Aiming to Retire End of 2019 - Abit Scared

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gamboolman
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Aiming to Retire End of 2019 - Abit Scared

Post by gamboolman » Sat May 18, 2019 4:17 am

We are planning to retire from International permanent resident expat assignment for megaoil corp effective 1-Jan-20 after almost 42 year of working the oilpatch.

Emergency funds: Yes, ~2+ years, $300K in MM account
Debt: None.

Home: We have kept our home in Texas. It’s paid for and heavily upgraded and all major equipment & appliances have been replaced in last 5 years. All landscaping done. Home worth ~$280K but we do not count it for net worth.

Kids – grown and mostly launched. We still help out and this is accounted for in our retirement budget

Tax Filing Status: Married Filing Jointly
Tax Rate: ~19% Federal, not real sure of this one as been international for last 20 years or so. Taxes done by CPA for international.
State of Residence: TX

His Age: currently 59, will be age 60 upon retirement
Her Age: currently 57, will be age 58 upon retirement

His pay Net ~$360K per year.
Her pay $0
Upon retirement we will continue with Medical, Eye, Dental from megacorp. Cost accounted for in budget. Budgeted amount is ~triple what cost is today.

Current portfolio is about ~$2M
Contributions to savings account rest of 2019 ~$160K
Current monies and retirement assets are spread across Mega Corp, Vanguard and cash
Current asset allocation is 56% Stocks, 30% Bonds, 14% cash

Have choice of pension or lump sum from megacorp. Annual Pension ~$73K per year but NCOLA.
We are planning on Lump Sum as scared of inflation
Lump Sum upon retirement ~$1.27M

Planning to take Social Security at age 67
At age 67, His ~$36K
Hers will be spousal benefit of 50%, ~$18K

Upon retirement, we intend to take the Mega Corp Lump Sum and move it to Vanguard.
We’ll move all of our megacorp funds to Vanguard. We’ll also move money from MM account into the Bond fund

We are aiming to have our consolidated funds asset allocation be:
~50% stocks, 45% Bonds, 5% cash for the funds as shown below. All funds are Admiral funds.
• Total USA Bond Market, VBTLX (~45%)
• Total International Stock Market, VTIAX (~7%)
• Total USA Stock Market (~43%)
• Cash ~5%

Estimated expenses in retirement: ~$126K Net after taxes. Looking for net of ~$10,500 to $11K per month.

We have run Firecalc w/3% inflation and get 100% with some monies left over for a 30 year projection.

We are pretty sure we are good to go, but……are abit skittish.

I should add, we are not planning on any part time work after retirement. I am not planning on coming back and doing contract consulting. The oilpatch has provided us a good living. But after 42 years with about half international in places that no one goes to vacation at, I’m ready to retire to Texas and chase ms. gamboolgal around the 4 poster buck nekid… :P

Questions:
Are we ready to go at years end?
Any advice will be much appreciated.

We want to thank the Boggleheads forum for the knowledge available here. It was invaluable to us in planning our retirement finances.

Thanks, gamboolman & gamboolgal…

basspond
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by basspond » Sat May 18, 2019 5:14 am

Congratulations! We were DIY investor until I retired. We had a similar sized portfolio and the FP I have was most concerned about the first five years. If you dip into your principle it’s hard to make up that money. Also there was a discount for their services with the size of our portfolio. They put us in a high percentage of bonds and dividend generating mutual funds. Just these have been generating over $150k a year. I would at least talk to a FP to get peace of mind. The one we choose explained their strategy and the main thing convinced my wife I could retire when I did. Good luck.

Chip
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by Chip » Sat May 18, 2019 5:46 am

A few random thoughts:

It seems like you have enough, but I don't know how generous or tight your 126k budget is. Our 18 years of retirement have seen fairly dramatic swings in spending, though most of the variability was due to discretionary spending. We went into retirement knowing that we could easily cut back if had to. It's fairly comforting to know that when you go through major market declines.

Do you have any low cost basis company stock in your company plan that would be eligible for NUA tax treatment (net unrealized appreciation) upon your lump sum distribution?

You might get more targeted advice if you give us the breakdown on the location of your 2M in assets. All in taxable? Some in IRAs? I'm assuming the 1.3M will roll to an IRA. Will you have to take any capital gains to move to your desired portfolio?

You should probably spend a good bit of time learning about taxes. I have a couple of those CPA-prepared expat returns in my files. They are a bit overwhelming. Your returns in retirement won't be anything like that. You will almost certainly have tremendous control of the amount and type of income that appears on your tax return each year until such time as you are taking social security and receiving RMDs. Knowing what your taxes will look like for the next few years and then post age 70.5 will help you decide what kinds of tax-saving strategies to employ between now and then.

Having said that, your situation seems nearly perfect for annual Roth conversions post-retirement (and pre-age70.5). You have quite a few years before SS and RMDs, plus you have non-ACA health insurance. Roth conversions between now and then will reduce your RMDs and the likely higher taxes associated with them.

Have you considered delaying social security to age 70 as a form of longevity insurance? Also, is gamboolgal eligible for SS based on her own work record?

If you're worried about inflation you might want to consider some TIPS as part of your bond allocation.

JoeRetire
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by JoeRetire » Sat May 18, 2019 5:58 am

gamboolman wrote:
Sat May 18, 2019 4:17 am
Planning to take Social Security at age 67
At age 67, His ~$36K
Hers will be spousal benefit of 50%, ~$18K
Why would you not wait until 70 to maximize her survivor benefits?
Questions:
Are we ready to go at years end?
Sure seems that way.

It's not clear what scares you.

msk
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by msk » Sat May 18, 2019 6:01 am

Net pay of $360k a year indicates that you are competent enough to take a lump sum instead of a pension. In my experience the majority of people who chose the lump sum option made the wrong decision since they were not capable of growing it to at least keep up with inflation. Often frittered away in the first couple of years if it was a part-cash payoff. Our pension fund offered only a 25% commutation of pension into lump sum because we really did not relish the thought of our pensioners becoming destitute. Our pensions also had COLA, so as safe as one could wish. All pension funds are very careful in making sure that the pension fund is agnostic as to whether an individual takes a lump sum or a pension, with COLA or not, and in line with actuarial tables. My only concern is your leaning so heavily on bonds and cash. OK, comfort level, etc. But keep in mind this. There is always a max withdrawal rate of x.x% of portfolio balance annually below which the remaining portfolio AND the withdrawals will keep up with inflation forever, on average despite yo-yoing with market behavior. These are the max withdrawal rates for a portfolio and withdrawals that keep up with inflation and both last forever:

100% stocks portfolio, max is 5% in any year
100% bonds portfolio, max is 2.5% in any year

Keep those percentages in mind before deciding what is the max fraction you wish to keep in bonds. The higher your NW, the lower fraction you need in bonds. E.g ask yourself whether you really need more than 3 years' expenditures (15%?) to smooth out stock market collapses? I have nil bonds, retired for almost 20 years and my NW has grown significantly throughout, way beyond inflation. Ask yourself why you need 45% in bonds.

