The Reason to Quit PP

[Tyler]

I don't know where the rest of you are in regards to how close you are to retirement but I was planning to retire in two years but hoping maybe to even do it next year (when I turn 67). I was very hopeful after the good (normal) return last year. Another year like that and I might very well have been able to go for it next year.  Needless to say, this year is a downer and another year like it in succession might even put my retirement plan in jeopardy for the following year. Been a little depressed about it lately but a good ale helps.

So I probably have more emotionally invested in it than most of you but I'm still sticking with it.

I can really relate. Being close to retirement really changes the way you look at your investments. I am almost 57 and hoping to pull the plug on paid work in the next few years. The thing for me is that it's hard to not get fixated on a nice, sweet, round number for retirement. And when you are close to the end of your working years a bad portfolio day WAY outweighs current income. Sophie looks at the same dip and hope it lasts a bit longer so she can sneak in some purchases at lower levels.

A good ale definitely helps... as does a flexible spending plan those first few years in retirement. Wish you luck with it all, Fred.

I know exactly how you feel.  I started my ERE just under a year ago.  The last two years before I pulled the plug were very painful at times, as I couldn't help but watch the daily gyrations and constantly compare them against my goal. 

The thing is, once I finally reached my savings goal my stress did not magically disappear.  If anything, I had just as much anxiety as before but this time nothing but myself to blame it on.  Life called my bluff and I feared going all-in.  It took several months to realize that retirement is less about money than I formerly realized and more about mental preparedness.

With the benefit of hindsight, I think that the specific monetary goal was just an excuse to maintain the status quo and I could have retired even earlier if I had been more emotionally ready.  Once you're truly ready, you'll know.  And IMHO the markets won't really make such a difference at that point because your plan will be much bigger than your investment account. 

[I Shrugged]

re lamenting the lack of returns:
Welcome to the world of ZIRP central banking.  Savers are punished.  Retirements postponed. Beatings will continue until morale improves.

I think that this is what underlies most of our discomforts regarding returns in the PP and other conventional mixes.  We blame the PP, but you can't get blood out of turnip.  This gets me riled up; I need to go lay down.  :/

[Pointedstick]

re lamenting the lack of returns:
Welcome to the world of ZIRP central banking.  Savers are punished.  Retirements postponed. Beatings will continue until morale improves.

I think that this is what underlies most of our discomforts regarding returns in the PP and other conventional mixes.  We blame the PP, but you can't get blood out of turnip.  This gets me riled up; I need to go lay down.  :/

I quite agree, and I think this is the what's causing the phenomenon of a surging stock market amidst a tepid economy with low GDP and employment growth and a historically low labor force participation rate: people desperate for yield are pushed into the stock market, making its good return a self-fulfilling prophecy. As soon as these risk-averse people can once more get a decent yield with their cash and short-to-medium-term bonds, they'll exit the stock market and cause a crash. I think the Fed knows this and that's why they haven't raised rates. They sort of can't do it at all without blowing up the stock market--at least not during election season! It would be a virtually guaranteed GOP victory.

[Tyler]

Tyler, can you say anything more to help me understand how one's plan can be so much bigger than one's investment account?  Are you talking about supplemental/part-time income sources, returning to work if markets go South, or something else?

One's target portfolio size to fund their lifestyle at a certain safe withdrawal rate really doesn't describe the breadth of options to a resourceful retiree.  You could work again on your own terms.  You could start a small business or a website that may some day make a little side income.  You could probably cut expenses somewhere if you really tried.  You could move to a new area and drastically cut your property tax bill, slashing your withdrawal rate in the process.  You could sell paintings or refurb furniture on the side. 

