# New Math for Retirees and the 4% Withdrawal Rule



## MULTIZ321 (May 14, 2015)

New Math for Retirees and the 4% Withdrawal Rule - by Tara Siegel Bernard/ Retiring/ Your Money/ International New York Times/ New York Times/ nytimes.com


"More than two decades ago, Bill Bengen, then a financial planner in Southern California, said he had several anxious clients with the same question: How much can I spend in retirement without running out of money?

Being relatively new to the profession, he dived back into his finance textbooks for answers, but said he couldn’t find any guidelines rooted in facts. “I decided to get down to business with my computer,” said Mr. Bengen, 67, who retired in 2013 and now lives with his wife in La Quinta, a resort town in California’s Coachella Valley.

What he and his computer produced, in 1994, became part of the financial vernacular and is still the most widely referenced rule of thumb. Known as the 4 percent rule, it found that retirees who withdrew 4 percent of their initial retirement portfolio balance, and then adjusted that dollar amount for inflation each year thereafter, would have created a paycheck that lasted for 30 years.

The concept has been both celebrated and criticized, and it has recently come under scrutiny yet again, particularly as the current crop of retirees are entering retirement during a period of historically low interest rates. But the question of how much they can safely spend each year may be more important than ever: Roughly 11,000 people, on average, are expected to turn 65 every day for the next 15 years, according to the Social Security Administration..."





 Bill Bengen, a retired financial planner, at home in La Quinta, Calif. He founded the 4 percent rule of annual withdrawals from a retirement account. Credit Jaime Kowal for The New York Times 


Richard


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## GetawaysRus (May 15, 2015)

Here's an excerpt from the above article:

_So a retiree with $1 million could securely spend nearly $30,000 annually for 30 years, in the best and worst of market conditions. The big drawback, though, is that if economic conditions are generally average, retirees would be left with $794,000 in unspent money. If they were unlucky and experienced terrible market conditions, they would be left with $17,900._

In the absence of other sources of income, a $1 million retirement stash doesn't seem to get you very far.  30K per year doesn't get you very far now, and it will be worth less and less in the future due to inflation.

In addition to the rate of drawdown (the "4% rule" that this article addresses), there is the issue of how much you need to have stashed away for retirement.  I'm attaching a study prepared by Hewitt.  (Hewitt is a large financial services firm that runs benefits plans for employers.  They used to manage the 401K plan for my employer, for example.)  The key sentence is on the middle of page 4:

_The amount needed at retirement age to cover retirement expenses through an average life expectancy (age 87 for males, age 88 for females) is 15.9 times pay.  This assumes the cost of goods and services will increase over time as will medical expenses, due to inflation.  Since Social Security will pay for some of these expenses, the employee will need to have saved 11.0 times pay at retirement through their employer plans and their own savings._

By "employer plans," I believe Hewitt is referring to things such as 401K plans and Keogh plans.  I think Hewitt prepared this study for employers.

So I'm thinking that this provides 2 yardsticks for how much you need to save by the time you retire:
1. Hewitt's estimate is 11x your pay.  I think this is the simpler approach, provided that Social Security remains solvent.
2. An alternate view is to carefully examine your budget and try to estimate your retirement needs.  (This is difficult to do, in my opinion.  Things such as future medical expenses are an unknown.)  Once you know your approximate budget, you can guess that you might need $1 million for each 30K of expenses you expect to have per year.  This assumes that the traditional 4% rule will continue to work, which is questioned in that first article.  But another flaw with this approach is that it fails to take future inflation into account.  In 20 years, 30K of expenses in today's dollars might become 60K of expenses.

All in all, reading this sort of material makes me jittery and insecure about the future.


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## WinniWoman (May 15, 2015)

I'm scared. Our big problem is the school and property taxes here in NY are almost $9000 per year now. We will have a very hard time selling our house because of various outside factors. We wouldn't get a lot over what we paid for it 28 years ago even if it did sell- not because it isn't nice- it is more than nice and we have been updating it. It's beautiful. But- just the way the market is here now. We can only use the money from the sale of the house for something else somewhere, but you can't get anything nice elsewhere for that money. Thinking NH because our only child lives there and don't want to be far from him in our old age. I refuse to live in a mobile home after working so hard our whole lives!


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## vacationhopeful (May 15, 2015)

Houses can TRAP people ... if the value is unlike what it was 5 or 15 years or ongoing costs (taxes or maintenance or utilities) outstrip your ability to pay in future years, you need to THINK WHY you want to stay ....

Relocate NOW ... while younger and with more funds intact verse bled dry. Younger to move, longer to make new friends and physical able to actually do a move. And most likely with more money.

I don't think I would buy another single family house - too many other things to do with my time -- travel, learn new stuff and older hobbies.

And there was another uptick of the economic indexes .... rather sell in a rising market than a downward market.


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## WinniWoman (May 16, 2015)

vacationhopeful said:


> Houses can TRAP people ... if the value is unlike what it was 5 or 15 years or ongoing costs (taxes or maintenance or utilities) outstrip your ability to pay in future years, you need to THINK WHY you want to stay ....
> 
> Relocate NOW ... while younger and with more funds intact verse bled dry. Younger to move, longer to make new friends and physical able to actually do a move. And most likely with more money.
> 
> ...



I know, Linda. I get it. I wanted to move years ago, but hubby didn't. Now at our ages we can't quit our jobs and we need the income until we can get Medicare and SS.We had realtors here, but what we could get for our house and what we would pay for rent around here or closer to our jobs (to save on gas and wear and tear on our cars and us) or to even buy a condo or townhouse (hubby needs a garage to putter) IF it even did sell wasn't worth it. Our house has been paid off for many years, so at least we are good with that. I am not going to pay over $2000 per month rent + utilities vs. our $800 in taxes even with maintenance added to that. Not with our nice spacious house and 10 1/2 acres of wooded bliss. The fact is, when I get home from work I want to come home to a retreat. I have hated working all my life and I am not going to come home to some sh-hole. And when I am retired and spending a lot of time at home I want it to be nice. I have a new kitchen and new bathrooms,etc. - I don't want to move into something that is outdated and needs work. I have privacy and no neighbors- which for now is nice. I have enough of people all day. I am updating the house- had a 5 year plan and just finished year 4. As I am 59 and hubby is 61 we will at least be getting use of the house now and enjoying it until which time we retire and we will then proceed to try to move somewhere for our very old age. Also- the house at least will look good for selling when the time comes. Was built in 1987 so it really needed a facelift. As for friends, well- we don't have any nearby. We live in a rural area and because we have always commuted we really didn't have the opportunity for making friends. Our old friends and our coworkers are all spread out amongst various counties in NYS and elsewhere. People have moved on, etc. My own brother only lives one hour and a half from here but because of his work schedule I haven't seen him in 3 years! So, I intend on getting a dog for sure when I am old. I also will become active in organizations I already belong to here or wherever we move- again- if we even can move! And- maybe we will go to a community with town homes or small homes where some of the maintenance is done for you, but I looked at a few in Maine and I couldn't believe the cost of the monthly HOA fees and so on! And the cost of the buy- in for the small homes- like $400,000 compared to the maybe $240,000 we could get for ours! And ours is nicer in someways! We are better off just doing what we do here- we pay the plow guy. We have no lawn to speak of - very little grass as we are in the woods. We hire people for things like roof work and painting, chimney cleaning, etc. whatever- but when we need to. Not- forced every month like when you are in these communities. At least we can choose whether or not to do some maintenance according to our funds. We like traveling, but not too much. The house and property gives us opportunities for hobbies (I would like a small greenhouse for vegetables) and such. We do not play golf or tennis. Even so, how much can you play? I do like doing some work around the house and having a sense of accomplishment. To each his own I guess. One thing I do wish is we didn't have to shovel snow (but we could hire a kid for that) and we had a pool (but that doesn't pay in the Northeast, which is why I love going to the timeshares!). Lots of lakes up here but they can get crowded. Hate crowds. LOL!

This all said- I hope there is somewhere we can go that is cheaper and nicer and with other people around but not too close if you know what I mean. Hate cities- like small towns and rural. But-we are too isolated here for when we get real old and can't drive (have a 700 foot driveway and a bridge that goes over a stream)- so we will have to make a move. (As for the market- it is obviously not high here now anyway.) We figure we will start the process when we are around 65 years old. If we are still around and healthy. Who knows what life will bring? There is no Utopia me thinks.


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## bogey21 (May 16, 2015)

When I retired in 2000 I was part of an Early Retirement Window which included 13 of us.  I'd say maybe 5 of us (including me) had the ability to handle our own investments.  12 of the 13 chose the Lump Sum Option.  I was the only one who took the annuity with a guaranteed 3% cumulative annual Cost of Living adjustment.  15 years have now gone by and best I can find out only 4 who took the lump sum have any of it left.

Yes, there are risks with the annuity (1) inflation; (2) solvency of entity paying the annuity; and (3) how long you live.  If you are vigilant on (1) and (2)  and are lucky on (3), an annuity is a heck of a deal.  Another advantage of the annuity is that you don't have to watch CNBC all the time.  The big negative is that you have no estate to leave if that is important to you.

George


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## Deb from NC (May 16, 2015)

Come on down to NC...you can get a beautiful house for $250k and your property taxes  (at least where I live) will be about $2000 per year!  And hardly any snow


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## Jason245 (May 16, 2015)

bogey21 said:


> When I retired in 2000 I was part of an Early Retirement Window which included 13 of us.  I'd say maybe 5 of us (including me) had the ability to handle our own investments.  12 of the 13 chose the Lump Sum Option.  I was the only one who took the annuity with a guaranteed 3% cumulative annual Cost of Living adjustment.  15 years have now gone by and best I can find out only 4 who took the lump sum have any of it left.
> 
> Yes, there are risks with the annuity (1) inflation; (2) solvency of entity paying the annuity; and (3) how long you live.  If you are vigilant on (1) and (2)  and are lucky on (3), an annuity is a heck of a deal.  Another advantage of the annuity is that you don't have to watch CNBC all the time.  The big negative is that you have no estate to leave if that is important to you.
> 
> George


Actually. . Statistically speaking,  people on annuities live slightly longer then people who aren't. . 

Some call it the "I Wana get that last check " syndrome.


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## VegasBella (May 16, 2015)

Vegas, baby!

No state income tax.
Plenty of retirees live here (lots of things to do). 
Nice weather most of the year. 
Low housing costs. Low property tax.


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## WinniWoman (May 16, 2015)

Deb from NC said:


> Come on down to NC...you can get a beautiful house for $250k and your property taxes  (at least where I live) will be about $2000 per year!  And hardly any snow



Yes- that is one place we are considering if we don't move to NH. Never been but will eventually exchange into a resort down there so we can check it out! Thanks!


