retirement analysis - Help please

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Topic Author
ch4pal
Posts: 11
Joined: Sat Nov 13, 2021 3:57 pm

Re: retirement analysis - Help please

Post by ch4pal »

All this exercise is about figuring out how much I can count on if I retire now.
So I don't really have a hard income requirement, I would like to have about $2000.- /mo., but I am trying to look at my situation now and see where I stand.

I am flexible to move to another state (definitely out of the Seattle area), or to Mexico, in order to stretch my dollar more.

Important question: If I stop paying into SS now, and wait until 65 or 70, will the amount lower ? How will this affect my SS ?
I have 31 years worked and paying into SS, the income I have now, and had for the last 3-4 years is the highest I ever had.

I am all for learning how to manage my account, I also like the idea of using Vanguard's Advisors. That seems a good option.
I trust that an expert will have much better understanding of the market that I could ever get, even reading books and getting self-educated.

I understand that this advisor that I talked with is too expensive, will not use him. However, it was a start to figure out a good plan.

One thing he pointed out is that pension does not get adjusted for inflation, so the 730 / mo will have less and less buying power, until it will become really negligible in 10 years or more. That's one reason he advised cashing out and investing.

I also like the idea of cashing out the private pension and living on my funds until age 70 and then claiming SS - again, here the question remains - will SS be affected by the 10 year gap, assuming I will not work after I retire ...

Now, in a rough and primitive way, let's say I chose to get the pension, and draw about 1300.- / mo from my 401K, assuming 0% rate of investment returns, this will deplete my 401k in 10 years, will give me $1300 + 730 each month, and at age 70 I could start my SS, and have that plus the pension.
Would that be feasible ?
twh
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Joined: Sat Feb 08, 2020 3:15 pm

Re: retirement analysis - Help please

Post by twh »

ch4pal wrote: Sun Nov 14, 2021 6:15 pm All this exercise is about figuring out how much I can count on if I retire now.
So I don't really have a hard income requirement, I would like to have about $2000.- /mo., but I am trying to look at my situation now and see where I stand.

I am flexible to move to another state (definitely out of the Seattle area), or to Mexico, in order to stretch my dollar more.

Important question: If I stop paying into SS now, and wait until 65 or 70, will the amount lower ? How will this affect my SS ?
I have 31 years worked and paying into SS, the income I have now, and had for the last 3-4 years is the highest I ever had.

I am all for learning how to manage my account, I also like the idea of using Vanguard's Advisors. That seems a good option.
I trust that an expert will have much better understanding of the market that I could ever get, even reading books and getting self-educated.

I understand that this advisor that I talked with is too expensive, will not use him. However, it was a start to figure out a good plan.

One thing he pointed out is that pension does not get adjusted for inflation, so the 730 / mo will have less and less buying power, until it will become really negligible in 10 years or more. That's one reason he advised cashing out and investing.

I also like the idea of cashing out the private pension and living on my funds until age 70 and then claiming SS - again, here the question remains - will SS be affected by the 10 year gap, assuming I will not work after I retire ...

Now, in a rough and primitive way, let's say I chose to get the pension, and draw about 1300.- / mo from my 401K, assuming 0% rate of investment returns, this will deplete my 401k in 10 years, will give me $1300 + 730 each month, and at age 70 I could start my SS, and have that plus the pension.
Would that be feasible ?
You may find one or both of these paid tools useful...I have used them both over the years:
maximizemysocialsecurity.com
maxifiplanner.com

The Social Security tool is inexpensive and you can do a number of what-if scenarios. For a single person, it will tell you the best option is to wait until 70, but you need cash flow more than you need the maximum social security check.

The other tool is more complicated and more expensive, but for a retired person especially, it gives a good idea as to what you can spend without running out of money. You're able to turn a number of dials regarding longevity, what-if, rates of return and risk level.
MHA556
Posts: 40
Joined: Wed Sep 01, 2021 8:01 am

Re: retirement analysis - Help please

Post by MHA556 »

If you haven’t even got a full 35 years in of SS deposits, then those 4 non-working years are entered in as Zeros, and they will indeed decrease your SS payout. You can figure out exactly how much by exploring on the SS website. You really need to figure this out, as you are using bad numbers currently. How bad, I don’t know, but you need accurate info to even get started in considering whether to retire.

So far I have yet to hear why you need to retire now. You have a couple of options here:

1- Retire ASAP and probably eek by.

2- Keep working at the current employer, increase your pension, increase your financial knowledge. Retire later in a more financially secure manner.

3- Find new employment, collect or cash out the current employer pension, increase financial knowledge, retire later in a more secure manner.


Not much chance that I would suggest taking option #1 in your situation, as even if you are successful, it will be pretty meager. If you are making more progress on your savings than ever before then perhaps plugging away a little longer would be very beneficial.


