Running out of money

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Re: Running out of money

Postby john94549 » Sun Feb 10, 2013 11:34 am

Dandy wrote:I think Wm Bernstein had a good approach. I believe for age 65 it was having 20 to 25 years of residual expenses in safe investments (e.g. short term bond funds, CDs etc). Residual expenses was defined the extra money needed to meet living expenses after any pension, social securtiy or annuities. You might have to add a year for every year under 65.

The problem for those not in or close to retirement it is difficult to get a good read on what your residual expenses might be at retirement.

This approach can lead to the "moving target" I alluded to above. Not saying it's a bad idea, but it might be impractical.

Let's assume a typical retiree, 65 years of age in early 2007. He or she calculates that $1,000,000 in "safe" money (a CD ladder and/or short-term bond funds) at 5%/annum will generate the "nut" to which Dr. B. refers, at an inflation-adjusted SWR starting at 4%. Any investments in equities are "gravy on top". All well and good.

Now, fast-forward to early 2013. That CD ladder constructed back in early 2007 has begun to roll. The ladder now generates half the interest it did back when started, as rates on CDs have fallen. The amount that retiree would need "now" to generate the same "nut" has increased substantially, even after discounting for age and lower-than-expected inflation. You can play with various numbers on a mortgage or annuity calculator, or do it by hand. I suspect short-term bond funds would have fared better in a falling-rate environment, but how much?

How many retirees would be in a position to add significantly to the CD/bond fund position the first five years into retirement? FWIW, I retired back in late 2006 (at age 59 1/2) and did such a calculation, using a more modest interest-rate assumption (3%), and have still found it necessary to increase the fixed-income funds to offset rates.

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Joined: Fri Sep 21, 2012 1:55 pm

Re: Running out of money

Postby gtwhitegold » Mon Feb 11, 2013 6:48 am

Honestly, I have no clue how much I will need to save in order to have a comfortable retirement. I currently plan on retiring at age 55 with my only income being my military pension, never advancing beyond E-6, and having to save the remainder.

I have no clue what social security will look like in over 30 years, so I am not going to even use that in my calculations.

After I complete my 20 years of service, I plan on getting a civilian job with fairly good salary, but I have no clue what the benefits will be like. I may or may not receive a pension from them, so I only consider what I can control in my retirement, savings.

I am maximizing my Roth TSP and Roth IRA contributions (I have a projected tax obligation below 10% total state and federal) and will add another $5500 Roth IRA for my future wife if we are able to get married this year (difficult process with deployments and her being a foreign national,) so with all this considered, I have estimated that we will need to save around $2,500,000 in order for us to live a comfortable life in retirement. I believe that we will be able to save considerably more, but one can never really tell what the future will hold. All I can do is save where I can, enjoy life while I can, and give myself a fighting chance for a better future.


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