All Encompassing Investment and Financial Planning Thread for the Surly 99.5%

[Hornbeliever 712]

I just turned 48 and feeling I’m 5-6 years out from retirement so I built out a retirement excel model for myself.

I say damn does what you assume for inflation and for average investment return mess with the numbers.  The difference between inputting 3 and 4% inflation is huge, as is selecting between 6 and 7% investment return.  Compounding, yo.

Anyways, yall put in similar ranges?  Or more conservative/aggressive?

I said I’d die at 87, 4% inflation and 7% investment return.

 

 

[KYHorn 17006]

7 hours ago, Hornbeliever said:

I just turned 48 and feeling I’m 5-6 years out from retirement so I built out a retirement excel model for myself.

I say damn does what you assume for inflation and for average investment return mess with the numbers.  The difference between inputting 3 and 4% inflation is huge, as is selecting between 6 and 7% investment return.  Compounding, yo.

Anyways, yall put in similar ranges?  Or more conservative/aggressive?

I said I’d die at 87, 4% inflation and 7% investment return.

 

 

4% is almost double the average annual inflation rate. I think that's far too conservative. I'd say 3% would be fairly conservative, which is in line with your 7% return figure. 

Edited February 8 by KYHorn

[KYHorn 17006]

On 2/3/2024 at 12:48 AM, Larry T. Spider said:

Recently got a higher paying job so I have a good challenge on my hands. I can save about 4k or 5k per month plus commissions. Not counting commissions for now but it would be safe to expect another 50k or so. Could be much higher with accelerators.

This money is based on take home with my 401k getting maxed at 23k. Already maxed my Roth and my wife’s traditional IRA for 2024.

So the question is what’s next? Can’t do a HSA. Owe 135k on a house worth 600ish at a 3.25 rate. No debt other than the mortgage.

No kids. 12 month emergency fund is done. Need a new car soon and saved enough cash for that. Want to buy a couple of rental properties and also have enough for 25% down on those.

Im 40 and don’t have a ton of retirement savings because I wasn’t making a ton for a lot of my career. Paid into TRS for 15 years.

Is a taxable brokerage account the only real option here? Can’t imagine throwing a bunch at the mortgage would be smart with the low rate. I can buy more rentals if I end up liking it, but that won’t be for a while.

Damn, what are you selling?

On 2/3/2024 at 9:17 AM, Parliament said:

People worry about taxable accounts way more than they need to.  Put it in a taxable index fund (S&P 500, Wilshire 5000, etc.) and call it good.

This. Any other option = more work and is still taxable anyway. 

[Nice Guy Eddie 13507]

10 hours ago, Hornbeliever said:

I just turned 48 and feeling I’m 5-6 years out from retirement so I built out a retirement excel model for myself.

I say damn does what you assume for inflation and for average investment return mess with the numbers.  The difference between inputting 3 and 4% inflation is huge, as is selecting between 6 and 7% investment return.  Compounding, yo.

Anyways, yall put in similar ranges?  Or more conservative/aggressive?

I said I’d die at 87, 4% inflation and 7% investment return.

Check out honestmath.com for retirement Monte Carlo simulations. I can’t validate the accuracy of the site but some retirement gurus on YouTube have referenced it. You’re right that small percentage changes can mean the difference to running out of money or having several million left in 2-3 decades.

i would be cautious about using your real email address or any self identifying info on a site where you’re entering your finance numbers. I don’t mean in them stealing your money but you may see unsolicited emails, calls or whatever. People don’t need to know your business.

As for retirement I see a key element is having more than enough to easy cover your fixed costs which allows you to adjust discretionary when uncontrollable factors occur.

Edited February 8 by Nice Guy Eddie

[Twizzler 161]

@Larry T. Spider

Check if your 401k plan allows mega backdoor Roth conversion.

 

[Hornbeliever 712]

2 hours ago, Nice Guy Eddie said:

Check out honestmath.com for retirement Monte Carlo simulations. I can’t validate the accuracy of the site but some retirement gurus on YouTube have referenced it. You’re right that small percentage changes can mean the difference to running out of money or having several million left in 2-3 decades.

i would be cautious about using your real email address or any self identifying info on a site where you’re entering your finance numbers. I don’t mean in them stealing your money but you may see unsolicited emails, calls or whatever. People don’t need to know your business.

As for retirement I see a key element is having more than enough to easy cover your fixed costs which allows you to adjust discretionary when uncontrollable factors occur.

That’s a great idea (monte Carlo simulations).  I need to build that into my little model but that requires dusting off my skillzzzz which I might have lost in my twenties.

