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

[nineliveslost 2686]

6 hours ago, Celery Man said:

Ok, I'm sure this is the same ground that's been covered a ton in this thread but still -

I recently ended my relationship with a former employer and rolled over a 401k with a couple hundo into my Fidelity account where I have everything else, and that wound up leading to a bunch of discussions. I've been self directed for the most part, I have a few single stocks (a little bit of google and amazon, a little bit of apple that turned into a lot over 15 years) and a couple grand in a mutual fund and a little bit of company stock from the employer before the most recent one but have mostly been in S&P type index funds. No bonds at all, really no international at all, I also went ahead and rolled over my even older 401k into IRAs, and so I have a ton of cash mixed in with the other stuff in about 75% roth and 25% traditional ira. I think I'm going to start going all in on traditional IRA at this point, but generally right now my question is if I should even be entertaining the "let us manage your IRAs for .9%" pitch from Fidelity or if I should just go three fund, and I guess do I really need bonds if I'm not planning on retiring for another 20 years? I know almost nothing about bonds, i've really just been hucking money into retirement without thinking about it too much for my whole career, and I guess at almost 40 now is the time to start thinking more strategically, but I don't want to sit around thinking for too long with all this cash out of the market.

My inclination is to just do what I've been doing but maybe more closely aligned with an actual boglehead three fund approach, not fuck around with paying a fee, I guess I'm looking for validation that that is wise and I'm not failing to think about some aspect of things that i haven't thought about yet, and maybe some bond talk although I think there was some up thread that I'm going to go find.

I have Fidelity also. I handed it over to an advisor. They are making 2 to 3 x times more than me fiddling around with it on my own 

[Celery Man 20568]

4 hours ago, GoneFission said:

Having bonds is generally seen as a good idea in am efficient portfolio. While the price of the bondsay go down, it really only matters if you plan to sell them in the short or medium term. Another way of looking at it would be something that pays you 5% or so in perpetuity and the price doesn't really matter.

 

The 7% stock return has a lot of volatility to it so the bonds also effectively hedge your returns to the market ups and downs. Volatility really kills returns - if you have 100, it loses 20% one year and gain 20% the next you averaged a 0% return but you lost money from where you started ( you end with 96 in the scenario). Same for a 20% gain then 20% loss (96 of original again). 

 

Wouldn't say to have your entire portfolio in bonds but having a bit definitely has some benefits by reducing the impact of volatility on your portfolio. 

 

Some have said recently to go all bonds but I've never heard a big time investor say to do it and it hasn't played out over long term so so far I've been against it personally- not up for taking that large of risk for something to earn slightly more. 

I think the thing that never makes sense to me in a retirement account when you're under the age of whatever - why does hedging it matter at all if I'm not going to touch it? I get why you'd want to do that if you are... 50, 55 years old and you don't want to be caught trying to access that money in a dead market. But if there's this swing on the stock market side and the bonds are steady, what does it really matter if I'm still 20 years from touching them?

But, whatever - my overall strategy is that I should just do what smart people say. it seems like a lot of people apply boglehead thinking with success, his most aggressive recommendation still includes 20% bonds so that's what I did just now with most of those IRAs. Although even typing that out I'm still a little itchy at 20% in bonds, I may rethink that.

[Dbeasy 14756]

6 hours ago, blacklab said:

Would love to hear other's opinions on bonds but I'm 100% against them and plan on keeping everything in stocks and two years of living expenses in liquid form. I'm mid 50's and planning on retiring in 4 years. 

The reason I'm anti bond is they can go down in value just like stocks.

Here's a bond fund I inherited a while back. It's lost ~20% of it's value over the last 4 years. Yes it spits out dividends, but if I needed to sell I'd be down a bunch right now.
The whole sales pitch on bonds is while only a 1-5% return you won't lose value. Well that's not true at all.
I'd rather average 7% and take the lumps of the ups and downs of the stock market.

I do plan on keeping 2+ years of expenses in cash/liquid, and slowly dribble out money each month to keep it flush. If the market tanks I'll just stop withdraws for a few months till it gets back to a more normal level. With the house and car paid off and the kids out of the house I really don't see us spending much more than SS is bringing in and hope the interest on the cash will cover most things. My uncle that I inherited this bond fund from used this plan, and had the same amount in his Vanguard account when he died 2 years ago that was in it when he retired 20 years ago. Around 5% of his money was in bonds, the rest was in stocks, mainly s&p 500 funds. 

 

If you aren’t already familiar with Monte Carlo simulations, you need to read up on them. It basically shows that without some bond allocations you run a higher risk of running out of money in retirement, if you are withdrawing a significant amount every year (2-4%+) to live on. That’s where the 60:40 model originated from. 