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## WinniWoman (May 16, 2015)

bogey21 said:


> When I retired in 2000 I was part of an Early Retirement Window which included 13 of us.  I'd say maybe 5 of us (including me) had the ability to handle our own investments.  12 of the 13 chose the Lump Sum Option.  I was the only one who took the annuity with a guaranteed 3% cumulative annual Cost of Living adjustment.  15 years have now gone by and best I can find out only 4 who took the lump sum have any of it left.
> 
> Yes, there are risks with the annuity (1) inflation; (2) solvency of entity paying the annuity; and (3) how long you live.  If you are vigilant on (1) and (2)  and are lucky on (3), an annuity is a heck of a deal.  Another advantage of the annuity is that you don't have to watch CNBC all the time.  The big negative is that you have no estate to leave if that is important to you.
> 
> George



One of the many things I don't like about annuities is your money is tied up. If you need- let's say, $10,000 for something you can't touch your own money. Also, maybe you want less each month or more- whatever. I would rather pay myself each month, or maybe not at all! I still feel like if an annuity benefited me the insurance company wouldn't be selling it as a product. They only are in business to make out on the deal- not for the customer to benefit.


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## am1 (May 16, 2015)

mpumilia said:


> One of the many things I don't like about annuities is your money is tied up. If you need- let's say, $10,000 for something you can't touch your own money. Also, maybe you want less each month or more- whatever. I would rather pay myself each month, or maybe not at all! I still feel like if an annuity benefited me the insurance company wouldn't be selling it as a product. They only are in business to make out on the deal- not for the customer to benefit.



This may not work for you but you seem to be missing a lot of the benefits.

What if you run out of money or there is a drop in the market?  An annuity is a good safety net but I would not put all my money in it.  If you use more or less money each month invest the excess or withdraw the money needed from elsewhere.


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## bogey21 (May 16, 2015)

mpumilia said:


> One of the many things I don't like about annuities is your money is tied up. If you need- let's say, $10,000 for something you can't touch your own money. Also, maybe you want less each month or more- whatever. I would rather pay myself each month, or maybe not at all!



Two thoughts here.  My pension (annuity) pays me my annual cumulative 3% cost of living supliment in a lump sum on every January 1st.  Since I have been retired 15 years now that payment last January 1st was 45% of my base pension (annuity).  Thus I can plan ahead for major expenditures or put them on a Credit Card and pay off the balance when I get the lump sum.  Because one of the risks I identify with the annuity is inflation I buy gold and silver coins every month with what I don't spend.  The idea being if inflation goes nuts, the increased value of my gold and silver should offset some or all of it.

George


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## Jason245 (May 16, 2015)

bogey21 said:


> Two thoughts here.  My pension (annuity) pays me my annual cumulative 3% cost of living supliment in a lump sum on every January 1st.  Since I have been retired 15 years now that payment last January 1st was 45% of my base pension (annuity).  Thus I can plan ahead for major expenditures or put them on a Credit Card and pay off the balance when I get the lump sum.  Because one of the risks I identify with the annuity is inflation I buy gold and silver coins every month with what I don't spend.  The idea being if inflation goes nuts, the increased value of my gold and silver should offset some or all of it.
> 
> George


Why not just buy us government bonds tied to inflation?  Gold and silver can fluctuate in price  based on factors having nothing to do with inflation. . Government bonds tied to inflation can't be stolen either.


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## bogey21 (May 16, 2015)

Jason245 said:


> Why not just buy us government bonds tied to inflation?  Gold and silver can fluctuate in price  based on factors having nothing to do with inflation. Government bonds tied to inflation can't be stolen either.



Primarily it is the divisibility.  If I need as little as $20, I can sell a 1 oz Mexican Libertad, American Eagle or Canadian Maple Leaf.  If I need $150, I can sell a 1/10 oz American Eagle or Canadian Maple Leaf.  All I have to do is walk into my local coin store.  In addition if I sold a bond, I would have a profit or loss to report on my tax return.

George


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## am1 (May 16, 2015)

bogey21 said:


> Primarily it is the divisibility.  If I need as little as $20, I can sell a 1 oz Mexican Libertad, American Eagle or Canadian Maple Leaf.  If I need $150, I can sell a 1/10 oz American Eagle or Canadian Maple Leaf.  All I have to do is walk into my local coin store.  In addition if I sold a bond, I would have a profit or loss to report on my tax return.
> 
> George



What is the fee for buying and selling those coins?  Have you been coming out ahead so far?


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## WinniWoman (May 16, 2015)

am1 said:


> This may not work for you but you seem to be missing a lot of the benefits.
> 
> What if you run out of money or there is a drop in the market?  An annuity is a good safety net but I would not put all my money in it.  If you use more or less money each month invest the excess or withdraw the money needed from elsewhere.



It's just that my husband's pension will not be a lot of money- not like a government pension where you pretty much get a salary every year. Be lucky if it's $1500 per month. I figure even if we got 0% on it we could still use it for at least 10+ years- maybe more depending on what we need-  before it is dissolved. But- we wouldn't touch it right away anyway- maybe start withdrawing from it after 5- 10 years- depending on life's circumstances. Do our own annuity. 
Heck- we could be dead by then easy! LOL:hysterical:


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## WinniWoman (May 16, 2015)

bogey21 said:


> Two thoughts here.  My pension (annuity) pays me my annual cumulative 3% cost of living supliment in a lump sum on every January 1st.  Since I have been retired 15 years now that payment last January 1st was 45% of my base pension (annuity).  Thus I can plan ahead for major expenditures or put them on a Credit Card and pay off the balance when I get the lump sum.  Because one of the risks I identify with the annuity is inflation I buy gold and silver coins every month with what I don't spend.  The idea being if inflation goes nuts, the increased value of my gold and silver should offset some or all of it.
> 
> George



I have the gold and silver and TIPS and Zeros, etc. But not a pension like yours. I actually have no pension and hubby has a small one from a private co. that he can't even get until he is 66. It has already been chopped off, so who knows what will happen by the time he is 66? We will take the lump sum- I do not trust a private company and I like having the control- not the insurance co. He works for the insurance company! LOL! Can't trust them! I am hoping to live on the 2 SS checks, but not sure that is realistic. I can be frugal, but I don't know if I can make that work in NYS!


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## am1 (May 16, 2015)

mpumilia said:


> Heck- we could be dead by then easy! LOL:hysterical:



Thats the thing if your dead what difference does it make?  If you keep on living is where you could have issues.


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## VacationForever (May 16, 2015)

Am I the only one who views IRA MRD/RMD (Minimum Required Distribution) as a form of forced annuity without losing the principle when one dies?  My mindset of annuity changed after I realized that I am forced to withdraw from IRA when I reach 70.5 yo.  Technically, if one can wait till 70 yo to start taking SS and MRD, one can live off that combined sum.


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## am1 (May 16, 2015)

sptung said:


> Am I the only one who views IRA MRD/RMD (Minimum Required Distribution) as a form of forced annuity without losing the principle when one dies?  My mindset of annuity changed after I realized that I am forced to withdraw from IRA when I reach 70.5 yo.  Technically, if one can wait till 70 yo to start taking SS and MRD, one can live off that combined sum.



Until your IRA runs dry.


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## VacationForever (May 16, 2015)

am1 said:


> Until your IRA runs dry.



IRA MRD formula is intended to run through 100 yo...


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## bogey21 (May 16, 2015)

am1 said:


> What is the fee for buying and selling those coins?  Have you been coming out ahead so far?


The fee is reasonable.  The coin store that I use has been around forever.  They sell bullion coins, Eagles, Maple Leafs, Krugerands, Libertads, etc. at a reasonable markup over the spot price of gold and silver and buy them at spot.  

Actually I don't sell. I accumulate.  I consider my gold and silver coins insurance against inflation.  The way I look at it is that one of the risks I have with my annuity is rapid inflation eating away its purchasing power.  My belief is if this comes to pass, my gold and silver should increase in value somewhat offsetting this.

George


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## Zac495 (May 16, 2015)

Maybe I'll never retire. That could work. 

Now I'm completely worried. We have a good amount put away plus I'll get an excellent pension (about half my salary for life - and that's leaving death benefits to the kids).

But it's far from 11x our pay.

There's an inheritance (hopefully years away still - love my parents) which will help but I'm still nervous.

YET- I refuse not to enjoy life now because if I do a good enough job  saving, I'm bound to drop dead.


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## SMHarman (May 16, 2015)

GetawaysRus said:


> Here's an excerpt from the above article:
> 
> _So a retiree with $1 million could securely spend nearly $30,000 annually for 30 years, in the best and worst of market conditions. The big drawback, though, is that if economic conditions are generally average, retirees would be left with $794,000 in unspent money. If they were unlucky and experienced terrible market conditions, they would be left with $17,900._
> 
> ...


This math confuses me. 

So you earn $100,000. That means you need $1,100,000 to retire plus SS.  

But that only gives a $33,000 pension drawdown + SS. 

I know there is a retirement COLA but that seems a 50% haircut to my maths.


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## Talent312 (May 16, 2015)

My gov'ment pension and SS for us both will add up to more take-home than my salary is now DW is retired), which  means that our IRA's will be gravy... If that is, I can convince DW that she does not need the cosmetic surgery she wants. 
.


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## SMHarman (May 17, 2015)

Talent312 said:


> My gov'ment pension and SS for us both will add up to more take-home than my salary is now DW is retired), which  means that our IRA's will be gravy... If that is, I can convince DW that she does not need the cosmetic surgery she wants.
> .


Pension?  What's a pension?  I heard in the olden days people used to get these. My father and mother talk fondly of theirs. That's when they can take time out of their globe trotting to talk!   

Good luck to ya.  I am also grateful for my parents solvency.


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## WinniWoman (May 17, 2015)

sptung said:


> Am I the only one who views IRA MRD/RMD (Minimum Required Distribution) as a form of forced annuity without losing the principle when one dies?  My mindset of annuity changed after I realized that I am forced to withdraw from IRA when I reach 70.5 yo.  Technically, if one can wait till 70 yo to start taking SS and MRD, one can live off that combined sum.



Good point! 

BUT-I also consider Social Security an annuity! Very much more so than the RMD because you have all this money saved in Social Security all your life ad you can't get at it! You can only get the monthly payout and when you die the government gets to keep the rest- just like an insurance company does with an annuity! How many annuities do we need?

At least with the RMD- you can take out even more than is required if necessary. Also, if you don't need the RMD you can at least invest it back into a taxable account to keep what's left after taxes. And the principle balance in the IRA is still yours. With SS- no dice. You take the monthly payments- yes- if you don't need them you can sock them away. But you can never get more money out of the SS account and when you die the balance is gone.