You can’t afford to pay someone to take 1.25% of your assets every year, not when you are sitting in a less than ideal situation. The folks on here will be more than happy to give you better advice, for free. It isn’t like the advisor is going to be buying and selling for you every day anyhow, they will just stick you in a few funds and check in with you once or twice a year. Better off doing something else.

Also- No chance in the world that I would choose to reside in section 8 housing, unless you enjoy all the crime and drama that goes on in those places. Think of your average rental apartment complex...That is where you probably live now. Then think of the worst one you can think of....and realize that it is likely a section 8 complex....
Topic Author
ch4pal
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Joined: Sat Nov 13, 2021 3:57 pm

Re: retirement analysis - Help please

Post by ch4pal »

I talked with a Vanguard Financial advisor and he will be working with me to figure out a plan.

Confirmed that, should I hire him to manage my investments, there will be a 0.3% per year.
For now I am just looking at options.

I appreciate your input on this, I didn't know about this service. I understand Vanguard has a very good reputation.
ebeb
Posts: 127
Joined: Sat Dec 23, 2017 2:18 pm

Re: retirement analysis - Help please

Post by ebeb »

Vanguard PAS is low cost but I have not used them. Probably they will stick with good low cost vanguard funds. One option is you could try them for 6 months to 1 year and once you have a plan setup properly you can cancel service and get further inputs from people in bogleheads or fee only financial advisers.
63% VOO | 34% BND | 3% CASH
dogagility
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Re: retirement analysis - Help please

Post by dogagility »

Hi Ch4pal,

The advisor suggesting you pull your pension and 401k into an IRA so you can earn 8% return is giving you a load of bunk. In order for you to achieve an 8% return, all of this money would need to be heavily (if not completely) invested in the stock market.

The problem with investing all of this money in the stock market is that there is significant (and likely) chance of a major decline in value for some period of time during the next 9 years. If your 300K becomes 150K after a market crash and the market doesn't bounce back for a few years, then you will have greatly depleted your retirement portfolio and will not be able to bridge the gap between now and age 70.

Here's how i see your plan...
ch4pal wrote: Sun Nov 14, 2021 12:39 am From my SS statement that I received this year:
age 67 - $2,362
age 70 - $3,160
age 62 - $1,365
As other posters have suggested, waiting to claim SS until age 70 is your best option if you're currently in good health. I strongly suggest you wait to claim SS until age 70 since your health seems to be good.

With that decision made, you need to determine how to bridge the 9 years from now until age 70 with your pension, 401k, and potentially part-time work.

You state your monthly expenses are expected to be about $2000, so you need about $24,000/year (adjusted for inflation) for 9 years (bridging the years between now and age 70).
ch4pal wrote: Sun Nov 14, 2021 12:39 am Pension:
I am vested in a small pension, $730.- /mo., with the option to cash it out. The earlier I cash out the more I get.
If I cash out now I can get about $150,000.- The more I wait, the less I get, down to around $100k or so at age 65 - ish.
I have a 401k with about $160,000.-

The plan from this advisor was to cash out my pension and roll it into a IRA, and also transfer that 401K into the same IRA, that would give me about $310,000.- to invest. He suggested a heavy(er) draw from this account until I start my SS - age 67, or 70 - IF the 310k will last that long (he seemed to be confident that it will), and after that start my SS and have that for life.
OK. Let's run two scenarios (using firecalc.com) comparing cashing out the pension versus not cashing out the pension.

Inputs:
$24,000 needed/year for living expenses
Let's assume an inflation rate of 4%/year
Let's assume an annual return of your portfolio of 3% - invested 50% in a total stock market fund and 50% in a total bond market fund

Scenario 1: taking the pension of about $8700/year and making up the remaining living expenses by withdrawing from your IRA ($160,000).
FireCalc Modeling Result: Your IRA will be depleted after about 8.5 years. At that point, you will need to start collecting SS (probably this amount would be about $3000/month, inflation adjusted). However, you would still have your pension income of $730/month.

Scenario 2: Liquidate your pension for $150,000 and roll this (and your 401k) into an IRA.
Firecalc Modeling Result: you will have about $50,000 remaining in your portfolio at age 70. At that point, you will start collecting SS ($3160/month, inflation adjusted). However, you will have no additional income from a pension.

What is my recommendation? Liquidating your pension puts this money at more risk, since there is inherent risk in the stock market. I would choose scenario # 1 because of a greater degree of certainty and more retirement income for a longer period of time. You might live well into your 90s!

As for how to invest your 401k/IRA? Read the Bogleheads wiki. Keep expenses low: use index funds. Choose an appropriate asset allocation: perhaps centered around 50% stock index funds and 50% bond index funds.