JoeRetire
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by JoeRetire » Sat May 18, 2019 6:09 am

msk wrote:
Sat May 18, 2019 6:01 am
But keep in mind this. There is always a max withdrawal rate of x.x% of portfolio balance annually below which the remaining portfolio AND the withdrawals will keep up with inflation forever, on average despite yo-yoing with market behavior. These are the max withdrawal rates for a portfolio and withdrawals that keep up with inflation and both last forever:

100% stocks portfolio, max is 5% in any year
100% bonds portfolio, max is 2.5% in any year
???

This is confusing. Are you saying that if I put all of my assets in stocks, I could safely withdraw 5% every year, forever, no matter what happens with the portfolio and it will always keep up with inflation? And if I were 100% in bonds, the equivalent withdrawal would only be 2.5%?

Do you have a source for this claim?

If that's the case, why would anyone ever be anything other than 100% in stocks?

ad2007
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by ad2007 » Sat May 18, 2019 6:33 am

Firecalc is great, I also use this one:

https://engaging-data.com/will-money-la ... 1&show5x=1

Not sure is that link will work here. Or Google "post retirement calculator engaging data"

There is an adjustment to how flexible your spending will be. That sort of calms my nerves as I also get jittery about whether I'm making the right decision calling it quits (we're about 10 yrs younger also - and health insurance cost is what makes me nervous).

I can always return to work. May I ask you why that's not in your plan B? It might calm your nerves just knowing if the **** hits the fan, your skills are still marketable.

msk
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by msk » Sat May 18, 2019 6:59 am

I did my own research/verification. That's why I am 100% in stocks. I used Shiller's data going back to 1871. 5% withdrawal each year does very well, keeping up with inflation forever, despite world wars, Great Depression, etc. In fact both the annual withdrawal and the portfolio goes up a factor 4x in REAL terms between 1871 and today. I did not have sufficient data on bonds so I used the Monte Carlo simulations in
https://www.portfoliovisualizer.com/mon ... sisResults
You can play with various AA using smaller/larger fractions in bonds and then decide, but stocks always do better long term. Much better. Bonds are to smooth things out and calm your nerves. Let us say you have two people needing the same $100k annually but one starts off with $10 million, the other with $3 million. Suddenly both are hit with a 50% market fall, so the portfolios are now $5 million and $1.5 million. 5% from the larger portfolio is still very capable of paying out $100k, but 5% of the $1.5 million can support only a $75k withdrawal. Hence the chap with the smaller portfolio would have been better off with some bonds, say $2.5 million in stocks and $500k in bonds. 50% fall in stocks leads to $1.25 million in stocks (good for $62k) and he can withdraw the other $38k from his bonds, so he can indeed withstand many years of a depressed stock market (but 50% is a huge fall and is very unlikely to last many years). So bonds are for withdrawing after a severe stock market drop, not for investment and growth. The higher the NW in comparison to annual expenditures, the less the need for bonds. I see nil attraction in bonds as an investment once your NW is > 30x annual expenditure. Others more nervous than myself, fearing a 70% market fall that persists for a decade will have different sentiments.

The Wizard
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by The Wizard » Sat May 18, 2019 8:27 am

I would think further about that $73k pension option. That's a 5.75% payout with what? 100% to survivor?
That would be over half of your annual spend each year and would provide great relief the first decade before SS starts...
Attempted new signature...

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BolderBoy
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by BolderBoy » Sat May 18, 2019 9:22 am

gamboolman wrote:
Sat May 18, 2019 4:17 am
We have run Firecalc w/3% inflation and get 100% with some monies left over for a 30 year projection.

<snip>

Questions:
Are we ready to go at years end?
Yes. I retired at age 61 (now 69) with less than you have and used a 5-8% inflation rate with 3% ROI (but smaller annual expenses) and still got 100% from Firecalc x 35 years.

And in your particular case I'd take the lump sum if it isn't going to be taxed all-at-once.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

nguy44
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by nguy44 » Sat May 18, 2019 9:31 am

To the OP, your numbers are very similar to mine when I retired end of June 2018 at 60. I had a little more in assets (2.4 M). My retirement planning budget was $125K.

I also have the choice of a NO-COLA pension at 73K or a lump sum. I decided to take the pension to diversify my retirement income streams - pension, cash/investment income, and (when we choose to take it) SS. The earlier we would take SS is 64, at which point pension + combined SS + investment income would more that cover our expenses. Should I die first my wife gets 75% of it, that and SS will more than cover her regular expenses so a little less pressure for her dealing with investments to manage a steady income stream.

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WoodSpinner
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by WoodSpinner » Sat May 18, 2019 10:28 am

The Wizard wrote:
Sat May 18, 2019 8:27 am
I would think further about that $73k pension option. That's a 5.75% payout with what? 100% to survivor?
That would be over half of your annual spend each year and would provide great relief the first decade before SS starts...
Agreed — there is greater security with the additional income stream, especially before taking SS. See this thread for some thinking and analysis of a similar question.

Not sure about your health situation but you might also rethink taking SS at FRA and consider deferring to 70 as a longevity insurance play. Open Social Security is a great tool for this analysis.

Lastly, agree with Chip’s recommendation on Roth Conversions between now and the start of RMDs. Not sure how much of your assets are in Tax Deferred Accounts (e.g. IRA, 401K) so this recommendation may need to be revised.

Overall, Congratulations! I think your biggest challenges will be getting used to life in the US and how to spend time in Retirement. Seems like you have enough!

WoodSpinner

P.S. There were a few tools and analytical exercises that really helped me gain comfort in my Retirement decision.

1. Cash Flow/Tax Analysis
2. Monte Carlo Probability Model
3. Retirement Policy Statement
4. Investment Policy Statement

Spent most of 2017 pulling this info together for my Dec2017 Retirement. When you are ready, we can help answer questions on these tools as well.

RadAudit
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by RadAudit » Sat May 18, 2019 10:37 am

gamboolman wrote:
Sat May 18, 2019 4:17 am
We are ……are abit skittish.
Concern is the beginning of wisdom. You've come to a good place to find answers that should work.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

Topic Author
gamboolman
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by gamboolman » Sun May 19, 2019 3:05 am

Thanks to all for the replies, comments and advice.

I've tried to respond best I can with limited pooter skills. We really appreciate the feedback.

It seems like you have enough, but I don't know how generous or tight your 126k budget is. Budget is fat and we can cut back a good bit.