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## WinniWoman (May 17, 2015)

am1 said:


> Thats the thing if your dead what difference does it make?  If you keep on living is where you could have issues.



Ahhh, yes...I realize that. But, statistically, according to the insurance companies, there is more of a chance of dying earlier than living on to keep collecting, which is why they offer annuities in the first place. Plus- they get to use your money the whole time. They're not stupid. No thanks. I'll take my chances. There's always a bullet.


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## WinniWoman (May 17, 2015)

SMHarman said:


> Pension?  What's a pension?  I heard in the olden days people used to get these. My father and mother talk fondly of theirs. That's when they can take time out of their globe trotting to talk!
> 
> Good luck to ya.  I am also grateful for my parents solvency.



PENSIONS?!!! Aren't those antiquated?!!:hysterical::rofl::rofl:


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## vacationhopeful (May 17, 2015)

mpumilia said:


> PENSIONS?!!! Aren't those antiquated?!!:hysterical::rofl::rofl:



Pensions ....

Not OLD FASHION ... or antiquated! Just KILLED OFF by the profit driven corporations under the guise of "new is better" with the government agreeing by putting into law the reduction in the vesting requirement from 10 years to 5 years back on Jan 1, 1983.

My LARGE company (top 50) had a 15-20+% layoff - if you had more than 3.5 years and not yet vested at 9.5 years of service .... and could NOT WALK on water, you were GONE! 

And that included EVERY pregnant woman in the company (6 months maternity leave - head count but no working body) .... and many male minorities (1 pointers). 

And the _wonderful_ world of independent the white collar contractor developed - have no benefits for a few dollars more in the paycheck. 

Still raises my blood pressure ....


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## Elan (May 17, 2015)

Two things.  I think most of the retirement calculators grossly over-estimate ones needs in retirement.  Provided there is no debt, and only two mouths to feed, there's no way I will need 80% of my current income to survive.  Now, if I'm planning on traveling the world, eating every meal out, and joining a country club, perhaps the numbers are more accurate. 

The second thing is that I've noticed that most retirees easily adapt to their retirement income.  Typically, the list of wants/needs in retirement is pretty minimal.  

Sent from my Nexus 5 using Tapatalk


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## Jason245 (May 17, 2015)

Elan said:


> Two things.  I think most of the retirement calculators grossly over-estimate ones needs in retirement.  Provided there is no debt, and only two mouths to feed, there's no way I will need 80% of my current income to survive.  Now, if I'm planning on traveling the world, eating every meal out, and joining a country club, perhaps the numbers are more accurate.
> 
> The second thing is that I've noticed that most retirees easily adapt to their retirement income.  Typically, the list of wants/needs in retirement is pretty minimal.
> 
> Sent from my Nexus 5 using Tapatalk


I guess it depends on what someone's pre retirement income is.   80 percent of 100k is very different than 80 percent of 50k or 30k. .


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## klpca (May 17, 2015)

Elan said:


> Two things.  I think most of the retirement calculators grossly over-estimate ones needs in retirement.  Provided there is no debt, and only two mouths to feed, there's no way I will need 80% of my current income to survive.  Now, if I'm planning on traveling the world, eating every meal out, and joining a country club, perhaps the numbers are more accurate.
> 
> The second thing is that I've noticed that most retirees easily adapt to their retirement income.  Typically, the list of wants/needs in retirement is pretty minimal.
> 
> Sent from my Nexus 5 using Tapatalk



I agree with your thoughts on the topic. We finished putting our third kid through college about two years ago. We also bought each of our kids a  modest car when they graduated from high school. Two of them needed orthodontia. All of them took private music lessons and two of them played competitive sports. We're pretty sure that those expenses won't repeat in our retirement years. In addition to that, we will no longer be contributing to our 401k's, nor will we be paying social security taxes. We're not planning to save much during retirement either. Our mortgage will be paid off. Those planners who say that we will need 80% of our current income will either be living a much more extravagant lifestyle than we plan on living, or they are retiring with a lot of debt. 

We recently did a line by line analysis of our budget and estimate that we will need about 45% of our current income in retirement, but our goal is more in the range of 60% because we would prefer to have a bit more cushion. We are considering retiring in another 5 years.


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## WinniWoman (May 17, 2015)

vacationhopeful said:


> Pensions ....
> 
> Not OLD FASHION ... or antiquated! Just KILLED OFF by the profit driven corporations under the guise of "new is better" with the government agreeing by putting into law the reduction in the vesting requirement from 10 years to 5 years back on Jan 1, 1983.
> 
> ...



Yup- Linda. Mine too! Terrible what was done to the hard working people of this country. We are paying high taxes -including school and property as well as income taxes- so the public/government workers can have pensions and retiree health care or whatever- and we have ZIP! And- our salaries in the private sector are lower and getting lower by the minute. We have no one to fight for us- no unions in most cases. Work in states where the employer is an "at-will" employer meaning they can do anything that they want to the employee's detriment. At my job they have decreased the lunchtime, froze all salaries of the older employees for year now, don't even get me started about health insurance. I am surprised they didn't do away with the company match in the 401K plan, which is riddled with high fees. They decreased and then capped our PTO time, which all has to be used by the end of each year- so don't get sick for too long!  There is talk that they are getting rid of the employee lunch room because they need the space for something else. Great- we can sit in our cars to eat! Pretty soon they will expect us to come into work for free- hell- wouldn't that upset the whole government pension system! LOL!


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## Elan (May 17, 2015)

Jason245 said:


> I guess it depends on what someone's pre retirement income is.   80 percent of 100k is very different than 80 percent of 50k or 30k. .


Sure, but if it's so variable, then it's not much of a "rule of thumb".  

Sent from my Nexus 5 using Tapatalk


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## bogey21 (May 17, 2015)

mpumilia said:


> PENSIONS?!!! Aren't those antiquated?



So sad.  Back when I was running a large Bank I went to my employees and got them to buy into the concept of lower wages now in exchange for a relatively lucrative Defined Benefit Pension Plan.  My key employees bought into the concept and we went with it.  The transitory employees didn't like it but they weren't going to be around for the long haul anyway.  Today almost all employees are transitory and want the money now.

George


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## Jason245 (May 17, 2015)

Elan said:


> Sure, but if it's so variable, then it's not much of a "rule of thumb".
> 
> Sent from my Nexus 5 using Tapatalk


The true rule of thumb is to ensure you have enough to accomplish what you want and have the retired years be the way you want them to be. because most people are to lazy to figure out the right answers for their individual circumstances,  they look for a rule of thumb.


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## Elan (May 17, 2015)

klpca said:


> I agree with your thoughts on the topic. We finished putting our third kid through college about two years ago. We also bought each of our kids a  modest car when they graduated from high school. Two of them needed orthodontia. All of them took private music lessons and two of them played competitive sports. We're pretty sure that those expenses won't repeat in our retirement years. In addition to that, we will no longer be contributing to our 401k's, nor will we be paying social security taxes. We're not planning to save much during retirement either. Our mortgage will be paid off. Those planners who say that we will need 80% of our current income will either be living a much more extravagant lifestyle than we plan on living, or they are retiring with a lot of debt.
> 
> We recently did a line by line analysis of our budget and estimate that we will need about 45% of our current income in retirement, but our goal is more in the range of 60% because we would prefer to have a bit more cushion. We are considering retiring in another 5 years.


Yes, that's what the retirement calculators should emphasize -- itemizing expected expenses based on current expenses.  Most articles I read don't even mention a mortgage or housing.  Firstly, having a mortgage vs not is a huge difference.  Secondly, a house can often be down-sized in retirement, providing a significant bump to ones liquid assets.  


Sent from my Nexus 5 using Tapatalk


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## Jason245 (May 17, 2015)

Elan said:


> Yes, that's what the retirement calculators should emphasize -- itemizing expected expenses based on current expenses.  Most articles I read don't even mention a mortgage or housing.  Firstly, having a mortgage vs not is a huge difference.  Secondly, a house can often be down-sized in retirement, providing a significant bump to ones liquid assets.
> 
> 
> Sent from my Nexus 5 using Tapatalk


This is why most people should go see a certified financial planner.  They can help with all this.


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## klpca (May 17, 2015)

Jason245 said:


> This is why most people should go see a certified financial planner.  They can help with all this.



But it's easy enough to do it on your own. I suspect that for many people the whole concept of a budget is not one that they are particularly familiar with and _that_ makes it difficult to plan ahead. A financial planner will make them take a hard look at their finances, and if that's what it takes to get them to analyze things then it's all good.


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## Jason245 (May 17, 2015)

klpca said:


> But it's easy enough to do it on your own. I suspect that for many people the whole concept of a budget is not one that they are particularly familiar with and _that_ makes it difficult to plan ahead. A financial planner will make them take a hard look at their finances, and if that's what it takes to get them to analyze things then it's all good.


Easy is subjective. I can read up and learn how to replace a circuit breaker box in my house or I can hire an electrician.  financial screw ups can be just as fatal as circuit breaker box replacement screw ups. . Only one of them is more instantaneous then the other.

At the end of the day..most people don't even know how much they need and look for rules of thumb because they don't want to invest in finding out. .another example of penny wise pound foolish.


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## geekette (May 18, 2015)

sptung said:


> Am I the only one who views IRA MRD/RMD (Minimum Required Distribution) as a form of forced annuity without losing the principle when one dies?  My mindset of annuity changed after I realized that I am forced to withdraw from IRA when I reach 70.5 yo.  Technically, if one can wait till 70 yo to start taking SS and MRD, one can live off that combined sum.



Maybe yes, maybe no, depends on what you have in your IRA and what SS will pay you.  I doubt I can make it to 70 without touching retirement savings unless I stay in the work force.  

I don't see RMD as forced annuity but some folks are converting trad IRAs to Roths now, paying the tax, to avoid it.  I won't pay any tax before it's time so will deal with taking distributions from IRA whether I want to or not once past 70.5.  

Not sure about your no loss of principal declaration, but that depends on how you are invested. I'm hoping to take required sums from dividend payments, others will have to sell holdings to accomplish it.  Most will definitely eat their principal and not sure everyone will be able to hold the distribution to only required amounts.  

For me, the only annuity-like thing coming is SS.  I will not be trading my life savings for a real annuity.


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## SMHarman (May 18, 2015)

The Roth IRA is described as an excellent vehicle for intergenerational wealth transfer. 

For those of us with a little longer to retirement this was also an interesting article.

http://seekingalpha.com/article/1223951-how-much-money-will-you-need-to-retire


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## geekette (May 19, 2015)

SMHarman said:


> The Roth IRA is described as an excellent vehicle for intergenerational wealth transfer.
> 
> For those of us with a little longer to retirement this was also an interesting article.
> 
> http://seekingalpha.com/article/1223951-how-much-money-will-you-need-to-retire



Yes, potentially Roths can be great for that, but folks should learn all the rules before converting for that purpose lest they find it's only 5 years for Little Susie to spend down while they thought she had a lifetime of income.  In the coming years I expect more rules changes but currently I believe it is only the spouse inheritor without forced distribution rules.  