You will need to remain flexible in your retirement spending and age at which you begin taking SS. Waiting as long as possible to collect SS will be your best insurance for having sufficient retirement income for your potentially long retirement period. If needed, you may need to get a part time job or reduce your expenses in order to bridge the years prior to claiming SS at age 70.

Cheers!
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
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JoeRetire
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Re: retirement analysis - Help please

Post by JoeRetire »

ch4pal wrote: Sun Nov 14, 2021 6:15 pmNow, in a rough and primitive way, let's say I chose to get the pension, and draw about 1300.- / mo from my 401K, assuming 0% rate of investment returns, this will deplete my 401k in 10 years, will give me $1300 + 730 each month, and at age 70 I could start my SS, and have that plus the pension.
Would that be feasible ?
By "feasible" I assume you mean "will that get me $2000/month?" You wrote that your latest SS statement estimates that you will receive about $2300/month if you start your benefits at 67. So if you start at 70 you will get more (around $2850). Thus, you will clearly have more than $2000/month of guaranteed, inflation-protected income at that time. If you can actually live on $2000/month you are golden (at age 70).

Living on $1300(non-COLA pension) + $730 (from 401k) seems like barely eking out your desired $2000/month. Maybe inflation won't ruin that over the next 10 years, and maybe moving to Mexico will work. Maybe you can find a way to squeak by on less. Maybe you will not have any unexpected big expenses that would deplete your 401k.

I wouldn't be taking that risk if it was me. I would continue working until I was more confident I could fund the rest of my life in the lifestyle I desire.

Your mileage may vary.
I love a good nap. Sometimes it’s the only thing getting me out of bed in the morning.
dbr
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Re: retirement analysis - Help please

Post by dbr »

FireCalc says the proposed plan will fail about a third of the time, looking forward. I don't know what kind of planning tool they are using but the 8% and no mention of investment risk sounds off.

Vanguard VPAS can run a reasonable plan for you and advise what is possible. This may be a good option for you.

Also you are going to lose a few thousand dollars a year of your promised spending to their fee. That is between one and two months of your income.

It is clear that you are getting both a bad plan and ripped off by this advisor. And people wonder why this forum is so negative about financial advisors.
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Alto Astral
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Re: retirement analysis - Help please

Post by Alto Astral »

With these numbers, there is little margin for error. However, there are a few paths to retire now in a LCOL state.
  1. You would want a balanced asset allocation. 60/40 is a fine number. A fund such as Vanguard Balanced Index Fund Admiral Shares (VBIAX) automatically does this for you for an expense ratio of 0.07%. Of the $300k, 40% would be in bonds. This is $120k. At 30k a year expense, the bond portion would last 4 years without any rebalancing. In the 4 years, you would've got some dividends from the fund as well. You can adjust your withdrawal based on that. Rebalance annually
  2. Going 100% in equities in a fund such as Vanguard Total Stock Market Index is very risky at retirement. In the last quarter I got dividends of $900 on that fund for $300k. This would be $300/mo. So you will still need to withdraw a significant amount from the principal
  3. Both 1 and 2 should last for 10 years till you are 70. Then you could live off of just social security. This should be at least $2,500/mo but other's have shown ways to verify it. If the money does not stretch due to market conditions, you would need to draw reduced SS before 70
  4. Over the next 5 years, you should be able to get subsidized ACA. Then Medicare starting at 65
  5. Till you hit SS, some years would be better than others. You seem willing and flexible to adjust.
Given that you want to retire for personal reasons, the above shows at least one path towards retirement. There is a moderate amount of risk.
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4nursebee
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Re: retirement analysis - Help please

Post by 4nursebee »

These decisions (with this amount of money) and I'd be darned if I would give up one darn nickel to an advisor!
I'd be real careful with the phrase "cash out" of a 401k, just "roll over" to IRA.
Maybe read a lot of books? Figure out on your own. Your money or your life is a good one.
I'd real quick come up with a budget analysis. For us that involved saving every receipt, totaling up at end of month. We do this on a google drive and can compare month to month. You have to KNOW what life costs. Decide on an emergency fund amount. Read about and decide on portfolio withdrawal methods. Read about and decide on what asset classes you are willing to be invested in and in what percentages.

Good luck.
Pale Blue Dot
jbinpa59
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Re: retirement analysis - Help please

Post by jbinpa59 »

ch4pal wrote: Wed Nov 24, 2021 2:23 pm I talked with a Vanguard Financial advisor and he will be working with me to figure out a plan.

Confirmed that, should I hire him to manage my investments, there will be a 0.3% per year.
For now I am just looking at options.

