Retirement Targets
- Thread starter yowza
- Start date
I was thinking about this tonight and wanted to take another crack at helping you. Obviously nothing I’m about to say is advice…and I’m not a professional financial planner.
You may already know this, but the greatest risk to your portfolio likely exists within the first five years of retirement. If I were thinking of retiring early, I would tell myself a couple things:
1. Pay attention to my diversification. Especially in the first five years, if the S&P 500 is down 20% or more, I want a bucket I can pull from that is down less or preferably up…be that real estate, oil, bonds…whatever.
2. If I love my job or am just really nervous about going all in on retirement , I might let my wife get out early and opt to have way more fun for a couple years. More and bigger vacations, more dining out, shorter hours, etc. The net over actually retiring would be huge…and I don’t have to worry about getting a job at 55 or whatever if the economy does go south.
I have no idea what your retirement account looks like, but do consider that there’s a decent chance your retirement savings will grow…substantially if you go off of the 4% rule and avoid any real downturn in your first five years. If you start at $2.5 million for example and plan on taking $100k a year, you very possibly could be over $3 million and thinking of upping your annual distribution to $120k after five years. And if you have a 20% drop in year 6…so be it. You only dropped to a little below where you started (and may be back there in a year or two).
Lastly, I’ll just say I do get the real fear of that big drop in the first couple years of your retirement, but my father in law retired in 2006 or 2007…and to my first point, he was so well diversified that they were able to ride out the great recession without having to take money out of their retirement accounts. I believe they were mostly living off rental income.
You’ll make adjustments and figure things out. If you have a 90-99% confidence of success, it seems you are in a pretty solid position. Good luck!
All good stuff, thank you.
1. I've probably become overly conservative over the last couple of years. I built out a CD ladder from 2030-2035 that will fund at least 1/2 our retirement income if needed.
2. Being DINK's, we've been living this life for the last 20 years. She may retire a year earlier than I do, so I can get a feel for it. Lucky for me, I'm friends with some older couples who are currently going through this early retirement process. They have 3x the amount they need to retire very comfortably, but he is struggling with pulling out funds for the first time in his life. I don't love my job, but I've had a lot worse.
Like you said, Bolden predicts our balances to go up over time. Inflation is one of the many things that worries me.
I know some folks around my office who didnt like the auto-bump (with opt out of course) of their retirement plan. Didnt bother me none and it looks as though its working.
Right now it would be roughly a 24% cut to people on SS, which kicks in sometime in 2033. We get nothing done in this country until we reach crisis stage, this will be no different. At some point EVERY elected official that has a say on this is going to have to get together and figure it out, or they will be out of a job if they don't.
I am a Gen X'er that has planned this way. One downside is that I have probably over emphasized savings while sacrificing a bit in the "enjoy life while you are young category". No regrets at the moment though. Hoping to retire at 57, or start working entirely for myself at that point.
Because I planned on SS not being there, I am going to start taking it at 62, or whatever the minimum age is. If I live to be 80 and that decision becomes sub optimal, then I will have lived a long and happy life.
The only thing that would cause me regret is getting killed by dart bus this afternoon. Then I would really regret not living it up more... and not paying more attention while walking in traffic.
H
If I didn’t have a kid with a year of HS left and then college, I could retire. I sacrificed quite a bit when younger. My splurge was a new pickup. I had to sell that when I got married to erase my brides credit cards.
Fear is too strong of word, but yeah, I worry a bit about this. My advice is to stop worrying about the bad things you can't control, like a 10 year bear market that starts right when you retire. You can't live a happy life if you dread things you are powerless to stop.
This is not to say you shouldn't plan for such things, but such a plan has to balance the odds of doom and gloom against the likelihood of good or normal times. If you over plan for the bad, there is a good chance you will leave returns on the table if the next five years produce typical market returns.
Find an asset allocation that balances risk and growth against negative forces, and then just accept that you made the best choice for you and your family with the information you had.
H
I worked for the E Normus Seed Corn Company for 10 years. They had a pension when I started, but phased it out near the end of my time there. They replaced it with a 3% baseline 401k contribution. Even if an employee contributed 0%, the company would kick in 3%. Workers who did contribute could earn another 6% match for a total of 9%. This is easily the best match I have ever had.
After I quit (toxic work culture if you are curious), I got a letter from the pension company offering to buy out my pension for cash. My pension will be about $16,000 per year, so mentally I thought "for a conservative annuity company to pay me that, they need a nest egg of $320,000 or so". The offer was for $70,000 ***.
I was puzzled where that low number came from. I did a quick calculation and found that $70,000 invested in the S&P 500 at that moment and kept there until I reached 65 worked out to around $300,000 given typical market returns. They essentially wanted to shift the burden of turning $70,000 into $300,000+ from their financial team to me. Getting my obligation off their books was probably also a goal.
I rejected the deal from a diversification standpoint. I am already highly leveraged to my own financial decisions. No reason to take a break even deal that puts even more of the burden on my brain. If the market tanks, they still owe me the full amount.
H
*** There was a way to roll the $70,000 directly into an IRA to avoid a tax hit
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IMO, the dominant variable in the Roth vs traditional discussion is length of time in the market, and thus, what fraction of the nest egg is from earnings vs your contributions. Contributions from a 30 year old will double 3 to 5 times from market returns before they retire, which means a Roth has the potential to shield upwards of a million dollars of earnings from taxation forever.
For someone who is a year from retirement, the Roth vs Traditional can become a wash. One year from retirement, you are probably earning the most you have ever made, which means a Roth contribution will be paid out of the highest marginal tax rate you have ever been in. Furthermore, those contributions won't be in the market long enough to earn big market returns.
My plan is to make traditional contributions up to retirement, and then backdoor convert to roth in retirement like crazy, up to the point where I would start hitting the 22% fed tax bracket. The main goal there will be to dodge RMDs if I live long enough where I would be forced to make gigantic withdrawals.
H
We’re you expecting them to pay you an age 65 lump sum amount?
Based on your description, the $70k sounds reasonable, unless I’m misunderstanding
The whole thing was impersonal. I'm not sure who I would have bartered with. I do wish I could have countered.
Admittedly, I didn't put a huge amount of effort into trying to contact them.
H
Wasn't expecting the full amount, but to get me off their books, I was expecting something better than break even, or even slightly below break even.
Mentally, I conducted a reverse exercise: if I had $70,000 lying around doing nothing, would I buy an annuity that pays $16,000 per year starting at age 62 or so (now I don't remember when I am eligible to start withdrawing my pension). I might.... well, I probably wouldn't... but that is somewhat tempting. It is decent diversification against an investment portfolio that is invested mostly in growth and aggressive growth.
Also, I was kind of hoping that they would offer a better deal again in a few years. They have not.
H
Same thing at my current (future former) employer.
It's 6% match with a 2% contribution unrelated to the money I throw in.
Adds up. Much better than those bull **** "match 50% up to your 6%" contribution stuff. Hey, boss....that sure looks like a 3% match to me
I’m strictly Roth right now. Wife is also. We honestly shouldn’t need the money so it is being used as an inheritance tool. Basically taking care of the kids retirement.
