Keys to a Successful Retirement

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bobcat2
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Keys to a Successful Retirement

Post by bobcat2 » Thu Sep 15, 2016 12:11 pm

Here are several ways Americans in their early 50s or older could better secure a financially sound retirement, particularly in a low return environment.

A successful retirement here is defined as being able to sustain the standard of living in retirement that the household had obtained in the several years leading up to retirement.

Keys to a Successful Retirement

- Save a slightly higher percentage of income each year between now and retirement. This is the standard advice everyone is aware of, but still true. It has the somewhat ‘dubious’ extra advantage of lowering the pre-retirement living standard slightly and thus in turn slightly lowering the targeted retirement income.

- Work until at least age 64, if possible. The advice many people don’t want to hear, but more powerful than saving a slightly higher percentage of income every year.

- Own, don’t rent and pay off the mortgage at or before retirement. In retirement you won’t have to pay rent and there is also a significant tax advantage. You not only don’t have to come up with the income to pay the rent, you also don’t have to pay the income tax on that extra income spent to pay the rent. For most home owners this is a bigger lifetime tax advantage than the home mortgage interest deduction!

- Once the mortgage is paid off, don’t spend that income, but instead make it an additional part of your retirement savings.

- Once the kids have left the nest, don’t spend the income previously spent on the kids, but instead make it an additional part of your retirement savings.

- Delay taking Social Security benefits for at least two years after retirement, unless you are retiring after turning 68. Delaying Social Security benefits is especially beneficial in a low interest rate environment. Social Security benefits are implicitly tied to average LT real interest rates, not current prevailing interest rates.

- If possible delay taking defined benefit pension benefits for the same reasons delaying Social Security benefits is a good idea. Most people aren’t aware that pension benefits can be delayed and that it is actuarially advantageous to do so. But usually they can be delayed.

- Purchase life annuities in chunks over time as you continue to age. Begin these purchases sometime after you have started taking your delayed Social Security benefits.

- Consider longevity annuities as part of your annuity purchases. These are life annuities that you purchase at one point in time that do not begin payments immediately as traditional life annuities do, but rather several years after the purchase. If you die before the longevity annuity begins payouts you get nothing, but because of that possibility these life annuities have very high payout rates. They truly are cheap longevity insurance.

- Use home equity in retirement. Seriously consider taking out a reverse mortgage line of credit.

- Purchase Medigap insurance coverage, and consider a long-term care insurance policy, including products that blend life annuity income and LTCi.

- Stay together or get together. It’s true that two can live considerably cheaper than one on a per person basis. The economies of shared living are significant.

- Spend more early in retirement. Couples in particular should plan on spending slightly more in early retirement because the probability of their both being alive to age 85 is less than 25% and declines rapidly at ages beyond 85. Gradually cut back spending as you both survive, and annuitize more as you both continue to survive, particularly adding longevity annuitization.

While many people focus on developing somewhat exotic asset allocation strategies in efforts to solve the retirement problem, the solution has little to do with the allocation of investible assets – other than to avoid extreme allocations that are either heavily weighted toward risky assets or heavily weighted toward very short-term low return assets that may seem low risk, but are risky in terms of meeting long-term retirement spending goals- mainly because of the mismatch between the duration of the assets and the liabilities (retirement income).

I believe that if all Americans followed the above suggestions that applied to them, the retirement problem would effectively go away, i.e. more than 90% of American households could maintain their pre-retirement living standard in retirement. About 20%-25% of the population would have a standard of living leading up to retirement and in retirement that is too low, but that is a poverty or near poverty problem, not a retirement problem per se.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

rgs92
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Re: Keys to a Successful Retirement

Post by rgs92 » Thu Sep 15, 2016 12:20 pm

You said:
- Purchase ... products that blend life annuity income and LTCi.

I say NO on this. These products are like a wolf (variable annuities with high fees) in sheep's clothing.
Are you a salesperson by any chance? It would be strange for a Boglehead believer to suggest this.
Insurance is not an investment for income.
These are relatively new products that sound shady to me. I saw some sales guys who were also pushing whole life insurance recommend these with a glossy brochure about this.

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Re: Keys to a Successful Retirement

Post by Levett » Thu Sep 15, 2016 12:46 pm

rgs,

You have just insulted one of the most valued longtime posters at this site.

No. He's a retired economist as I recall.

Take rational issue as you wish, but skip the ad hominem.

Lev

bigred77
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Re: Keys to a Successful Retirement

Post by bigred77 » Thu Sep 15, 2016 1:18 pm

I think this is a great list but I too would be a little leary of a product that combines a lifetime income annuity and LTCI (albeit I have not done a lot of research in this area).

I also don't know if even with this great list of recommendations that the US would see 90%+ of households maintain their pre-retirement living standard in retirement. I think to achieve that we would need to focus and getting people to save much earlier than their 50s. Even then I think a significant population of Americans have to decrease their standard of living in retirement (at least a little) and there's nothing wrong with that. The big driver here is going to be downsizing the house IMO.

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Re: Keys to a Successful Retirement

Post by Grt2bOutdoors » Thu Sep 15, 2016 1:28 pm

rgs92 wrote:You said:
- Purchase ... products that blend life annuity income and LTCi.