I appreciate your input on this, I didn't know about this service. I understand Vanguard has a very good reputation.
if you can't don't want to self manage your accounts +1

Reguarding calculating your Soc Sec Payout
take a look at
https://www.opensocialsecurity.com/
then click on articles on top right

there is an article in there that gives the instructions for determining a pretty close to real IMO SS amount
with quiting work at any age and taking SS at any age 62-70

you'll have to get some info from the "retirement calculator" on ssa.gov go to that page hit menu and scroll down a ways you'll see it

just enter some personal data and projected dates , you can display quite a range of possibilities quiting vs drawing as one table
you don't have to have a MYSocialSecurity account set up to use it
and if you do set up an online account you won't get the mailed printouts anymore

in my case , I do have over 35 year of earnings, maybe not great years, but years with income
using that tool showed me that by not retiring now at 62 and instead working till age 63;
my imeadiete SS take/my 66-10 FRA SS Take / my Delayed filing age 70 take would all increase
as another year at my current income would replace a lower earnings year past 63 it doesn't do a lot for me

You really do need 35 years of earnings to get much from SS those 4 "0"s averaged in really hurt
the printout you have from SocSec DOES assume working till drawing so you would get less than it shows
currently I don't thick your're quite to where you can retire yet,
you might not need to go 4yrs more, but at least a couple more

Good Luck
Get educated on investments and YOU get to keep/use it ALL! You wont need an advisor beyond this site.
chipperd
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Re: retirement analysis - Help please

Post by chipperd »

Run away from this advisor.

Use this calculator to play around with to identify your social security options since you plan to stop working before age 67 : https://ssa.tools/calculator.html

Living on $2k/month in the Northwest sounds tight.
Can you post your current budget at your current location vs proposed budget in Mexico?

Also, does the pension have a COLA?

Keep in mind the very general, very loose rule of thumb that you can count on about 4% of your savings per year, to support yourself in retirement.
Posting the requested info will yield much greater accuracy to the answers you seek.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Topic Author
ch4pal
Posts: 11
Joined: Sat Nov 13, 2021 3:57 pm

Re: retirement analysis - Help please

Post by ch4pal »

Thank you all for all the responses.
Lots of good and helpful information for me !

Just to clarify further:

I will not go with the first advisor that charge 1.25%. That was one conversation that got me started.

I have another phone appointment with a Vanguard advisor. This is just preliminary talk, no decision has been made yet. I find 0.3% per year fee is reasonable, if I decide to go with them.

I don't plan to retire in the NW, I am looking into moving to a lower income state, not decided yet where, I don't have any hard requirements, like I said in a previous post, this is just to see where I stand and what my options could be.

My pension does not have a COLA, that is one of the reasons I am thinking to take the lump sum option and put it into an IRA.

I do like the safety of the $730 a month, especially if the market collapses. However, I also understand that in 10 years or more, the buying power of the $730 will be greatly diminished.

I am familiar with John Bogle books, and I understand the advantage of investing in index funds. That focus will continue.

Currently I live on a little under $3000.- a month, including rent, bills, everything else. I don't have any debt.
The Vanguard advisor tentatively put me at $2,600 a month if I do the pension lump sum + 401K in an IRA, until 67, or 70, when I can start my SS. He advised against waiting until 70, but that is still an option. This was just a starting point we will talk and explore more possibilities at our next phone conversation.

In Mexico the budget will be under $2,000 a month if I chose a cheaper area. Not into big expats community and all the flash.
Would highly prefer to retire in the US, but Mexico could be a plan B if my options are bad.

I am healthy, no medication, nothing diagnosed, so I plan to figure out a cheap Medical insurance, or no insurance for a few years.

I will look at the impact on my SS if I don't work the next 6 - 9 years.

A part time work is also something I am looking at, but I wanted to have a baseline worst case scenario when I retire and not work at all. Extra work will make things easier.


Thank you.
chipperd
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Re: retirement analysis - Help please

Post by chipperd »

ch4pal wrote: Sun Nov 28, 2021 5:56 pm Thank you all for all the responses.
Lots of good and helpful information for me !

Just to clarify further:

I will not go with the first advisor that charge 1.25%. That was one conversation that got me started.

I have another phone appointment with a Vanguard advisor. This is just preliminary talk, no decision has been made yet. I find 0.3% per year fee is reasonable, if I decide to go with them.

I don't plan to retire in the NW, I am looking into moving to a lower income state, not decided yet where, I don't have any hard requirements, like I said in a previous post, this is just to see where I stand and what my options could be.

My pension does not have a COLA, that is one of the reasons I am thinking to take the lump sum option and put it into an IRA.

I do like the safety of the $730 a month, especially if the market collapses. However, I also understand that in 10 years or more, the buying power of the $730 will be greatly diminished.