Another little-known detail is that if you do not roll over your workplace Roth 401k to Roth IRA, it will be subject to mandatory distributions because 401k rules apply while it is a 401k.  Don't forget to take your money with you when you ditch the day job!!   Certainly, there aren't a lot of us with Roth 401ks but there will be.  

Also, if you have to pay the tax out of the IRA account you are converting to Roth, conversion may not be for you as this kind of defeats the tax shelter.   If you can't swing the tax bill with non-retirement savings, don't convert, imo.  Taking money out of your tax shelter to pay tax bill in order to send it to another tax shelter is generally not worth it.   

Note that you do not have to convert 100% of the Trad IRA to Roth, you can convert whatever amount you want, can do a hunk each year if you'd like.  Further, you do not have to sell holdings in the IRA pre-transfer, securities can be transferred in-kind and you just pay tax on current value of transfer.  

If you end up as one of those people forced to take more out of your IRA than you need (good problem to have, in theory, tho people complain on being taxed), if you're still working you can put it in a Roth (subject to income limits) and regardless of employment status, can invest in taxable portfolio.

Maybe worst that can happen by not converting Trad IRA > Roth IRA is higher tax bracket due to forced distributions higher than you need.  I, personally, don't let taxes rule my decision-making as I also have never turned down a pay raise at work because it would push me to a higher tax bracket.    The more successful I or my investents are, the more tax I pay.  I'm ok with that.   ymmv


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## VacationForever (May 19, 2015)

geekette said:


> Not sure about your no loss of principal declaration, but that depends on how you are invested. I'm hoping to take required sums from dividend payments, others will have to sell holdings to accomplish it.  Most will definitely eat their principal and not sure everyone will be able to hold the distribution to only required amounts.



No loss upon death, unlike an annuity.  MRD starts at about 4% and moves up in percentage through the years.  Very few investments would pay more than 4% in dividends, which means liquidation of principal will almost always happen when MRD kicks in.


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## DavidnRobin (May 19, 2015)

So - let's see if I understand this correctly…

For example: {let's assume…}
Our Spend rate is $12,000 per month ($144,000 per year) for the 2 of us

Of that $12000/per month…
$3600 (30%) - Mort./PropTax/Ins
$3000 (25%) - Fed/State Taxes
$1800 (15%) - Medical cost
$1800 (15%) - Travel cost (incl. Airfare/Transportation)
$940 (7.8%) - Food cost
$320 (2.7%) - Home Maintenance
$300 (2.5%) - Utilities/Phone
$240 (2.0%) - Transportion cost (gas, maint, insurance)
Total = $12000/month (100%) = $144,000/year

Am I missing something significant in Spend?

Now…
Let's say we get ~$64,000/yr in pension and SS for the 2 of us (at Ages 62-65) -
that leaves $80,000/yr to get up to a Spend of $144,000 per year.

Using the '4% rule' that means we need ~$2,000,000 ($80000/0.04) in liquid assets to retire (and have enough for ~30 years).

Am I missing something?


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## VacationForever (May 19, 2015)

The issue with 4 percent rule is that analysts are indicating that based on more recent market performance we should be looking at 3 percent.  

At 4% we are looking at savings of 25 times of income and at 3 percent it is 33 times of income.  If you need 100k in addition to SS (and pension for those who have) you need to save 2.5 million vs. 3.3 million.


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## am1 (May 19, 2015)

I find the 4% or 3% rule faulty as if one explores other options returns can be higher than that and the equity is never touched.   

Or an annuity can involve higher risk investments which offer better returns with the risk spread out.  As one poster stated they do not want an insurance company to profit but its very easy for the return to be higher even with their cut.  

What percentage of people have a good handle on their finances and overall knowledge of financial markets?  I am sure it is pretty low.  How many people spend more time buying a toaster or timeshare then on how to invest their money.      

The first point contradicts the second but can be overcome by taking the time to learn or entrusting the right people with the right mindset.


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## geekette (May 20, 2015)

am1 said:


> I find the 4% or 3% rule faulty as if one explores other options returns can be higher than that and the equity is never touched.
> 
> Or an annuity can involve higher risk investments which offer better returns with the risk spread out.  As one poster stated they do not want an insurance company to profit but its very easy for the return to be higher even with their cut.
> 
> ...



I believe you are correct, many have subpar knowledge in this area.  If one wants to learn, it's incredibly possible, moreso today with internet than back when I would be a regular at the library.  If there is no time or aptitude for that, professionals abound.  

I think the core problem is that Americans are by and large completely uneducated in personal finance and don't necessarily realize it's a problem.   Too many people think they will "live on SS".  I suppose it's do-able, but not for many of us.  Until communes come back, that is.


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## Kal (May 20, 2015)

DavidnRobin said:


> ...Our Spend rate is $12,000 per month ($144,000 per year) for the 2 of us
> 
> Of that $12000/per month…
> $3600 (30%) - Mort./PropTax/Ins
> ...



The home maintenance estimate is too low.  With time, you will be facing more and more major replacements and remodeling.  Items that come to mind are floor covering, mattresses, roof, appliances, furnace, etc.

 How long will you keep the same automobile?  Will you continue to drive a 10-15 year old car?


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## geekette (May 20, 2015)

sptung said:


> No loss upon death, unlike an annuity.  MRD starts at about 4% and moves up in percentage through the years.  Very few investments would pay more than 4% in dividends, which means liquidation of principal will almost always happen when MRD kicks in.



Gotcha, appreciate clarification!  

I do believe there are annuities for every purpose, including providing for surviving spouse.  But, plain vanilla type, gone at death.  

True, not a lot of 4%+ div payers, but they do exist; utilities and REITs come to mind.   I just added to Southern [SO] yesterday with 4.9 current yield but I already owned shs at lower price so am getting a higher yield overall.  Because yield is computed based on price, it moves around although it is generally reported once per year.  When the market corrects, yields will soar but likely the quoted yield will not recompute.

Further, being the div lover I am, growth in dividend rates cannot be underestimated.  It's like getting a raise from multiple employers at different times of the year.  Current yield is a tiny piece of the story, at least for me.  

I am shooting for divs covering all my expenses and hoping to get there in 10 years but ok sliding to 15 yrs if I have to.  Most div growth rates for companies I own are more than 4%, much more in some cases, as I do get dbl digit increases.  I'm much more interested in that div growth rate than yield, but even if it's lackluster or not growing, the wonder of compounding dividends still gets me more income.  

The big question will be "is it more than inflation?" as the end game is all about purchasing power and protecting it from erosion.


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## DavidnRobin (May 20, 2015)

Kal said:


> The home maintenance estimate is too low.  With time, you will be facing more and more major replacements and remodeling.  Items that come to mind are floor covering, mattresses, roof, appliances, furnace, etc.
> 
> How long will you keep the same automobile?  Will you continue to drive a 10-15 year old car?



Thanks for you input - you make good points.  Our house has been (almost) completely remodeled (including roof, furnace/ducts, plumbing, electrical, etc...).  We will likely be selling the house in the next 10 years (probably sooner) - so these are are current costs ($3600/mo) that will likely be same or less in future.  I did not include proceeds from the sale of our house in the assets - which in today's market on the SF Peninsula is quite high (>1MM), so it is gravy.
Hopefully, our transportation will be walking to the beach…


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## Kal (May 20, 2015)

DavidnRobin said:


> ... I did not include proceeds from the sale of our house in the assets - which in today's market on the SF Peninsula is quite high (>1MM), so it is gravy.…



That's a good plan. However, most people downsize from a large residence to one more suitable for retirement. Unfortunately, the cost of the new digs is often the same as the proceeds from the old digs. That's of course if a person does not relocate to a low housing cost area such as IOWA!

Hmmm, is there a difference in quality of life between the Peninsula and Des Moines, Iowa??  You certainly cannot look out all the way to the uninterrupted horizon and watch the soybeans grow!


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## MULTIZ321 (May 20, 2015)

Historical Inflation Rate from 1914 to Present - from InflationData.com


Kal,  thanks for the laugh.


Richard


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## DavidnRobin (May 20, 2015)

Kal said:


> That's a good plan. However, most people downsize from a large residence to one more suitable for retirement. Unfortunately, the cost of the new digs is often the same as the proceeds from the old digs. That's of course if a person does not relocate to a low housing cost area such as IOWA!
> 
> Hmmm, is there a difference in quality of life between the Peninsula and Des Moines, Iowa??  You certainly cannot look out all the way to the uninterrupted horizon and watch the soybeans grow!



Not moving to Iowa - or any of the fly-over states. Plus, I need to stay away from people smoking cigarettes - so really limiting to where we could end-up living if it ends up being outside the SF Bay Area.

These numbers were estimates - and we already have 33x.  I have been actively investing in my retirement since my mid-30s, and soon it will pay off (knock on wood).  I could retire now, but too much benefit (corporate) in putting it off for ~1.5 years. It is going to be a long final year… but St John, Maui, Kauai, Vegas and Napa this year will help get me thru to 2016. (I get an additional 6-weeks of vacation this year added to my normal 3-weeks - another perk worth using).

It was a great relief to realize that we are able to retire, and now the focus is on how to best set ourselves up to forego paychecks and corporate benefits.  While a relief - it is not without stress since it is a major life transition.  This is why I am researching many different avenues (e.g. asking other folks who have done the same), and re-crunching numbers.

Of course, $3600/mo gets a lot of value outside the SF Bay Area. We may hold the house and rent - as rents here have skyrocketted so obscenely that some people are protesting corporate buses that were created to take vehicles off the road - good ol' SF.

As we have lived here all of all lives (mainly) - we realize that we are paying a premium (both in C.O.L. and Taxes).  But, it has been a benefit as well since RE prices on the SF Peninsula have held and rose (repeat) - even in economic downturns.

Thus, the research and questions - and listening to advice from others.

btw - there is a financial advisor boom to deal with 'Boomers' like myself - and at much less than typical FAs.  For example - take a look at what Vanguard is rolling out…
https://investor.vanguard.com/financial-advisor/financial-advice
{I mean fee-wise (~0.3%), not services performed - and only $50K required}
ps. I have no ties to Vanguard - that was only an example - but Vanguard ETFs have done quite well for us


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## bogey21 (May 20, 2015)

One of the things I don't see mentioned for an individual or a couple who have no desire to leave an estate is a Reverse Mortgage.  I'm the first to admit that I don't know a thing about them other than that my ex-wife's parents used one successfully.  