I say NO on this. These products are like a wolf (variable annuities with high fees) in sheep's clothing.
Are you a salesperson by any chance? It would be strange for a Boglehead believer to suggest this.
Insurance is not an investment for income.
These are relatively new products that sound shady to me. I saw some sales guys who were also pushing whole life insurance recommend these with a glossy brochure about this.
Yeah, he's a salesman, like we are all salesmen, we sell methods that work and for the fantastic price of zero! That's right, zero cost! BobK is one of the most respected forum members, especially when it comes to retirement issues. You should read up on some of his prior postings, better than a book or two. I have some of his prior posts bookmarked, they are that good.
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Re: Keys to a Successful Retirement

Post by Trader/Investor » Thu Sep 15, 2016 2:30 pm

There is no one shoe fits all when it comes to keys for a successful retirement. Some of us have no need whatsoever for annuities. To me the key to successful retirement has nothing to do with money but good/excellent health.

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DaftInvestor
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Re: Keys to a Successful Retirement

Post by DaftInvestor » Thu Sep 15, 2016 2:38 pm

So pay-off my mortgage before retirement but then take out a reverse mortgage when retired? This seems contradictory to me. If someone wants to ride a mortgage during retirement why not hold their mortgage versus pay it off and then take it out again (along with all the fees that typically come with a reverse mortgage).
Maybe I'm missing something .....

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Re: Keys to a Successful Retirement

Post by wolf359 » Thu Sep 15, 2016 2:46 pm

- Own, don’t rent and pay off the mortgage at or before retirement. In retirement you won’t have to pay rent and there is also a significant tax advantage. You not only don’t have to come up with the income to pay the rent, you also don’t have to pay the income tax on that extra income spent to pay the rent. For most home owners this is a bigger lifetime tax advantage than the home mortgage interest deduction!
I'm not sure I agree with the reasoning. If your primary income is from investments, specifically qualified dividends or long-term capital gains, you probably aren't paying taxes until your income crosses the 15% marginal tax rate.

In the meantime, if the money tied up in home equity were instead invested in the stock market, it is more likely to appreciate faster, supporting the rental payments. In addition, housing payments don't end when your mortgage ends. You still have to allocate funds for property taxes, insurance, and maintenance.

That doesn't mean I don't agree with the OWN sentiment. I like the idea of owning the home free and clear simply to provide a backstop to my retirement. If I have sufficient retirement funds to support a 4% (or lower) SWR, and I'm wrong, I could always sell my house (or use a reverse mortgage) and replenish the funds that way, without going back to work.

wolf359
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Re: Keys to a Successful Retirement

Post by wolf359 » Thu Sep 15, 2016 2:56 pm

Delay taking Social Security benefits for at least two years after retirement, unless you are retiring after turning 68. Delaying Social Security benefits is especially beneficial in a low interest rate environment. Social Security benefits are implicitly tied to average LT real interest rates, not current prevailing interest rates.
One thing I've learned is that there is no generic advice for Social Security. If you're married, everybody's situation is slightly different based on your age, your spouse's age, the earnings record, life expectancies, etc.

Your advice is good, and I intend to take my SS at 70, but my wife will probably take hers at 62. This gives us the best of both worlds -- a steady payment starting earlier in retirement, with the bigger Social Security benefit being deferred to its largest size to maximize the survivor benefit.

SGM
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Re: Keys to a Successful Retirement

Post by SGM » Thu Sep 15, 2016 3:45 pm

It would be nice if people would save the greater portion of their savings after paying off a mortgage or after the kids are out of college. I just talked to a fellow who said he went to his a county retirement planning session where some soon to be annuitants asked do I have a 403b or a 401k? Some people just have no idea about retirement planning.

I have heard your reasoning for tapping house equity in retirement, but I won't be doing it. This may be the ticket for some folks. LTCI has been too expensive and I have chosen to self insure.

Very clearly written Bob, good job again.

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Re: Keys to a Successful Retirement

Post by friar1610 » Thu Sep 15, 2016 4:13 pm

Trader/Investor wrote:There is no one shoe fits all when it comes to keys for a successful retirement. Some of us have no need whatsoever for annuities. To me the key to successful retirement has nothing to do with money but good/excellent health.
While totally in agreement with you about the importance of good health, my experience has been that a successful retirement also has something to do with money (I.e., having a sufficient amount to meet living expenses and, hopefully, a little bit more.)
Friar1610

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nedsaid
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Re: Keys to a Successful Retirement

Post by nedsaid » Thu Sep 15, 2016 4:29 pm

I have carefully read Bobcat2's posts (aka BobK) and have learned some things.

He talks about matching strategies in retirement. A good example of this is just below. The Wiki
has a good article on matching strategies.

We should think in terms of income in retirement and not so much a magic number regarding portfolio size. I liked his idea of guaranteeing future income by duration matching, buying TIPS with an average duration close the duration of an annuity you would purchase in the future. The thinking goes like this: annuities at age 65 typically have durations of about 15. Buying a TIPS fund of similar duration in effect locks in the amount of income you could buy in the future.

The typical approach is to think about portfolio size, asset allocation, and sustainable withdrawal rates. That magic number that allows us to retire. Bob's approach gets us to think things out further. After all, the reason we do all of this is to have sufficient income in retirement to maintain our living standards.

As I recall, Bob likes TIPS ladders.

Bob is an advocate of inflation adjusted Single Premium Immediate Annuities.