I am familiar with John Bogle books, and I understand the advantage of investing in index funds. That focus will continue.

Currently I live on a little under $3000.- a month, including rent, bills, everything else. I don't have any debt.
The Vanguard advisor tentatively put me at $2,600 a month if I do the pension lump sum + 401K in an IRA, until 67, or 70, when I can start my SS. He advised against waiting until 70, but that is still an option. This was just a starting point we will talk and explore more possibilities at our next phone conversation.

In Mexico the budget will be under $2,000 a month if I chose a cheaper area. Not into big expats community and all the flash.
Would highly prefer to retire in the US, but Mexico could be a plan B if my options are bad.

I am healthy, no medication, nothing diagnosed, so I plan to figure out a cheap Medical insurance, or no insurance for a few years.

I will look at the impact on my SS if I don't work the next 6 - 9 years.

A part time work is also something I am looking at, but I wanted to have a baseline worst case scenario when I retire and not work at all. Extra work will make things easier.


Thank you.
The highlighted portion of your most recent post set off alarm bells. With your best interest in mind, I am going to be very blunt with the post below, so if that's not your style you may wish to forgo reading the rest of this post.

Skimping or skipping on health care as an expense to afford a certain lifestyle means you can't afford that lifestyle. One moderate, unexpected health incident would be a disaster for your financial life, at least in the states.

This most recent post from another poster (viewtopic.php?f=2&t=363470) is one of the many reasons I asked you to post both U.S. and Mexico based budgets.
"I am currently living in Mexico on a sailboat for a large chunk of the year, but visit the US for roughly 1-2 months per year. Current residence is California.I have an existing expat health insurance plan through Vumi that covers me globally (including the US) which costs roughly 4k in premiums per year and has a 5k deductible."

Is that cost for insurance of $334/month and the $417/month deductible ($5k per year = $417/month so $751/month total) part of your monthly budget in your Mexico plan? Perhaps since you state you are in good health, your premiums would be lower. Perhaps not; research is needed.

Skimping on info provided will lead you to inaccurate or flawed answers and guidance.

Almost all here are here to help, but without accurate and full information, you are running the real risk of making at least one major financial mistake.

I don't mean to rain on your parade, but I am hoping this post does some small part to prevent you from taking on risk without realizing the amount of risk you taking on is reckless.

Taking on risk with knowledge will lead you to an informed choice which in turn leads to much better sleep.

Best of luck to you.
:sharebeer
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Topic Author
ch4pal
Posts: 11
Joined: Sat Nov 13, 2021 3:57 pm

Re: retirement analysis - Help please

Post by ch4pal »

@ chipperd: no hurt feelings, I appreciate blunt and to the point communication.

I am aware of the risks, however, in all my years of working I never used medical besides annual checkups.
Getting older that might change of course.

I have a couple friends in MX and they tell me there are private insurance in MX that could be a lot more affordable. That would cover MX only of course.
Still looking into that, but IF i go to MX i will not travel back and forth to US, will be there for an extended period.

People who retired from my company had some kind of medical insurance extension into pension until age 65, I am looking into that right now.

Thanks !
chipperd
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Re: retirement analysis - Help please

Post by chipperd »

ch4pal wrote: Mon Nov 29, 2021 12:43 pm @ chipperd: no hurt feelings, I appreciate blunt and to the point communication.

I am aware of the risks, however, in all my years of working I never used medical besides annual checkups.
Getting older that might change of course.

I have a couple friends in MX and they tell me there are private insurance in MX that could be a lot more affordable. That would cover MX only of course.
Still looking into that, but IF i go to MX i will not travel back and forth to US, will be there for an extended period.

People who retired from my company had some kind of medical insurance extension into pension until age 65, I am looking into that right now.

Thanks !
Wow, you are an amazing physical specimen. I can see why you would have a difficult time shelling out for health insurance, although, as you note, things may change with age.
I do think MX is your best and safest option from a financial standpoint. Weather will probably be nicer too. At least until social security kicks in.
Looks like you don't need my "best of luck"!
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
dogagility
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Re: retirement analysis - Help please

Post by dogagility »

ch4pal wrote: Sun Nov 28, 2021 5:56 pm I will look at the impact on my SS if I don't work the next 6 - 9 years.
I agree. Dig into this impact by calculating your benefit under various scenarios (suggest using excel). Here's some information on this to get you started: https://www.investopedia.com/retirement ... -benefits/

In any case... with excellent health so far, you will likely have a long retirement and will want to delay taking SS for as long as possible. This is your best insurance for a long, financially non-stressful retirement.
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
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4nursebee
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Re: retirement analysis - Help please

Post by 4nursebee »

FYI, we have money with both Fidelity and Schwab. We have been able to meet with advisors in person at both to review our plans and receive advice. No asset management fees.
Pale Blue Dot
Valuethinker
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Re: retirement analysis - Help please

Post by Valuethinker »

ch4pal wrote: Sat Nov 13, 2021 6:31 pm
I am single no family so I am very flexible.