But making money is really only half the equation, and who says money is always the best solution once you have plenty of time on your hands?  I've already become quite handy around the house, and have no problem watching Youtube to learn how to do something without paying for help.  I hope to learn more about fixing my own car, although I drive so little now I haven't had the opportunity.  My retired neighbor has a full workshop in his garage, so tools are always available for those willing to meet their neighbors.  Making your own meals is pretty fun when you have all day to plan (crock pot cooking is awesome), and after a year of self sufficiency restaurant food appeals to me less and less.  Paying for entertainment is pretty much unnecessary.  Same for the gym, as there are tons of outdoor opportunities with hardly any people in sight in the middle of the day.  Basically, instead of trading time for money to accomplish things, a retiree has the option of skipping the middle man on the more rewarding activities and simply utilizing their time to accomplish the same things without money.  In fact, do that for long enough and there's even a pretty good chance someone else without the luxury of time will pay you money you don't even need for those new skills!

And on an emotional level, I also personally reached a point where I finally had "enough" of my previous career and was ready for a new adventure.  It's sorta like moving out of the house once you go off to college.  Some kids cling to the security of their parents until they have other foolproof safety nets in place, while others wouldn't go back to live at home under any circumstances and have the confidence to embrace the unknown.  I was squarely in the latter camp, and I think that mindset kinda applies to life beyond career and income as well.  It's not just about trusting a portfolio to pay the bills.  It's about having larger goals in life to the point where you'll do whatever it takes to achieve them.  Get to that point and portfolio gyrations are just noise.

[mathjak107]

the power of just delaying retirement a few years can totally make a difference for an underfunded retirement .

just look at how much in  savings delaying retirement can make , and i am not saying we should delay but it does make a huge difference .

you grow your ss check to  almost double with colas between 62 and 70

you are not spending assets for 8 years

you are letting investments compound for another 8 years

you have another 8 years to add money to savings

you have 8 years of life less left to support .

that can be the equal of having another 800k in savings .

[barrett]

1. Barrett, at 57, you're only about 13 years away from collecting max SS (or maybe your max comes a year or two earlier?).  So one way to look at things, is that you'd need to fund full expenses for 13 years, and then merely supplement SS after that.  I'm sure you've already thought through this, and don't need me to tell you this, by the way!    But it seems like your retirement risk would be fairly small at this point, even with relatively low real investment returns, as long as you have more than 13 years expenses saved. 

I have definitely considered SS but we won't rely on it totally for a couple of reasons... 1) It most likely won't be enough to fully fund our retirement from the point when it kicks in, and 2) The percentage we'll actually get is likely a moving target. For the sake of planning, I am assuming a payout rate of about 75% of what the government says it would pay. BTW, full retirement age for me (born in 1958) is 66 years & 8 months.

While plans need to be flexible, I am definitely leaning toward taking SS at age 70.

To mathjak's list of reasons above to keep working and delaying SS payments, I would add that for us self-employed folks there could be some tax advantages to keeping a business going on a part-time basis. I haven't yet fully formed this idea but I think a fumbling, stumbling little business could offer some write offs that one doesn't get from retiring completely.

[mathjak107]

usually by retirement tax write offs are few .

for many the house is paid for , the kids are out  , no 401k or pretax medical deductions .

just clearing the standard deduction for a couple is tough .

another event quite painful is the rmds , the fact medicare will be indexed linked in 2018 based on 2016 taxes and the death of a spouse results in not only the loss of an ss check but now you file single too.

when you take ss especially if married can be one of the biggest financial decisions of your life leaving as much as  100k on the table if you blow it .

there are so many options and most of the time the ss clerks are clueless with this stuff.

there is so much more to it than what if i die early .

[barrett]

usually by retirement tax write offs are few .

Well, I'm talking about a stumbling business here!

when you take ss especially if married can be one of the biggest financial decisions of your life leaving as much as  100k on the table if you blow it .

Could be way more than 100k but, yes, this one is really important to get right. I think for us it make sense to delay until I am 70 (when my wife will conveniently be 62!), but I'll have to look at the whole tax picture when the time comes (and most likely continuously throughout retirement).