George


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## Jason245 (May 20, 2015)

A reverse mortgage is one of the ways to get the equity out of your house.


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## WinniWoman (May 20, 2015)

The problem with reverse mortgages is the high fees, but if it means being able to live comfortably until you die- what the hell- as a last resort I would go for it myself.


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## lizap (May 21, 2015)

One big problem with SS is that the full amount for both spouses really cannot be counted on because when one passes, the other will lose that person's SS.  You will be able to get a death benefit if there's any left and will be able to perhaps get your spouses if that's a higher amount. 



Talent312 said:


> My gov'ment pension and SS for us both will add up to more take-home than my salary is now DW is retired), which  means that our IRA's will be gravy... If that is, I can convince DW that she does not need the cosmetic surgery she wants.
> .


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## lizap (May 21, 2015)

I agree with this.  Annuities are only as good as the companies' solvency.  They go under and your screwed plus the fees are usually very high.  I have done many years of backtesting a conservative diversified portfolio.  Even in very bad years, if you have a 4-5 year time horizon, you should be able to get a higher return than with an annuity plus you are likely to have a good portion of your principle left when both you and spouse die.  There is no such thing as an investment that provides a return that is risk-free.  Those who sell annuities get a hefty commission which is the main reason they promote them so heavily.




mpumilia said:


> Ahhh, yes...I realize that. But, statistically, according to the insurance companies, there is more of a chance of dying earlier than living on to keep collecting, which is why they offer annuities in the first place. Plus- they get to use your money the whole time. They're not stupid. No thanks. I'll take my chances. There's always a bullet.


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## lizap (May 21, 2015)

Just to give a little perspective, if you can't average 4 percent in a diversified, conservative global portfolio over the next 30 years, that would be a first in the history of the investing world.  



sptung said:


> The issue with 4 percent rule is that analysts are indicating that based on more recent market performance we should be looking at 3 percent.
> 
> At 4% we are looking at savings of 25 times of income and at 3 percent it is 33 times of income.  If you need 100k in addition to SS (and pension for those who have) you need to save 2.5 million vs. 3.3 million.


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## Jason245 (May 21, 2015)

lizap said:


> Just to give a little perspective, if you can't average 4 percent in a diversified, conservative global portfolio over the next 30 years, that would be a first in the history of the investing world.


0 percent for 15 years and 8 percent for 15 years averages to 4 percent.  It isnt a question of ability,  it is a question of cash flow certainty.


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## lizap (May 21, 2015)

I've done a lot of backtesting and have never seen a zero percent return in a global diversified portfolio over 15 years.  Historical returns don't guarantee future success however.  The key is finding the right investments.   There are excellent conservative funds that have a history of outperforming indexes withl less risk.  Some years you will have more cash flow, some less, but the years with more should more than make up for the lower years.  Also important is the timing of your retirement; if possible, you don't want to retire just prior to a major market downturn.  



Jason245 said:


> 0 percent for 15 years and 8 percent for 15 years averages to 4 percent.  It isnt a question of ability,  it is a question of cash flow certainty.


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## Jason245 (May 21, 2015)

lizap said:


> I've done a lot of backtesting and have never seen a zero percent return in a global diversified portfolio over 15 years.  Historical returns don't guarantee future success however.  The key is finding the right investments.   There are excellent conservative funds that have a history of outperforming indexes withl less risk.  Some years you will have more cash flow, some less, but the years with more should more than make up for the lower years.  Also important is the timing of your retirement; if possible, you don't want to retire just prior to a major market downturn.



Let me put this another way. 

Lets say that the market goes negative and takes 8 years to recover (think the crash of the 70s). 

In Japan, they are still trying to recover from their crash  which happened I think 20 years ago. 

What are you supposed to do? Eat into your principle (making it more difficult to get out of your hole?)

the purpose of an annity is to provide guaranteed payments no matter how the market performs.  It works for some, and not for others and is a tool that many should consider (note, when I say annutity, I mean a traditional old age insurance policy, not the fancy high commission ones with principle protection and other fancy things that you don't need).


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## lizap (May 21, 2015)

My backtesting is based on a conservative globally diversified portfolio.  Some of the funds I'm thinking of lost very little during the last crash. The key is timing and where you invest.  Also annuities have to invest in some risky investments in order to guarantee their returns. If the market crashes, that will likely affect the solvency of some of these and their ability to continue to pay.  Basic finance principle: there must be risk to get return..



Jason245 said:


> Let me put this another way.
> 
> Lets say that the market goes negative and takes 8 years to recover (think the crash of the 70s).
> 
> ...


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## geekette (May 21, 2015)

Jason245 said:


> Let me put this another way.
> 
> Lets say that the market goes negative and takes 8 years to recover (think the crash of the 70s).
> 
> ...



"The Market" is an average of all issues available on an exchange, a market of individual stocks.  Today people are saying the market is at an all time high, buying something would guarantee a loss!  That's hogwash, there have been some great sales on great companies, certainly others are beaten down, maybe with justification or maybe herd mentality.  

It's a market of stocks, every company has their own stock price which ebbs and flows, showing fair value or not at different price points, independent of "the market".  The market runs on investor sentiment, not exact value of a company at moment in time.  A prolonged depressed Market doesn't mean there are no good investments, doesn't mean there aren't companies hitting their all time high stock prices.

If "the market hasn't recovered" that in no way implies that every company making that market is hurting.  Average by definition lumps good, bad and indifferent in to arrive at A Number.  "Market recovery" has nothing to do with my investment plan because I focus on the company, not which market it is available on nor the indexes in which it might be included.  

The market "going negative and staying that way" does not mean that every company on that exchange is going bankrupt or is doing poorly.  Focusing on the aggregate doesn't provide much insight into a specific investment.


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## Jason245 (May 21, 2015)

geekette said:


> "The Market" is an average of all issues available on an exchange, a market of individual stocks.  Today people are saying the market is at an all time high, buying something would guarantee a loss!  That's hogwash, there have been some great sales on great companies, certainly others are beaten down, maybe with justification or maybe herd mentality.
> 
> It's a market of stocks, every company has their own stock price which ebbs and flows, showing fair value or not at different price points, independent of "the market".  The market runs on investor sentiment, not exact value of a company at moment in time.  A prolonged depressed Market doesn't mean there are no good investments, doesn't mean there aren't companies hitting their all time high stock prices.
> 
> ...



For an investor able to understand valuations and understand how to value companies and not investing in index funds and instead stock picking, yes, the value of the market as a whole doesn't matter. 

No matter how the market is doing, there are always individual stock that outperform and underperform the market. 

Most investors or not capable of making those types of investments due to a lack of education (or they just pick stocks at random or use hype to make decision). 

Is the market as a whole overvalued? based on every metric I can find, YES it is (GDP/Market Cap, Shiller p/e, etc). 

Are there some good stocks that are currently undervalued based on valuation metrics (Tangible book value/Mkt cap, ETC), YES. 

Just remember, for every buyer thinking they are getting a deal on a stock (stock undervalued), there is a Seller thinking they are getting a good price on that same stock (stock overvalued).


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## Maple_Leaf (May 21, 2015)

*Try this...*



lizap said:


> I've done a lot of backtesting and have never seen a zero percent return in a global diversified portfolio over 15 years.



Try 1930-1945, with the collapse of continental Europe and most of Asia.  Or 1905-1920 with the collapse of the Ottoman, German, Austro-Hungarian and Russian empires.


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## geekette (May 21, 2015)

Jason245 said:


> For an investor able to understand valuations and understand how to value companies and not investing in index funds and instead stock picking, yes, the value of the market as a whole doesn't matter.
> 
> No matter how the market is doing, there are always individual stock that outperform and underperform the market.
> 
> ...



Yep, agree with all, including 2 sides to every transaction.  Part of this is that we all have different goals and strategies.   Add to that, I don't think there is one standard way of valuing a company so there will always be that mismatch in value assessment, and therefore, a market.

I am comfortable as a buy and hold investor, making me more careful in buying because I don't want to sell.  But when I have investable funds, I deploy them, I have always found companies I want at good enough value, if not bargain.  Stock price for a good company will go up over time, I'm more interested in owning it now than getting the absolute lowest price.  No one wants to underpay but "good enough" value works for me.

I don't play the buy low/sell high game, never have, even though it's what the majority of stock investors attempt.  After a few decades it's pretty easy to not get concerned with market machinations but I understand it's not so easy for everyone to tune out the noise, and some stand ready at the trigger in case Something Happens to move the stock price and they want to get in or out immediately.  Me, I've got decades before I might maybe need to consider selling anything, there is never any hurry for me to act.   Often my best move is to do nothing.  

I think part of what stymies the novice investor today is mixed messages (in addition to your point about lack of education which I completely agree with).  For the past few years, many that stayed out of the market due to fear after 2008 missed the run-up and are hearing about a pending correction (for a few years now) so won't re-enter.  Many that are invested are scared of correction and are selling.  Talking heads could be bullish or bearish, everyone has an opinion, what does the individual investor do?  Who should they believe?  Having a plan and being in touch with your personal risk tolerance can help focus.  If the plan is to sit in cash until it looks "safe", then so be it.  If it's part of the person's plan and fits their goals, then it's probably the right decision for them, although it is not at all suitable for me.   My strategy would be scary for some people, but I sleep well at night.

Fact of the matter is that nobody knows what the market will do next, nobody has a crystal ball, if someone says they Know, they are lying.  Do what you feel is right to meet your goals and remain in your comfort zone.  For some people that means turning it all over to a professional, and that is perfectly fine.  Just get the right professional and stay in touch with what is happening with your money.  Nobody is more interested in your financial success than you, it cannot be delegated.


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## bogey21 (May 21, 2015)

Maple_Leaf said:


> Try 1930-1945, with the collapse of continental Europe and most of Asia.  Or 1905-1920 with the collapse of the Ottoman, German, Austro-Hungarian and Russian empires.



Exactly why I back-stop myself with gold and silver.  I consider it insuring myself  against a catastrophic event like the above.

George


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## am1 (May 21, 2015)

A safer, no commission annuity would be to give your children a set amount with the understanding that they give you a certain amount each month forever.  If you have multiple children it would help to spread the risk.  The money may stay in your name for time being for taxes but the gains and capital would be your children's and you would get the set amount each month.  

The thought being the kids will get the left overs anyways and may need the money more now but have the cashflow to pay you each month.  Since they are younger they are willing to accept higher risks and a higher return should follow.

Most people would not be for this and would rather pay high commissions to honest strangers or outright crooks or accept lower returns investing in very safe instruments.  Also some may worry that the children will be waiting for them to die so they can stop paying out.  The kids just stop paying out or the hard feelings if the market tanks and the kids have to pay out more than they are earning.  