This is how old I am and CSB: my first investment banking internship in NYC was a summer of building Monte Carlo simulations on bankrupt regional cellular firms and running simulations on how many people in America would buy cell phones and then turn around and buy all-you-can use bandwidth plans versus limited minute and text plans.  Difference in those assumptions for all these little shitty companies was insolvency versus enough life to be bought out by a big boy.  A fuck ton of money was being made in buying their junk debt at 25 cents on the dollar and then betting on that junk co. being bought out by someone like AT&T where the bond would now be rated at the purchasers underlying rating.  

[Larry T. Spider 1746]

3 hours ago, KYHorn said:

Damn, what are you selling?

This. Any other option = more work and is still taxable anyway. 

I sell customizable special education programs to school districts that are struggling to meet the needs of their students with the most needs. Think teachers, aides, behavior analysts, mental health therapists, etc.

I get paid well on the base salary because there isn’t a huge pool of people with education administration experience as well as education sales experience. Also have to be willing to travel and help set these programs up. The commission percentage isn’t insane but when talking about hiring multiple staff members per class, you get into 7 figure proposals very quickly.

[orange dream 1246]

@Larry T. Spider Interesting. Do you sell the concept, train the locals to implement and walk away or do you staff it for them also (i.e. the "staff" works for your company)?

[Larry T. Spider 1746]

23 minutes ago, orange dream said:

@Larry T. Spider Interesting. Do you sell the concept, train the locals to implement and walk away or do you staff it for them also (i.e. the "staff" works for your company)?

We provide the staff for a couple of reasons. We want to manage the program and we are usually coming into situations where things have been managed poorly. In some cases, the state has gotten involved.

Probably more importantly, the districts we work with are really struggling to hire. Finding these specialized people is difficult and we often have to relocate staff to an underserved area. Districts are usually just trying to keep the ship afloat and don’t have the capacity to do this.

[orange dream 1246]

Honestly I’m a bit surprised that he districts that have screwed it up that badly have the resources to pay for it to be done correctly. Are they getting grants or some kind of rescue funds from the gummint?

sounds like a good program and a great gig for you either way. 

[Larry T. Spider 1746]

In general special education is very expensive because of the intense labor costs. Some students require a 1 on 1 aide, special transportation, an extended school year, etc. All special ed students require a lower student to teacher ratio, specialized staff, evaluators, and people at admin to handle all of the required documentation.

However, it is legally required, which gives districts two choices. Pay up front and do it right (smart choice).

OR deal with even more expensive lawsuits, compensatory services, grievances being filed, possibly the state taking over your district/sped department, and the high staff turnover that goes with the above. Additionally, some of the kids with emotional/behavioral issues will turn your campuses into a shit show because their needs aren’t being appropriately addressed.

So, to answer your question, most of these districts don’t have the resources but have to find the money anyway. Grants can help for a time but don’t last forever. It’s a rob Peter to pay Paul situation.

[orange dream 1246]

Thank you for the explanation.  My wife was a SPED teacher back in the day and certainly has some stories to tell on that front.

As to your original question and the general topic of the thread...buy low / sell high!!

Edited February 9 by orange dream

[Reagan1k 3024]

On 2/8/2024 at 7:25 AM, Twizzler said:

@Larry T. Spider

Check if your 401k plan allows mega backdoor Roth conversion.

 

This is good advice worth investigating. 

Gotta check with HR first.

If it doesn't and you have any sway in the company, ask them to amend the plan.

A good 401(k) provider will have resources and people available to educate you and walk you through the steps and pitfalls.

[Dbeasy 15040]

On 2/7/2024 at 9:38 PM, Hornbeliever said:

I just turned 48 and feeling I’m 5-6 years out from retirement so I built out a retirement excel model for myself.

I say damn does what you assume for inflation and for average investment return mess with the numbers.  The difference between inputting 3 and 4% inflation is huge, as is selecting between 6 and 7% investment return.  Compounding, yo.

Anyways, yall put in similar ranges?  Or more conservative/aggressive?

I said I’d die at 87, 4% inflation and 7% investment return.

 

 

You are learning what every retiree learns, that a small change in assumptions is the difference between caviar and being destitute.

I spent the first year of my semi-retirement running numbers through every calculator, spreadsheet and program there is anywhere and everywhere to try and better understand the sensitivity of different parameters. I particularly liked portfolio visualizer. It was worth $250 per year. 

Here are a few of the conclusions: 

1. Inflation - I settled on 3% for a conservative number and 2% for optimistic. I figured that if it runs 4%, other asset returns will eventually return higher rates leaving the same real returns as inflation running 3% or less. That might not be a good assumption but it’s the only way to sleep at night. 

2. Returns - think simple. First decide on your tolerance for risk, which will give you a stock bond asset allocation percentage. For example, 60/40 is the typical in retirement ratio. Then take some conservative and optimistic return rates for each and calculate the mixed value. Say conservatively 4% for bonds and 7% for stocks for a combined 5.8% return. Optimistically 4.5% for bonds and 9% for stocks, for a 7.2% rerun. Plug those numbers into the calculators and see if it works. 