And yes, the RMDs on regular IRAs are something that ochotona got me thinking about a while back. I'll now most likely grab a bit of regular IRA money most years between, say, ages 59.5 and 70.

[mathjak107]

the problem with the calculators for taking ss is they leave a lot out . i was going to delay until i looked at michael kitces comprehensive study .

once you figure in lost checks by delaying until 70 , the fact you will spend down invested assets that are no longer going to be able to compound ,  the fact that your wife can not get a spousal kicker added to hers until you are of age to file and suspend and the fact your medicare increases are not protected under the hold harmless act your break even point is 22-24 years just figuring a balanced fund as an investment .

so as an example my wife filed at 62 , she is now 65 but she does not get another 2500.00 added to her benefit until i file or file and suspend so  i am playing it by ear , i will be 63 in 2 weeks  . if markets recover i may delay longer but rather than spend invested assets if they don't by the end of the year  i may take ss next year . .  no way will i go past 66 my fra .

22-24 years  is a really long time to bet on your longevity just to get to break even.


according to kitces work you need to live until 90 to see a real difference and 95 to make it well worth delaying since you can actually see a 5% real return on what amounts to a gov't bond .

but that is a pretty big bet on your longevity .

this stuff can get so detailed that it can be its own topic , it really has nothing to do with the pp so we may want to start a separate topic on when to take ss .

[Tyler]

From your description, it sounds like it's required more of a lifestyle and attitude makeover than an SWR.

Definitely.  My attitude today is so much different than the one I had even just 5 years ago when I was still in full career mode.  I feel like I've grown a lot. 

[frugal]

Hi,

as I remember, a few time ago, our boss MEDIUM TEX said that 3 consecutive losing years would be enough to leave PP strategy.

Is it correct?


Thank you.

[mathjak107]

over the last almost 30 years i  don't think i ever had  two years back to back that were negative .  i think 3 years in a row would have me very concerned if it happened . in fsct  i just looked , nope , never 2 years in a row .  in fact looking at all 3 models  from very aggressive to very conservative i see none ever had losses two years in a row  .

are there any funds except the pp that had losses 3 years in a row ?  i am not sure there are unless they followed a similar format .

[dragoncar]

over the last almost 30 years i  don't think i ever had  two years back to back that were negative .  i think 3 years in a row would have me very concerned if it happened . in fsct  i just looked , nope , never 2 years in a row .  in fact looking at all 3 models  from very aggressive to very conservative i see none ever had losses two years in a row  .

are there any funds except the pp that had losses 3 years in a row ?  i am not sure there are unless they followed a similar format .

Looks like 2000-2002 were losers for the S&P500 (and there are definitely people who go 100%)

[mathjak107]

but the s&p is not a diversified portfolio . in fact it is not even a complete market investment . 

i can't seem to find any funds that are diversified mixes that have 2 or 3 years of losses .  if you are talking the pp which is a portfolio you need to compare it to funds that are more or less one stop shopping or balanced funds at the least .

the s&p 500 did have 3 losing years in the 2,000's  but like i said that is only a component in an overall strategy .

[iwealth]

You don't think 100% stocks is an overall strategy? I couldn't disagree more. Also, didn't the PP have a solidly up 2014? I'm confused by this 3 years of losses in a row talk. Or even 2 years of losses in a row.

[dualstow]

but the s&p is not a diversified portfolio . in fact it is not even a complete market investment . 

Uh, once upon a time, there was only the S&P fund. God was still moving over the dark waters, and total market funds simply didn't exist yet. In my family we had Vanguard's 500 fund and no other funds for years. Luckily, other things exist now, because the S&P and its investors pretty much broke even from 2000 all the way to 2010.

However, to say it's not a complete market investment is kind of like discovering a new vitamin ten years from now and then saying no one was eating a proper diet.