Second marriages, divorces, step children, half children, child dies first and more could complicate it further but that is only because of family willing to cheat each other.

In theory is there a better way?  This may actually even work for a few.


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## DavidnRobin (May 21, 2015)

Maple_Leaf said:


> Try 1930-1945, with the collapse of continental Europe and most of Asia.  Or 1905-1920 with the collapse of the Ottoman, German, Austro-Hungarian and Russian empires.



LOL.

There are retirement calculators (e.g. FIRE.com) that use economic trends for the last ~130 years in *US history* performing multiple regressions using various time periods (including depressions, recessions, and booms) for predicting return rates of future time periods (and accounts for inflation). Based on Spend and Asset inputs - they calculate the probability of running out of money looking forward 30-40 years using these multiple regressions.  Way more relevant than looking at extremes in the attempt to prove a point. (IMO)

Recently, since early 2009 - the US equity market has doubled after a close call with economic collapse. If a person stayed away from investing during this period - they sorely missed out.

Should one use protective measures for their assets - depending upon their risk? of course.  But, 'the sky is falling' attitude has the highest probability of failure - not success.  (IMO)
YMMV


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## am1 (May 21, 2015)

Regardless of inflation or cost of living it is getting more expensive to live a normal life.  Cellphones, flat screens, laptops, tablets, wifi are things that 20 years ago were not a major expense but now account for more than a lot of other expenses.  The question is whats next?


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## WinniWoman (May 21, 2015)

am1 said:


> A safer, no commission annuity would be to give your children a set amount with the understanding that they give you a certain amount each month forever.  If you have multiple children it would help to spread the risk.  The money may stay in your name for time being for taxes but the gains and capital would be your children's and you would get the set amount each month.
> 
> The thought being the kids will get the left overs anyways and may need the money more now but have the cashflow to pay you each month.  Since they are younger they are willing to accept higher risks and a higher return should follow.
> 
> ...


 
I am not getting why you need to give your money to your kids or anybody else and why you just can't pay yourself monthly from your own money. Maybe it's just me....

I have no stocks, except a little in my husbands 401K because his company only matches in their stock. I have cash, a lot of stock and bond mutual funds and ETF's , gold and silver, I-Bonds, EE bonds. I don't know anything about stocks and no desire to learn and have to keep on top of them. I basically hold everything. ( I learned the hard way not to sell from the last downturn). I have an inherited IRA where I have to take the RMD every year and then I reinvest it in a taxable account. I plan on trying to get fee-only advice as we near retirement age, as well as advice on taking SS- IF I can find someone trustworthy. Also need to do a whole new will and revocable living trust, etc. Not to mention end of life/death plans. Ugh!

I so worry about outliving our money, expenses, health care, etc., but I am also very tired of worrying about everything in life. I bought the book "Final Exit"  for a back up plan.


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## DavidnRobin (May 21, 2015)

am1 said:


> Regardless of inflation or cost of living it is getting more expensive to live a normal life.  Cellphones, flat screens, laptops, tablets, wifi are things that 20 years ago were not a major expense but now account for more than a lot of other expenses.  The question is whats next?



One could argue (as I do with my dear old Mom) - that some of these devices save me money when Time = Money is considered. My cost is about $120/month for iPhone and high-speed internet (and could be lower) - these easily save me more than $120/mo ($4/day) of my time (~20 mins @ $10/hr). I use $10/hr to value my free time - pretty cheap compared to my $/hr in wages. 

Certainly the cost of investing has dramatically reduced from 'the good old days', and has become much more available to the common person.  Now, if the common person would only spend the time…

Isn't COL and Inflation a gauge for the change in Expenses over time?


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## geekette (May 21, 2015)

am1 said:


> A safer, no commission annuity would be to give your children a set amount with the understanding that they give you a certain amount each month forever.  If you have multiple children it would help to spread the risk.  The money may stay in your name for time being for taxes but the gains and capital would be your children's and you would get the set amount each month.
> 
> The thought being the kids will get the left overs anyways and may need the money more now but have the cashflow to pay you each month.  Since they are younger they are willing to accept higher risks and a higher return should follow.
> 
> ...



Could work for some, especially those with a common interest, like family business/farm or large homestead/real estate holdings.  But, the risk of insolvency on the part of the "issuer" remains a problem.  

When you give your money to someone else it is no longer yours.  Normal people can become ugly greedy pigs when presented with a large sum of money.  Witness the multitude of lottery winners gone bankrupt.  Love and trust can give way to gluttony and deceit because humans are flawed and give in to temptation and lust.

Far better to throw it all in a trust and give allowances all around (I think, I plan to research trusts in detail soonish as I have no natural heirs but people I would want to provide for upon my demise).


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## geekette (May 21, 2015)

bogey21 said:


> Exactly why I back-stop myself with gold and silver.  I consider it insuring myself  against a catastrophic event like the above.
> 
> George



The leverage of hard assets cannot be underestimated.  I respect how you have so thoroughly built your retirement bomb shelter.


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## geekette (May 21, 2015)

DavidnRobin said:


> Recently, since early 2009 - the US equity market has doubled after a close call with economic collapse. If a person stayed away from investing during this period - they sorely missed out.
> 
> Should one use protective measures for their assets - depending upon their risk? of course.  But, 'the sky is falling' attitude has the highest probability of failure - not success.  (IMO)


 +1 

 and more chars


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## geekette (May 21, 2015)

DavidnRobin said:


> Certainly the cost of investing has dramatically reduced from 'the good old days', and has become much more available to the common person.  Now, if the common person would only spend the time…
> 
> Isn't COL and Inflation a gauge for the change in Expenses over time?


I do wish more people felt that they could invest and decided to learn about it.  I am thankful to have taken an early interest in it, back when you had to actually go to a library to find knowledge.  When I found a way to bypass brokers, it was like a golden door opened.   It would be good if general personal finance showed up in more schools, force the basic survival knowledge, hopefully it grows into curiosity about investing.  

I gave up years ago on trying to start an investment club.  People aren't interested, even at 5 bucks ante/month!  

COL and Inflation I think are supposed to reflect "average person expenses" are tied to things that generally do not reflect a person's personal rate of inflation, like the basket of goods that isn't typical consumerism.  Worse, they don't  adequately reflect local economic realities.


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## Maple_Leaf (May 21, 2015)

*If you would bother reading my post...*



DavidnRobin said:


> LOL.
> 
> There are retirement calculators (e.g. FIRE.com) that use economic trends for the last ~130 years in *US history* performing multiple regressions using various time periods (including depressions, recessions, and booms) for predicting return rates of future time periods (and accounts for inflation). Based on Spend and Asset inputs - they calculate the probability of running out of money looking forward 30-40 years using these multiple regressions.  Way more relevant than looking at extremes in the attempt to prove a point. (IMO)



Originally Posted by lizap  
I've done a lot of backtesting and have never seen a zero percent return in a global diversified portfolio over 15 years.

Only an American would think 130 years of *US history* would be useful in predicting the return of a *global diversified portfolio*.  When some of us invest in US markets we take currency risk as well.  Frankly, you have been fortunate to have 130 years on the winning side.


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## am1 (May 21, 2015)

mpumilia said:


> I am not getting why you need to give your money to your kids or anybody else and why you just can't pay yourself monthly from your own money. Maybe it's just me....
> 
> I have no stocks, except a little in my husbands 401K because his company only matches in their stock. I have cash, a lot of stock and bond mutual funds and ETF's , gold and silver, I-Bonds, EE bonds. I don't know anything about stocks and no desire to learn and have to keep on top of them. I basically hold everything. ( I learned the hard way not to sell from the last downturn). I have an inherited IRA where I have to take the RMD every year and then I reinvest it in a taxable account. I plan on trying to get fee-only advice as we near retirement age, as well as advice on taking SS- IF I can find someone trustworthy. Also need to do a whole new will and revocable living trust, etc. Not to mention end of life/death plans. Ugh!
> 
> ...



The point is your kids or someone else are willing to take on higher risks then someone in their 80's or 90's would.  You get the "gurantee" of lifetime payouts.  With your kids, it would be a gamble against them on how long you live.  But they would get to keep whatever is left.  

If you have stock mutual funds then you have stocks and your paying higher fees.  ETFs the fees are lower.  You still should research which mutual funds you own.


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## DavidnRobin (May 21, 2015)

geekette said:


> I do wish more people felt that they could invest and decided to learn about it.  I am thankful to have taken an early interest in it, back when you had to actually go to a library to find knowledge.  When I found a way to bypass brokers, it was like a golden door opened.   It would be good if general personal finance showed up in more schools, force the basic survival knowledge, hopefully it grows into curiosity about investing.
> 
> I gave up years ago on trying to start an investment club.  People aren't interested, even at 5 bucks ante/month!



I agree. Basic concepts should be required.

I was fortunate to be raised by parents who understood this (sometimes a bit too far), and openly discussed and explained investing (and debt) as best they could.  Dad created a spreadsheet (paper) with me to track stocks taken from the newspaper (only) at Breakfast with an imaginary $1000 fund (where I got to choose buys/sales) - understanding the basics - graphing the results   and difference between bad/good debt, and forced savings. Before PCs... (7-8th grade?)

Anyway... Thought I'd join the discussion.  At the point of re-balancing for next 10 years.  Now to stay as healthy as possible...
Good luck.


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## PigsDad (May 21, 2015)

DavidnRobin said:


> Should one use protective measures for their assets - depending upon their risk? of course.  *But, 'the sky is falling' attitude has the highest probability of failure - not success.*  (IMO)



Truer words could not be said.  Well stated!

Kurt


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## WinniWoman (May 22, 2015)

am1 said:


> The point is your kids or someone else are willing to take on higher risks then someone in their 80's or 90's would.  You get the "gurantee" of lifetime payouts.  With your kids, it would be a gamble against them on how long you live.  But they would get to keep whatever is left.
> 
> If you have stock mutual funds then you have stocks and your paying higher fees.  ETFs the fees are lower.  You still should research which mutual funds you own.



Something "spooky" about this strategy. I guess if I had dementia....

BTW-I have no load mutual funds. I know exactly what I own. I picked them all. I monitor it all on a spread sheet.


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## Talent312 (May 22, 2015)

In my former lifetime, I was a plain-vanilla cash saver. But as I started to earn real $$, I began reading whatever I could find about investing, like Peter Lynch's "One Up on Wall Street" (1989). Now, I self-manage 4 brokerage accounts with a mix of 12 MF's, 6 ETF's and 7 corporate bonds.*

Even with a spreadsheet, its darn complicated, but with the help of Morningstar, the research pages at my online brokerage, and my own formula, I can track which of my funds are providing a decent return for the risk, and which are dogs.

