Expecting People to Save for Their Own Retirements Doesn't Work

[zxcvbob]

Yup. Anyone who has been able to follow the Vanguard philosophy of, "Don't just do something, stand there." Has done A-OK.

That works for mutual funds.  It often doesn't work for individual stocks.  I've gone down with the ship a bunch of times: Washington Mutual, Federal Mogul, Peabody Coal, etc, etc.  And some others where I should have taken half my money off the table when they were doing unusually well.

[Ben]

That works for mutual funds.  It often doesn't work for individual stocks.  I've gone down with the ship a bunch of times: Washington Mutual, Federal Mogul, Peabody Coal, etc, etc.  And some others where I should have taken half my money off the table when they were doing unusually well.

Agreed. It's why my Ameritrade account is my "gambling account" and the money I want to count on is in Vanguard indexes and the TSP. And yes, I've "gone down with the ship" a few times with individual stocks at Ameritrade. Oh well, income tax deduction. 

Even then, at some point you do have to switch from "just stand there", like when you start getting old and need to move more of your money to boring stuff that pays less, since you'll be be getting too old to stand there and wait for a recovery that may be 10 years out.

[MillCreek]

Unless you sold at the low point and never reinvested you haven't lost anything.  And values have been regained, and then some even since the last correction, never mind all the previous ones.

A common attitude that it is all 'a paper loss'. Yet for those who were retired and drawing from their accounts, it was a very real financial loss unless you had years or decades to recover from it.

[MechAg94]

A common attitude that it is all 'a paper loss'. Yet for those who were retired and drawing from their accounts, it was a very real financial loss unless you had years or decades to recover from it.

I don't disagree.  Your investments at the point of retirement should be different than when retirement is 15 years away.  I am at the point, I need to start putting money in more stable investments I think.  One of my to-do items this year.

[Northwoods]

A common attitude that it is all 'a paper loss'. Yet for those who were retired and drawing from their accounts, it was a very real financial loss unless you had years or decades to recover from it.

Any money you need short term, so within a couple years, should probably be in a cash fund like a money market.  Medium term, 3-10 years out, should be in a higher yielding investment that's lower volitility (e.g. bonds or dividend stocks).  Long term money, <10 years before you need it, should remain fairly aggressively invested since if necessary you can let it ride for a decade to recover if a downturn hits.  In down markets use the low risk money and let high risk things ride.  In an up market shift things to make sure you keep the short and medium term accounts full. 

Prior to the Obama administration there had never been a 10 year period in which the overall stock market was negative.  Since then there's been a few rolling 10 periods that were negative, but if we can keep such types away from the oval office those windows should work reasonably well.  Otherwise maybe extend them by 25-50%.

[Firethorn]

I've been saving a min of 15% (now 20% for the last 3.5 years) of my income for 18 years, I'm have no where near enough to retire yet.

I was a bit curious, so I made a spreadsheet that does simple compounding interest with a steady investment.  Rather than dollars, I just stuck "0.15" in there to represent 15% invested.

At 15% invested, I consider 0.85 as the "magic number" for the annual return where you can retire, as it replaces the income you are used to living on.  Of course, most people don't earn a steady amount through their lives, so later income increases can lower the effectiveness of compounding interest as it moves the goal posts of what you consider replacement income more than simple inflation.  Speaking of which, I'm disregarding that as well.  But then, most retirement calculators tend put you on living at 60% of your income at the end, so oh well.  It's more examining the differences various assumptions make.

Investing 15% at a 5% return, you hit 0.86 at 40 years.  15 years in, compounding interest starts to be a larger factor than your continuing deposit of 15%.  
Change that to a 10% return, .86 is hit after 22 years.  Retire early, perhaps?  But then, that would have implications for health care, so it might be better to wait to retire early 2 more years, at which point your investment would return 1.07 times your income.  Or, even safer, 29 years, when you could switch from probably highly risky(on an annual basis) 10% return investments to much safer 5%.

