lost their jobs (due to downsizing of a division or location) and have very little hope of getting a full-time job with close to the same salary/benefits. Only one of them of them had been planning to retire in the near future.

BTW, anyone who doesn't have a paid off house by the time they retire may find that they can't trim that much out of their retirement budgets. The same goes for someone with unexpected medical expenses and inadequate insurance.

I'm not in favor of using advisors since they don't add enough value to make up for the increased cost. But I know plenty of people who desperately need a wake up call about how much retirement actually costs. If you plan well and don't hit any bumps in the road then your rosy view may come to fruition, but I think the vast majority of non-Bogleheads are facing a very different situation.

carolinaman
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Re: List some positive aspects about financing retirement

Post by carolinaman » Wed Oct 11, 2017 8:03 am

I disagree with your comment about sequence of returns being a strawman, but others have made good rebuttals on that.

The key to a good retirement is good planning and long term preparation. Someone who does not get serious about retirement until a few years in advance may find their retirement is in serious trouble due to inadequate savings. It may be hard to make that up in just a few years.

I also think people should be somewhat conservative in their projections. For example, using historical returns may be too high and should be lowered some (but not too much). If someone plans to retire at age 65, it would be wise to plan on achieving financial goals a few years earlier if possible. This way, if they are unable to work until age 65, they would be in better shape.

People today have many tools to help with their retirement: pre-tax accounts like IRAs, 401ks, etc.; Roth accounts, LTCGs, delayed SS, immediate and deferred annuities. Effective use of these tools can enable one to maximize their retirement funds and minimize their taxes, but only if they have done proper analysis and planning.

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