_*Peter Lynch notwithstanding, at a recent seminar, a speaker said, "Picking individual stocks is like running around in the rain with a bucket and trying to figure out where the biggest drops will fall."_


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## Jason245 (May 22, 2015)

Call me old school,  but I think  the intelligent investor  by Benjamin graham is the bible of making good investment decisions. . Even 60 years after being published.


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## bogey21 (May 22, 2015)

DavidnRobin said:


> Should one use protective measures for their assets - depending upon their risk? of course.  But, 'the sky is falling' attitude has the highest probability of failure - not success.



First question to ask is "Does one want to leave an estate"?  Since I don't, I'm ok with my decision of 90% annuity and 10% gold and silver for insurance against rapid inflation.  If I wanted to leave an estate, I think I would be something like 50% equities, 40% annuities and 10% gold and silver.

George


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## geekette (May 22, 2015)

am1 said:


> The point is your kids or someone else are willing to take on higher risks then someone in their 80's or 90's would.  You get the "gurantee" of lifetime payouts.  With your kids, it would be a gamble against them on how long you live.  But they would get to keep whatever is left.
> 
> If you have stock mutual funds then you have stocks and your paying higher fees.  ETFs the fees are lower.  You still should research which mutual funds you own.



Still, if it's your money being invested, just be more speculative with the "overage", the inheritance part, no need to hand it to someone else to do.  Shoot, if I ever get to a point of being "wealthy", I can find ways to have fun with my money, and that's what this is all about (for me), living well in retirement.  Inheritance is soon enough time to transfer leftovers.

I have no heirs, it's easy to be flip.  even so, working people can grow their own retirement money, this is Mine that I sacrificed to build, I'm using it on Me first, they can have what's left when I'm done.  

I'm not sure that I'll quit loving owning American business when I'm old but it won't matter because of the assortment of drips already set up.  Something goes bust?  so what, it paid me for years (decades), plus, I probably still hold a spinoff from its earlier days...   

This is exactly why I believe we need to keep the stepped-up basis on inheritance - not all records are computerized, but even if all are, finding true basis for beneficiary is, imo, undue burden.  Generally I think big whoop, just do the math the one time, and brokerages have that now, but it's a large chore for the newly bereaved and I find it unnecessary. Also rather nasty to change the rules now, after so many have held for so very many decades...    I don't think they can realistically change it nor do I think they will.

I do plan to throw it all into a trust, let the trust pay taxes if due, and distribute % of dividends collected to beneficiaries, otherwise, let it roll on and fund great grand nieces and nephews and their offspring...

I agree with you about her need to consolidate funds and etfs with a sharp eye towards expenses, mgmt experience and track record in up and down markets.


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## geekette (May 22, 2015)

mpumilia said:


> Something "spooky" about this strategy. I guess if I had dementia....
> 
> BTW-I have no load mutual funds. I know exactly what I own. I picked them all. I monitor it all on a spread sheet.



You are so well-suited to dividend investing!  I do wish you would take an interest in stocks, it's easier than you think, based on all that you  have already mastered.  It's not harder to monitor a company than a fund (imo), and you get to be in control.  Honestly, you don't need to constantly worry about an old blue chip going bust overnight, there would be signs, many many signs.  Please at least consider starting a small drip in a company whose products or services you use daily.


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## geekette (May 22, 2015)

> *Peter Lynch notwithstanding, at a recent seminar, a speaker said, "Picking individual stocks is like running around in the rain with a bucket and trying to figure out where the biggest drops will fall."



That's one perspective.  I, personally, don't need the biggest drops, I simply put buckets out to collect drops of whatever size and go inside while they fill.  Running around with the buckets generally causes spillage and sometimes ill-fated decisions to dump from a fuller bucket to a less full bucket resulting in more spillage.


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## Jason245 (May 22, 2015)

geekette said:


> You are so well-suited to dividend investing!  I do wish you would take an interest in stocks, it's easier than you think, based on all that you  have already mastered.  It's not harder to monitor a company than a fund (imo), and you get to be in control.  Honestly, you don't need to constantly worry about an old blue chip going bust overnight, there would be signs, many many signs.  Please at least consider starting a small drip in a company whose products or services you use daily.



Index fund Vs individual stock:

Individual stock:
Need to monitor every day
Need to read press releases and financial reports and understand them. 
If something goes wrong with the company or industry and you arn't paying attention, you could end up in big trouble. 
No management fees or other fees except the original trading fees. 

Index Fund:
Don't need to monitor as long as you understand what the index is. 
Don't need to read anything. 
If something goes wrong, index fund will track performance of market (or whatever segment of market is indexed). 
There are fees paid to management.


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## geekette (May 22, 2015)

DavidnRobin said:


> I agree. Basic concepts should be required.
> 
> I was fortunate to be raised by parents who understood this (sometimes a bit too far), and openly discussed and explained investing (and debt) as best they could.  Dad created a spreadsheet (paper) with me to track stocks taken from the newspaper (only) at Breakfast with an imaginary $1000 fund (where I got to choose buys/sales) - understanding the basics - graphing the results   and difference between bad/good debt, and forced savings. Before PCs... (7-8th grade?)
> 
> ...



You are so lucky!!  My family never talked about money except "you're paying the majority of your college years".   Not sure Dad owned stocks beyond his conglomerate employer.  Sadly, Mom sold that off years ago.  

It was around 8th grade when we did something similar at school, 10k each,  newspaper from previous day.  I "made" 10% in a week with companies I already knew about.  After that, just had to wait to grow up, have money and "afford a broker".


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## geekette (May 22, 2015)

Jason245 said:


> Index fund Vs individual stock:
> 
> Individual stock:
> Need to monitor every day
> ...



So you would monitor a stock daily but would not bother to monitor the funds holding those stocks?  

I do not monitor all my companies daily, it's unnecessary overkill.  One does not have to understand everything, they need to understand the metrics they are concerned with and check in from time to time.  I certainly do not read every press release nor is it necessary (for me).  

You do not advocate reading prospectus (or anything) to determine fund mission or research into mgmt team or fund track record?  No considering parent company of fund?

Investors need to perform due diligence no matter what they are seeking to buy.  I appreciate the attempt at pros and cons but I think it is incomplete or skewed.  that's cool, we know we have different perspectives, and I do appreciate the addition.

One big thing for me is voting rights.  I like being able to have a voice in the companies I own, picking board members, voting on exec compensation...  Yeah, I do some reading, but it's a skill I don't mind practicing.


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## Jason245 (May 22, 2015)

geekette said:


> So you would monitor a stock daily but would not bother to monitor the funds holding those stocks?
> 
> I do not monitor all my companies daily, it's unnecessary overkill.  One does not have to understand everything, they need to understand the metrics they are concerned with and check in from time to time.  I certainly do not read every press release nor is it necessary (for me).
> 
> ...



For most people, Simple Bogleheads investing is probably the best strategy. It isn't sexy, but it gets the job done and guides common people to investments that will ultimatly require minimal cost/management fees with average returns and require a medium level of initial research followed by a low level of maintenance requirements (primarily related to monitoring funds for changes in index/management fee and rebalancing to the "right" mix). 

As for voting rights, unless you own a significant stake (by significant I mean 5% or more), your right is a JOKE and you are deluding yourself in thinking that it matters. 

I firmly believe that the average investor should generally not engage in Stock Picking with any significant amount of their net worth. (I define that as someone who does not work/have formal education related to finance/wallstreet trading and/or would earn less than  95% er (e.g. their income is in the bottom 95% of people ( less than ~$150k/year) with less than $1 Million in net worth (excluding home equity)) .


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## WinniWoman (May 22, 2015)

geekette said:


> You are so well-suited to dividend investing!  I do wish you would take an interest in stocks, it's easier than you think, based on all that you  have already mastered.  It's not harder to monitor a company than a fund (imo), and you get to be in control.  Honestly, you don't need to constantly worry about an old blue chip going bust overnight, there would be signs, many many signs.  Please at least consider starting a small drip in a company whose products or services you use daily.



Always thought of doing this- just got set in my ways. (I do have a Blue Chip Fund) I still have time. Maybe with the RMD I am about to get from the inherited IRA. Can start small. Or, I just might buy more IBONDs.


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## WinniWoman (May 22, 2015)

My parents never had stocks. Into their 50's my brother finally convinced them to let him put their money in mutual funds and signed them up with his broker, so a lot of the funds were load funds and he got commissions on them. They also insisted on having a good amount of cash. They were very generous also with gifts to us and the grandchildren. They had no where near a million dollars- not even a half a million, lived in high tax NY, and my dad had been on disability for many years before he reached 65, so was not bringing in a salary for a long time. My mom only earned around $50,000 per year at the highest. They still had a nice amount money left over when they died at age 78 and 82 in 2005 and 2011 and left their nice house to us as well, which we sold immediately. They lived a nice life in terms of taking vacations, social activities and so forth- were frugal in other ways.


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## DavidnRobin (May 22, 2015)

I am certainly a Boglehead - and it has proved to be an excellent approach - index ETFs w/ low management fees. Over time they have certainly performed the best. We were fortunate for my company to change their 401k administrator w/ extremely low fees. Management fees are killer in the long-run. I feel the same about FA charging 1.5% to make a return of 6% - why pay a rake of 25% when to have low-fee high-volume ETFs covering about all sectors. Even NL Mutual Funds have fees (some are quite high).

I am an active trader still (w/ part of our assets) - made ~60 trades last year - moderate-term holds - buying/selling with limit trades at Bollinger Bands. Also, have stop-losses set for some high-% holdings (which has downside, because 'The Fix is In'). Realizing that the Market is somewhat rigged - holding mid- to long-term w/ standard cost-dollar-averaging seems to perform best over the long haul.  As someone willing to gamble, I have a small portion that I play with. Overall, the 'hold' method with large Cap dividend paying stocks (ETF sectors) seems to have had the best ROI.

Having voting rights for stocks is about as useful as have voting rights as a TS HOA. 
(Ha! spun it back to TSing… )

My folks were tough - us kids (3) had to pay for our own phone-line from money we made by working (we never got an allowance). I stuffed envelopes at 8yr for 75c/hr…  (had my own Savings account) - been working since then, and paid my own way thru college - moved out of the house at 17 1/2 when I realized that I no longer had to 'live by their rules under their roof'.  They seemed tough at the time - but now I thank my Mom for their approach. 

Soon… no more working for $ - going to be strange.