Do you have any low cost basis company stock in your company plan that would be eligible for NUA tax treatment (net unrealized appreciation) upon your lump sum distribution? Yes, and we are planning to take advantage of it.

You might get more targeted advice if you give us the breakdown on the location of your 2M in assets. All in taxable? Some in IRAs? – I will work on this and post it.

I'm assuming the 1.3M will roll to an IRA. Yes

Will you have to take any capital gains to move to your desired portfolio? I don’t know ?

You should probably spend a good bit of time learning about taxes. Yes, this is for sure. We’re willing to pay for specialized CPA and/or attorney for tax planning, as I will admit I do not have a good understanding of all of the implications.

Having said that, your situation seems nearly perfect for annual Roth conversions post-retirement (and pre-age70.5). We will have to look into this, thanks.

You have quite a few years before SS and RMDs, plus you have non-ACA health insurance. Roth conversions between now and then will reduce your RMDs and the likely higher taxes associated with them. OK, we will look into this. We want to minimize taxes obviously, and know we need help in this aspect of planning

Have you considered delaying social security to age 70 as a form of longevity insurance? That is a good suggestion and the reality is that we’ll probably take between 67 and 70. Agree that if we are doing fine health wise / financially – it makes sense to wait.

Also, is gamboolgal eligible for SS based on her own work record? Yes but her earnings were low, so she gets more from taking ½ of mine.

If you're worried about inflation you might want to consider some TIPS as part of your bond allocation. Thanks, will look into these

Planning to take Social Security at age 67
At age 67, His ~$36K
Hers will be spousal benefit of 50%, ~$18K
Why would you not wait until 70 to maximize her survivor benefits? Good suggestion, thanks and we will certainly consider that

Ask yourself why you need 45% in bonds. OK good suggestion, need to study up more to apply to our situation and risk tolerance.

I can always return to work. May I ask you why that's not in your plan B? It might calm your nerves just knowing if the **** hits the fan, your skills are still marketable. Well, never say never….but my work and our life in the oilfield has been, and still is all consuming. 7 days per week, lots of stress and relentless pressure to do more with less. After almost 42 years all we want to do is to spend time with each other, visit family and enjoy each remaining moment we have with each other before the first one of us steps off into eternity

I would think further about that $73k pension option. That's a 5.75% payout with what? 100% to survivor? I really struggle on this and do not disagree with your logic. All I can say is that inflation scares me. Perhaps I am abit of the “afraid of the monsters under the bed” mindset.

That would be over half of your annual spend each year and would provide great relief the first decade before SS starts.... We’ll be batting this one back and forth a lot more for sure

I would think further about that $73k pension option. That's a 5.75% payout with what? 100% to survivor?
That would be over half of your annual spend each year and would provide great relief the first decade before SS starts...
Agreed — there is greater security with the additional income stream, especially before taking SS. See this thread for some thinking and analysis of a similar question. OK, obvious that we need to review this some more and really try to divorce ourselves emotionally from the 3rd and 4th order of failures & Black Swan events while we perform our evaluation.

Not sure about your health situation but you might also rethink taking SS at FRA and consider deferring to 70 as a longevity insurance play. Open Social Security is a great tool for this analysis. Well, I’m dancing with the Prostate Cancer, and have been exposed to a long list of carcinogens and bad actors over the last 4 decades…… more the reason to retire and live each remaining day – like your dying.

Concern is the beginning of wisdom. You've come to a good place to find answers that should work. Yes, ms. gamboolgal and I really appreciate folks willingness to share advice and to offer constructive criticism, and to make us think of things from perspectives we had not considered.

sambb
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by sambb » Sun May 19, 2019 4:58 am

would you retire if the market crashed 30% to 50% or more? you may not be ready.

Dandy
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by Dandy » Sun May 19, 2019 5:23 am

I'd probably take the pension and wait till 70 to take SS. Less reliance on portfolio performance and maximizing the SS COLA for you and spouse. Having such a large income stream will require much less focus, worry or reliance on your ample portfolio.

JoeRetire
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by JoeRetire » Sun May 19, 2019 5:29 am

msk wrote:
Sat May 18, 2019 6:59 am
I did my own research/verification. That's why I am 100% in stocks.
Your own research. Okay.
You can play with various AA using smaller/larger fractions in bonds and then decide, but stocks always do better long term. Much better.
Okay. What does "long term" mean in your context? Will you have "long term" available throughout retirement?
Bonds are to smooth things out and calm your nerves. Let us say you have two people needing the same $100k annually but one starts off with $10 million, the other with $3 million. Suddenly both are hit with a 50% market fall, so the portfolios are now $5 million and $1.5 million. 5% from the larger portfolio is still very capable of paying out $100k, but 5% of the $1.5 million can support only a $75k withdrawal. Hence the chap with the smaller portfolio would have been better off with some bonds, say $2.5 million in stocks and $500k in bonds. 50% fall in stocks leads to $1.25 million in stocks (good for $62k) and he can withdraw the other $38k from his bonds, so he can indeed withstand many years of a depressed stock market (but 50% is a huge fall and is very unlikely to last many years). So bonds are for withdrawing after a severe stock market drop, not for investment and growth.
Uhm, okay. Let me see if I follow.

So if you have $10M, and instead of choosing to withdraw 5% (which would be $500k), for some reason you choose to withdraw only 1%, you'll be still capable of withdrawing 1% even if the market tanks by 50%.

On the other hand if you have only $3M, you won't be able to withdraw 5% if the market tanks the same way. Thus you should have had some bonds.

I don't see how this supports the "100% in stocks" theory, nor does it seem to support the "stocks always do better long term. much better" theory. And it doesn't appear to have anything to do with the "5% safe max withdrawal rate that keeps up with inflation and lasts forever:" theory either.

But if your analysis tells you that you have sufficient funds to support 5% withdrawals, and you actually intend to withdraw only 1%, then I don't see that you have anything to be a bit scared about.