You aren’t at retirement, so you don’t need to be that heavy on bonds yet, but you should have some and grow it over time. 

If you elect to not have bonds, it could still end up very successful, but you would have to hope the market returns, especially early in retirement, aren’t particular poor historically. You will also have to be able to live with some nail biting drops in retirement account value, 50% for example. 

If you have a pension that covers all your living expenses in retirement, the need for bonds becomes much lower.  

The decision you have ahead of you is very very important. It took me over two years to find the strategy I was comfortable with. 

[blacklab 11818]

Went through 4 different simulators and all 4 said I was 100% likely to be successful.

I'm probably in a different position than most. My wife and I are pretty low maintenance. If I take my kids out of my current expenses and get the house paid off I think we could live very comfortably on $50k a year. If we can do that I could just put all of my money in a savings account earning 4% and it would go up not down as we got older.

 

[Dbeasy 14756]

26 minutes ago, blacklab said:

Went through 4 different simulators and all 4 said I was 100% likely to be successful.

I'm probably in a different position than most. My wife and I are pretty low maintenance. If I take my kids out of my current expenses and get the house paid off I think we could live very comfortably on $50k a year. If we can do that I could just put all of my money in a savings account earning 4% and it would go up not down as we got older.

 

What are you assuming for healthcare until Medicare? That can produce dramatically different requirements. We don’t spend a lot. We’ve always been low key, but our health care premiums and expenses are insanely high. As you get older shit happens. 

[Trey3216 15308]

14 hours ago, Celery Man said:

I think the thing that never makes sense to me in a retirement account when you're under the age of whatever - why does hedging it matter at all if I'm not going to touch it? I get why you'd want to do that if you are... 50, 55 years old and you don't want to be caught trying to access that money in a dead market. But if there's this swing on the stock market side and the bonds are steady, what does it really matter if I'm still 20 years from touching them?

But, whatever - my overall strategy is that I should just do what smart people say. it seems like a lot of people apply boglehead thinking with success, his most aggressive recommendation still includes 20% bonds so that's what I did just now with most of those IRAs. Although even typing that out I'm still a little itchy at 20% in bonds, I may rethink that.

Tried to send you a PM.  Says you can't get them. 

[blacklab 11818]

33 minutes ago, Dbeasy said:

What are you assuming for healthcare until Medicare? That can produce dramatically different requirements. We don’t spend a lot. We’ve always been low key, but our health care premiums and expenses are insanely high. As you get older shit happens. 

Wife is a part time/sub teacher, she was planning on getting a full time job for a few years during the gap for the insurance.

If that doesn't work getting a high deductible plan of some sort.

[Nice Guy Eddie 13295]

It's not 0% but I've usually avoided bond funds. Age 55 looking to retire by 62. However I have some safe retirement money from a former employer earning a guaranteed 5%, and I have a sizable "emergency" fund that is in HYSAs.

With recently moving some IRA funds between brokers I did purchase a bond fund. I'm not expecting growth but look at it as decent dividend/return/whatever. I figure that I should remove some risk.

[Dbeasy 14756]

18 minutes ago, blacklab said:

Wife is a part time/sub teacher, she was planning on getting a full time job for a few years during the gap for the insurance.

If that doesn't work getting a high deductible plan of some sort.

If y’all are really healthy like a few of our friends, that works well. If you have a lot of issues that come up, you can end up spending $20-40k on healthcare per year depending on the plans and the issues. 

We did the same. Wife teaches in Round Rock. We don’t want to be on ACA because we need specific special doctors. 

Edited July 25 by Dbeasy

[Dbeasy 14756]

1 hour ago, blacklab said:

Went through 4 different simulators and all 4 said I was 100% likely to be successful.

I'm probably in a different position than most. My wife and I are pretty low maintenance. If I take my kids out of my current expenses and get the house paid off I think we could live very comfortably on $50k a year. If we can do that I could just put all of my money in a savings account earning 4% and it would go up not down as we got older.

 

Also just be aware that a lot of those simulators assume 9-11% returns on stocks with a 2.25% inflation rate. We probably won’t see that over the next ten years. The latest capital market assumptions from various financial firms is more in the 6-8% range because of how elevated stocks prices are right now. 

[blacklab 11818]

Yeah, I'm figuring an average of 7% on stocks. 

Thanks for mentioning the health care, I did a quick budget and forgot all about that.