He also is not sure that retirees should go into retirement with stock heavy portfolios.

I wasn't aware that he is a retired economist but I am not surprised. He writes with both passion and depth in his posts. He is knowledgeable about the academic research.

Haven't always agreed with his points but you will always learn something.
A fool and his money are good for business.

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Re: Keys to a Successful Retirement

Post by itstoomuch » Thu Sep 15, 2016 6:47 pm

I try to look at strategies of all flavors and presentations.
So far, what I have chosen from all the shows and readings is working.
Still looking, too. :oops:
Bobcat2, can buy me a cheap cup of coffee or minimally we can share a carafe. :mrgreen:
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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k66
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Re: Keys to a Successful Retirement

Post by k66 » Thu Sep 15, 2016 7:10 pm

bobcat2 wrote: ...
- Purchase life annuities in chunks over time as you continue to age. Begin these purchases sometime after you have started taking your delayed Social Security benefits.
That's interesting. Is it based on the idea that as you continue to "survive" you are likely to continue surviving longer (at least to a point)?

Wouldn't purchasing a new annuity at an older age be more expensive (relatively)?

What size of incremental annuity to add and/or at what age?

I guess that there are s lot of variables to play with!
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The Wizard
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Re: Keys to a Successful Retirement

Post by The Wizard » Thu Sep 15, 2016 8:23 pm

BobK's recommendations are reasonable but seem to be targeting folks that are just barely squeeking into retirement.
If you've been saving a healthy amount for the long term since starting full-time employment at age 23, it's entirely possible to have higher take-home pay in retirement than in latter working years.

So we need to look at these things as a box of tools which may be of help depending on your situation...
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Kalo
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Re: Keys to a Successful Retirement

Post by Kalo » Thu Sep 15, 2016 8:34 pm

Bobcat2,

Whenever I see a post from you I always read it and usually learn something new. I don't know of any other poster who emphasizes the concepts that you do, and I suspect you are correct in most of your assertions. I had no idea about liability matching prior to reading your posts, nor about some of the other concepts you discuss. I owe you a debt of gratitude.

The main thing that occurs to me generally is that for early retirees trying to bridge the gap between retirement date and age 70 (assuming they are waiting on SS until then), there do not seem to be great tools available for handling this phase of retirement. If I Bonds purchases were not limited so severely, I would say maybe that would be one candidate (and is provided one can accumulate enough of them in time). TIPS seem really weak to me right now because of the low interest rates. And I wonder how they would perform in a deflationary environment should we enter into one.

Do you know of any other tools one can use to bridge this phase, from early retirement (say mid-50's) until starting to draw SS and buy SPIA's at age 70? If anyone else has input feel free to chime in. I am using a traditional stock and bond portfolio.

Thanks,

Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money." -- Ben Stein/Phil DeMuth - The Little Book of Bullet Proof Investing.

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Re: Keys to a Successful Retirement

Post by The Wizard » Thu Sep 15, 2016 8:38 pm

k66 wrote:
bobcat2 wrote: ...
- Purchase life annuities in chunks over time as you continue to age. Begin these purchases sometime after you have started taking your delayed Social Security benefits.
That's interesting. Is it based on the idea that as you continue to "survive" you are likely to continue surviving longer (at least to a point)?

Wouldn't purchasing a new annuity at an older age be more expensive (relatively)?

What size of incremental annuity to add and/or at what age?

I guess that there are s lot of variables to play with!
Immediate annuities pay out MORE per month per $100k as you get older.

The incremental annuity concept is intended to battle inflation, but there are other ways to deal with this.
I annuitized a healthy sum three years ago at age 63.
My mortgage payment, recast as a HELOC is ~$500/ month but I've been paying 2-4 times that lately to zero it out.
So I'll have an extra $1000 a month or so in disposable income before too long when that's gone.
Then at age 70 full SS kicks in with another inflation fighting boost.

So it's important to understand your net income streams...
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zaboomafoozarg
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Re: Keys to a Successful Retirement

Post by zaboomafoozarg » Thu Sep 15, 2016 9:14 pm

I'll take the risks of retiring at 46 instead of 64.

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Re: Keys to a Successful Retirement

Post by LadyGeek » Thu Sep 15, 2016 9:33 pm

This thread is now in the Personal Finance (Not Investing) forum (retirement planning).
nedsaid wrote:I have carefully read Bobcat2's posts (aka BobK) and have learned some things.

He talks about matching strategies in retirement. A good example of this is just below. The Wiki
has a good article on matching strategies.
Here's the wiki article: Matching strategy

Bobcat2 is also the inspiration behind this wiki article: Life-cycle finance
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Re: Keys to a Successful Retirement

Post by The Wizard » Thu Sep 15, 2016 10:21 pm

zaboomafoozarg wrote:I'll take the risks of retiring at 46 instead of 64.
That's exactly what I meant.
If for some reason you're not quite THERE at age 46, then here, we have some tools to help you fix it by age 50...
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Re: Keys to a Successful Retirement

Post by randomguy » Thu Sep 15, 2016 10:34 pm

wolf359 wrote:
- Own, don’t rent and pay off the mortgage at or before retirement. In retirement you won’t have to pay rent and there is also a significant tax advantage. You not only don’t have to come up with the income to pay the rent, you also don’t have to pay the income tax on that extra income spent to pay the rent. For most home owners this is a bigger lifetime tax advantage than the home mortgage interest deduction!
I'm not sure I agree with the reasoning. If your primary income is from investments, specifically qualified dividends or long-term capital gains, you probably aren't paying taxes until your income crosses the 15% marginal tax rate.

