The “I want to retire soon” thread (12 Viewers)

[BeTheMatch]

Anyone else here invested in Gold? I first started adding with some PHYS back in Mar of '23, and then in March of this year moved further into it with a good chunk of IAUM. My initial goal was about 5% of my portfolio, and that allocation has climbed up to over 6% as of today.

I'm not a gold bug at all, not stashing gold bars from Costco in my basement next to my ammo and iodine pills or any of that stuff. Just started adding it, via ETFs, as an uncorrelated asset as I begin to transition the retirement accounts toward where I want them to be when I get to the decumulation phase, with a goal of a 10% allocation. But my timing so far has been pretty good (ie lucky) as GLD has outperformed SPY over 6 months (25% v 10%), YTD (21% v 17%), 1 year (31% v 25%), and 2 years (40% v 29%). In fact going back to the start of GLD in late 2004, it's outperformed SPY 403% to 352%! Although if you go back to 1995, equities blow gold away due to a negative/flat return while stocks exploded going into 2000.

I didn't get into it to outperform equities, just to deliver a positive return over time and perform differently than equities in various economic environments. And it should provide the opportunity to rebalance into equities during recessions when Gold tends to significantly outperform.

I think I could get into the bars thing more than an ETF. Just go down in the basement on the weekend and polish them or something while fantasizing about end of days. Seems like a fun Saturday night. Maybe get a genny and some emergency food kits.

 

[SFBayDuck]

I think I could get into the bars thing more than an ETF. Just go down in the basement on the weekend and polish them or something while fantasizing about end of days. Seems like a fun Saturday night. Maybe get a genny and some emergency food kits.

See I do have all of that stuff - dual fuel generator, solar Jackery, several 20 gallon water cubes, and a few weeks of freeze dried food. That's what you do when you've lived through 8-9-10 day power outages during fire season out here in the West.

But it'd be pretty hard to chip off parts of the gold bars to trade for whiskey. So I'd rather just load up on whiskey and have what will be really valuable if TSHTF.

 

[jamny]

Another good article

Especially the discussion on buckets in the Dynamic Asset Allocation section.

 

[SFBayDuck]

Another good article

Especially the discussion on buckets in the Dynamic Asset Allocation section.

Thanks, as usual Kitces is pretty balanced.

The bucket thing is just mental accounting. It makes (some) people feel better. Now I think some people go overboard and end up with 15-20% cash/equivalents, and that is going to lower your SWR. Roger Whitney has his pie-cake version with 5 years in cash. That’s like 20%, seems crazy to me. But if you like working longer or spending less in retirement, knock yourself out.

I do like that we’re seeing more and more recognition that 4% is actually super conservative. Bengen himself says with a more diversified portfolio it’s at least 4.8%, and Kitces touches on that a little in the article. And still, at those levels most people will end up with as much or more money at death than they retired with.

The guaranteed income approach for essentials or minimum dignity floor or keep the lights on or whatever you want to call it is interesting to me. Not sure I’ll go that route, but I used to fall into the “annuities = bad” camp and have come around to the idea that some, like a SPIA, could have a place. I need to continue to dig into that world a bit more and get more educated on the topic. But in any event I don’t think I’d consider it until I was probably 70 and have SS turned on (whatever that looks like in 2042) and decide from there.

 

[jamny]

Another good article

Especially the discussion on buckets in the Dynamic Asset Allocation section.

Thanks, as usual Kitces is pretty balanced.

The bucket thing is just mental accounting. It makes (some) people feel better. Now I think some people go overboard and end up with 15-20% cash/equivalents, and that is going to lower your SWR. Roger Whitney has his pie-cake version with 5 years in cash. That’s like 20%, seems crazy to me. But if you like working longer or spending less in retirement, knock yourself out.

I do like that we’re seeing more and more recognition that 4% is actually super conservative. Bengen himself says with a more diversified portfolio it’s at least 4.8%, and Kitces touches on that a little in the article. And still, at those levels most people will end up with as much or more money at death than they retired with.

The guaranteed income approach for essentials or minimum dignity floor or keep the lights on or whatever you want to call it is interesting to me. Not sure I’ll go that route, but I used to fall into the “annuities = bad” camp and have come around to the idea that some, like a SPIA, could have a place. I need to continue to dig into that world a bit more and get more educated on the topic. But in any event I don’t think I’d consider it until I was probably 70 and have SS turned on (whatever that looks like in 2042) and decide from there.