I did half jokingly gave my boss a 4 year notice a few months ago. She knows I'm the only one that knows how a lot of things work and was a little freaked out and immediately said, "but you could do part time like 10 hours a week when we need you right?" and I said yes, if you keep me on the health plan, and she said that would not be a problem, so I've got that going for me, which is nice. 

[Reagan1k 3002]

On 7/25/2024 at 10:54 AM, Dbeasy said:

Also just be aware that a lot of those simulators assume 9-11% returns on stocks with a 2.25% inflation rate. We probably won’t see that over the next ten years. The latest capital market assumptions from various financial firms is more in the 6-8% range because of how elevated stocks prices are right now. 

Exactly why testing with real Monte Carlo simulation is so crucial.  It’s human nature to view what’s recent as long term, but real simulations incorporate longer periods (historically relevant) of low to negative returns.  That sequence of return is far different than our recent experiences of rapid cyclical bear market recovery.  

Shit can take time and even a decade or more to recover.  Considering a retirement may span 30-40 years or more…. Those secular bear and bull markets must be considered and tested against with entrance and exit throughout the retirement cycle.

Thats part of the case for bonds in the portfolio of a 40-50 year old with retirement still 15-20 years out.  If we enter a secular bear market tomorrow, a 100% equity portfolio would be tough to swallow when eyeing retirement in 2040 for instance. Plans would change.

Another gotcha that’s a risk is the dominance of a few names in many of the indexes that ETFs and mutual funds hold or mirror.  A lot of inventors have FAR more exposure to a few tech-ish names than they realize.  Not saying it’s bad, but many don’t realize they have 25-30% of their money invested in a handful of stocks via weighted indexes and overlapping funds. 

[Dbeasy 14756]

I’m an ETF index investor for the most part, although I do have some REITs, private investments, utility ETF’s, healthcare etfs, and a few other things. I’m a bit underweighted in tech stocks because of what @Reagan1k mentioned, but I wish I was even lower. My S&P index etfs are now heavy tech because of the rise of the big 7. I’m 48/52 equity/fixed, but given valuations I’ve contemplated dropping to 40/60. 

[Tailgate 2974]

I’m starting to wind down and be prepared for an eventual retirement. The stock market has been good to me for many years and I took a lot of those rewards off the table recently. 
 

Will start eyeballing some good growth funds/ETFs/high-interest savings. 
 

I just need to start searching for the next move. Kids are out of Austin and we are ready to roll also. 40+ years in ATX…after growing up Air Force kids…we’re ready for another adventure.

Edited July 29 by Tailgate

[txduck87 972]

I’m starting to wind down and be prepared for an eventual retirement. The stock market has been good to me for many years and I took a lot of those rewards off the table recently. 
 
Will start eyeballing some good growth funds/ETFs/high-interest savings. 
 
I just need to start searching for the next move. Kids are out of Austin and we are ready to roll also. 40+ years in ATX…after growing up Air Force kids…we’re ready for another adventure.

That’s great. Congrats. Retired 2 years ago and wife joining me in that in 6 months. Last kid is a senior in high school this year. Plan on selling house and renting for 12-18 months while we long travel (3-4 weeks at a time) to scope out potential next destinations. North Carolina, Tennessee and Colorado are the leading contenders. You should visit the “ where should I retire” thread. Good stuff in there. Good luck!

[Nice Guy Eddie 13295]

I’m sure that I’ve written here but my retire plan is to have 3 years of expenses in cash at all times. Perhaps minus take-home SS payments assuming I’m confident in it.

With this plan, in bad markets I just stop market withdrawals and live off the cash savings. when the market recovers, there would need to be a big withdrawal/sale to replenish the cash savings.

The idea is to remain somewhat aggressive with funds, not 100% equity. And allows me to not worry about a short term market downturn. The risk would be a >3 year market crash. However I assume that scenario would be painful for almost any stock owner regardless of the strategy.

Edited July 31 by Nice Guy Eddie

[blacklab 11818]

2 hours ago, Nice Guy Eddie said:

I’m sure that I’ve written here but my retire plan is to have 3 years of expenses in cash at all times. Perhaps minus take-home SS payments assuming I’m confident in it.

With this plan, in bad markets I just stop market withdrawals and live off the cash savings. when the market recovers, there would need to be a big withdrawal/sale to replenish the cash savings.

The idea is to remain somewhat aggressive with funds, not 100% equity, but without short term worry. The risk would be a >3 market crash. However I assume that scenario would be painful for almost any stock owner regardless of the strategy.

ding ding ding

this plan is a winner. I was planning on two years. If I go a year without making a withdraw I figure I'll dramatically slow my spending and pick up a project or two or get a part time job. 