If you do 20%?  At 10% that's hitting 0.8 at only 18 years.  1.6 times your income at 24.  

I've averaged 9% with my investments, which would be 23 years for 0.85, 31-32 for full replacement income.

It's really quite astonishing how much faster you hit various "retirement points" if you are able to save a good chunk of your income - and that depends more on your spending, I think, than your income.

Of course, keep in mind that the cheaper you live now, the less you can potentially save during retirement.  Sure, you can save money not driving to work every day, but what if your idea of "retirement" is packing into a RV and driving around the country?

[Northwoods]

I've been saving a min of 15% (now 20% for the last 3.5 years) of my income for 18 years, I'm have no where near enough to retire yet.

Then you either have an investment strategy that is absurdly conservative, or your lifestyle expectations for retirement are overly ambitious.  Or some combination thereof.  Unless you have some medical issue that makes health insurance impossibly expensive or simply unobtainable.

[Firethorn]

Then you either have an investment strategy that is absurdly conservative, or your lifestyle expectations for retirement are overly ambitious.  Or some combination thereof.  Unless you have some medical issue that makes health insurance impossibly expensive or simply unobtainable.

At my 9%, without going to 20, it should be about 23 years to hit replacement income.  Which might be "overly ambitious", but if you're retiring early you probably want to be a bit over ambitious to not get caught short.  Also, the more years you expect to be retired, the less you can depend on simply draining some of your capital each year. 

At my age, I'd probably be best off having an investment portfolio where I have a long term investment into riskier, higher gain assets and a short term investment into safer funds for annual living expenses.  Where transfers from the higher-return fund are designed to attempt to do the transfers when such funds are at their strongest vs the safer investments.  Something like an annual equalizing system, where if the high risk assets are at a current low, not much money is transferred, but if the difference is high, a lot of money is transferred.

The low-risk fund would be enough for, say, 5 years of living expenses, and would involve drawing down the balance without regular transfers from the higher risk fund.

[charby]

Then you either have an investment strategy that is absurdly conservative, or your lifestyle expectations for retirement are overly ambitious.  Or some combination thereof.  Unless you have some medical issue that makes health insurance impossibly expensive or simply unobtainable.

I'm saving to retire at 62 (I'm 45), saving like there is not going to be any social security and saving to take a couple big foreign country trips every year as long as I can in retirement and hopefully snowbird on a sailboat in the Caribbean.  

I have a fairly aggressive investment strategy and I do have a defined pension plan (that I am not including). I can't retire today with my savings but I should be bringing home more in retirement (I'm shooting for 50% more) than what I will be making my last years of working.

I've scrimped on a few things (drive older vehicles), but I still go on a out of state hunting trip each year and at least one bigger vacation.

[Northwoods]

I'm saving to retire at 62 (I'm 45), saving like there is not going to be any social security and saving to take a couple big foreign country trips every year as long as I can in retirement and hopefully snowbird on a sailboat in the Caribbean.  

I have a fairly aggressive investment strategy and I do have a defined pension plan (that I am not including). I can't retire today with my savings but I should be bringing home more in retirement (I'm shooting for 50% more) than what I will be making my last years of working.

I've scrimped on a few things (drive older vehicles), but I still go on a out of state hunting trip each year and at least one bigger vacation.

So, very, very ambitious life style goals.  

Normal person retirement requires 60-80% of pre-retirement income.  Not 150%.  Normal is a nice vacation somewhere modest each year, not 2 overseas vacations.  Normal is snowbirding to a golf course in Arizona or Florida, not a sailboat in the Caribbean.

If you can pull that off my hat is off to you.  

[charby]

So, very, very ambitious life style goals.  

Normal person retirement requires 60-80% of pre-retirement income.  Not 150%.  Normal is a nice vacation somewhere modest each year, not 2 overseas vacations.  Normal is snowbirding to a golf course in Arizona or Florida, not a sailboat in the Caribbean.

If you can pull that off my hat is off to you.  

Pending a 1930s depression I'm 90% certain I'll achieve my goals. My parents did it and a few of my relatives did too.