I am still looking at health insurance, one option would be that my employer will give me an option, or just risk it a few years and not get insurance.
If I move to Mexico I might get cheaper insurance there.

I almost never visited a doctor between age 24 and 50.

I have up for it in my 50s. So have many of my friends. Wheels start dropping off the trolley - genetics and bad luck start to catch up with you - things go wrong. Evolution probably was not that interested in us (particularly men) post the age of having children - which for most men is late 40s.

It is extremely high risk to go without insurance during your 50s and 60s. Even if one has lived a reasonably healthy lifestyle - I don't smoke & I am not overweight etc. One bad illness could wipe out all your financial plans, particularly at American medical costs.

(I no longer can afford private medical insurance given my age and pre-existing conditions, but living in a country (UK) with a National Health Service, I have, in effect, total catastrophic care coverage).

You can withdraw, safely, about 4% of your portfolio pa from age 65 (that's high, but you need at some standard of living so you will have to take that risk). You have been prudent and have no debt. The plan to spend more of your savings now and then switch to SS is not a bad one in terms of maintaining your spending power.

Deferring Social Security for as long as you can is a good idea, because it is guaranteed to keep up with inflation - so provides long term, low risk protection.

If you can generate any other employment income, that will help a lot in terms of surviving financially.
Topic Author
ch4pal
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Re: retirement analysis - Help please

Post by ch4pal »

I had my second phone meeting with the Vanguard advisor.

Basically he laid out 2 options for me to get an income of about $2,600.- dollars a month:

1 - get the pension flat amount each month, roll my 401k into an IRA and draw from it until age 67, when my SS kicks in, then continue to invest in the remainder of my 401k and hopefully make it grow a bit. Pension + SS will be most of my income.

2 - roll my pension and 401k into an IRA, and do the same thing - draw from it a higher % until age 67, then SS kicks in and adjust, and continue to invest whatever is left in the IRA account.

He said he analyzed over 10,000 scenarios and the probability of success is over 99% for both scenarios.

Success is assumed to be - live to 100 years old and have at least $1 left in my IRA account.
The scenarios he laid out for me show a probability that I will have about $100k left in my IRA in the first scenario, and about double in the second, assuming a moderate grow and no economical disaster.

One thing he said that worries me a bit is, if i go with Vanguard and let them manage the whole thing on a 0.3% annual fee, he plans to go with 50% bonds and 50% stocks strategy. I am worried especially about bonds, I don't think they are a good investment now, but I don't know much about it. What are your thoughts ?

So what so you guys think ? Do the 2 scenarios look reasonable ?
Which one would you choose ? (reminder: pension does not have a Cost of Life Adjustment).

Awesome community, I appreciate your time !
ebeb
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Re: retirement analysis - Help please

Post by ebeb »

If you are unable or uncomfortable managing your own funds then .3% managed by vanguard may be ok. Also try for one year and get rid of Vanguard once your portfolio is setup correctly or choose a Vanguard target retirement fund based on retirement age. Also beyond age 60 or in retirement 50% stocks and 50% bonds is not unreasonable. Some people may go bit higher or lower like 55% or 45% depending on their risk tolerance. But definitely going below 40% bonds will be risky now since the current market seems to be somewhat bubble-ish and chances of market crash cannot be ignored. I would go with pension option since you have protection against any market crash which could wipe out substantial amount of the portfolio and hard to say how long it takes to recover 5,7,10 years unsure. Also if possible to get SS beyond 67 like 70 that would be ideal but if not then 67 is next best. Also don't forget to keep a year or more of living expense in say high yield savings account so you don't have to sell from stocks or bonds at low point in case of a market crash.
63% VOO | 34% BND | 3% CASH
chipperd
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Re: retirement analysis - Help please

Post by chipperd »

ch4pal wrote: Wed Dec 01, 2021 5:08 pm I had my second phone meeting with the Vanguard advisor.

Basically he laid out 2 options for me to get an income of about $2,600.- dollars a month:

1 - get the pension flat amount each month, roll my 401k into an IRA and draw from it until age 67, when my SS kicks in, then continue to invest in the remainder of my 401k and hopefully make it grow a bit. Pension + SS will be most of my income.

2 - roll my pension and 401k into an IRA, and do the same thing - draw from it a higher % until age 67, then SS kicks in and adjust, and continue to invest whatever is left in the IRA account.

He said he analyzed over 10,000 scenarios and the probability of success is over 99% for both scenarios.