In the meantime, if the money tied up in home equity were instead invested in the stock market, it is more likely to appreciate faster, supporting the rental payments. In addition, housing payments don't end when your mortgage ends. You still have to allocate funds for property taxes, insurance, and maintenance.

That doesn't mean I don't agree with the OWN sentiment. I like the idea of owning the home free and clear simply to provide a backstop to my retirement. If I have sufficient retirement funds to support a 4% (or lower) SWR, and I'm wrong, I could always sell my house (or use a reverse mortgage) and replenish the funds that way, without going back to work.
Rent versus own requires a ton of assumptions that you can't make. Yeah it sounds great having a paid off house in retirement. But if the option is a paid off house OR a pile of cash that is 2x the value of the house, the cash is a lot more appealing. Does investing versus paying off a house/renting give you move money over a 40 year period? Who knows. I know people living in 2k/month rent controlled flats that would retail for 2 million today. Did they win by locking in that low rent and avoid say a 4k/month house payment. Or did they lose by not getting 1 million + in housing appreciation?

As far as retiring at 64, that is an unsuccessful retirement plan in my book.:) Pretty much all these things are about maximizing the chance of not running out of money. That is only part of having a successful retirement.

For longevity insurance, has anybody really looked into the math? Whenever I have run the math, you are getting a marginal return under any reasonable set of assumptions. You need the combo of horrid returns (for say a 50/50 fund, you are looking at the bottom 10% of historical 20 year returns) AND you have to live to 95 or so. You need to be a pretty conservative person (i.e. 0 risk tolerance) for these to make any sense.

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Re: Keys to a Successful Retirement

Post by matjen » Fri Sep 16, 2016 7:29 am

Very nice post BobK. Thank you. As others have said, one size doesn't fit all but this post will certainly fit many!
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Re: Keys to a Successful Retirement

Post by Lieutenant.Columbo » Fri Sep 16, 2016 8:50 am

zaboomafoozarg wrote:I'll take the risks of retiring at 46 instead of 64.
The Wizard wrote:That's exactly what I meant.
If for some reason you're not quite THERE at age 46, then here, we have some tools to help you fix it by age 50...
please, guys, elaborate:
why are the risks of retiring at 46 more palatable than those from retiring at 64?
thank you
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Re: Keys to a Successful Retirement

Post by ponyboy » Fri Sep 16, 2016 8:59 am

Work until age 64? lulz...I stopped reading after this.

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Re: Keys to a Successful Retirement

Post by DVMResident » Fri Sep 16, 2016 11:09 am

bobcat2 wrote: - Own, don’t rent and pay off the mortgage at or before retirement...
- Use home equity in retirement. Seriously consider taking out a reverse mortgage line of credit.
I don't understand this. Why would one want to pay off the debt just to reissue it? The translation costs are high and one would give up liquidity between paying off the mortgage (trapping equity) and taking a reverse mortgage.

Seem much better to maintain a mortgage collateralized by a giant pile of liquid assets (in some interest earning format, like CDs ladders or conservative AA). More flexibility, lower costs.

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Re: Keys to a Successful Retirement

Post by ktd » Fri Sep 16, 2016 11:22 am

Thank you. This list is great. I agree with all of it.

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Re: Keys to a Successful Retirement

Post by ktd » Fri Sep 16, 2016 11:23 am

DVMResident wrote:
bobcat2 wrote: - Own, don’t rent and pay off the mortgage at or before retirement...
- Use home equity in retirement. Seriously consider taking out a reverse mortgage line of credit.
I don't understand this. Why would one want to pay off the debt just to reissue it? The translation costs are high and one would give up liquidity between paying off the mortgage (trapping equity) and taking a reverse mortgage.

Seem much better to maintain a mortgage collateralized by a giant pile of liquid assets (in some interest earning format, like CDs ladders or conservative AA). More flexibility, lower costs.

After lots of research. I agree with reverse mortgage.

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Re: Keys to a Successful Retirement

Post by The Wizard » Fri Sep 16, 2016 11:26 am

DVMResident wrote:
bobcat2 wrote: - Own, don’t rent and pay off the mortgage at or before retirement...
- Use home equity in retirement. Seriously consider taking out a reverse mortgage line of credit.
I don't understand this. Why would one want to pay off the debt just to reissue it? The translation costs are high and one would give up liquidity between paying off the mortgage (trapping equity) and taking a reverse mortgage.

Seem much better to maintain a mortgage collateralized by a giant pile of liquid assets (in some interest earning format, like CDs ladders or conservative AA). More flexibility, lower costs.
I agree.
If destitution is staring at you from the corner of the room, then OK, go with a reverse mortgage to get some sorely needed cash flow for your remaining years.
But I'll wager that 99 out of 100 Bogleheads are not considering this desperation measure...
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Re: Keys to a Successful Retirement

Post by B0bL0blawsLawBl0g » Fri Sep 16, 2016 11:29 am

Hey I know I'm just a (relatively) young whippersnapper, and I still have a lot to learn, but I'll be damned if I'm gonna be working until I'm 64! No thanks!

jrtexas
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Re: Keys to a Successful Retirement

Post by jrtexas » Fri Sep 16, 2016 11:53 am

Why would I need an annuity if I have a Pension? My Pension works the same as an annuity.

