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 04-01-2016, 01:36 PM
 
Location: Alaska
5,356 posts, read 16,359,934 times
Reputation: 4024

Advertisements

Quote:
Originally Posted by mathjak107 View Post
actually it is not average returns that count in retirement when spending down , it is sequence risk that determines your outcome .

the exact same average return over a 30 year period can leave you with a difference of 15 years in how long your money lasts .

that is an amazing spread but yep , it is what is . if your spread sheet assumed the same average return every year with never a down year then your numbers are way off .

you can use firecalc or the fidelity rip planner for actual sequence risk effect .

when not spending down cagr takes sequence risk in to account and that typically knocks about 1-2% off the nominal average returns .
moshe milevsky's now famous paper sequence risk and retirement ruin brought that effect to the forefront in retirement planning .
I updated my spreadsheet to actuals each month while in the accumulation stage. And yes, I did run my numbers through firecalc and others. I will say that you have a little control over your sequence of returns. For instance, during the last recession, I did evaluate my holdings and sold the losers that I didn't think would recover in 3-5 years versus keeping them, hoping they get back to even. This allowed me to invest in beaten down companies that were more likely to recover.

I am well aware of the paper (you've brought it up in the past, thanks), and I do sweat about sequence risk as I retired at the end of 2013. So far, the sequence has been favorable to us, but I was sweating the next 2-3 years. Now, not so much because my wife inherited an IRA which was never part of the original plan. We're in a better position now than we were on day one of my retirement. I still worry a little about sequence risk because we'd like to leave an inheritance.
Reply With Quote Quick reply to this message

 
Old 04-01-2016, 02:33 PM
 
71,798 posts, read 71,896,917 times
Reputation: 49350
while you can't control the sequencing the results the calculators give you are already based on the worst outcomes .they are scenario's that were the worst either history threw at us already or in the case of fidelity's rip planner even worse scenario's then actually happened since it uses monte carlo scenario's to come up with even worse case .

things have to be pretty bad for 4% to fail . in fact had you retired in 2008 before the drop it was not even a blip on your outcome .

the only modern day group that may be questionable is the y2k retiree and only that year .

however the 4% safe withdrawal rate does not guarantee anything will be left for heirs . while 90% of every rolling 30 year time frame ended with more then you started some came close to ending with zero left . only the income stream stands a good chance of not being broken but nothing is ever 100% .
Reply With Quote Quick reply to this message
 
Old 04-01-2016, 04:10 PM
 
427 posts, read 189,527 times
Reputation: 267
Quote:
Originally Posted by Petunia 100 View Post
What is your source? Not everything on the internet is true, so it is important to consider the source. Here is what the IRS says on the matter:

Generally, these deferred wages (commonly referred to as elective contributions) are not subject to income tax withholding at the time of deferral, and you do not report them on Form 1040 (PDF), U.S. Individual Income Tax Return, since they were not included in the taxable wages on your Form W-2 (PDF), Wage and Tax Statement. However, they are included as wages subject to withholding for social security and Medicare taxes.

https://www.irs.gov/taxtopics/tc424.html

Note by the URL address that the linked page is on an official government website.
Petunia,
Thank you for this reference.
My source was... sorry, didn't write it down.
Reply With Quote Quick reply to this message
 
Old 04-01-2016, 04:18 PM
 
427 posts, read 189,527 times
Reputation: 267
Quote:
Originally Posted by snowtired14 View Post
Could be he's a government or USPS employee? If he was hired prior to '84 he'd be under the Civil Service Retirement Service, I don't know but maybe that's what he's talking about?
Sorry, I am not government or USPS employee.
I moved to US in 1994, and still do not know all the details you got in your childhood...
Reply With Quote Quick reply to this message
 
Old 04-01-2016, 04:32 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,652 posts, read 40,029,981 times
Reputation: 23810
Quote:
Originally Posted by Maple47 View Post
Sorry, I am not government or USPS employee.
I moved to US in 1994, and still do not know all the details you got in your childhood...
I wouldn't assume the average USA taxpayer learned much about SS and 401k in their childhood. As mentioned BOTH have changed, and 401k's weren't around when we were children (and weren't around during the majority of our working careers.

Hint: there are many ways to gain daily financial information and education. Many of us pursue that skill, MOST USA retirees and wage earners do not.

While you remain in the USA, you will be prudent to train yourself in finance and taxation. Big brother is bleeding, and the sharks are circling.
Reply With Quote Quick reply to this message
 
Old 04-01-2016, 07:09 PM
 
Location: Florida
4,376 posts, read 3,714,793 times
Reputation: 4116
Quote:
Originally Posted by Maple47 View Post
What does make more sense: to maximize 401k contributions, or limit them to 5%, and maximize SS benefits?
I doubt there is a clear answer, although...
Log into the ssa.gov site and set up an account. You will see your prior years earnings. Note that they include your 401k contributions so putting money into the 401k does not reduce ss benefits.

Also note on your year end W2 you will see SS wages listed. This will be higher than your taxable wages.
Max your 401k.
Reply With Quote Quick reply to this message
 
Old 04-01-2016, 07:36 PM
 
6,353 posts, read 5,170,148 times
Reputation: 8528
Quote:
Originally Posted by akck View Post
401k are funds that belong to you. SS is potentially an unknown as the benefit may change to solve future problems.

Let's do an example. Say you're saving $10,000 in your 401k. If you stop saving it, your SS benefit will increase by $1,500/yr or $125/mo in our simple example. Now, if you invest that $10,000/yr for 30 years and make a 5% return, it's value will be $664,388 and assuming another 30 years of withdrawals, you'd get $22,146/yr or $1,845/mo, assuming no further appreciation. For a fair comparison, you'd have an extra $10,000 in income. But, you'd also pay taxes and SS on it, so your net might be $6,880. $6,880 invested may get you $457,099, which amounts to $1,269/mo under the same scenario.

So, what would you prefer, $1,845 or $1,394?
PLEASE see UNC4me's post below yours. What you have said is factually incorrect. Your SS benefit is the same no matter what you do or do not do with your 401(k).

The only effect that a 401(k) has on SS is that when you take the money OUT, you may pay more in income tax if you are withdrawing money from a 401(k) at the same time that you are collecting the SS benefit.
Reply With Quote Quick reply to this message
 
Old 04-01-2016, 08:26 PM
 
Location: RVA
2,172 posts, read 1,271,519 times
Reputation: 4492
For planning purposes, I would use 0.75 of assumed safe withdrawal, so 3% instead of 4%. You Used a constant compounded 5% to "prove" a point which had no basis, ie: instead of 10k to SS, $10k invested. As others repeated many times, you have no choice, if you are required to contribute to SS. But I do agree with you, that active adjustments to your portfolio depending on prevailing market conditions can be extremely beneficial. Blind adherence to a plan is folly.
Reply With Quote Quick reply to this message
 
Old 04-01-2016, 09:32 PM
 
Location: Columbia SC
9,002 posts, read 7,770,007 times
Reputation: 12234
I still worry a little about sequence risk because we'd like to leave an inheritance.

The he!! with them. Spend it and enjoy the trip......LOL
Reply With Quote Quick reply to this message
 
Old 04-01-2016, 11:33 PM
 
Location: Alaska
5,356 posts, read 16,359,934 times
Reputation: 4024
Quote:
Originally Posted by johngolf View Post
I still worry a little about sequence risk because we'd like to leave an inheritance.

The he!! with them. Spend it and enjoy the trip......LOL
That's what the kids say too, but you don't have to deal with their mom.
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
Similar Threads
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