Chip
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by Chip » Sun May 19, 2019 5:34 am

Do you have any low cost basis company stock in your company plan that would be eligible for NUA tax treatment (net unrealized appreciation) upon your lump sum distribution? Yes, and we are planning to take advantage of it.
We have done this recently. It's not a simple analysis in my opinion. You may wish to keep some stock "forever" (though most here would recommend this be a small amount). You may wish to use some for charitable gifts you are planning. You may wish to take some out to your taxable account and sell it at no tax cost if you land in the 0% capital gains bracket (which is probable).
Will you have to take any capital gains to move to your desired portfolio? I don’t know ?
This is important. Your proposed portfolio is fine, but you must understand the tax cost you'll pay to get there. Your plans may change somewhat based on that cost.
You should probably spend a good bit of time learning about taxes. Yes, this is for sure. We’re willing to pay for specialized CPA and/or attorney for tax planning, as I will admit I do not have a good understanding of all of the implications.
Based on what I've read here, finding someone who does that sort of planning vs. just tax prep can be a little difficult. But reading here can teach you a great deal. There are many discussions here about very sophisticated and nuanced tax planning strategies for the early retirement period. Another good resource is the Kitces website. Learning what you can before you go to a pro will almost certainly cause you to get more value for your dollar.
You have quite a few years before SS and RMDs, plus you have non-ACA health insurance. Roth conversions between now and then will reduce your RMDs and the likely higher taxes associated with them. OK, we will look into this. We want to minimize taxes obviously, and know we need help in this aspect of planning
This is discussed nearly every week here. Tune in to those discussions, ask some questions, learn.
Also, is gamboolgal eligible for SS based on her own work record? Yes but her earnings were low, so she gets more from taking ½ of mine.
One option available to you is for her to claim SS based on her work record (as early as age 62), while you let your ultimate benefit grow. When you claim at age 70 she switches to claiming on your benefit. Note that if she claims before her "full retirement age" (FRA) of 67, her benefit is reduced. So if you went with your original plan and claimed at your age 67, she would be 65 and wouldn't get the full 50% of your benefit. You can learn about all of this and ask questions here. I also recommend forum member Mike Piper's book "Social Security Made Simple".
Ask yourself why you need 45% in bonds. OK good suggestion, need to study up more to apply to our situation and risk tolerance.
Always remember that this allocation decision is yours. People's opinions here about what is optimum are heavily colored by their own experiences. What works for them may not for you. 45% bonds, in my opinion, is certainly a reasonable allocation for someone retired at age 60. Frankly, anything from 20/80 to 100/0 could be reasonable depending on the particular situation.
I can always return to work. May I ask you why that's not in your plan B? It might calm your nerves just knowing if the **** hits the fan, your skills are still marketable. Well, never say never….but my work and our life in the oilfield has been, and still is all consuming.
Returning to work has NEVER been our plan B. We'd had "enough" at work. We had the "fat" budget like you. Plan B was to cut it. Plan C was to cut it more. Plan D was to move to a smaller place and cut it even more. Fortunately we've never had to go to even Plan B. Despite 2001-2 and 2008-9.

cherijoh
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by cherijoh » Sun May 19, 2019 7:48 am

JoeRetire wrote:
Sat May 18, 2019 6:09 am
msk wrote:
Sat May 18, 2019 6:01 am
But keep in mind this. There is always a max withdrawal rate of x.x% of portfolio balance annually below which the remaining portfolio AND the withdrawals will keep up with inflation forever, on average despite yo-yoing with market behavior. These are the max withdrawal rates for a portfolio and withdrawals that keep up with inflation and both last forever:

100% stocks portfolio, max is 5% in any year
100% bonds portfolio, max is 2.5% in any year
???

This is confusing. Are you saying that if I put all of my assets in stocks, I could safely withdraw 5% every year, forever, no matter what happens with the portfolio and it will always keep up with inflation? And if I were 100% in bonds, the equivalent withdrawal would only be 2.5%?

Do you have a source for this claim?

If that's the case, why would anyone ever be anything other than 100% in stocks?
I think what msk has neglected to mention is that he is talking about 5% of the recent balance of his nest egg. (The often-quoted Trinity study SWR of 4% is based on an inflation-adjusted 4% of the initial nest egg balance so therefore leads to a smoother, more predictable albeit withdrawal amount). So if his 100% stock nestegg drops by 40%, his maximum withdrawal from his nest egg will also drop by 40% for that period.

There probably aren't that many retirees who are willing to deal with that wild of a ride. However, there are actually lots of different withdrawal strategies. You might want to check out this thread (viewtopic.php?f=10&t=192105) about Michael McClung's book on Prime Harvesting.

dknightd
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by dknightd » Sun May 19, 2019 7:57 am

I don't think you need to be scared. You have plenty of money, and a generous budget you can trim if you want.

Worse case, it does not cost much to "retire to Texas and chase ms. gamboolgal around the 4 poster buck nekid"

You might want to look at several potential budgets and scenarios.
Having a fat budget is a good goal, but in my planning I split things up. How much would we/I/her need to be happy and comfortable. How much would we like in the "fat" budget. I did not even consider the third option, which would be "how much do we need to survive", and I don't think you need to either.

Then I looked at 3 possibilities. 1) We grow old and die on the same day. 2) She dies first. 3) I die first.
One could outlive the other by many years. I planned so that no matter what realistically might happen we would be comfortable.

In your shoes I'd delay my SS benefits till 70. That is my current plan. That provides the highest survival benefit should one of you out live the other by many years. SS has at least some COLA protection. I can always change my mind if things change. My wife qualifies for SS under her own earnings, but like you her benefit is less than 1/2 of my FRA benefit. It does not really matter much when she claims. We opted for her to claim at FRA, so her spousal benefits would not be reduced when I finally claim.

I'd probably take your pension even if it is susceptible to inflation. In fact I will essentially be buying a pension (SPIA). I'll buy one that has 100% survivor benefits. Inflation is a danger but it acts slowly (hopefully) so there is time to adjust. And people tend to naturally spend less as they get old (assuming medical expenses are covered).

I like the 3 foot stool model. Part SS, part pension, part investments. So I will be buying a pension. If you are worried about your company pension, then consider taking the cash out and using some of it to buy your own pension. One option for this would be https://www.immediateannuities.com/

I admit, I'm also a bit scared. This is a big transition. But realistically neither one of us should be scared. We should be looking forward to it. I know I am ;) :)

Edit: If one foot of my stool breaks. I still think we'll be OK. It is easier to balance on two feet than one foot
Last edited by dknightd on Sun May 19, 2019 8:24 am, edited 2 times in total.

retired early&luv it
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by retired early&luv it » Sun May 19, 2019 8:15 am

You did much more financial planning than I did before I retired in my late 50s. But do you have a plan on what you will do to keep from getting bored.

Early retirement is a huge culture shock. I retired and never looked back, I had enough hobbies and other activities to keep busy. Also, for several months before I retired, I took one day of vacation each week, thus worked four instead of five days a week to transition a bit.

But some of my friends were working part time again within three months after retirement because the lack of structure that the job offered in their daily lives meant that they were starting to get bored, they needed some structure and direction in their lives and were doing part time professional work again to get that structure.

A distant relative, before he retired he had plans to teach part time at a university, was also anticipating some offers for temp work as a upper level executive, etc. But when I saw him again a couple years after he retired, he was talking about the China trip he had just taken and some of the other non-working activities that kept him busy? Doing real work again was the last thing in his mind.