3. Simulations - In Monte Carlo simulations, which are critical, a financial planner will often say you need an 80% or better probability for success. I prefer 90% + .

4. Income - to reduce sequence of returns risk, look at how much cash the portfolio generates each year on average and compare it to your expenses. I prefer to have enough income to cover most of my expenses so that I don’t have to sell stocks in a down period when prices are depressed. However I am always total return cognizant. I don’t want a lot of high dividend yield investments with poor overall returns.  Unfortunately right now I do have some investments that fall into that category. If and when rates drop I will jettison some of that.

 

 

[Royalfan5 2353]

What are good resources for managing a surprise inheritance? My dad died when I was very young, and this past week my grandmother passed after my grandfather passed in 2009. I never really thought about that I’d inherit my dads share of the estate, and nobody really said much about it to me until we were at the funeral home, so I need to figure out what I’m going to do with it.

[bluto 4912]

18 minutes ago, Royalfan5 said:

What are good resources for managing a surprise inheritance? My dad died when I was very young, and this past week my grandmother passed after my grandfather passed in 2009. I never really thought about that I’d inherit my dads share of the estate, and nobody really said much about it to me until we were at the funeral home, so I need to figure out what I’m going to do with it.

 

[Parliament 14228]

1 hour ago, Royalfan5 said:

What are good resources for managing a surprise inheritance? My dad died when I was very young, and this past week my grandmother passed after my grandfather passed in 2009. I never really thought about that I’d inherit my dads share of the estate, and nobody really said much about it to me until we were at the funeral home, so I need to figure out what I’m going to do with it.

[B00M 6413]

On 2/2/2024 at 11:48 PM, Larry T. Spider said:

Recently got a higher paying job so I have a good challenge on my hands. I can save about 4k or 5k per month plus commissions. Not counting commissions for now but it would be safe to expect another 50k or so. Could be much higher with accelerators.

This money is based on take home with my 401k getting maxed at 23k. Already maxed my Roth and my wife’s traditional IRA for 2024.

So the question is what’s next? Can’t do a HSA. Owe 135k on a house worth 600ish at a 3.25 rate. No debt other than the mortgage.

No kids. 12 month emergency fund is done. Need a new car soon and saved enough cash for that. Want to buy a couple of rental properties and also have enough for 25% down on those.

Im 40 and don’t have a ton of retirement savings because I wasn’t making a ton for a lot of my career. Paid into TRS for 15 years.

Is a taxable brokerage account the only real option here? Can’t imagine throwing a bunch at the mortgage would be smart with the low rate. I can buy more rentals if I end up liking it, but that won’t be for a while.

Wait, how did you qualify for Roth contributions? Am I regarded? not meaning to make you really tightly range your household income, just making sure I’m not miss any Roth opportunities 

Edited February 11 by B00M

[bluto 4912]

Back door Roth. Throw the money into a rollover account then xfer into Roth. Talk to your advisor/rep for full detail but that’s the summarized version

[midtown 3345]

Back door Roth. Throw the money into a rollover account then xfer into Roth. Talk to your advisor/rep for full detail but that’s the summarized version

Lots of good advice but be careful. There are nuances to back door roths that could get you in trouble

[Larry T. Spider 1746]

14 hours ago, B00M said:

Wait, how did you qualify for Roth contributions? Am I regarded? not meaning to make you really tightly range your household income, just making sure I’m not miss any Roth opportunities 

It will depend on commission but I should still be under 240k in 2024. Most of my savings is because I have no kids, no debt, a low mortgage, and a wife that doesn’t spend all my money 😀

[Texas Jeff 1942]

16 hours ago, Royalfan5 said:

What are good resources for managing a surprise inheritance? My dad died when I was very young, and this past week my grandmother passed after my grandfather passed in 2009. I never really thought about that I’d inherit my dads share of the estate, and nobody really said much about it to me until we were at the funeral home, so I need to figure out what I’m going to do with it.

Kinda depends on what you inherited.

Stocks get a step-up in basis, so you will want to figure out what they were worth on the day of her death.

An IRA account or a Roth IRA account becomes an inherited account.  You have 10 years to take the money out.  You have to take some required minimum distributions each year.  You will be taxed on the normal IRA distributions, but anything from a Roth is tax free.

Real estate should also get a step up in basis, so you need guess of what it was worth on the day of death and you''l have to figure out what you want to do with it.  Real estate is tough to split if you end up sharing it with someone else and they want to sell and you don't.

Some stuff may have to go through probate, but other accounts where you are named beneficiary can be transferred pretty fast.

[Texas Jeff 1942]

Here's a free Monte Carlo-like site that helps model future finances, using past stock market returns:

https://www.firecalc.com

You plug in how much money you have, how much you want to spend in retirement, and how long you think you will live.  It calculates what would have happened to your money as if you had retired in every year going back a hundred or so years.  It shows you a bunch of lines and tells you in how many years your plan would have failed (your money hits $0 before time expires) or succeeded (more than $0 left at the end).