Sadly my parents didn't decide to snowbird or travel, so they are sitting in a pile of a lifetime of retirement savings. They are both 69 and everytime I talk to them, they complain about being forced to withdraw from their IRAs in the next year or 2. I do remind them that they have showed me how not to live in retirement. Dad watches/reads too much conservative news and things he'll be assualted by muslims or leftists if he travels, mom won't go against what dad says.

My aunts and uncles that saved well are having a blast with multiple foreign trips each year.

A sailboat is cheaper than a house on the water Florida

[freakazoid]

Pending a 1930s depression I'm 90% certain I'll achieve my goals. My parents did it and a few of my relatives did too.

Sadly my parents didn't decide to snowbird or travel, so they are sitting in a pile of a lifetime of retirement savings. They are both 69 and everytime I talk to them, they complain about being forced to withdraw from their IRAs in the next year or 2. I do remind them that they have showed me how not to live in retirement. Dad watches/reads too much conservative news and things he'll be assualted by muslims or leftists if he travels, mom won't go against what dad says.

My aunts and uncles that saved well are having a blast with multiple foreign trips each year.

A sailboat is cheaper than a house on the water Florida

Um, what? They didn't spend a lot of money doing things like traveling meaning they now have a lot of money saved, and that is a "sadly"?

[Northwoods]

I think Charby means they're not spending/enjoying the money they saved now that they're retired.  So, sad meaning they're not using it for the purpose originally intended.

[charby]

Um, what? They didn't spend a lot of money doing things like traveling meaning they now have a lot of money saved, and that is a "sadly"?

No, sadly they saved all this money to do things in retirement (like traveling and buying a winter home in the south) and my dad is too scared to travel more than 30 minutes from home because he worried he will be attacked by terrorists, Muslims, Mexicans and wacko leftists.

[cordex]

No, sadly they saved all this money to do things in retirement (like traveling and buying a winter home in the south) and my dad is too scared to travel more than 30 minutes from home because he worried he will be attacked by terrorists, Muslims, Mexicans and wacko leftists.

?
So they're happier doing what they're doing now than doing what they previously thought they'd want to do - or you'd want to do?  To the extent that your dad is unreasonably afraid of things, I guess that is mildly unfortunate, but to the extent that they're financially secure and have the ability to do everything they actually want to and more I'd say they are incredibly fortunate.

[charby]

?
So they're happier doing what they're doing now than doing what they previously thought they'd want to do - or you'd want to do?  To the extent that your dad is unreasonably afraid of things, I guess that is mildly unfortunate, but to the extent that they're financially secure and have the ability to do everything they actually want to and more I'd say they are incredibly fortunate.

I don't think you grasp what I am saying. Simple terms, my parents as long as I can remember, told me and everyone that they were saving extra money since day one to have enough money in retirement so they can take foreign vacations every year as long as they were able and that they were going to own a house somewhere in the SE US to spend the winters in. Even a year after they both retired at 60 they traveled a bit, planning their first foreign trip to Ireland, and were physically looking at places in Florida, Alabama, Mississippi and Georgia. Then something happened to my dad, he shut down, won't even travel 70 minutes to visit me. Mom is unhappy, she still wants to travel and snowbird, Dad throws a fit is she is gone more than a couple days visiting me or my brothers. My baby brother did get in my dad's face and said he is taking mom to Arizona for a week 2 years ago, which he did. Apparently he called about every hour to make sure everyone was still safe. Last time I was at my parents, my mom showed me her passport because she is going to Canada with my brother this summer, dad was pissed about all if, saying things like the boarder agents aren't going to let them back in the US. They live in a university town and a big John Deere factory town, they live in a really affluent neighborhood (paid cash for their house 9 years ago) and dad shits bricks when any of the JD professionals that move in the neighborhood aren't Caucasian or don't speak with a Midwestern accent. Most of these foreign workers are here temporarily working at John Deere and will return to their home countries to manage JD operations over there.

