U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Retirement
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 02-08-2016, 06:52 AM
 
Location: Sherman Oaks, CA
6,239 posts, read 15,452,895 times
Reputation: 8110

Advertisements

It's all a numbers game with various probable outcomes. There is never any certainty. I'm planning to work until I'm 70, because people in my family tend to live into their 80s and 90s. What if I'm the exception to that rule, and die when I'm 75? Well, then I'll leave a nice legacy to my children. Of course, this assumes that I remain in reasonably good health until I drop dead, because a lingering illness can wipe you out.

I'm more afraid for the many baby boomers who didn't plan for the future at all, and are now looking at a life of roommates and eating cat food.
Reply With Quote Quick reply to this message

 
Old 02-08-2016, 07:01 AM
 
71,700 posts, read 71,829,507 times
Reputation: 49273
Folks are and have always been adaptable to their income. While yes many do get roomates very few eat cat food.

Like water , incomes seek their own level and most folks make it work regardless of how high or low .

Which is why over and over you see folks throwing numbers out and saying if you need more then x-amount you must be wasting money.

But the reality is we all earned different amounts when working and had different lifestyles so why should that change at retirement.

Half of americans never had a decent savings or money in the first place so why should their retirement be any different .
Reply With Quote Quick reply to this message
 
Old 02-08-2016, 07:50 AM
 
Location: Central Massachusetts
4,800 posts, read 4,851,516 times
Reputation: 6379
Quote:
Originally Posted by Robyn55 View Post
You plan on the basis of what exists today. While making an educated guess about what might take place a bit down the road (like 5 years max - after 5 years - all bets are off). Because current trends tend to continue. This is of course easier in some areas than others. Like fixed income. It is utter nonsense to plan on the basis of historical fixed income returns in today's interest rate environment. Note that "fixed income" is what it says it is. A way to "fix your income". For various lengths of time (often more than 5 years). I can to some extent tell you what our income will be 5+ years down the road - because a fair % of our fixed income investments don't mature/can't be called in < 5 years.

The biggest wild card for most people is trying to plan for future equity returns. When my husband and I retired - we took a very pragmatic approach to that issue. Namely that we had no way of knowing what future equity returns would be. So we looked at what kind of fixed income we could generate off our investment portfolio - and we planned our lifestyle/spending around that. We did - from time to time - put relatively small parts of our portfolio into equities. But we never took that money into account in terms of figuring out what we could spend.

It is probably the same type of analysis that people who have other fixed income sources - pensions - social security - annuities - do. They look at their relatively steady sources of income when they plan for their non-discretionary fixed living expenses. It's exactly what you'd do if you were still working and collecting a pay check.

FWIW - it was very easy for us to adopt this approach. Because - when we were working - our incomes were very uncertain. They could vary by a factor of 5 from year to year (one big lawsuit could change things from so-so to fantastic). The thought of living like this - and possibly having to recalibrate every year or couple of years (how do you do that???) - especially as we got older - wasn't acceptable (when we were young - we lived way under our means because of our income uncertainty).

Note that to the extent that I read about these issues - I pay the most attention to articles about things like asset allocation in pension funds. And the concept of matching cash flows to liabilities. A fair amount of the (relatively dense) writing in this area these days strongly suggests that pension funds should have a lot more in fixed income than they do now. And companies/public entities should be making much larger contributions to the funds as well. Because what they have to do down the road is pay out relatively certain amounts of money to plan beneficiaries. You don't want to fund relatively certain liabilities with totally uncertain cash flows. It is basically the same issue retirees face when figuring how to pay their non-discretionary expenses (albeit on a much larger scale).

Note that peoples' individual situations can vary a lot. For example - a person whose certain income streams from pensions/social security/etc. cover all their fixed non-discretionary expenses can - theoretically - afford to take more risks in an investment portfolio. Someone whose certain income streams doesn't cover those expenses can't afford to take the risks. Also - even if one can afford to take the risks - why would he/she want to? Assuming even a modest fixed income portfolio return would provide a particular person with all the (little) discretionary luxuries/indulgences he/she wants? Robyn


You make a great point on those that have pension and SS income that can cover all non-discretionary spending and expenses. Not only can they afford to take risks they can do a couple of other things. One if they have saved up enough they can self insure LTCi. Another thing those folks can do is use it as play money should they decide that they gave up a lot over the years to accumulate that sum. They can use it to buy toys that they might decide they have always wanted but because they were in the accumulation phase they couldn't.
Reply With Quote Quick reply to this message
 
Old 02-08-2016, 01:06 PM
 
7,936 posts, read 5,048,234 times
Reputation: 13596
Quote:
Originally Posted by golfingduo View Post
You make a great point on those that have pension and SS income that can cover all non-discretionary spending and expenses. Not only can they afford to take risks they can do a couple of other things. ...
Robyn indeed made a good point, about greater potential risk-capacity for persons with a more or less guaranteed income-stream in retirement, such as a US federal government pension, or a military pension. But the problem is that this greater capacity - like all freedoms - also carries a down-side, which is getting in over one's head. Many of us are flustered and aghast at finding ourselves in a position of freedom, and we mismanage it. Straitjackets are excellent at precluding self-harm.