You can accept their model of what you might be invested in and a constant spending plan, or you can play with the tabs on the site to fit your situation.

[Izhmash 562]

Couldn't find anything with a search and didn't really think starting a new thread on this was worthy....so decided to ask here. Has anyone (limited to alums only) invested in Congress Avenue Ventures (or non-Texas alums invested with Alumni Ventures) as a diversification / long term / moon shot type opportunity? I'm intrigued by what Rob is pitching, and while it's hands-off / non-liquid / high-risk, by investing in the funds you do get access to see some deals for syndication purposes simply because your'e part of the fund. I also like the idea of using the structure to get into the space where normally the little guy like us can't play without a ton of support / partners.

Curious if anyone else on the board has considered, walked away from, or actively invested with them? Any experiences to share? They are currently raising their 5th fund.

[UTGrad98 2271]

On 2/7/2024 at 9:38 PM, Hornbeliever said:

I just turned 48 and feeling I’m 5-6 years out from retirement so I built out a retirement excel model for myself.

I say damn does what you assume for inflation and for average investment return mess with the numbers.  The difference between inputting 3 and 4% inflation is huge, as is selecting between 6 and 7% investment return.  Compounding, yo.

Anyways, yall put in similar ranges?  Or more conservative/aggressive?

I said I’d die at 87, 4% inflation and 7% investment return.

 

 

For me thats why doing something and making at least a little money per year is enticing, post retirement. A 5.5% return vs a 6% return is huge over 40 years. Same with inflation assumptions. To mitigate that risk and offset the difference, making 5k a year putting out Youtube videos for olds seems kinda cool for me. Or renting out a house for the summer, or dog sitting, or something that makes your projected retirement curve infinitely more appealing. When I do my numbers, I normally default to a 3% greater return than inflation and usually settle on 2.5% inflation and a 5.5% return on investment. Right now my curve gives me peace even with multiple adverse scenarios. 

[Dbeasy 15040]

2 hours ago, Izhmash said:

Couldn't find anything with a search and didn't really think starting a new thread on this was worthy....so decided to ask here. Has anyone (limited to alums only) invested in Congress Avenue Ventures (or non-Texas alums invested with Alumni Ventures) as a diversification / long term / moon shot type opportunity? I'm intrigued by what Rob is pitching, and while it's hands-off / non-liquid / high-risk, by investing in the funds you do get access to see some deals for syndication purposes simply because your'e part of the fund. I also like the idea of using the structure to get into the space where normally the little guy like us can't play without a ton of support / partners.

Curious if anyone else on the board has considered, walked away from, or actively invested with them? Any experiences to share? They are currently raising their 5th fund.

I did look at it. I also worked in venture capital for awhile and am invested in other VC funds. Investing in VC is really tricky. If you are in a few of the top VC funds you can make good returns, but it’s really a coin flip for many VC funds on whether you make money or not. 

[jdhorn92 1545]

On 2/2/2024 at 11:48 PM, Larry T. Spider said:

Recently got a higher paying job so I have a good challenge on my hands. I can save about 4k or 5k per month plus commissions. Not counting commissions for now but it would be safe to expect another 50k or so. Could be much higher with accelerators.

This money is based on take home with my 401k getting maxed at 23k. Already maxed my Roth and my wife’s traditional IRA for 2024.

So the question is what’s next? Can’t do a HSA. Owe 135k on a house worth 600ish at a 3.25 rate. No debt other than the mortgage.

No kids. 12 month emergency fund is done. Need a new car soon and saved enough cash for that. Want to buy a couple of rental properties and also have enough for 25% down on those.

Im 40 and don’t have a ton of retirement savings because I wasn’t making a ton for a lot of my career. Paid into TRS for 15 years.

Is a taxable brokerage account the only real option here? Can’t imagine throwing a bunch at the mortgage would be smart with the low rate. I can buy more rentals if I end up liking it, but that won’t be for a while.

You've done good young man.  Im a pound the S&P guy myself , in a taxable Vanguard account.  Ive got you by 15 years, but a  good bond fund may be an option.  With rates so high right now, they are paying good dividends.  When rates come down late this year and next, the bond price will go up, could sell then, principle is pretty much guaranteed if you stagger them right

[jdhorn92 1545]

4 hours ago, Texas Jeff said:

An IRA account or a Roth IRA account becomes an inherited account.  You have 10 years to take the money out.  You have to take some required minimum distributions each year.  You will be taxed on the normal IRA distributions, but anything from a Roth is tax free.

 

@Royalfan5 check me on this, but i dont think there is an annual distribution requirement,  just the mandatory 'must be 100% liquidated in 10 years' rule.