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## geekette (May 22, 2015)

Jason245 said:


> For most people, Simple Bogleheads investing is probably the best strategy. It isn't sexy, but it gets the job done and guides common people to investments that will ultimatly require minimal cost/management fees with average returns and require a medium level of initial research followed by a low level of maintenance requirements (primarily related to monitoring funds for changes in index/management fee and rebalancing to the "right" mix).
> 
> As for voting rights, unless you own a significant stake (by significant I mean 5% or more), your right is a JOKE and you are deluding yourself in thinking that it matters.
> 
> I firmly believe that the average investor should generally not engage in Stock Picking with any significant amount of their net worth. (I define that as someone who does not work/have formal education related to finance/wallstreet trading and/or would earn less than  95% er (e.g. their income is in the bottom 95% of people ( less than ~$150k/year) with less than $1 Million in net worth (excluding home equity)) .


We agree on much.  Average  Joe can grow his wealth just fine via mf/etf, there is one for every taste!

I know my votes don't mean much, but it's having my votes counted that matters to me.  I like participating.

I disagree that someone needs a huge stake to invest in equities.  It could depend on how you want to do it, but I am not a speculator.  I like big ole slow growth blue chips w/ my long term mind set, others prefer to catch a rising star and bail when it meets a high enough price.  Strategies vary, but getting started early when I didn't have much "extra money" has helped me greatly.  If I could turn back the clock, I would have started earlier, when I had even less.  The time value of compounding is more precious to me than all companies I own hitting an all time high price today.

Sure, stocks are by their nature are "risky" but some companies are more likely to keep on chugging over the decades than others.  I don't think it takes a great deal of skill nor money to determine which is which.   Definitely, things happen, I have a few companies with recent turmoil, I do not pretend to be the best stock picker, but I'm not trying to be.   A person could easily buy top 10 of whatever their favorite fund holds and skip the skim.  

I'm an Average Joe, never in finance industry, no MBA, unconcerned as to where my salary falls with my peers (why does it matter??), and none of my companies since I started in 90s has ceased to exist, nor have I sold anything due to impending doom.   I have no crystal ball but have made assumptions that people will always buy toilet paper, toothpaste, medications, utilities, etc.  It's not such a big risk, imo.

If Average Joe w/o a mil$ can play in Vegas with no net worth minimum, why is he not suited to invest, as the odds are far better and  he gets some  control over when the game is over.


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## Jason245 (May 22, 2015)

geekette said:


> A person could easily buy top 10 of whatever their favorite fund holds and skip the skim.



In the year 2000, The top 10 Fortune 500 companies were:

1. General Motors
2. Wal MArt
3. Exxon
4. Ford
5. General Electric
6. IBM
7. Citigroup
8. At&T
9. Altria
10 Boeing


I don't think that buying those stocks in 2000 and just holding them for 15 years would have resulted in returns that exceeded the returns of a bogel investment. That being said, I yield to you on this.


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## geekette (May 22, 2015)

mpumilia said:


> Always thought of doing this- just got set in my ways. (I do have a Blue Chip Fund) I still have time. Maybe with the RMD I am about to get from the inherited IRA. Can start small. Or, I just might buy more IBONDs.



Some drips allow as little as $25.  That's the only way I could get started back when.

transfer agents:  
computershare.com   
shareowneronline.com
amstock.com

you will see many companies offering drips, check the fees page, many are free to buy, reinvestment free or you can have dividends direct deposit elsewhere if desired.  Selling can be pricey, I would transfer acct to a discount online brokerage if I wanted to sell.  transferring is easy, I was looking into it for Merck, held by Wells Fargo (shareowneronline) as that holding is the right amount to make an unexpected repair on the house.  I just hate to part with it after all these years.    

The point is that buying and reinvesting is dirt cheap, often free, via drip.  Selling, not so much.  Fees vary.  

Note also that with a drip plan, the exact buy is in their control as a pooled purchase.  If you require certainty of day/price of sale, set it up via online brokerage instead.

The dividend champions spreadsheet at following link can help you spot some solid div payers.  
http://www.dripinvesting.org/tools/tools.asp


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## cgeidl (May 22, 2015)

*One Mutual FUnd since 1983*

We invested in one mutual fund in 1983 in a Keogh Plan. The $2000  investment is now $51000. Never bought or sold it. It has averaged 11.2% per year. Lesson One. Buy a good investment and hold.
I personally do not see much sense in the 4% rule for withdrawal. I think if you need to withdraw from savings ,the bucket approach makes more sense to me. In the first bucket would be funds in less risky investments, then a bucket for every five years with riskier investments in each. At the end of each bucket emptying you would look and plan again to see if adjustments are needed,
We are happily retired and have enough from our pensions and social security to do what we want within reason.
We have IRAs but only started taking out when we reached the required age and the withdrawals went into a taxable account which we do not need. We now have all our funds in  major index ETF's all in stocks and rebalance once yearly.Because we do not withdraw at all we stay almost 100% in stocks. I do have a rolling stop loss of different percentages on ETF's that would sell I a major turndown.
For a couple years I traded 700-1000 trades per year and actually did quite well but I did not enjoy doing this except for the gains, The time spent was not worth it. I have simplified our portfolio so my wife can rebalance and understand enough to manage the investments.I have only had this plan two years so it is not long enough to really tell how it will do compared to the total stock market which is one of our ETF's. About 25% are in foreign stock
ETF'S including emerging markets. Also have 20 % in REITS. the foreign is risky by itself but not in a portfolio so much as the stocks movements are often opposite of the US Market.


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## geekette (May 22, 2015)

Jason245 said:


> In the year 2000, The top 10 Fortune 500 companies were:
> 
> 1. General Motors
> 2. Wal MArt
> ...



Yield?  no way, you've put up a list.  If an investor chose their companies based on this list and no research...

GM and C are wonky, I could run numbers assuming divs were pocketed from start until kaboom but let's just declare total loss in the interest of time.

For others, $1000 invested Jan 3, 2000 reinvesting dividends, ignoring taxation, amt as of 5/16 (calculator uses 3rd party with lag):

Walmart   1464.89
Exxon       3120.48
Ford           722.49
GE             84.83
IBM           1994.69
ATT          1482
*Altria         176,789.23*
Boeing       4690.33

I'd like to do a full simulation vs trust online calculator but not a lot of time today.  I think Altria shows the value in buy, hold, reinvest, vs selling your winners.  Even if every other investment went bust, a person more than compensated.   There seem to have been some whopping special dividends.  I wish I would have invested 1000 into Altria in Jan of 2000!!

I don't own/never followed Altria, Ford, C, GM, so can't comment on what happened with them over time.  

I would recommend the Nifty 50 series on Seeking Alpha if one wants to investigate the "what if I bought companies based on some list and went to sleep for 40 years..."   backtest.  

http://seekingalpha.com/article/252...the-nifty-fifty-and-dividend-growth-investing


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## Jason245 (May 22, 2015)

Altria stock symbol is mo.  It was Phillip Morris in 2000.  My calculator says that it turned to around 22k not 176k. Source is buy upside . Com

Of course all the spin offs and aquisitions make it almost impossible to figure the true roi.

All that being said. .most people don't follow the buy hold reinvest strategy. .instead they buy into strength and sell into weakness letting emotions rule.


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## geekette (May 22, 2015)

Jason245 said:


> Altria stock symbol is mo.  It was Phillip Morris in 2000.  My calculator says that it turned to around 22k not 176k. Source is buy upside . Com
> 
> Of course all the spin offs and aquisitions make it almost impossible to figure the true roi.



Agree, difficult for true ROI.  

I began with MO @ 1/3/2000.  Mine were dividends all reinvested,  dqydj dot com, first calculator that came up on search, make no guarantees as to it's accuracy.

22k is still good enough for me on 1k locked up 15 yrs.


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## geekette (May 22, 2015)

cgeidl said:


> We invested in one mutual fund in 1983 in a Keogh Plan. The $2000  investment is now $51000. Never bought or sold it. It has averaged 11.2% per year. Lesson One. Buy a good investment and hold.
> I personally do not see much sense in the 4% rule for withdrawal. I think if you need to withdraw from savings ,the bucket approach makes more sense to me. In the first bucket would be funds in less risky investments, then a bucket for every five years with riskier investments in each. At the end of each bucket emptying you would look and plan again to see if adjustments are needed,
> We are happily retired and have enough from our pensions and social security to do what we want within reason.
> We have IRAs but only started taking out when we reached the required age and the withdrawals went into a taxable account which we do not need. We now have all our funds in  major index ETF's all in stocks and rebalance once yearly.Because we do not withdraw at all we stay almost 100% in stocks. I do have a rolling stop loss of different percentages on ETF's that would sell I a major turndown.
> ...



Fantastic, I love the untouched investment!!  Can you tell me what that mutual fund is (was, if M&A'd thru time)?

Holy crap, 700-1000 trades is A LOT, I wouldn't enjoy it, either.  

Thanks for sharing your mindset and strategy.  The bucket method is appealling in many regards.


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## WinniWoman (May 22, 2015)

geekette said:


> Some drips allow as little as $25.  That's the only way I could get started back when.
> 
> transfer agents:
> computershare.com
> ...



Thanks for the info. Right now I am in vacation mode (starts tomorrow) and I don't have "the head" for this! LOL!:rofl:


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## Blues (Jun 4, 2015)

DavidnRobin said:


> So - let's see if I understand this correctly…
> 
> For example: {let's assume…}
> Our Spend rate is $12,000 per month ($144,000 per year) for the 2 of us
> ...



I hate to bring back up an old thread, but this post has been bothering me since I read it.  And I was out of town for a while, so excuse the late post.

Why did it bother me?  Because I feel like our retirement budget is very liberal (I retire in 1.5 years), yet it's much lower than this.  I've set a budget of 90-100K per year.

So I did a comparison between my assumptions and David's.  Just to pick apart your first 3 line items:

1. First of all, I wouldn't plan to retire while I held a mortgage.  Mine was paid off 10 years ago.  I suggest you look at ways to pay yours off before retirement.  My budget for those 3 items is:
Mort 0
Prop tax 400 (grandfathered on Prop 13 for a long time)
Ins 200
Saves about 3000/mo from David's estimate

2. Fed/state taxes.  If you keep the Fed AGI under 90-100K, you stay in a lower tax bracket.  Also, you get higher std deductions after age 65.  My calculation is that the Fed tax on your first 90K is about 10K.  So even for 100K, the fed tax should be under 1000/mo.

Similar comments for state.  For 90-100K, CA state tax should be under 3000/yr, or 250/mo.

3. Have you figured Medicare?  Medigap + part D should run less than $300 apiece for each of you and your wife.  Yes, there will be some copays and other expenses.  But I think $1000/mo is an over-estimate.

I agree that some of your other expenses may be a tad low.  But I just shaved $5500/mo off your budget, so you should be able to pad elsewhere.

Pad it a little, you're still under 8K/mo.  If you get 5K/mo from pensions and SS, you'll need an extra 3K.  Now, using the 4% rule, you're under $1M.

HTH,
Bob


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