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Re: Keys to a Successful Retirement

Post by ilostmywallet » Fri Sep 16, 2016 12:14 pm

i'm not sure if i agree with BobC. Age 64 seems high and whole life insurance might not always be good. be the rest seems decent.

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Re: Keys to a Successful Retirement

Post by flyingaway » Fri Sep 16, 2016 12:22 pm

Trader/Investor wrote:There is no one shoe fits all when it comes to keys for a successful retirement. Some of us have no need whatsoever for annuities. To me the key to successful retirement has nothing to do with money but good/excellent health.
Does a good/excellent health work against your portfolio?

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Re: Keys to a Successful Retirement

Post by itstoomuch » Fri Sep 16, 2016 12:24 pm

We structure our retirement like Bobk's premises.
I modified my signature line.
We will have increasing incomes for the next 10 years from annuities with remainders, or take annuity income prior to full maturity.
We won't need a reverse mortgage however Mother used one and left us a beach house as an inheritance which I am selling to my sister for a reduced sum.
Last edited by itstoomuch on Fri Sep 16, 2016 12:28 pm, edited 1 time in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Keys to a Successful Retirement

Post by flyingaway » Fri Sep 16, 2016 12:26 pm

ponyboy wrote:Work until age 64? lulz...I stopped reading after this.
Work to 64, a retirement calculator says that I will have $6MM saved. Do I need any of those strategies if I only need $60K a year in retirement?

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Re: Keys to a Successful Retirement

Post by rick2427 » Fri Sep 16, 2016 12:47 pm

Grt2bOutdoors wrote:
rgs92 wrote:You said:
- Purchase ... products that blend life annuity income and LTCi.

I say NO on this. These products are like a wolf (variable annuities with high fees) in sheep's clothing.
Are you a salesperson by any chance? It would be strange for a Boglehead believer to suggest this.
Insurance is not an investment for income.
These are relatively new products that sound shady to me. I saw some sales guys who were also pushing whole life insurance recommend these with a glossy brochure about this.
Yeah, he's a salesman, like we are all salesmen, we sell methods that work and for the fantastic price of zero! That's right, zero cost! BobK is one of the most respected forum members, especially when it comes to retirement issues. You should read up on some of his prior postings, better than a book or two. I have some of his prior posts bookmarked, they are that good.
I am sorry if this sounds like dumb question, how do I bookmark a post?---never mind, figured it out :happy
Thanks for an excellent post......it's not perfect but it sure is very helpful. :beer
Last edited by rick2427 on Fri Sep 16, 2016 2:06 pm, edited 1 time in total.

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Re: Keys to a Successful Retirement

Post by Lieutenant.Columbo » Fri Sep 16, 2016 12:56 pm

rick2427 wrote:I am sorry if this sounds like dumb question, how do I bookmark a post?
I learnt recently that you cannot do that within the BH site, but as part using a browser function
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Re: Keys to a Successful Retirement

Post by DVMResident » Fri Sep 16, 2016 1:03 pm

ktd wrote:
DVMResident wrote:
bobcat2 wrote: - Own, don’t rent and pay off the mortgage at or before retirement...
- Use home equity in retirement. Seriously consider taking out a reverse mortgage line of credit.
I don't understand this. Why would one want to pay off the debt just to reissue it? The translation costs are high and one would give up liquidity between paying off the mortgage (trapping equity) and taking a reverse mortgage.

Seem much better to maintain a mortgage collateralized by a giant pile of liquid assets (in some interest earning format, like CDs ladders or conservative AA). More flexibility, lower costs.

After lots of research. I agree with reverse mortgage.
I understand the appeal of the reverse mortgage if you already have the equity trapped in the house.

From a fiscal point of view/retirement planning, why would you *plan ahead of time*, which is proposed in the OP, to (1) buy a house, (2) finance the purchase with a mortgage, (3) then payoff the mortgage, and (4) finally take a reserve mortgage at a cost?

I understand it's common: people have lives to live, families to raise, etc. But from a fiscal point of view, it makes no sense. Each of these steps are expensive. They just occur in the order described from people living normal lives--and not executing some brilliant optimized plan.
Last edited by DVMResident on Fri Sep 16, 2016 1:53 pm, edited 1 time in total.

pennywise
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Re: Keys to a Successful Retirement

Post by pennywise » Fri Sep 16, 2016 1:29 pm

bobcat2 wrote: - Work until at least age 64, if possible. The advice many people don’t want to hear, but more powerful than saving a slightly higher percentage of income every year.
Work till you're 64, they said. It will be fun and profitable, they said...

No way! A huge motivation for us to LBYM, save, invest etc. has been so that at 59 and 63 YO we can walk away tomorrow if we choose. For people who haven't saved, or who aren't able to amass retirement portfolios this might be *necessary* advice but I think it's far from optimal advice. Departing the rat race early has been a helluva motivator and I for one have no intention whatsoever of being chained to this desk for 5 more years :wink:

MathWizard
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Re: Keys to a Successful Retirement

Post by MathWizard » Fri Sep 16, 2016 2:02 pm

While I will agree that Bobcat2's advice to work until at least 64 may not apply to everyone in this group,
This is probably good advice for most ordinary people.