 

[Nice Guy Eddie 13295]

31 minutes ago, blacklab said:

ding ding ding

this plan is a winner. I was planning on two years. If I go a year without making a withdraw I figure I'll dramatically slow my spending and pick up a project or two or get a part time job. 

 

I would love to see a complex monte carlo simulation where you could model zero withdrawals on years the market is negative. Then identify the chances of running out of cash or seeing investments running to zero.

Agree that with this strategy that someone could tighten the belt somewhat in down years. Limit or eliminate expensive vacations when this occurs.

Like with any financial plan, if you relatively have a large amount in the market and in cash, it will be unlikely to go broke with safe guards like correct insurance and good judgement. 

[blacklab 11818]

Yeah, none of the ones I found had an option for that. Was going to write one but got lazy and all the ones I tried gave me 0% chance of failure. 

Last 150 years:

Only twice has it lost 3 years in a row, and only once 4 years in a row, I think you're pretty safe with 3 years of living expenses.

 

 

[TreatyOak 16078]

3 hours ago, blacklab said:

Yeah, none of the ones I found had an option for that. Was going to write one but got lazy and all the ones I tried gave me 0% chance of failure. 

Last 150 years:

Only twice has it lost 3 years in a row, and only once 4 years in a row, I think you're pretty safe with 3 years of living expenses.

 

 

2007 was worse than 1929? Wow. 

[Parliament 13997]

13 hours ago, blacklab said:

Yeah, none of the ones I found had an option for that. Was going to write one but got lazy and all the ones I tried gave me 0% chance of failure. 

Last 150 years:

Only twice has it lost 3 years in a row, and only once 4 years in a row, I think you're pretty safe with 3 years of living expenses.

 

 

Post war S&P 500

[Nice Guy Eddie 13295]

17 hours ago, blacklab said:

Yeah, none of the ones I found had an option for that. Was going to write one but got lazy and all the ones I tried gave me 0% chance of failure. 

Last 150 years:

Only twice has it lost 3 years in a row, and only once 4 years in a row, I think you're pretty safe with 3 years of living expenses.

 

 

2008 made me forget 2000-2002. Bad enough there were back-to-back years of -10% and -13% only for the party take home gift of -23% the next year. Thanks for playing. I can't even fully recall what I did with all of my dot com internet stocks. JDSU made me ton. I believe I ended up dumping everything by the end of the crash. Dumb move as I had a modest amount in Amazon. 

[jdhorn92 1527]

On 7/24/2024 at 7:49 PM, Celery Man said:

 

But, whatever - my overall strategy is that I should just do what smart people say. it seems like a lot of people apply boglehead thinking with success, his most aggressive recommendation still includes 20% bonds so that's what I did just now with most of those IRAs. Although even typing that out I'm still a little itchy at 20% in bonds, I may rethink that.

Im 54 and been pounding Index funds since i got out of Texas.  I didnt start being able to save money until I was 25, so figure appx 30 years of Index buying and holding.  Almost entirely S&P 500, with the exception of 10% of the nest egg in cash (probably more than what is recommended).  The strategy has served me well; without going in to too much detail, we should be fine.  Buy and hold, dollar cost averaging, only time I sold was right after 9/11 and I was late to sell.  Got it all back of course.  Fortunately my company has a defined pension...that plus SS and savings and wife is realtor (she'll do that forever).... trying to go another 7 years before heading to the house.

I think the Boglehead strategy is not sexy and wont win the dinner conversation, but i come from the millionaire next door ethos where its best to sit back and let others discuss the next big stock pick and bide my time.

 

Full disclosure,  I will say i have one IRA from my wife's previous employer where i own microsoft, Meta, apple , amazon and AMC (got caught up in the meme options mania), plus an inherited IRA with Vanguard in their inflation protected bond fund tied to 10 yr.... been a dog lately but with the 10yr under 4, it should start a price increase trend.  Other than that, im all S&P. 

 

Good luck!

[Trey3216 15308]

On 7/27/2024 at 3:09 PM, Reagan1k said:

Exactly why testing with real Monte Carlo simulation is so crucial.  It’s human nature to view what’s recent as long term, but real simulations incorporate longer periods (historically relevant) of low to negative returns.  That sequence of return is far different than our recent experiences of rapid cyclical bear market recovery.  

Shit can take time and even a decade or more to recover.  Considering a retirement may span 30-40 years or more…. Those secular bear and bull markets must be considered and tested against with entrance and exit throughout the retirement cycle.

Thats part of the case for bonds in the portfolio of a 40-50 year old with retirement still 15-20 years out.  If we enter a secular bear market tomorrow, a 100% equity portfolio would be tough to swallow when eyeing retirement in 2040 for instance. Plans would change.