Have you thought about what you will do?

WhyNotUs
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by WhyNotUs » Sun May 19, 2019 8:22 am

Congrats on your upcoming retirement! You are better prepared that almost everyone currently living on this planet due to your hard work.

A couple thoughts to consider. Given your exposure to contaminants, I would consider early to mid-80's for myself and mid-90's for my wife for financial planning, so she might have a decade of living expenses. That would have me thinking about a few things:

• I would at least consider long term care insurance.
• If my pension ended upon my death, then I would take the lump sum. If it had survivorship then I would keep the annuity. $6k a month from it and $3k a month from SS and later $1.5k a month for wife would be great buffer from market fluctuations and could allow you to be a little more aggressive with IRA funds if you want to build a remainder fund.

I am assuming the 14% cash is the emergency fund, if not, I would have it invested.

Enjoy your retirement!
gamboolman wrote:
Sat May 18, 2019 4:17 am
We are planning to retire from International permanent resident expat assignment for megaoil corp effective 1-Jan-20 after almost 42 year of working the oilpatch.

Emergency funds: Yes, ~2+ years, $300K in MM account
Debt: None.
Current portfolio is about ~$2M
Contributions to savings account rest of 2019 ~$160K
Current monies and retirement assets are spread across Mega Corp, Vanguard and cash
Current asset allocation is 56% Stocks, 30% Bonds, 14% cash

Have choice of pension or lump sum from megacorp. Annual Pension ~$73K per year but NCOLA.
We are planning on Lump Sum as scared of inflation
Lump Sum upon retirement ~$1.27M

Planning to take Social Security at age 67
At age 67, His ~$36K
Hers will be spousal benefit of 50%, ~$18K
I own the next hot stock- VTSAX

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kellyfj
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by kellyfj » Sun May 19, 2019 8:27 am

Two things jumped out at me
His Age: currently 59, will be age 60 upon retirement
Her Age: currently 57, will be age 58 upon retirement
and
We have run Firecalc w/3% inflation and get 100% with some monies left over for a 30 year projection.
I believe the stats are now that any couple aged 65 now, there's a 50% one spouse will live to age 95
See https://www.cbsnews.com/news/living-too-long-is-a-risk/
And a 65-year-old couple has a 45 percent chance -- almost 50-50 -- that one of them will survive to age 90.
And that's the current odds - the likelihood that medicine improves in the next 30+ years is high.

I would re-run your calculations with a 35 to 40 year projection.
Secondly with the Fed reconsidering the modest effect of QE and now thinking about letting the economy run "hot", perhaps inflation will be a bit higher than recently it might be better to use an inflation rate of 3.5%

https://www.advisorperspectives.com/dsh ... -inflation

Also does your partner expect any Social Security income from any income she's had in the past?

Lastly if you die the day after you retire - does her Firecalc look good out to age 95 (37 years!).
You generally seem in good shape - but with such a long time horizon it's good to think about the worst case.

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Bogle7
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Don't be scared. Prepare.

Post by Bogle7 » Sun May 19, 2019 8:51 am

1. Take the lump sum. Take control of your money. What if megaoil does a BK in the next 30 years? Your pension could be reduced significantly.
2. Spend the $40 with https://maximizemysocialsecurity.com and analyze various scenari. I did and decided in the end to take SS at 68.
3. Don't buy any expensive toys upon retiring. No F-350, boat, airplane. Always hesitate.
4. Don't buy any expensive experiences. No cruise for you. If you want to do some travel, start domestically and learn about AirBnB and packing light.
5. Have more stocks and fewer bonds in your portfolio. See academic works from https://www.kitces.com .
6. Use Fidelity's planner https://www.fidelity.com/calculators-to ... d-guidance as it is very conservative. For example, it says my wife will have just $100K when she dies at 95, while FireCalc says $1.5M-$14M.

wtjbatman
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Re: Don't be scared. Prepare.

Post by wtjbatman » Sun May 19, 2019 9:55 am

Bogle7 wrote:
Sun May 19, 2019 8:51 am
4. Don't buy any expensive experiences. No cruise for you. If you want to do some travel, start domestically and learn about AirBnB and packing light.
They're either going to have 2 million in investments plus a pension paying $73k per year, or 3.7 million in investments... and they shouldn't go on a cruise? :shock:

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Bogle7
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Re: Don't be scared. Prepare.

Post by Bogle7 » Sun May 19, 2019 9:58 am

wtjbatman wrote:
Sun May 19, 2019 9:55 am
They're either going to have 2 million in investments plus a pension paying $73k per year, or 3.7 million in investments... and they shouldn't go on a cruise?
I meant right after retiring. They are nervous. Should take it easy on spending at the beginning of retirement.
After a year, they will feel much better.
And, yes, I think they have plenty of money. But, they don't think so at this time.

InMyDreams
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by InMyDreams » Sun May 19, 2019 10:06 am

It sounds like you've been living overseas for quite a while. Many years ago, my parents moved back to the States after 25 years in Asia. Even tho they had been in and out of the States over the years, it's still an adjustment, especially cost of living. Even tho they had a home to move into, they still had a lot of tweaking to do. I think they had a lot of expenses for the first year of the move, and so were quite conservative with their spending for a while. But all worked out in the end, and they really enjoyed their retirement.

One of the things they really enjoyed, a habit left from their years overseas - travel! They went to see things that they had not had time to do while working, and there were friends to go visit. You may want to do the same, and have a place for it in your expenses.

Also - my father continued to consult, maybe once or twice a year, for a few years after retirement. It was pretty lucrative, but the expertise he brought to the table diminished rapidly after his retirement. Nonetheless, that bit of income supplementation was useful. Also, there are low-paying jobs that can nonetheless be interesting and rewarding - sometimes you find them by volunteering and working into the position.

I agree that you need to plan on at least one of you living to 95. There are longevity calculators out there, not sure if any of them give stats for a couple??
Last edited by InMyDreams on Sun May 19, 2019 12:55 pm, edited 1 time in total.

trueblueky
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by trueblueky » Sun May 19, 2019 10:40 am

I agree with the sentiment that the most important scenarios to consider are the scary ones people don't want to think about:

1) you get hit by a bus tomorrow and she lives 40 more years, the last 10 in assisted living of some type

2) one of those carcinogens gets you, you have an expensive fight with cancer for 10 years before passing, and she lives 30 years after that, the last 10 in assisted living of some type

I don't see any problem with your retiring now. My concerns would be for what is best for her. (This reflects my own situation with some differences. I have a COLA'd pension, no Social Security; DW gets 55% when I pass.)