To move back just one year make the nest egg you need much larger.

You lose one year's return when your nest egg is huge.
You pay all your normal expenses for that year.
You lose one year's worth of savings.
You lose any incremental increase in SS due to working on more year.
You have to pay for any work benefits like health care.
You lose the ability to add to your tax-advantaged accounts.

To me that means between 1.5 and 2 years net wages after taxes and retirement savings.

Dialing retirement back 5 years (67 to 62) greatly increased the rate at which I needed to save.

People on his board may have been able to save 30 + % of their income for decades, but most cannot.
I've always saved 15%, but the next 15% was very hard to build up to, and had to be done incrementally,
especially as student loans got paid off, but then saving for college for the kids kicked in soon after that.

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zaboomafoozarg
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Re: Keys to a Successful Retirement

Post by zaboomafoozarg » Fri Sep 16, 2016 4:17 pm

B0bL0blawsLawBl0g wrote:Hey I know I'm just a (relatively) young whippersnapper, and I still have a lot to learn, but I'll be damned if I'm gonna be working until I'm 64! No thanks!
That's a low blow, Loblaw.

B0bL0blawsLawBl0g
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Re: Keys to a Successful Retirement

Post by B0bL0blawsLawBl0g » Fri Sep 16, 2016 6:35 pm

zaboomafoozarg wrote:
B0bL0blawsLawBl0g wrote:Hey I know I'm just a (relatively) young whippersnapper, and I still have a lot to learn, but I'll be damned if I'm gonna be working until I'm 64! No thanks!
That's a low blow, Loblaw.
You don't need double talk. You need Bob Loblaw.

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Re: Keys to a Successful Retirement

Post by leonard » Fri Sep 16, 2016 7:08 pm

I've never understood the basic logic of the advice to buy annuities.

I simply don't understand the logic of taking investing risk for much or most of my investing career. Having my basic stock/bond allocation set to manage my risk to that point. Then, all the sudden, feel the need to get insurance against that risk I have been willing to take for quite a long time up until that moment.

On top of that - annuities are insurance and only as sound as the provider(s).

There may be obscure edge cases where it makes sense. But, the core idea doesn't make sense to me for the average investor.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Re: Keys to a Successful Retirement

Post by Dandy » Sat Sep 17, 2016 7:51 am

Very thought provoking. I'm 68 and mortgage free and am toying with selling and renting in a few years. It is very expensive to own and maintain a house -- taxes, repairs, appliance replacements, landscaping, etc. As I age I find it harder to do some of the work myself and outsourcing is expensive.
I'm sure it can be more expensive to rent but easier to keep clean and tidy.

Also, selling the house will avoid that process later in life, when it could be more disruptive e.g. cleaning out the house, keeping it fresh for prosptecive buyers, moving to a new location, etc. That will be more of a burden for a widow or widower. Also, heirs will have less work. It was a bit of a hassle selling my mother in laws house and we were much younger. I also have to deal with the laundry downstairs and no garage so the risks of slipping on the ice while cleaning off the car or struggling to do the laundry.

I might feel different facing rising rents and noisy neighbors so that is why I'm still toying with the change.

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Re: Keys to a Successful Retirement

Post by Nova1967 » Sat Sep 17, 2016 11:34 am

Work til 64, Huh. Life is too short to put things off

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Re: Keys to a Successful Retirement

Post by VictoriaF » Sat Sep 17, 2016 11:45 am

Dandy wrote:I might feel different facing rising rents and noisy neighbors so that is why I'm still toying with the change.
I am renting and very happy with it. My rent is rising, but it's rising predictably. A homeowner, on the other hand, faces occasional large unpredictable expenses. If my rent rose unreasonably, I'd move to another place. Likewise, my neighbors don't bother me, but if they did I'd move.

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Re: Keys to a Successful Retirement

Post by Sheepdog » Sat Sep 17, 2016 12:13 pm

I like what you wrote, Bob, and I have pondered making comments. I have decided to do so because I am having a successful retirement economically, physically and emotionally....18 years into it at the end of this month and enjoying it.
Economically.....I reached retirement expecting to live off of our savings and Social Security only. At retirement, in late 1998, we had $666K; and, in 2012, my wife added a $178K windfall. That was a total retirement investment funding basis of $844K. Our spending since retirement totals $1047K. Our investments balance is now $940K. (Microsoft Money 98 and 2002 was wonderful...they kept all of this data handily.)
Physically.....I had a heart attack 3 months before retiring and I am still here. I try to walk over 4 miles most days and up to 8 often. At 83, I feel great.
Emotionally.....the most important factor, IMO, for a successful and happy retirement. We are enjoying life.

Save a slightly higher percentage of income each year between now and retirement. This is the standard advice everyone is aware of, but still true. It has the somewhat ‘dubious’ extra advantage of lowering the pre-retirement living standard slightly and thus in turn slightly lowering the targeted retirement income.

- Work until at least age 64, if possible. The advice many people don’t want to hear, but more powerful than saving a slightly higher percentage of income every year.