Success is assumed to be - live to 100 years old and have at least $1 left in my IRA account.
The scenarios he laid out for me show a probability that I will have about $100k left in my IRA in the first scenario, and about double in the second, assuming a moderate grow and no economical disaster.

One thing he said that worries me a bit is, if i go with Vanguard and let them manage the whole thing on a 0.3% annual fee, he plans to go with 50% bonds and 50% stocks strategy. I am worried especially about bonds, I don't think they are a good investment now, but I don't know much about it. What are your thoughts ?

So what so you guys think ? Do the 2 scenarios look reasonable ?
Which one would you choose ? (reminder: pension does not have a Cost of Life Adjustment).

Awesome community, I appreciate your time !
Personally, to let you know my thoughts/comfort level, I need more info, such as:

1) What the actual withdraw percentage is in both scenarios and
2) If the success rates includes health insurance costs.


Note: Assuming you have no I Bonds, were I in your shoes, I would be purchasing 10k in I bonds now and another 10k in I bonds at the beginning of 2022 and use that as my emergency fund. Though I would feel better if that total were 30k (roughly one year's expenses) instead of 20k, so maybe purchase another 10k in I bonds in 2023.
I would also count that 20k (or 30k) in I bonds as part of the bond percentage in your overall portfolio.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
ebeb
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Re: retirement analysis - Help please

Post by ebeb »

Note that you cannot cash out an I bond before holding it for at least a year unlike CDs which you can break by paying some fees. So you will need other emergency cash account also.
63% VOO | 34% BND | 3% CASH
Topic Author
ch4pal
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Re: retirement analysis - Help please

Post by ch4pal »

I put together a discussion starter by doing a very rough estimate so we have some numbers to look at.

All this is WITHOUT taking into account health insurance.
When I retire my company can give me an extension of health insurance at rates close to what I pay now until 65
I could also risk it and go without insurance a few years
If I chose the Mexico option, I will figure out a local private insurance there at lower cost than US
---------------------------------------------------------

Assuming
(1) not working from 61 to 67 – so 0 income for those years into SS, will put my SS at age 67 at about $1,770.- /mo per the estimation calculated at opensocialsecurity.com

Assets:
401k - $167,000
Pension - $730 / mo or $150,000 rollout into IRA - pension does not have a COLA.

In the following I am assuming (for the simplicity of calculation) that the growth is not applied dynamically, but once at the end of the year. No idea how big is the error calculation this way. I am assuming my numbers are lower than if I assumed that the growth is applied dynamically.

I am also looking at 3 possibilities: 0%, 4% and 6% growth
---------------------------------------------------------------------------------
Scenario 1

take pension $730 / mo.
Roll 401k into an IRA and draw $1770 / mo (~13%) from it until 67 years old (6 years)


Starting amount $167,000
At age 67 will have left:
$39,560 (0% growth)
$52,000 (4%growth)
$72821 (6% growth)

Then at 67, start SS $1,770 / mo + 730 pension = 2,500 / mo

The end of the remainder of the money will continue to be invested and will not be touched.
-------------- ------------------------------------------------- -----------------

Scenario 2

roll pension and 401K into an IRA - Total asset value (401k + pension rollout) = $317,000
draw $2,500 / mo (~ 9.5%) until 67 years old (6 years)


Starting amount $317,000
At age 67 will have left:
$137,000 (0% growth)
$202,116 (4%growth)
$240,411 (6% growth)

Then at 67: start SS $1,770 / mo
Now I could
(a) stay at $1,770 / mo, and let the remainder of the account be invested without touching it for some time;
(b) figure out a small distribution from whatever is left in the account, depending on how the market is doing at that time.

-------- ------------------------------------------------------------------------
***************************************
SnowBog
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Re: retirement analysis - Help please

Post by SnowBog »

To call out the obvious, you have no idea that you'll even get 0% growth next year. For all we know, we could have a market correction, and stocks could go down by potentially 50%.

This is one of the reasons retirees typically have a high allocation to bonds. It's not that they expect them to have great returns. But they realize that stocks are higher risk. Having a balance of both stocks and bonds help balance risk and reality.

This is also one of the reasons a pension may be advantageous for your situation. If your good health continues, maybe you live to 100+, and you'll still get the pension (and social security) for as long as you live. If the markets tank, and your portfolio is exhausted, you'll still get the pension (and social security) for as long as you live. Unless you are convinced you'll get more money from investing it (and it will last as long as you live), the pension really feels like a "bird in hand" (aka why give it up?).

Now some tough love...
ch4pal wrote: Thu Dec 02, 2021 10:07 pm I could also risk it and go without insurance a few years
IMHO this is a horrible idea! Especially as you'd probably get free - or very inexpensive - coverage through ACA, and also have access to your employer plan if better / cheaper.