We came into a large  ($200k+) inherited 403b and inherited Roth when my SIL passed away in '21 and we have them sitting in 2 inherited IRA accounts with Vanguard and we have not touched it yet.

[Royalfan5 2353]

6 hours ago, Texas Jeff said:

Kinda depends on what you inherited.

Stocks get a step-up in basis, so you will want to figure out what they were worth on the day of her death.

An IRA account or a Roth IRA account becomes an inherited account.  You have 10 years to take the money out.  You have to take some required minimum distributions each year.  You will be taxed on the normal IRA distributions, but anything from a Roth is tax free.

Real estate should also get a step up in basis, so you need guess of what it was worth on the day of death and you''l have to figure out what you want to do with it.  Real estate is tough to split if you end up sharing it with someone else and they want to sell and you don't.

Some stuff may have to go through probate, but other accounts where you are named beneficiary can be transferred pretty fast.

The first stuff is checking account cash, the balance of an investment account at Edward Jones that I do not know the current composition of, an annuity with Thrivent and life insurance money. The house will be sold later, and the Uncle currently farming will buying the rest of us out on the farm ground later on under the terms set by the will, after they figure out the cell phone tower buyout. I also got a pocket knife, a painting and some dish towels and will get to go through the recipe box. 

Edited February 11 by Royalfan5

[Texas Jeff 1942]

3 hours ago, jdhorn92 said:

@Royalfan5 check me on this, but i dont think there is an annual distribution requirement,  just the mandatory 'must be 100% liquidated in 10 years' rule.

We came into a large  ($200k+) inherited 403b and inherited Roth when my SIL passed away in '21 and we have them sitting in 2 inherited IRA accounts with Vanguard and we have not touched it yet.

I could be wrong, not sure.  I am not an expert.  The law changed in 2020 from a lifetime distribution to the 10 year rule.  Since then there has been some chatter about if RMDs are required over the 10 years or not, and I *thought* the IRS had landed on requiring RMDs, with some exceptions for those that didn't take RMDs while the IRS was deciding, but I could be wrong.

Vanguard has a calculator here to help with inherited IRAs and possible RMDs:

https://inherited-rmd-calculator.web.vanguard.com

[WithoutAClue 15330]

4 hours ago, jdhorn92 said:

check me on this, but i dont think there is an annual distribution requirement,  just the mandatory 'must be 100% liquidated in 10 years' rule.

We came into a large  ($200k+) inherited 403b and inherited Roth when my SIL passed away in '21 and we have them sitting in 2 inherited IRA accounts with Vanguard and we have not touched it yet.

I believe if you are 72+ you are required to take RMDs from the inherited IRA each year.

If younger than 72, then you do not have to take any distributions. Just liquidate it in 10 years.

[Trey3216 15343]

On 2/9/2024 at 4:45 PM, Dbeasy said:

You are learning what every retiree learns, that a small change in assumptions is the difference between caviar and being destitute.

I spent the first year of my semi-retirement running numbers through every calculator, spreadsheet and program there is anywhere and everywhere to try and better understand the sensitivity of different parameters. I particularly liked portfolio visualizer. It was worth $250 per year. 

Here are a few of the conclusions: 

1. Inflation - I settled on 3% for a conservative number and 2% for optimistic. I figured that if it runs 4%, other asset returns will eventually return higher rates leaving the same real returns as inflation running 3% or less. That might not be a good assumption but it’s the only way to sleep at night. 

2. Returns - think simple. First decide on your tolerance for risk, which will give you a stock bond asset allocation percentage. For example, 60/40 is the typical in retirement ratio. Then take some conservative and optimistic return rates for each and calculate the mixed value. Say conservatively 4% for bonds and 7% for stocks for a combined 5.8% return. Optimistically 4.5% for bonds and 9% for stocks, for a 7.2% rerun. Plug those numbers into the calculators and see if it works. 

3. Simulations - In Monte Carlo simulations, which are critical, a financial planner will often say you need an 80% or better probability for success. I prefer 90% + .

4. Income - to reduce sequence of returns risk, look at how much cash the portfolio generates each year on average and compare it to your expenses. I prefer to have enough income to cover most of my expenses so that I don’t have to sell stocks in a down period when prices are depressed. However I am always total return cognizant. I don’t want a lot of high dividend yield investments with poor overall returns.  Unfortunately right now I do have some investments that fall into that category. If and when rates drop I will jettison some of that.

 

 

All of that is well and good, but if you can generate 3 years worth of cash/cash value in life insurance/other non-market readily available and liquid assets as a buffer to your main retirement savings vehicle, then you will almost certainly not run out of money, and you can keep your portfolio invested more heavily in the market.  

The premise being to use the buffer cash during down market years, allowing your portfolio the chance to grow again without taking distributions from it.  You can Monte Carlo yourself to death on rates of return and all the factors, but that is the most powerful factor/vector that exists.  