- Own, don’t rent and pay off the mortgage at or before retirement. In retirement you won’t have to pay rent and there is also a significant tax advantage. You not only don’t have to come up with the income to pay the rent, you also don’t have to pay the income tax on that extra income spent to pay the rent. For most home owners this is a bigger lifetime tax advantage than the home mortgage interest deduction!

- Once the mortgage is paid off, don’t spend that income, but instead make it an additional part of your retirement savings.

- Once the kids have left the nest, don’t spend the income previously spent on the kids, but instead make it an additional part of your retirement savings
.
I did those things. Our savings rate was much higher as I approached retirement and the children were out of college. They left college without any debt. I would not change that. The mortgage was paid off 7 years before retiring. I worked till 65 and that was important for us.
- Delay taking Social Security benefits for at least two years after retirement, unless you are retiring after turning 68. Delaying Social Security benefits is especially beneficial in a low interest rate environment. Social Security benefits are implicitly tied to average LT real interest rates, not current prevailing interest rates.
I didn't do that but I would have if I had thought of it (before Bogleheads).
- If possible delay taking defined benefit pension benefits for the same reasons delaying Social Security benefits is a good idea. Most people aren’t aware that pension benefits can be delayed and that it is actuarially advantageous to do so. But usually they can be delayed.
Not applicable. I did have a defined pension, but I took it as a lump sum as an IRA rollover, which was part of my total listed above. In effect, I could say that I did delay my pension as I did not take anything from that IRA until RMD was required. Whether to take a retirement lump sum is another possible choice for some.
- Purchase life annuities in chunks over time as you continue to age. Begin these purchases sometime after you have started taking your delayed Social Security benefits.

- Consider longevity annuities as part of your annuity purchases. These are life annuities that you purchase at one point in time that do not begin payments immediately as traditional life annuities do, but rather several years after the purchase. If you die before the longevity annuity begins payouts you get nothing, but because of that possibility these life annuities have very high payout rates. They truly are cheap longevity insurance.
I did purchase 3 life and fixed term SPIAs after age 80. They are great for income in late retirement. Now, they along with SS cover more than we need for normal expenses.
- Consider longevity annuities as part of your annuity purchases. These are life annuities that you purchase at one point in time that do not begin payments immediately as traditional life annuities do, but rather several years after the purchase. If you die before the longevity annuity begins payouts you get nothing, but because of that possibility these life annuities have very high payout rates. They truly are cheap longevity insurance.
- Use home equity in retirement. Seriously consider taking out a reverse mortgage line of credit.
I can see these as good considerations for some.
- Purchase Medigap insurance coverage, and consider a long-term care insurance policy, including products that blend life annuity income and LTCi.
Agree. If you wish Long term care insurance don't wait too long. My wife has LTCi, but I don't. I was planning on purchasing, but because of a health condition just 3 months before retiring I was turned down...twice. What do they know? I am healthy today.
- Stay together or get together. It’s true that two can live considerably cheaper than one on a per person basis. The economies of shared living are significant.

Absolutely. Living and sharing with someone is very important for health, care sharing, economic sharing, and peace....especially in late life....but in all adult life.
- Spend more early in retirement. Couples in particular should plan on spending slightly more in early retirement because the probability of their both being alive to age 85 is less than 25% and declines rapidly at ages beyond 85. Gradually cut back spending as you both survive, and annuitize more as you both continue to survive, particularly adding longevity annuitization.
That makes sense for many, but really, if you are fortunate to remain healthy, mentally and physically, that may not be right. We are spending more now than at retirement. We still travel, attend sporting events, theater....actually more so. I would rather plan for a long fruitful life rather than vice versa.
While many people focus on developing somewhat exotic asset allocation strategies in efforts to solve the retirement problem, the solution has little to do with the allocation of investible assets – other than to avoid extreme allocations that are either heavily weighted toward risky assets or heavily weighted toward very short-term low return assets that may seem low risk, but are risky in terms of meeting long-term retirement spending goals- mainly because of the mismatch between the duration of the assets and the liabilities (retirement income).
Yes
Last edited by Sheepdog on Sat Sep 17, 2016 12:18 pm, edited 1 time in total.
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nedsaid
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Re: Keys to a Successful Retirement

Post by nedsaid » Sat Sep 17, 2016 12:17 pm

leonard wrote:I've never understood the basic logic of the advice to buy annuities.

I simply don't understand the logic of taking investing risk for much or most of my investing career. Having my basic stock/bond allocation set to manage my risk to that point. Then, all the sudden, feel the need to get insurance against that risk I have been willing to take for quite a long time up until that moment.

On top of that - annuities are insurance and only as sound as the provider(s).

There may be obscure edge cases where it makes sense. But, the core idea doesn't make sense to me for the average investor.
The logic of annuities is very simple. It is a do-it-yourself pension. If you haven't noticed, private sector pensions are going the way of the do-do bird. Pensions now are mostly enjoyed by government employees but now even government pension plans are under strain as many of them are underfunded.

The whole reason to save and invest for retirement is to have income IN retirement.

There are pitfalls to Single Premium Immediate Annuities. They are not a perfect solution. In the day of disappearing pensions, these have appeal. I see them as a tool in the toolbox and not as the answer to everything. But yes, retirees and near retirees should consider these.
A fool and his money are good for business.

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Re: Keys to a Successful Retirement

Post by leonard » Sat Sep 17, 2016 3:19 pm

nedsaid wrote:
leonard wrote:I've never understood the basic logic of the advice to buy annuities.