Traveler
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by Traveler » Sun May 19, 2019 12:07 pm

I wouldn't be scared or skittish at all if I were in your situation. Based on your "fat" budget need, you could take the annuity pension of $73,000 and once SS starts, you cover the fat budget. So you would only have to take from the $2M portfolio until you decide to take SS. One thing I don't recall seeing is if the annuity pension leaves anything for your spouse if you pass before her. Is it 50% survivorship? 75%? 100%? That, along with the reduction in SS should you pass earlier, is something to think about, so as to leave her with adequate savings. But even then, I think you are set for a long retirement and probably to leave an estate to your kids.

Congratulations on being where many of us hope to be in the future!

raoul
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by raoul » Sun May 19, 2019 12:14 pm

People like you slay me with your worries over nothing. I and others have retired on 1/10th of what you listed and are doing great. You can't take it with you when you die okay? LOL

Garfieldthecat
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by Garfieldthecat » Sun May 19, 2019 12:20 pm

JoeRetire wrote:
Sat May 18, 2019 6:09 am
msk wrote:
Sat May 18, 2019 6:01 am
But keep in mind this. There is always a max withdrawal rate of x.x% of portfolio balance annually below which the remaining portfolio AND the withdrawals will keep up with inflation forever, on average despite yo-yoing with market behavior. These are the max withdrawal rates for a portfolio and withdrawals that keep up with inflation and both last forever:

100% stocks portfolio, max is 5% in any year
100% bonds portfolio, max is 2.5% in any year
???

This is confusing. Are you saying that if I put all of my assets in stocks, I could safely withdraw 5% every year, forever, no matter what happens with the portfolio and it will always keep up with inflation? And if I were 100% in bonds, the equivalent withdrawal would only be 2.5%?

Do you have a source for this claim?

If that's the case, why would anyone ever be anything other than 100% in stocks?
MSK's claim seems a bit high. Looking at this chart, his/her claim doesn't seem to hold true.

Image

marcopolo
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by marcopolo » Sun May 19, 2019 1:10 pm

People seem to keep missing that msk is talking about 5% of the current portfolio each year. The table below is based on a percentage of the initial portfolio, adjusted for inflation.

The first method will never run out of money, but the amount available to spend each year can vary widely, with no guarantee that it will meet your needs.

The second approach maintains purchasing power, but there is no guarantee that the portfolio will last your lifetime.

The two approaches solve different problems and have different risks. They are not comparable.
Garfieldthecat wrote:
Sun May 19, 2019 12:20 pm
JoeRetire wrote:
Sat May 18, 2019 6:09 am
msk wrote:
Sat May 18, 2019 6:01 am
But keep in mind this. There is always a max withdrawal rate of x.x% of portfolio balance annually below which the remaining portfolio AND the withdrawals will keep up with inflation forever, on average despite yo-yoing with market behavior. These are the max withdrawal rates for a portfolio and withdrawals that keep up with inflation and both last forever:

100% stocks portfolio, max is 5% in any year
100% bonds portfolio, max is 2.5% in any year
???

This is confusing. Are you saying that if I put all of my assets in stocks, I could safely withdraw 5% every year, forever, no matter what happens with the portfolio and it will always keep up with inflation? And if I were 100% in bonds, the equivalent withdrawal would only be 2.5%?

Do you have a source for this claim?

If that's the case, why would anyone ever be anything other than 100% in stocks?
MSK's claim seems a bit high. Looking at this chart, his/her claim doesn't seem to hold true.

Image
Once in a while you get shown the light, in the strangest of places if you look at it right.

Thegame14
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by Thegame14 » Sun May 19, 2019 1:43 pm

I think you are in great shape. Only two thiings I will say are if home is paid off $125K per year of expenses seems insanely high espeically when you are in a LCOL area, being that house is worth $280K.

Second I would take the $73K with COLA, unless you think company will go out of business, is the pension back by the company or money set in an account at a third party?

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gamboolman
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by gamboolman » Sun May 19, 2019 11:40 pm

If I die, The pension is 100% survivor for ms gamboolgal
Until she passes
Pension is NCOLA

msk
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by msk » Mon May 20, 2019 7:32 am

"MSK's claim seems a bit high. Looking at this chart, his/her claim doesn't seem to hold true."

Two aspects to check:
1. Did that chart use a zombie-like increase of withdrawals to keep pace with inflation (as used in the 4% "rule")? This is NOT how rational people behave. A market fall will cajole any sane person to cut back on his expenses.
2. Are dividends included?

Help! How can I post my actual charts using Shiller's data anonymously? Might make the discussion clearer.

JoeRetire
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by JoeRetire » Mon May 20, 2019 8:45 am

cherijoh wrote:
Sun May 19, 2019 7:48 am
I think what msk has neglected to mention is that he is talking about 5% of the recent balance of his nest egg. (The often-quoted Trinity study SWR of 4% is based on an inflation-adjusted 4% of the initial nest egg balance so therefore leads to a smoother, more predictable albeit withdrawal amount). So if his 100% stock nestegg drops by 40%, his maximum withdrawal from his nest egg will also drop by 40% for that period.
Sure. But if that's the case, then any percent would work for any mix of assets. You could, for example, decide that it's safe to withdraw 50% of the remaining balance any given year. There would be no magic 5% and 2.5% for equity and bond based portfolios respectively.

I'm guessing that's not what was actually intended.

JoeRetire
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by JoeRetire » Mon May 20, 2019 8:47 am

marcopolo wrote:
Sun May 19, 2019 1:10 pm
People seem to keep missing that msk is talking about 5% of the current portfolio each year.
Then why the magic 5% when any percent will work equally well?

marcopolo
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by marcopolo » Mon May 20, 2019 11:49 am

JoeRetire wrote:
Mon May 20, 2019 8:47 am
marcopolo wrote:
Sun May 19, 2019 1:10 pm
People seem to keep missing that msk is talking about 5% of the current portfolio each year.
Then why the magic 5% when any percent will work equally well?
I have not seen his simulations, but my guess would be that the 5% provides a reasonably good (for him) balance between drawing a higher percentage than assuming worst case historical performance ("4% rule"), and too much draw down resulting in 5% being insufficient to support spending needs. Some advocate combining the "percent of current portfolio" with a floor on withdrawal such as "inflation adjusted percent of initial portfolio".

I am not sure one is necessarily better than another. Like i said, i think they are just trading off different kinds of risk.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Aiming to Retire End of 2019 - Abit Scared

Post by Valuethinker » Mon May 20, 2019 12:13 pm

gamboolman wrote:
Sat May 18, 2019 4:17 am
We are planning to retire from International permanent resident expat assignment for megaoil corp effective 1-Jan-20 after almost 42 year of working the oilpatch.

Emergency funds: Yes, ~2+ years, $300K in MM account
Debt: None.