[Dbeasy 15040]

5 hours ago, Trey3216 said:

All of that is well and good, but if you can generate 3 years worth of cash/cash value in life insurance/other non-market readily available and liquid assets as a buffer to your main retirement savings vehicle, then you will almost certainly not run out of money, and you can keep your portfolio invested more heavily in the market.  

The premise being to use the buffer cash during down market years, allowing your portfolio the chance to grow again without taking distributions from it.  You can Monte Carlo yourself to death on rates of return and all the factors, but that is the most powerful factor/vector that exists.  

The wording of your statement and dismissive tone of what I wrote is pretty misleading to the folks on this thread.  You are comparing apples and oranges. The use of life insurance as an investment strategy has a number of conditions that would need to be satisfied in order for it to be an attractive strategy for most folks in retirement. One condition, for many folks, is whether additional life insurance is even needed. And most people don't fall into the category of very high net worth, where life insurance might play an important role as part of a strategy.

Whether you use life insurance or not as part of your investment strategy, nothing I wrote above is incorrect. And quite frankly, a pretty big portion of the financial world recognizes that pushing cash value life insurance as part of a retirement strategy in many/most cases is just a way for financial advisors to make a bunch of money, rather than it being the best investment strategy for retirement. 

[Trey3216 15343]

28 minutes ago, Dbeasy said:

The wording of your statement and dismissive tone of what I wrote is pretty misleading to the folks on this thread.  You are comparing apples and oranges. The use of life insurance as an investment strategy has a number of conditions that would need to be satisfied in order for it to be an attractive strategy for most folks in retirement. One condition, for many folks, is whether additional life insurance is even needed. And most people don't fall into the category of very high net worth, where life insurance might play an important role as part of a strategy.

Whether you use life insurance or not as part of your investment strategy, nothing I wrote above is incorrect. And quite frankly, a pretty big portion of the financial world recognizes that pushing cash value life insurance as part of a retirement strategy in many/most cases is just a way for financial advisors to make a bunch of money, rather than it being the best investment strategy for retirement. 

I wasn't just saying life insurance, and I wasn't attempting to be dismissive. I was saying that having a cash stash in some form or fashion of 3 years worth of retirement distributions, regardless of their form, will almost certainly never run you out of money regardless of what happens in the market.  Perhaps you missed the 2 forward slashes on the keyboard?  

Now, some folks do say those things.  Some folks say otherwise.  If you have the life insurance, even if you are wealthy enough to "not need it", you can actually up your income in retirement because the end result (which happens to all of us) will be your family being replenished with money in the form of the death benefit in the life insurance policy.  So, building up the biggest pile of investment $$ has its merits, and its perils, as does having too much cash, as does having too much life insurance, as does having too much real estate.  Having a strategy is better than just saying "I'm gonna build a mountain and then tone down my risk profile when I retire".  I'm sure those folks that retired a few years ago and had moved to an 80% bond profile were really happy about taking distributions when the bond market was down 20%.  

Like I said, wasn't being dismissive.  Was saying that folks can drive themselves crazy with running Monte Carlo sims and maxing this and cutting that.  If you stick to a pretty simple strategy of staying invested in the S&P and have 3 years of distributions (at retirement age) of some form of non-market asset, whatever you so choose it to be, you are north of 98% not going to ever run out of money.  

[Dbeasy 15040]

27 minutes ago, Trey3216 said:

I wasn't just saying life insurance, and I wasn't attempting to be dismissive. I was saying that having a cash stash in some form or fashion of 3 years worth of retirement distributions, regardless of their form, will almost certainly never run you out of money regardless of what happens in the market.  Perhaps you missed the 2 forward slashes on the keyboard?  

Now, some folks do say those things.  Some folks say otherwise.  If you have the life insurance, even if you are wealthy enough to "not need it", you can actually up your income in retirement because the end result (which happens to all of us) will be your family being replenished with money in the form of the death benefit in the life insurance policy.  So, building up the biggest pile of investment $$ has its merits, and its perils, as does having too much cash, as does having too much life insurance, as does having too much real estate.  Having a strategy is better than just saying "I'm gonna build a mountain and then tone down my risk profile when I retire".  I'm sure those folks that retired a few years ago and had moved to an 80% bond profile were really happy about taking distributions when the bond market was down 20%.  

Like I said, wasn't being dismissive.  Was saying that folks can drive themselves crazy with running Monte Carlo sims and maxing this and cutting that.  If you stick to a pretty simple strategy of staying invested in the S&P and have 3 years of distributions (at retirement age) of some form of non-market asset, whatever you so choose it to be, you are north of 98% not going to ever run out of money.  

I know you are a financial planner so I won’t argue with you but a three year cash buffer absolutely does not address sequence of returns risk when backtested over history anywhere near 98%. That’s just flat wrong, and pretty much you can find mountains of studies that prove that. And your life insurance comment doesn’t even make sense. And no one anywhere talked about an 80% bond profile. 