One health issue without insurance could bankrupt you. At which point this discussion is meaningless as you'll have no money left, and be forced to work again or live on government assistance.

There's no [good] reason to take this risk!
ch4pal wrote: Sun Nov 14, 2021 6:15 pm So I don't really have a hard income requirement
Yes you do. Just because you don't know how much it is, doesn't change that you have a "hard" requirement.

It's called "essential expenses". You need a place to live and utilities to live there, you need food to eat, you likely need transportation, you absolutely should have medical coverage included.

And presumably you want to to live on more than just the "essentials", so ideally you'd have some money left over for "discretionary" expenses.
ch4pal wrote: Sun Nov 28, 2021 5:56 pm ...
Currently I live on a little under $3000.- a month, including rent, bills, everything else.
OK, this is more realistic... If you live on $3k/month now, your existing lifestyle is unaffordable with every plan shown. Your numbers don't work.. And that's before we factor in inflation and increases to costs as you age (in particular medical costs), not to mention many retirees want to be able to spend more since they have 168 hours to fill up every week.

Either you need to continue working/saving or you need to decrease your expenses (by something other then rolling the dice without health insurance).

Looking at your current $3k expenses, what are you willing to give up?

Moving to a lower cost area might help, but do you understand actual costs in that area? Some parts of the country might have a lower housing expense, but higher expenses like sales taxes, etc.
ch4pal wrote: Sun Nov 28, 2021 5:56 pm ...
In Mexico the budget will be under $2,000 a month if I chose a cheaper area.
Is that a "real" number or a guess?

Personally, I would not even consider retirement until I was confident:
  • I understood what my "required" living expenses were (inclusive of "essential" and enough "discretionary" flexibility that I'd enjoy retirement)
  • My projected income covers the above with enough buffer to offset future inflation
If the initial numbers look to be in the $2500 (or so) range, I'd be looking first at if/where I could live on that amount. Otherwise, you risk being short from day 1.
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Beensabu
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Re: retirement analysis - Help please

Post by Beensabu »

Nicely done, OP.

There is nothing wrong with 50/50, and there is no need to be worried about bonds.

As long as your pension is solid and there are no fears of it vanishing, my personal preference if it were me would be for Scenario 1, because that would be the $2500/mo. You'd have it. The SS part of that will at least be adjusted for inflation. The pension part will be there if things get cut back a bit with SS. The remainder in the IRA at 67 will be your cushion.

The problem with Scenario 1 is if the equity portion of your portfolio drops by 50% the first year and then you get 0% growth after that (just for pessimism's sake), then the IRA will be depleted right around when you hit 67. Unless you reduce withdrawals over that time period.

Whereas, if that happened in Scenario 2, you'd still have about $57k left in the IRA. But a hard switch from $2500 to $1770 / mo would be significant, especially 6 years down the line. Perhaps a more gradual adjustment?

At least you know the actual monthly benefit you'll qualify for if you stop working now, and that 67 would be the right age for you to take SS in that case. Vanguard PAS might be worth the expense (at least for the next few years) if they can help you manage withdrawals (and maintain asset allocation) when it comes to any significant market fluctuations.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
chipperd
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Re: retirement analysis - Help please

Post by chipperd »

ebeb wrote: Thu Dec 02, 2021 5:59 pm Note that you cannot cash out an I bond before holding it for at least a year unlike CDs which you can break by paying some fees. So you will need other emergency cash account also.
Correct.
The information provided has not been comprehensive, so assumptions have been made to inform my responses.
One of those assumptions I made, since the OP isn't retired, is that he is retiring in more than a year.
Thus OP would have to forgo 3 months interest if he/she cashed in I Bonds between years 1-4 and 11 months.
Given the interest rate OP could get on a 1 year CD or savings account, I Bonds, inclusive of the 3 month interest penalty, are a much higher yielding strategy.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
chipperd
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Re: retirement analysis - Help please

Post by chipperd »

ch4pal wrote: Thu Dec 02, 2021 10:07 pm I put together a discussion starter by doing a very rough estimate so we have some numbers to look at.

OP:
I certainly understand the rough way you presented information to get started but the reality is there is no chance anyone would be able to give you solid answers to your questions without solid, raw numbers.
So again, I would advise you to post U.S. and Mexican retirement budgets with specifics, including health insurance (whether you ultimately purchase or not).
Absent those specifics, at best, this is just a waste of everyone's time, including the Vanguard rep, and at worst, a perpetuation of the current state of denial that is becoming increasingly clear you are residing in.
Don't be afraid of examining and posting the details in creating those two budgets. It's the only way you can really be assured of your plan.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
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