Home: We have kept our home in Texas. It’s paid for and heavily upgraded and all major equipment & appliances have been replaced in last 5 years. All landscaping done. Home worth ~$280K but we do not count it for net worth.

Kids – grown and mostly launched. We still help out and this is accounted for in our retirement budget

Tax Filing Status: Married Filing Jointly
Tax Rate: ~19% Federal, not real sure of this one as been international for last 20 years or so. Taxes done by CPA for international.
State of Residence: TX

His Age: currently 59, will be age 60 upon retirement
Her Age: currently 57, will be age 58 upon retirement

His pay Net ~$360K per year.
Her pay $0
Upon retirement we will continue with Medical, Eye, Dental from megacorp. Cost accounted for in budget. Budgeted amount is ~triple what cost is today.

Current portfolio is about ~$2M
Contributions to savings account rest of 2019 ~$160K
Current monies and retirement assets are spread across Mega Corp, Vanguard and cash
Current asset allocation is 56% Stocks, 30% Bonds, 14% cash

Have choice of pension or lump sum from megacorp. Annual Pension ~$73K per year but NCOLA.
We are planning on Lump Sum as scared of inflation
Lump Sum upon retirement ~$1.27M

Planning to take Social Security at age 67
At age 67, His ~$36K
Hers will be spousal benefit of 50%, ~$18K

Upon retirement, we intend to take the Mega Corp Lump Sum and move it to Vanguard.
We’ll move all of our megacorp funds to Vanguard. We’ll also move money from MM account into the Bond fund

We are aiming to have our consolidated funds asset allocation be:
~50% stocks, 45% Bonds, 5% cash for the funds as shown below. All funds are Admiral funds.
• Total USA Bond Market, VBTLX (~45%)
• Total International Stock Market, VTIAX (~7%)
• Total USA Stock Market (~43%)
• Cash ~5%

Estimated expenses in retirement: ~$126K Net after taxes. Looking for net of ~$10,500 to $11K per month.

We have run Firecalc w/3% inflation and get 100% with some monies left over for a 30 year projection.

We are pretty sure we are good to go, but……are abit skittish.

I should add, we are not planning on any part time work after retirement. I am not planning on coming back and doing contract consulting. The oilpatch has provided us a good living. But after 42 years with about half international in places that no one goes to vacation at, I’m ready to retire to Texas and chase ms. gamboolgal around the 4 poster buck nekid… :P

Questions:
Are we ready to go at years end?
Any advice will be much appreciated.

We want to thank the Boggleheads forum for the knowledge available here. It was invaluable to us in planning our retirement finances.

Thanks, gamboolman & gamboolgal…
The pension is high enough that one would need to check the PBGC limits - a lot of airline pilots had their pensions severely cut when their employers declared Chapter 11 and turned the pension plan over to the PBGC.

Whilst having no COLA is a concern, that's a very good pension to just give up on. $73k would be a bit like having a fixed income portfolio of over $1m -- an equivalent SPIA would cost c. 20x that? As long as the employer is solvent and the pension does not have a huge deficit, I would urge you to consider taking it. Yes at 3% CPI inflation it will fall in value by half over 24 years, but that's quite a long time in this world.

(that assumes it has a 50%+ spousal survivor benefit. If it does not, and assuming you are male, then there's quite a bit of risk you will not have a long and healthy retirement. You should also take the lump sum if you have a genuinely life shortening condition or reason to believe you will not live to the average life expectancy (which is quite high for professionals in your situation).

The effect is to allow you to take significantly more risk with the rest of your portfolio.

Your other alternative is to take that $1.2 m and put it into TIPS bonds - either a ladder or a TIPS fund (easier). That will, before tax, give you (roughly) full inflation protection plus a 1% real rate of return. No other strategy gives you guaranteed inflation protection.

One other strategy for partial inflation protection is to delay Social Security to age 72. Actuarially that's a wash (the Present Value of taking it at any given year is roughly the same assuming average life expectancy) but in terms of starting with a higher CPI indexed amount, delay is a good thing.

bltn
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by bltn » Mon May 20, 2019 4:34 pm

So 4% of the pension lump sum is 5000/month before taxes. Any inflation adjustment will depend on your money management
, including adjustments in spending, and the markets . The security of the pension depends in part on the likelihood of your company to be around another 35 years. With the pension annuity, the need for your money management is reduced but doesn't disappear. You ll have to make your own spending adjustments for inflation for the pension disbursement portion of your income.
In your position, I would take the lump sum pension option. But, I ve always managed my own pension money with a 401k plan. Without a good bit of experience in my own money management, I might reasonably prefer the annuitized payout.
Good for you for selecting the payout plan with the 100% survivor benefit.
Congratulations on your accumulation, and best of luck.

Dottie57
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by Dottie57 » Mon May 20, 2019 4:43 pm

The Wizard wrote:
Sat May 18, 2019 8:27 am
I would think further about that $73k pension option. That's a 5.75% payout with what? 100% to survivor?
That would be over half of your annual spend each year and would provide great relief the first decade before SS starts...
Agree. 1.27 million 4% withdrawl is $50,800. 73k is a great starting income stream. No cola, but you have SS and 2 m portfolio for growth.

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HomerJ
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by HomerJ » Mon May 20, 2019 5:17 pm

msk wrote:
Sat May 18, 2019 6:59 am
I did my own research/verification. That's why I am 100% in stocks. I used Shiller's data going back to 1871. 5% withdrawal each year does very well, keeping up with inflation forever, despite world wars, Great Depression, etc.
5% withdrawals did not work during the Great Depression, or during the 1960s-1970s.

Unless you were willing to cut back expenses 50%-80% for a period of time.
You can play with various AA using smaller/larger fractions in bonds and then decide, but stocks always do better long term. Much better. Bonds are to smooth things out and calm your nerves. Let us say you have two people needing the same $100k annually but one starts off with $10 million, the other with $3 million. Suddenly both are hit with a 50% market fall, so the portfolios are now $5 million and $1.5 million. 5% from the larger portfolio is still very capable of paying out $100k, but 5% of the $1.5 million can support only a $75k withdrawal. Hence the chap with the smaller portfolio would have been better off with some bonds, say $2.5 million in stocks and $500k in bonds. 50% fall in stocks leads to $1.25 million in stocks (good for $62k) and he can withdraw the other $38k from his bonds, so he can indeed withstand many years of a depressed stock market (but 50% is a huge fall and is very unlikely to last many years). So bonds are for withdrawing after a severe stock market drop, not for investment and growth. The higher the NW in comparison to annual expenditures, the less the need for bonds. I see nil attraction in bonds as an investment once your NW is > 30x annual expenditure. Others more nervous than myself, fearing a 70% market fall that persists for a decade will have different sentiments.
Ah, what msk is saying is if you have WAY more than you need, then you can do 5% withdrawals. I mean, WAY more.