[mathjak107]

You don't think 100% stocks is an overall strategy? I couldn't disagree more. Also, didn't the PP have a solidly up 2014? I'm confused by this 3 years of losses in a row talk. Or even 2 years of losses in a row.

correction , the growth and income model and the income and capital preservation models never had two years in a row down . i missed the little minus marks on the growth model for  2000 2001 and 2002 which did follow the s&P .

but if you are talking conservative portfolio's like the pp than  yes i would be concerned about 3 negative years in a row if that was the case .

[mathjak107]

medicare costs are paid partially by seniors and partially by the gov. the percentage paid by seniors will be income based . it is now indexed  but at much higher income levels .  2018 will effect millons more .

since you woould not have filed 2017 taxes yet 2016 taxes will be the basis .

http://kff.org/medicare/press-release/m ... g-in-2018/


http://www.usatoday.com/story/news/poli ... /70509950/

[Cortopassi]

Pretty sure we are all in for some stretch of negative returns, regardless of strategy, unless you are open to going short or high cash percentage!

[mathjak107]

looks like those 5 year cd's will be this years investment winner

[barrett]

I have definitely considered SS but we won't rely on it totally for a couple of reasons... 1) It most likely won't be enough to fully fund our retirement from the point when it kicks in, and 2) The percentage we'll actually get is likely a moving target. For the sake of planning, I am assuming a payout rate of about 75% of what the government says it would pay. BTW, full retirement age for me (born in 1958) is 66 years & 8 months.

While plans need to be flexible, I am definitely leaning toward taking SS at age 70.

To mathjak's list of reasons above to keep working and delaying SS payments, I would add that for us self-employed folks there could be some tax advantages to keeping a business going on a part-time basis. I haven't yet fully formed this idea but I think a fumbling, stumbling little business could offer some write offs that one doesn't get from retiring completely.

Are you saying that you expect SS to only pay 75% of promised benefits 10 years from now? If so, why are all the bankrupt state and municipal pensions so opposed to cutting benefits if the federal government would do so?

Pug, I am not making any claims to know anything for sure about reductions in SS payouts. I just think that it's prudent to not count on 100% of what they tell you you are going to get. I don't think enough people in Congress have the political will to really reform the system, and even if they do, one reform is likely to be reduced payouts. So 75% is just kind of a working figure... like assuming a certain rate of return on investments. I am hoping to live a long time. If I collect SS from 2028 when I'll be 70 until, say, age 97 in 2055, that's 40 years from now. Government programs change. Maybe we'll all get lucky but I'd rather have a plan.

Oh, and regarding state and municipal pension cuts, they are already here and we will see massive cuts going forward. Yes, governments are reluctant to cut but realistically this just has to happen. Here in my CT town we are getting choked by pension commitments. The burden falls largely on people who pay property taxes and they are getting fed up and moving out. There are so many homes on the market that home prices are being forced down. It's a vicious circle that ends with a lower tax base and reduced benefits.

[mathjak107]

well our tax system is based on paying your fair share of taxes .

but your fair share is whatever amount you legally have the knowledge to pay .

the smarter you are on retirement tax planning the less your fair share .

utilizing roths  , over funded insurance policy's and swapping forever taxable money in ira's for never taxable insurance products can reduce your fair share .  but you need an education on this stuff and you need to learn from the right researchers ,.

[Jack Jones]

over the last almost 30 years i  don't think i ever had  two years back to back that were negative .  i think 3 years in a row would have me very concerned if it happened . in fsct  i just looked , nope , never 2 years in a row .  in fact looking at all 3 models  from very aggressive to very conservative i see none ever had losses two years in a row  .

are there any funds except the pp that had losses 3 years in a row ?  i am not sure there are unless they followed a similar format .

The Troll is strong with this one.

[iwealth]

are there any funds except the pp that had losses 3 years in a row ?  i am not sure there are unless they followed a similar format .

I missed this statement. What data are you using that shows the PP having 3 years of losses in a row?

[mathjak107]

not my data , it was a poster that was complaining about the 3 year losses . i don't track the pp other than what i had  once owned back in june .