Suppose that Joe Blow is a career-fireman, with a good county public-service pension waiting for him. Joe's uncle dies, leaving Joe with $1M in cash. Joe meets with a financial advisor, who recommends investment in 30% bonds and 70% stocks. Joe has no debts and is doing fine with his own annual savings. Because he has been budgeting for decades to live off of his eventual pension, his inheritance is just a windfall. He plans on leaving it to his favorite charity after he dies, or maybe to his best friend's cousin's kids (in this example, Joe has no heirs). So he follows his advisor's advice. And 6 months later, his $1M is down to $750K. Now what?
Reply With Quote Quick reply to this message
 
Old 02-08-2016, 01:28 PM
 
71,700 posts, read 71,829,507 times
Reputation: 49273
The answer is that so far time after time ,over and over , when we have decades of time markets magically always end up. The only money you should have in equity's is your money for eating many many years from now.

The question of what if this time they are not has never been an issue for most.

So like we plan around waking up tomorrow morning and being alive odds are somehow things always seem to turn around and turn out okay.

No matter what the world events were 90% of the time you ended with more then you started.

We can all put visions in our head of why things should blow up and go badley but somehow things not even on the radar alter the obvious course
Reply With Quote Quick reply to this message
 
Old 02-08-2016, 04:14 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,938,980 times
Reputation: 6716
Quote:
Originally Posted by ohio_peasant View Post
Robyn indeed made a good point, about greater potential risk-capacity for persons with a more or less guaranteed income-stream in retirement, such as a US federal government pension, or a military pension. But the problem is that this greater capacity - like all freedoms - also carries a down-side, which is getting in over one's head. Many of us are flustered and aghast at finding ourselves in a position of freedom, and we mismanage it. Straitjackets are excellent at precluding self-harm.

Suppose that Joe Blow is a career-fireman, with a good county public-service pension waiting for him. Joe's uncle dies, leaving Joe with $1M in cash. Joe meets with a financial advisor, who recommends investment in 30% bonds and 70% stocks. Joe has no debts and is doing fine with his own annual savings. Because he has been budgeting for decades to live off of his eventual pension, his inheritance is just a windfall. He plans on leaving it to his favorite charity after he dies, or maybe to his best friend's cousin's kids (in this example, Joe has no heirs). So he follows his advisor's advice. And 6 months later, his $1M is down to $750K. Now what?
So Joe leaves less money to his heirs. No big deal assuming Joe has planned *his* lifestyle on the basis of *his* (hopefully secure) pension.

I think it's important to draw at least a couple of lines. The line between non-discretionary and discretionary expenses while we're alive. This line can vary from person to person. But certainly the costs of living in whatever dwelling we care to have - as well as our essential food and medical expenses would be non-discretionary. Certain insurance expenses too. Also - for me and my husband - something like our lawn service is non-discretionary too these days. Because we can no longer do the work ourselves - and we live in a HOA where we can't allow our property to become a mess. I'd say overall that about 75% of our spending is non-discretionary - 25% discretionary.

The other line to draw is what you want to/have to do when you're alive - versus what you might want to do with your money after you're dead. We have both family and charitable beneficiaries in our wills. And - if we wind up spending more than they expect us to spend before we die - and they get less - I just say - tough sh** . I manage my 97 year old father's money. Low 7 figures. And - whenever he gets an urge to give money away before he dies - I tell him no. He might need the money for himself (his mother lived to 103 and who knows what any care he might need down the road would cost?). Robyn
Reply With Quote Quick reply to this message
 
Old 02-08-2016, 09:15 PM
 
Location: SoCal
13,252 posts, read 6,345,210 times
Reputation: 9873
For those who need steady income like a pension but don't have it, they can buy some immediate annuities as part of their portfolio. The rest can be invested in the stock market.
Reply With Quote Quick reply to this message
 
Old 02-09-2016, 03:33 AM
 
71,700 posts, read 71,829,507 times
Reputation: 49273
Quote:
Originally Posted by Robyn55 View Post
Perhaps it's the opposite of "those who forget the past are doomed to repeat it"? People want to remember the past to convince themselves that what happened then will happen again - because they find it hard to believe that what is going on today will still be going on 5-10 years from now. Robyn
I always say history never repeats itself , the only thing that repeats itself are historians.

Each time is just different enough to make what you think will happen play out differently.

The day of the first iraq invasion markets plunged. The 2nd time they soared.

The only thing that plays out the same over and over is math.

The events leading up to the math is irrelevant .all that is important is if events end up at a total of x-amount and every time that x-amount happened you failed mathematically and ran out of money it will happen again and again

Last edited by mathjak107; 02-09-2016 at 04:07 AM..
Reply With Quote Quick reply to this message
 
Old 02-09-2016, 03:43 AM
 
71,700 posts, read 71,829,507 times
Reputation: 49273
Quote:
Originally Posted by golfingduo View Post
As I read kitces it is as you said not so much a down year it is the down decade that is the real killer if you don't rebalance. Now I know that my retirement fund makes that part easy but all of my retirement fund is in a single system. Is it as easy if you have multiple locations and very different funds? Does that action require a manager? That is my question. Forgive me for not knowing.
Rebalancing only reduces volatility. Performance is usually hurt for a number of reasons.

Trends tend to run far longer then a year so selling the winners and buying more conservative investments like bonds instead is taking away from your growth vehicle.

We can all cherry pick a few time frames it worked well but with markets typically up 2/3's of the time and down only 1/3 odds of it working better are slim.

It is kind of like dollar cost averaging. If dca worked better we would all sell everything when we got to our desired allocation and start from zero again
Reply With Quote Quick reply to this message
 
Old 02-09-2016, 05:55 AM
 
Location: RVA
2,172 posts, read 1,268,333 times
Reputation: 4492
@Robyn55 : Really? Your 97 year old Dad has over a million invested and you say No when HE wants to spend HIS money because he might need it? I've always liked your advice and posts, but thats a bit extreme, even for me. I intend to enjoy as much of my money as possible before I die.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Retirement
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top