If you need $100,000 a year, and you have $10 million, you can easily swing between $250,000 and $500,000 withdrawals. Even during the Great Depression, you might have been down 80% at one point, but you still had $2 million, and could withdraw the $100,000 you needed.

But most of us don't have 4x-5x more than we need. Instead we have $2.5 million and need $100,000 in retirement. During the Great Depression, we would be down 80% at one point, and only able to pull $25,000 that year. That's a pretty big drop from $100,000.
Last edited by HomerJ on Mon May 20, 2019 5:25 pm, edited 2 times in total.
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HomerJ
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by HomerJ » Mon May 20, 2019 5:22 pm

marcopolo wrote:
Sun May 19, 2019 1:10 pm
People seem to keep missing that msk is talking about 5% of the current portfolio each year. The table below is based on a percentage of the initial portfolio, adjusted for inflation.

The first method will never run out of money, but the amount available to spend each year can vary widely, with no guarantee that it will meet your needs.

The second approach maintains purchasing power, but there is no guarantee that the portfolio will last your lifetime.

The two approaches solve different problems and have different risks. They are not comparable.
This.

Technically, one can pull 90% of their money every year and never run out of money. You might still starve to death, but you'll never run out of money!

Pulling 5% every year means there might be years when you spend $100,000 and years when you spend $20,000. If you're able to cut back that much in a bad year, then it could work for you.
The J stands for Jay

JoeRetire
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by JoeRetire » Mon May 20, 2019 5:37 pm

Valuethinker wrote:
Mon May 20, 2019 12:13 pm
One other strategy for partial inflation protection is to delay Social Security to age 72. Actuarially that's a wash (the Present Value of taking it at any given year is roughly the same assuming average life expectancy) but in terms of starting with a higher CPI indexed amount, delay is a good thing.
Delay to 72?

msk
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Re: Aiming to Retire End of 2019 - Abit Scared

Post by msk » Tue May 21, 2019 4:08 am

JoeRetire wrote:
Mon May 20, 2019 8:47 am
marcopolo wrote:
Sun May 19, 2019 1:10 pm
People seem to keep missing that msk is talking about 5% of the current portfolio each year.
Then why the magic 5% when any percent will work equally well?
It's very simple to do all these simulations. Download Shiller's reconstituted SP data going back to 1871 and then play with the data in your own style and nervousness. Easy since you get the whole data set already in a spreadsheet. What I was looking for to match MY circumstances:

I assumed that my dividends get taxed 15% (like a withholding tax). If you wish to ignore tax on dividends you can actually go up to 5.5%
Pick the start at 1871, amount of investment = SP value at 1871 January
Withdraw each month (5/12)% of the capital+(dividend-tax on dividend)
Deflate balance by the CPI for that month
Reinvest deflated balance. Repeat each month

You may of course use annual time steps, or 3-year time steps. Longer timesteps smooth out yo-yoing (my college alma mater uses 3 years for their endowment fund...)
What I was looking for: Deflated Portfolio balance by 2017 to be at least equal to what I started with in 1871. 5% achieves that, 6% shrinks the REAL value of your remaining portfolio. 4% grows the remaining portfolio in REAL terms. Of course it's easy to pick an exact percentage that delivers exactly the same REAL portfolio balance in 2017 as it started in 1871, but I was looking for round numbers. I then checked the REAL value of the annual withdrawals. I was pleasantly surprised that the annual real offtake was mostly greater than in 1871 and never drastically lower. The reason is that dividend yields have historically been much higher than the current <2% and disastrous market falls were normally preceded by huge market rises, so even the Great Depression did not cut my withdrawals to less than half of what they were in 1871. Of course, for very nervous people you can imagine that you start the process at a market high (like currently) and we get a nasty wack of the Great Depression in 2020. All possible!

After all that I played with portfoliovisualizer Monte Carlo simulations to get corroboration. I got it. Nevertheless these Monte Carlo simulations have certain issues that one ought to be aware of. The history used, as I understand it, is only 30 years. Were I to set it up myself I would have tried to use Shiller's entire history from 1871 (but of course that's not available for various asset classes, just the SP). Secondly in life there is some correlation with a bad month/year being followed by a similar one but the Monte Carlo simulations assume each data point as random. Hence the extremes of the Monte Carlo results are probably over-stated. I prefer to focus on the range between the 75 percentile and the 25 percentile, rather than the 90/10. Anyway it's easy to do the Monte Carlo simulations for both 100% stocks and 100% bonds AND verify that the 50 percentile curve in each remains level in REAL terms (i.e. keeps up with inflation) for 70 years (but note that the base history was only 30 years). Anyway play with the Monte Carlo simulations and choose your own fear level :greedy More fear, more you leave behind when you pop off :oops: For me I have decided on 5% on stocks, 2.5% on bonds. Hence I own nil bonds. For many BHs the withdrawals from an investment portfolio are supplemented by something less variable, be it SS, an annuity, a pension, etc. Hence even if the stock market falls 80% it does not translate automatically to an 80% fall in immediate expenditure limits. Food for thought. For those with an emotional attachment to the 4% rule: Go ahead and inflate your withdrawals to keep pace with inflation, zombie-like, but please when the offtake surpasses 5% yank it back and stay within 5%. You will feel much more at peace that way. With 2% average inflation/year it'll allow you several years of zombie behavior but watch it! Do not exceed 5% unless you expect to pop off soon...

JoeRetire
Posts: 2569
Joined: Tue Jan 16, 2018 2:44 pm

Re: Aiming to Retire End of 2019 - Abit Scared

Post by JoeRetire » Tue May 21, 2019 4:43 pm

msk wrote:
Tue May 21, 2019 4:08 am
JoeRetire wrote:
Mon May 20, 2019 8:47 am
marcopolo wrote:
Sun May 19, 2019 1:10 pm
People seem to keep missing that msk is talking about 5% of the current portfolio each year.
Then why the magic 5% when any percent will work equally well?
It's very simple to do all these simulations. Download Shiller's reconstituted SP data going back to 1871 and then play with the data in your own style and nervousness. Easy since you get the whole data set already in a spreadsheet. What I was looking for to match MY circumstances:
So when you wrote:
"But keep in mind this. There is always a max withdrawal rate of x.x% of portfolio balance annually below which the remaining portfolio AND the withdrawals will keep up with inflation forever, on average despite yo-yoing with market behavior. These are the max withdrawal rates for a portfolio and withdrawals that keep up with inflation and both last forever:

100% stocks portfolio, max is 5% in any year
100% bonds portfolio, max is 2.5% in any year"


You actually meant:
"... assuming you are me, with only MY unique assumptions and circumstances. Your mileage will vary."

Okay.

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