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Old 04-15-2016, 04:21 AM
 
71,737 posts, read 71,853,273 times
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michael kitces took a look at some various strategy's and as expected it is no surprise that which path you take ultimately depends on what the ending game plan is .

different plans are optimized with different strategy's .

sometimes planning retirement is like Margret Mitchell writing gone with the wind .

she wrote the last chapter first , then spent 10 years filling in the rest of the story to get to the end .

the link to the full article is below

so given three choices here based on 1 million and 65 years old these are the outcomes

A) Spend an inflation-adjusting $30,000/year from the portfolio, by putting 90% of it into an immediate annuity and keeping the other 10% in cash reserves. The immediate annuity is assumed to have a principal refund feature if death occurs before the payments have been recovered, which winds down over time as the payments are made.)

B) Spend an inflation-adjusting $45,000/year from the portfolio, and invest it 50/50 in stocks and bonds

C) Spend an inflation-adjusting $60,000/year from the portfolio, and invest it 100% in stock





https://www.kitces.com/blog/best-ret...o-you-measure/

Last edited by mathjak107; 04-15-2016 at 04:31 AM..
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Old 04-15-2016, 04:36 AM
 
Location: Central Massachusetts
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Interesting chart.

My take on it is that strategy B is the better five "second best" outcomes and a safer choice. While C has three "Best" outcomes it also has four worst outcomes. It is a simple choice if you want safety and good outcome. Strategy A to me seems to be very good given some folks feelings toward volatility. But A is also the least likely to have happened given the assumed amount. Anyone who has accumulated a retirement fund with a cool million will have had some idea that it is the volatility that helped them win and hold that sum.
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Old 04-15-2016, 04:38 AM
 
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b is my choice too but i think i would could it back a bit to 4% from 4.50%
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Old 04-15-2016, 04:48 AM
 
Location: Central Massachusetts
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Quote:
Originally Posted by mathjak107 View Post
b is my choice too but i think i would could it back a bit to 4% from 4.50%
Yup. I would also use common sense as well. If the market and the fund went lower or lost I would adjust unless I had to take the amount whether for RMD or for spending. I might be over thinking it but if I didn't need that much money and I was in good health than I would prefer it to accumulate for my heirs. That is not to say that I don't plan on spending a good healthy portion of it.
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Old 04-15-2016, 04:52 AM
 
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don't forget researchers push things to the limit . so the incomes are what was sustainable safely but i would want a bit more worst case built in .
yes , they are already based on some pretty nasty times but until hurricane sandy we all thought we already saw the worst to date here in nyc
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Old 04-15-2016, 05:02 AM
 
Location: RVA
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And living off part of your cool million TO A REASONABLE amount, determined by risk aversion, to delay collecting SS, is a combination of A and B. Even safer than B with more income than A.
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Old 04-15-2016, 05:44 AM
 
Location: Mount Airy, Maryland
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Yeah I knew I liked B before even seeing the results. The problem with C is obvious, the problem with A is $100,000 in cash reserves is not enough. Hell a car would take a lot of that.
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Old 04-15-2016, 06:01 AM
 
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our dental work would have made a severe dent .

i would have like to have 1 more option with 75% being that 50/50 mix and 25% being the spia with no death benefits , just a substantially higher cash flow .
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Old 04-15-2016, 06:41 AM
 
Location: Central Massachusetts
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Originally Posted by DaveinMtAiry View Post
Yeah I knew I liked B before even seeing the results. The problem with C is obvious, the problem with A is $100,000 in cash reserves is not enough. Hell a car would take a lot of that.
100k is certainly not a lot of reserves. two cars would take the nearly all of it with purchase, taxes and maintenance.

Quote:
Originally Posted by mathjak107 View Post
our dental work would have made a severe dent .

i would have like to have 1 more option with 75% being that 50/50 mix and 25% being the spia with no death benefits , just a substantially higher cash flow .


I am about to find out how expensive dental work at age 60 is going to run me. LOL. I would feel comfortable with that option as well. I might be a bit more aggressive and do a 40/60 or 45/55 though I would have the wife to contend with. Still I would take my circumstances over even a 2 million dollar portfolio given what I know.
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Old 04-15-2016, 06:42 AM
 
Location: NC Piedmont
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Quote:
Originally Posted by mathjak107 View Post
our dental work would have made a severe dent .

i would have like to have 1 more option with 75% being that 50/50 mix and 25% being the spia with no death benefits , just a substantially higher cash flow .
SPIAs are something I go back and forth on. I have checked into them and for early 60s, the payout was around $500 a month (~10% more for single with no guarantee period, ~10% less for a couple and a guarantee period) per $100K invested. I only looked at a handful; there may be better deals. There are qualifying annuities, which is a big deal to me as nearly all my long term savings are pre-tax. Some of them are structured so you can convert out if you change your mind (of course they make sure that will cost you something). Anyway, running numbers gave me pause as my war chest is likely to be in the high hundred K range so a good guaranteed income stream would take a big chunk of that, so much that if I delayed SS I would really take a big bite out of what was left. Then when SS started, I would have a nice forever stream but not a lot of savings.

I feel like 50% in stocks right now during retirement is more than a little risky. Your idea drops it to 37.5%, which I think I could stomach...

EDIT TO ADD - I should note that I am somewhat conservative but still around half in stocks through mutuals right now, about 6 years out, but I did not buy most of the funds at today's prices. That makes a difference - staying in is different than buying in.
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