I don't know what happened to my dad, he used to regularly work Southside of Chicago and East St Louis as an electrician for the railroad, used to get pissed at me and my brothers if we pointed out hateful things about minorities or religions different than Christianity. When I visit he is usually in the bedroom and has Fox News or a Religious Channel on the TV, or the local conservative Christian radio station on. Icing on the cake is dad constantly bitches about the winter, then he gets really pissed at me when I say get in your car or truck and drive south until the weather suits you better.

I think for my mom's sanity, they probably should have been a little more extravagant with spending when they were still working. I'm going to be really pissed if they end up leaving me and my brothers with a large estate.

Are they happy, no. Dad is a angry mess and mom is pissed at him.

[Angel Eyes]

they live in a really effluent neighborhood (paid cash for their house 9 years ago) and dad shits bricks

I'm seeing a pattern ...

[charby]

I'm seeing a pattern ...

fixed it, thanks for the laugh

[MillCreek]

Charby, is there any way you can try to get your dad in for a complete physical and workup?  Just from your description, I see things that make me wonder about depression, anxiety and paranoia and the sudden onset makes me wonder about a medical origin, such as TIAs, medication side effects, dementia or the like.

[charby]

Charby, is there any way you can try to get your dad in for a complete physical and workup?  Just from your description, I see things that make me wonder about depression, anxiety and paranoia and the sudden onset makes me wonder about a medical origin, such as TIAs, medication side effects, dementia or the like.

Nope, he'll do physical health exams with a little proding or if he feels bad, but nothing mental. He even quit smoking a few years ago after a really bad pneumonia incident. Drs gave him several mental and physical exams after he got better. I don't disagree he is depressed but he won't seek help. He only take a baby asprin everyday and supposed to take zyrtex for allegeries but he refuses, doesn't like pills other than the asprin.

[cordex]

I don't think you grasp what I am saying.
[snip]
Are they happy, no. Dad is a angry mess and mom is pissed at him.

I'm sorry to hear that.  It's a bad situation, but even with your mom's unhappiness that she can't travel everywhere she wants to, and your dad's mental issues, they're still in better shape than a lot of folks out there.  A lot of people face those same kinds of issues without any resources at all.

[Pb]

Well, Charby, that is sad about your dad.  I guess people get resistant to change as they age.

That being said, if he likes warm weather, Christianity and right wing politics he would love it down here is the South.  Seriously.

[MillCreek]

So I did put together some information for annuity quotes and sent it off to the company's retirement financial advisor.  I ran some quotes on the annuity purchase websites and I will be interested to see how the advisor's quotes compare.  I am looking at a deferred income annuity both single life and single life cash refund, to see how much of a monthly income  a single qualified $ 200,000 premium payment will get me.  Since my wife has her own pension, 403(b) and Social Security, extending the annuity to cover her was not a major consideration.

Between this and Social Security, this may get me close to a relatively guaranteed pension as my wife has through her teaching job.  This will still leave me a big chunk of retirement change in the 403(b) to play the market, but will insulate me at least somewhat from the inevitable downturns when I am retired.

[MillCreek]

I have just bought a single premium deferred income annuity to buy myself a pension.  I did this to hedge myself against the inevitable market downturns after I retire.

It is a single life with cash refund with no riders, pays $1000/month beginning in April 2021, is underwritten by New York Life (A++), the $ 202K premium will be funded by a rollover from my 403(b), and if I die before the full premium amount is paid out, my wife gets the remaining premium refunded as a lump sum.  As of today, this still leaves me with over $ 600K in my 403(b) so I can take advantage of market gains.

If I file for Social Security at age 62, I will have just over $ 3000/month guaranteed income plus whatever the 403(b) is doing at that time.

[Northwoods]

Assuming you retire in 2 years the 403b will hopefully be around $700k. At a 4% withdrawal rate that would give you $28k/year plus the annuity and SSI, so about $64k per year.  Plus whatever your wife gets.  Not luxurious but not pauper-ish either.