I simply don't understand the logic of taking investing risk for much or most of my investing career. Having my basic stock/bond allocation set to manage my risk to that point. Then, all the sudden, feel the need to get insurance against that risk I have been willing to take for quite a long time up until that moment.

On top of that - annuities are insurance and only as sound as the provider(s).

There may be obscure edge cases where it makes sense. But, the core idea doesn't make sense to me for the average investor.
The logic of annuities is very simple. It is a do-it-yourself pension. If you haven't noticed, private sector pensions are going the way of the do-do bird. Pensions now are mostly enjoyed by government employees but now even government pension plans are under strain as many of them are underfunded.

The whole reason to save and invest for retirement is to have income IN retirement.

There are pitfalls to Single Premium Immediate Annuities. They are not a perfect solution. In the day of disappearing pensions, these have appeal. I see them as a tool in the toolbox and not as the answer to everything. But yes, retirees and near retirees should consider these.
Understand the argument for annuities and generally how they work.

However, why would I be willing to manage and live with risk for 30 years or so of my investment life - and then all of the sudden not willing to live with those risks. That simply doesn't makes sense. One would essentially give away the premium they have earned by accepting investment risk - and exchange it. I don't understand what's changes at that inflection point that makes me no longer willing to live with that risk?

Also, I would be exchanging market risk for a completely different - and undiversifiable risk - that of the financial soundness of the annuity provider.

This idea that I have an inflection point where I can no longer tolerate diversifiable market risk - but want to take on the credit risk of an insurance company or set of companies - simply doesn't hold up.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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nedsaid
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Re: Keys to a Successful Retirement

Post by nedsaid » Sat Sep 17, 2016 3:47 pm

leonard wrote:
nedsaid wrote:
leonard wrote:I've never understood the basic logic of the advice to buy annuities.

I simply don't understand the logic of taking investing risk for much or most of my investing career. Having my basic stock/bond allocation set to manage my risk to that point. Then, all the sudden, feel the need to get insurance against that risk I have been willing to take for quite a long time up until that moment.

On top of that - annuities are insurance and only as sound as the provider(s).

There may be obscure edge cases where it makes sense. But, the core idea doesn't make sense to me for the average investor.
The logic of annuities is very simple. It is a do-it-yourself pension. If you haven't noticed, private sector pensions are going the way of the do-do bird. Pensions now are mostly enjoyed by government employees but now even government pension plans are under strain as many of them are underfunded.

The whole reason to save and invest for retirement is to have income IN retirement.

There are pitfalls to Single Premium Immediate Annuities. They are not a perfect solution. In the day of disappearing pensions, these have appeal. I see them as a tool in the toolbox and not as the answer to everything. But yes, retirees and near retirees should consider these.
Understand the argument for annuities and generally how they work.

However, why would I be willing to manage and live with risk for 30 years or so of my investment life - and then all of the sudden not willing to live with those risks. That simply doesn't makes sense. One would essentially give away the premium they have earned by accepting investment risk - and exchange it. I don't understand what's changes at that inflection point that makes me no longer willing to live with that risk?

Also, I would be exchanging market risk for a completely different - and undiversifiable risk - that of the financial soundness of the annuity provider.

This idea that I have an inflection point where I can no longer tolerate diversifiable market risk - but want to take on the credit risk of an insurance company or set of companies - simply doesn't hold up.
The arguments do hold up for one simple reason. We are all getting older. I have enjoyed managing my own investments and have always done so. I am 57 years old and at some point may not want to do that anymore. I may at some point get to be like my parents or grandparents and become very risk averse. Risk tolerance does not necessarily stay constant throughout life.

There is also the issue of declining mental skills. My parents are still living and neither suffer from dementia. Of my relatives, there is a great grandmother that had dementia but I am not aware of any others. My father's parents both experienced stroke. Though Dad gets along well, he certainly is not at the peak of his mental powers. Mom is still sharp.

There is also a time element to all of this. It takes time to track and monitor investments. I can see the appeal of annuitizing part of the nest egg and having an advisory service manage the rest. Free my time up for other things.

As far as insurance company risk, that is a good point. In actual practice, losses on annuities from insurance company insolvency have been rare and small. There are a couple of famous cases but as I recall the investors got their money back. There are also the State Guaranty Associations which help. You would want to spread out the risks by not using just one company and staying below the limits of your State Guaranty Association.

My retirement is 8-10 years off and any annuitization decisions would based on what conditions are then. Too far off so say anything for sure. Likely what I will do is annuitize maybe 20% to 30% of my portfolio and delay Social Security as long as practical. Take probably 4% distributions off of my remaining portfolio.

There is also considerable academic research that says annuitizing a portion of a portfolio takes pressure off of the remaining portfolio and greatly reduces the odds of exhausting a portfolio before death.

This is a complex issue and a lot of things to consider.
A fool and his money are good for business.

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Re: Keys to a Successful Retirement

Post by The Wizard » Sat Sep 17, 2016 6:04 pm

ilostmywallet wrote:i'm not sure if i agree with BobC. Age 64 seems high and whole life insurance might not always be good. be the rest seems decent.
One should AVOID whole life insurance under practically all circumstances.
I can't believe BobK recommended it...
Attempted new signature...

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