Another gotcha that’s a risk is the dominance of a few names in many of the indexes that ETFs and mutual funds hold or mirror.  A lot of inventors have FAR more exposure to a few tech-ish names than they realize.  Not saying it’s bad, but many don’t realize they have 25-30% of their money invested in a handful of stocks via weighted indexes and overlapping funds. 

Yep.  Utilizing Monte Carlo with historical returns from different periods is far more useful than using an average rate of return.  Specifically, find some time frames where there are 2 years in a row of negative market returns the year after you retire.  Want to see if you'll run out of money, test against withdrawals early in your retirement in a negative market environment.  

[Reagan1k 3002]

20 hours ago, Trey3216 said:

Yep.  Utilizing Monte Carlo with historical returns from different periods is far more useful than using an average rate of return.  Specifically, find some time frames where there are 2 years in a row of negative market returns the year after you retire.  Want to see if you'll run out of money, test against withdrawals early in your retirement in a negative market environment.  

I've always believed that a 2-4 year protracted sideway to slightly down market early in retirement is more dangerous  than a sharp, temporary decline if a cash bucket isn't being used for spending withdrawals.

The effects of sudden 20% - 30% drop and snap back reversal can be muted by the fact that there may only be a few withdrawals made during this period, or withdrawals may be paused for a short time.

Unless that cash cushion is there, a 2-4 year repeated selling into weakness can really open risk for depletion in years to come.

Another huge issue that is an advantage to those with cash (income buffers) would be the ability to do tax strategic selling during both up and down years.  Tax loss harvesting and rebalancing is easy to do and advantageous to long term wealth when you aren't relying on those proceeds this year to pay for expenses.  Gives a good planner and tax pro a lot to work with.

[Trey3216 15308]

4 minutes ago, Reagan1k said:

I've always believed that a 2-4 year protracted sideway to slightly down market early in retirement is more dangerous  than a sharp, temporary decline if a cash bucket isn't being used for spending withdrawals.

The effects of sudden 20% - 30% drop and snap back reversal can be muted by the fact that there may only be a few withdrawals made during this period, or withdrawals may be paused for a short time.

Unless that cash cushion is there, a 2-4 year repeated selling into weakness can really open risk for depletion in years to come.

Another huge issue that is an advantage to those with cash (income buffers) would be the ability to do tax strategic selling during both up and down years.  Tax loss harvesting and rebalancing is easy to do and advantageous to long term wealth when you aren't relying on those proceeds this year to pay for expenses.  Gives a good planner and tax pro a lot to work with.

Absolutely.  One reason why I stated several pages ago that having a 3-ish year cash buffer (be it in actual cash, cash equivalents, cash value in life insurance, or other non-market assets) is a bigtime winning strategy.  

[Archer 474]

I’m using Ibonds as a leg in my cash equivalent to maintain purchasing power. They take a while to build up a decent amount but I’ll hit one year of expenses with my purchase in January, 2025. 
 

I plan to keep buying them as long as I can and as the amount continues to grows I’ll probably start reducing my cash holdings. 

[Trey3216 15308]

14 hours ago, Archer said:

I’m using Ibonds as a leg in my cash equivalent to maintain purchasing power. They take a while to build up a decent amount but I’ll hit one year of expenses with my purchase in January, 2025. 
 

I plan to keep buying them as long as I can and as the amount continues to grows I’ll probably start reducing my cash holdings. 

But bonds aren’t cash equivalent because, as what happened in ‘22, they can lose 20% just like stocks.   

[hornmpa96 2538]

or said differently, it may not be a great idea to hold bond funds in a period of extremely low interest rates. The yield on the fund sucks and there is the risk of capital loss when rates go up. Unfortunately, this was an expensive lesson for me.

[UTGrad98 2210]

24 minutes ago, hornmpa96 said:

or said differently, it may not be a great idea to hold bond funds in a period of extremely low interest rates. The yield on the fund sucks and there is the risk of capital loss when rates go up. Unfortunately, this was an expensive lesson for me.

Same. I looked in 2022 at my 401k and saw my bond fund was down 10%. Never been so furious in my life in terms of managing my money. You can throw a rock and you will see  60% stock 40% bond portfolio advice so I never put in the work to understand that a bond fund trades just like a stock does and can absolutely lose principal. Huge lesson. Never again. Bond funds can suck my dick.

Edited August 3 by UTGrad98
...

[Archer 474]

3 hours ago, Trey3216 said:

But bonds aren’t cash equivalent because, as what happened in ‘22, they can lose 20% just like stocks.   