[Trey3216 15343]

7 minutes ago, Dbeasy said:

I know you are a financial planner so I won’t argue with you but a three year cash buffer absolutely does not address sequence of returns risk when backtested over history anywhere near 98%. That’s just flat wrong, and pretty much you can find mountains of studies that prove that. And your life insurance comment doesn’t even make sense. And no one anywhere talked about an 80% bond profile. 

I know no one said anything about an 80% bond profile, but that's what a lot of advisors at your major institutions are coached to advise on those entering retirement.  It's insane.  

 

And I'd be happy to show you the math against real world numbers any time on sequence of returns risk.  

[Dbeasy 15040]

4 hours ago, Trey3216 said:

I know no one said anything about an 80% bond profile, but that's what a lot of advisors at your major institutions are coached to advise on those entering retirement.  It's insane.  

 

And I'd be happy to show you the math against real world numbers any time on sequence of returns risk.  

Edit. NM.  

Edited February 14 by Dbeasy

[Nice Guy Eddie 13507]

16 hours ago, Dbeasy said:

I know you are a financial planner so I won’t argue with you but a three year cash buffer absolutely does not address sequence of returns risk when backtested over history anywhere near 98%. That’s just flat wrong, and pretty much you can find mountains of studies that prove that. And your life insurance comment doesn’t even make sense. And no one anywhere talked about an 80% bond profile. 

Can you expand on a three year buffer doesn't fully address the sequence of returns risk? I understand there's always a risk of a multi year crash of the stock market but those odds are extremely low. And in that scenario a person may be able to adjust their expenses to stretch out the three year fund.

[Dbeasy 15040]

On 2/14/2024 at 8:27 AM, Nice Guy Eddie said:

Can you expand on a three year buffer doesn't fully address the sequence of returns risk? I understand there's always a risk of a multi year crash of the stock market but those odds are extremely low. And in that scenario a person may be able to adjust their expenses to stretch out the three year fund.

One of the better and more credible resources on the internet for retirement analysis is earlyretirementnow.com. 

He looks at bucket strategies (ie having cash), and SoRR in many of his blog posts. The thing about these retirement plans is that they are all based on assumptions. His analysis breaks thru the clutter to provide a realistic assessment of risk.

The problem with most financial planners is that they want you to feel good about your plan. That way you keep using them. They do this by assuming pretty rosy scenarios for returns.

And for the last 10-20 years that has worked out fine for most people. If you asked retirees whether they have more money today than they expected, most say yes. That’s because the stock market returns over the last several years have been very very good. 

But to do a thorough analysis on the true risks you need to backtest in history, and there have been periods where the returns were such that you ran out of money if you spent too much.  There are many scenarios where someone can spend more than 4% of their funds and be just fine. But no one can just make a blanket statement that three years of cash solves all problems without provide very specific context of assumptions.  

As to being able to moderate spending during down years, yes that can absolutely help. However, on that blog you’ll see a very enlightening article that shows how even moderating spending can be unlikely to fix the problem if the future looks like some periods in the past. 

[Neonmoon 38129]

15 hours ago, Dbeasy said:

That’s because the stock market returns over the last several years have been very very good. 

But to do a thorough analysis on the true risks you need to backtest in history, and there have been periods where the returns were such that you ran out of money if you spent too much. 

True, the internet bubble hurt some people, like my dad. 

[Nice Guy Eddie 13507]

16 hours ago, Dbeasy said:

But to do a thorough analysis on the true risks you need to backtest in history, and there have been periods where the returns were such that you ran out of money if you spent too much.  There are many scenarios where someone can spend more than 4% of their funds and be just fine. But no one can just make a blanket statement that three years of cash solves all problems without provide very specific context of assumptions.  

 

Let's review the type of person that we're discussing.

• knows the phrase, sequence of return risk 
• participates in online retirement discussions
• says they will save up 3 years of expenses in cash before retiring

I think it's fairly safe to say this person is not going to ignore the market while simultaneously annually pulling out 10% of the retirement funds. Most likely this person has a withdrawal rate of 2-3% AND they're opening up a brokerage account with some of that money because this is the game they play.

It's not impossible that a hardcore retirement planner runs out of money but the chances are low IMO.

 

[Larry T. Spider 1746]

3 hours ago, Neonmoon said:

True, the internet bubble hurt some people, like my dad. 

I was born in 1983 and have always paid attention to the stock market. When I was in high school in the late 90’s, stock investing seemed like and infinite money glitch. One down year in my lifetime and it was only -3% that year.

People that were retiring around that time did amazingly well.

[Parliament 14228]

51 minutes ago, Larry T. Spider said:

I was born in 1983 and have always paid attention to the stock market. When I was in high school in the late 90’s, stock investing seemed like and infinite money glitch. One down year in my lifetime and it was only -3% that year.