Ibonds have no interest rate risk to their value which is why I am using them as an inflation indexed cash equivalent. 

[txduck87 972]

Same. I looked in 2022 at my 401k and saw my bond fund was down 10%. Never been so furious in my life in terms of managing my money. You can throw a rock and you will see 60% equity 40% bonds so I never put in the work to understand that a bond fund trades just like a stock does and can absolutely lose principal. Huge lesson. Never again. Bond funds can suck my dick.

However, now might be the best time to allocate some money to bond funds as we most likely heading into a rate REDUCTION environment.

Just bumped up my bond allocation from 10 to 20% last week. All in BND. Up 2% last week. For the most part , I abhor bond funds and get my fixed income from real estate syndications. But, in a declining rate world, there is money to be made in them.

For the record , I’m retired (58) and currently have 60%equity, 20% bond, 15% real estate syndicates , 5% cash.

I advise my sons 25, 20 and 17, to be 100% equities . VTI, VXUS and VGT because they are young and long term, equities are the place for most growth.

Hook ‘em.

[hornmpa96 2538]

32 minutes ago, txduck87 said:

However, now might be the best time to allocate some money to bond funds as we most likely heading into a rate REDUCTION environment.

Just bumped up my bond allocation from 10 to 20% last week. All in BND. Up 2% last week. For the most part , I abhor bond funds and get my fixed income from real estate syndications. But, in a declining rate world, there is money to be made in them.

For the record , I’m retired (58) and currently have 60%equity, 20% bond, 15% real estate syndicates , 5% cash.

I advise my sons 25, 20 and 17, to be 100% equities . VTI, VXUS and VGT because they are young and long term, equities are the place for most growth.

Hook ‘em.

Yep - I've been buying BLV since February based on the assumption that declining rates would have a more significant impact on the long-end of the curve.

[Trey3216 15308]

4 hours ago, Archer said:

Ibonds have no interest rate risk to their value which is why I am using them as an inflation indexed cash equivalent. 

I have a cracked phone screen right now and didn’t see the i in iBonds.   Carry on.  

[Reagan1k 3002]

IMO bond FUNDs are ok for your folks trying to maintain exposure and seek diversification when they have a long time horizon before retirement. 

For income purposes or for the cash / income buffer @Trey3216 espouses - I’m overseeing a family member’s portfolio using a 24 month ladder of treasuries maturing each month.

If they need income via the principal, this month’s maturity is transferred to checking.  If not, it is rolled back into the end of the ladder.

Tax efficient and strategic selling of equity is used to backfill the ladder when a rung is removed and must be replaced.

Since they’re holding to maturity they don’t worry about rising rates and grab some gains when falling.

There are other ways to skin this cat.  

[jimmyjazz 45162]

This has already been covered, but whatever.  I have a few term life policies.  The largest one just sent a letter about conversion to whole life.

Is this always a bad idea or are there situations in which it makes sense?  I have always been under the impression that term life is the way to go.

[Hefeweizen 5221]

Do not check on your investment portfolio today.  I made that mistake just now.  Furk.

[Nice Guy Eddie 13295]

18 minutes ago, jimmyjazz said:

This has already been covered, but whatever.  I have a few term life policies.  The largest one just sent a letter about conversion to whole life.

Is this always a bad idea or are there situations in which it makes sense?  I have always been under the impression that term life is the way to go.

The whole life sales team always say there scenarios where whole life is the best but I've never seen them produce a listing. Presumably if they list those scenarios, then it can be refuted or pointed out that most customers don't fit those scenarios.

[jimmyjazz 45162]

Yeah, if I ignore sunk costs and just look forward at the "fixed" monthly rate (still skeptical), the payout on that one is fine even in 20 years.  That's not the way I'd normally calculate an investment, but honestly I pay very little attention to our insurance.

[blacklab 11818]

Wife wanted to invest some money she came into a while back. Her friend was dating a guy at New York Life that convinced my wife it was a good idea. I made him give me a spreadsheet of what would happen if we put the initial money in and $x a month. Compared to an s&p fund averaging 7% and buying a life insurance policy that cost $15 a month at USAA it was a total dog.

The only case I've heard that makes sense is if you are a very high net worth individual you can shove a bunch of money in there and then take loans out on it resulting in some tax advantages rather than paying capital gains when withdrawing some money from the stock market.

[Trey3216 15308]

12 hours ago, blacklab said:

Wife wanted to invest some money she came into a while back. Her friend was dating a guy at New York Life that convinced my wife it was a good idea. I made him give me a spreadsheet of what would happen if we put the initial money in and $x a month. Compared to an s&p fund averaging 7% and buying a life insurance policy that cost $15 a month at USAA it was a total dog.

The only case I've heard that makes sense is if you are a very high net worth individual you can shove a bunch of money in there and then take loans out on it resulting in some tax advantages rather than paying capital gains when withdrawing some money from the stock market.

It makes sense in this scenario as well:

 

Say you have x dollars already in qualified money.  You continue to contribute to that money right up to retirement age with those dollars wholly invested in S&P 500.  You build a pretty large nest egg.   

The math right now says that a 2.8% withdrawal rate is the recommended rate to not run out of money.  You've saved all your life so you can be afforded the opportunity to withdraw ~3% of it per year without fear of running out.  

 

If you have a permanent life policy in place, you can afford to spend your money you saved.  Use the life policy to replenish your funds for your legacy.  In the meantime, you have the cash value you can draw on in down market years (buffer cash) which allows the qualified $$ to replenish itself by not double dipping.  

The math works fine.   You just have to be willing to look at it.  The last 15-20 years of piling money into qualified plans don't really add that much to your pile at the end of the day.  THere's not enough time on your exponential curve for that money to multiply.   That's the math that people tend to overlook.   

[Nice Guy Eddie 13295]

1 hour ago, Trey3216 said:

It makes sense in this scenario as well:

 

Say you have x dollars already in qualified money.  You continue to contribute to that money right up to retirement age with those dollars wholly invested in S&P 500.  You build a pretty large nest egg.   

The math right now says that a 2.8% withdrawal rate is the recommended rate to not run out of money.  You've saved all your life so you can be afforded the opportunity to withdraw ~3% of it per year without fear of running out.  

 

If you have a permanent life policy in place, you can afford to spend your money you saved.  Use the life policy to replenish your funds for your legacy.  In the meantime, you have the cash value you can draw on in down market years (buffer cash) which allows the qualified $$ to replenish itself by not double dipping.  

The math works fine.   You just have to be willing to look at it.  The last 15-20 years of piling money into qualified plans don't really add that much to your pile at the end of the day.  THere's not enough time on your exponential curve for that money to multiply.   That's the math that people tend to overlook.   

I'm not following. Say someone has $1m (or 2 or 3) in a 401k or IRA. They withdraw 3% per year and increase it roughly by inflation rates each subsequent years. In a down year, you're saying that someone should borrow from their whole life plan (is that permanent?) to replenish the account balance?

I thought the point of the low withdrawal rate (3-4%) was to handle the downturns without long term problems except in very unlucky situations of multi-year downturns especially in the beginning years. Or are you saying that someone with the whole life backup, could bump up to >5% withdrawal?

When I see the high premiums for whole life, it doesn't make sense to me. AFLAC is showing a rough estimate of $450/month for a 30 year old to get $500K in coverage. Put the $450 into the market and you would have over ~$1M at 65. Instead you have a whole life policy only worth $500K. 

 

Edited September 4 by Nice Guy Eddie

[Wally Fairway 5490]

2 hours ago, Trey3216 said:

It makes sense in this scenario as well:

 

Say you have x dollars already in qualified money.  You continue to contribute to that money right up to retirement age with those dollars wholly invested in S&P 500.  You build a pretty large nest egg.   

The math right now says that a 2.8% withdrawal rate is the recommended rate to not run out of money.  You've saved all your life so you can be afforded the opportunity to withdraw ~3% of it per year without fear of running out.  

 

If you have a permanent life policy in place, you can afford to spend your money you saved.  Use the life policy to replenish your funds for your legacy.  In the meantime, you have the cash value you can draw on in down market years (buffer cash) which allows the qualified $$ to replenish itself by not double dipping.  

The math works fine.   You just have to be willing to look at it.  The last 15-20 years of piling money into qualified plans don't really add that much to your pile at the end of the day.  THere's not enough time on your exponential curve for that money to multiply.   That's the math that people tend to overlook.   

Remember the end of the day for your 401k is not the day you retire. I am hopeful to live 25 - 30 years post retirement, that seems like plenty of time for that money to multiply.

[Wally Fairway 5490]

On 7/24/2024 at 10:22 PM, Dbeasy said:

If you aren’t already familiar with Monte Carlo simulations, you need to read up on them. It basically shows that without some bond allocations you run a higher risk of running out of money in retirement, if you are withdrawing a significant amount every year (2-4%+) to live on. That’s where the 60:40 model originated from. 

You aren’t at retirement, so you don’t need to be that heavy on bonds yet, but you should have some and grow it over time. 