People that were retiring around that time did amazingly well.

Gimme another 2009-17 and I’ll be good thx.

[Dbeasy 15040]

3 hours ago, Nice Guy Eddie said:

Let's review the type of person that we're discussing.

• knows the phrase, sequence of return risk 
• participates in online retirement discussions
• says they will save up 3 years of expenses in cash before retiring

I think it's fairly safe to say this person is not going to ignore the market while simultaneously annually pulling out 10% of the retirement funds. Most likely this person has a withdrawal rate of 2-3% AND they're opening up a brokerage account with some of that money because this is the game they play.

It's not impossible that a hardcore retirement planner runs out of money but the chances are low IMO.

 

Under the assumptions you just listed, then there’s very likely no issue at all, because withdrawing only 2-3% gives them a lot of cushion. And the models validate that.

That’s exactly my point. Save up 3 years of cash but withdraw 6% every year and you might or might not make it, depending upon the markets over that time period, and inflation. It’s math. 

[BehoId, The Underminer! 11669]

On 2/16/2024 at 7:42 AM, Neonmoon said:

 

"gosh, it would be a real shame if someone bombed that base over in hawaii" - fdr

[Reagan1k 3024]

I can't figure out what anyone is arguing over.  Unless this is just a personality clash or a lover's quarrel, it appears that everyone is saying the same thing.

No plan has a 100% success rate regardless of any future/unknown event.  A "plan" of any kind is based on assumptions and past experience.

A 4% withdrawal rate is considered to be a reasonable rate and backtests to a high probability of success (nothing is guaranteed including the full faith and credit of the Federal Government).

A 6% withdrawal rate is risky - I can't figure out who said otherwise.

Sequence of risk is dampened by any more conservative withdrawal rate and further dampened by a separate cash reserve.  It moves the success rate higher for any given rate.

What's the bone of contention?

 

[Trey3216 15343]

24 minutes ago, Reagan1k said:

I can't figure out what anyone is arguing over.  Unless this is just a personality clash or a lover's quarrel, it appears that everyone is saying the same thing.

No plan has a 100% success rate regardless of any future/unknown event.  A "plan" of any kind is based on assumptions and past experience.

A 4% withdrawal rate is considered to be a reasonable rate and backtests to a high probability of success (nothing is guaranteed including the full faith and credit of the Federal Government).

A 6% withdrawal rate is risky - I can't figure out who said otherwise.

Sequence of risk is dampened by any more conservative withdrawal rate and further dampened by a separate cash reserve.  It moves the success rate higher for any given rate.

What's the bone of contention?

 

I mentioned Life insurance as one of several options for non-market cash reserves and he didn't take kindly to it.  You pretty much hit my argument on the head, but to each their own.  

[Trey3216 15343]

And that's fine.  There's more than 1 way to skin a cat, and one of the ways I explained has worked for a lot of people for a very long time.  To each their own.  No sweat off my back.  

[Skipper 6127]

43 minutes ago, Trey3216 said:

I mentioned Life insurance as one of several options for non-market cash reserves and he didn't take kindly to it.  You pretty much hit my argument on the head, but to each their own.  

Just curious - what is a scenario where life insurance as an "investment" actually makes sense?  I had always heard pretty much a ripoff in all but very specific circumstances but never understood what those circumstances would be.

[Trey3216 15343]

2 minutes ago, Skipper said:

Just curious - what is a scenario where life insurance as an "investment" actually makes sense?  I had always heard pretty much a ripoff in all but very specific circumstances but never understood what those circumstances would be.

1) You'll always have it.  You could calculatingly spend your assets down because when you die, your family will replenish assets with LI cash.

2) It doesn't factor into assets for children applying to college on FAFSA.  

3) You can utilize the cash (via loan) to yourself at anytime with no application.  Pretty convenient during high interest rate environs.  You could take a car loan right now for 4.8-5% from yourself rather than 8+ from the bank right now.   (Had a business client loan his business $250k for equipment purchases from his life policy a few months back at 5%...bank wanted 9%...saved himself tens of thousands of dollars)

4) in the event you were to have some sort of life threatening chronic or terminal illness (cancer, dementia, etc) you can access the death benefit while you're still alive to pay for medical care rather than have to use assets

5) It can't be taken in a lawsuit.  OJ has a shit ton of money because much of his estate was in life insurance.  

...In reality, once you are retirement age it more or less becomes asset insurance.  You protect your assets, your nest egg, via the benefits of the policy.  The cash value of the policy is yours to use freely, when there's cash available.   

 

It's not for everyone, but it can BE A PIECE OF A WELL ROUNDED STRATEGY.  It is not the only strategy, nor is being completely dependant upon the market and hoping for permanently good health and timing your exit from the workforce just right.