If you elect to not have bonds, it could still end up very successful, but you would have to hope the market returns, especially early in retirement, aren’t particular poor historically. You will also have to be able to live with some nail biting drops in retirement account value, 50% for example. 

If you have a pension that covers all your living expenses in retirement, the need for bonds becomes much lower.  

The decision you have ahead of you is very very important. It took me over two years to find the strategy I was comfortable with. 

should SS be treated similar to a pension if figuring retirement investment allocation?
Because if, as an example, I draw $75k in SS and treasuries (blended) are paying 4%, wouldn't that give me an equivalent of about $2M in fixed income. Of course this calculation went haywire when treasuries were paying super low interest rates.

[Nice Guy Eddie 13295]

33 minutes ago, Wally Fairway said:

Remember the end of the day for your 401k is not the day you retire. I am hopeful to live 25 - 30 years post retirement, that seems like plenty of time for that money to multiply.

Great point. If you are contributing to your 401k in your last year of work, it's not just about the limited growth of those contributions in those last few months. It's easy for anyone to focus on the balance as of that last day of work.

Unless of course someone is flipping their entire retirement into an annuity which I've never seen recommended. That last year could 10x by the time you spend it.

[Dbeasy 14756]

32 minutes ago, Wally Fairway said:

should SS be treated similar to a pension if figuring retirement investment allocation?
Because if, as an example, I draw $75k in SS and treasuries (blended) are paying 4%, wouldn't that give me an equivalent of about $2M in fixed income. Of course this calculation went haywire when treasuries were paying super low interest rates.

For social security, I subtract it from my annual spending requirement, and the leftover amount is what has to be produced from investment funds. That is a better way to think about the impact of social security. And when you look at what percent of spending is covered by SS, if it’s a high percentage, it allows you to be more aggressive in allocation between stocks and bonds, with less downside risk of not being able to meet spending requirements. 

[SimonBolivar 10673]

I'm having some trouble on how much I should keep in my HYSA. I'm putting away around $1000 a month into it, but having >$20k in a savings account at 35 seems like a waste of potential. I was thinking about just letting it sit at $20k and moving that $1000/month over to the market (401K and Roth are maxed out so no go there). Is that considered enough, or is there a consensus where it should be a year's salary or something?

 

We just bought our house in 2021 at 3.5% so no rush to pay that off, no kids, wife works, so I'm having a hard time thinking of reasons to keep that savings growing.

Edited September 4 by SimonBolivar

[hornmpa96 2538]

5 hours ago, SimonBolivar said:

I'm having some trouble on how much I should keep in my HYSA. I'm putting away around $1000 a month into it, but having >$20k in a savings account at 35 seems like a waste of potential. I was thinking about just letting it sit at $20k and moving that $1000/month over to the market (401K and Roth are maxed out so no go there). Is that considered enough, or is there a consensus where it should be a year's salary or something?

 

We just bought our house in 2021 at 3.5% so no rush to pay that off, no kids, wife works, so I'm having a hard time thinking of reasons to keep that savings growing.

My rule of thumb has always been to have at least 6 months of expenses in savings and consider that my emergency fund. The fact that you can earn interest on that now is a bonus.

[Nice Guy Eddie 13295]

5 hours ago, SimonBolivar said:

I'm having some trouble on how much I should keep in my HYSA. I'm putting away around $1000 a month into it, but having >$20k in a savings account at 35 seems like a waste of potential. I was thinking about just letting it sit at $20k and moving that $1000/month over to the market (401K and Roth are maxed out so no go there). Is that considered enough, or is there a consensus where it should be a year's salary or something?

 

We just bought our house in 2021 at 3.5% so no rush to pay that off, no kids, wife works, so I'm having a hard time thinking of reasons to keep that savings growing.

Yeah, I wouldn’t go too overboard with more than 6-9 months of expenses saved, based on your age. With you and your wife working, I would assume a low risk of both of you losing your jobs. Perhaps if you want to pay cash for your next car, you can save the excess cash for that. Otherwise start pushing funds into a post tax brokerage account. I have 20 years on you and I wish I had regularly contributed in this manner.

And while it’s not a huge $ difference you might want to look at moving some/all of the HYSA funds into a 9-12 month CD to get ~5%. HYSA rates are quietly dropping. You might earn a couple hundred over that time for no risk.

[4thgenhorn 38]

Approx what # are you budgeting for when you are >60 year old?  Reason I ask is my kids have busted my budget, so no idea what’s a realistic number for when I’m older and empty nester. $10k?  $15k?  20k?  Adjust for inflation or just assume a somewhat lower 7% market return?