The bolded is exactly my thinking. Keep up to date on it and learn about it but it's not something I'm considering at the moment.
I'm considering a cash bucket of around 2 years using an average bear market length of 18 months. It's a good selling point for my wife who is slowly coming around to the idea. Two years of cash still keeps us below 4% to cover expenses. And we aren't really ready for another year or two anyway.

 

[SFBayDuck]

Another good article

Especially the discussion on buckets in the Dynamic Asset Allocation section.

Thanks, as usual Kitces is pretty balanced.

The bucket thing is just mental accounting. It makes (some) people feel better. Now I think some people go overboard and end up with 15-20% cash/equivalents, and that is going to lower your SWR. Roger Whitney has his pie-cake version with 5 years in cash. That’s like 20%, seems crazy to me. But if you like working longer or spending less in retirement, knock yourself out.

I do like that we’re seeing more and more recognition that 4% is actually super conservative. Bengen himself says with a more diversified portfolio it’s at least 4.8%, and Kitces touches on that a little in the article. And still, at those levels most people will end up with as much or more money at death than they retired with.

The guaranteed income approach for essentials or minimum dignity floor or keep the lights on or whatever you want to call it is interesting to me. Not sure I’ll go that route, but I used to fall into the “annuities = bad” camp and have come around to the idea that some, like a SPIA, could have a place. I need to continue to dig into that world a bit more and get more educated on the topic. But in any event I don’t think I’d consider it until I was probably 70 and have SS turned on (whatever that looks like in 2042) and decide from there.

The bolded is exactly my thinking. Keep up to date on it and learn about it but it's not something I'm considering at the moment.
I'm considering a cash bucket of around 2 years using an average bear market length of 18 months. It's a good selling point for my wife who is slowly coming around to the idea. Two years of cash still keeps us below 4% to cover expenses. And we aren't really ready for another year or two anyway.

It seems up to 10% is fine, more than that starts to drag on your portfolio enough to negatively impact SWR.

The other way I’ve changed my thinking around the cash topic is with my emergency fund. When you’re working, that is there both to cover you in case of a job loss, and to cover large and unexpected expenses. Once you retire that first part isn’t a concern anymore, so you don’t need as much sitting there. I think there are people that have been great savers that in retirement are holding 3-4-5 years of cash to fund their spending and still keeping a year or two in an emergency fund. Now your true cash allocation could be 25% or more.

I think my approach will be to have a “sinking fund” set up that I’ll fill with like 2% of my home’s value as a starting point to cover unexpected maintenance and repairs (I just did my roof last year so should be good there for 20+ years). Then I’ll build into my spending model continuing to fund that as well as any large and expected (but somewhat discretionary) expenses, like a new car in 10 years or a special family vacation in 5 years, and slowly fill that fund from my withdrawals to cover those.

This is part of why I think I’m going to go with just one year (approx 5%) in cash outside of that fund so even when it’s at its fullest before a big expense I’m still keeping most of my money working in the market. And by turning off dividend reinvesting, that cash and bond interest will be filling that cash account over time, so I may start the year at 5% but it’ll be climbing throughout the year. Withdrawals (if I’m not doing annually, leaning quarterly) would come out of that amount over 5% and out of the best performing assets.

Maybe this falls into a kind of bucket strategy itself, but it seems to me a way to keep the focus on a total return/SWR maximization approach while having at least some of your known expenses (the next year’s living and pre-planned) already in cash.

 

[NutterButter]

Another good article

Especially the discussion on buckets in the Dynamic Asset Allocation section.

Thanks, as usual Kitces is pretty balanced.

The bucket thing is just mental accounting. It makes (some) people feel better. Now I think some people go overboard and end up with 15-20% cash/equivalents, and that is going to lower your SWR. Roger Whitney has his pie-cake version with 5 years in cash. That’s like 20%, seems crazy to me. But if you like working longer or spending less in retirement, knock yourself out.

I do like that we’re seeing more and more recognition that 4% is actually super conservative. Bengen himself says with a more diversified portfolio it’s at least 4.8%, and Kitces touches on that a little in the article. And still, at those levels most people will end up with as much or more money at death than they retired with.

The guaranteed income approach for essentials or minimum dignity floor or keep the lights on or whatever you want to call it is interesting to me. Not sure I’ll go that route, but I used to fall into the “annuities = bad” camp and have come around to the idea that some, like a SPIA, could have a place. I need to continue to dig into that world a bit more and get more educated on the topic. But in any event I don’t think I’d consider it until I was probably 70 and have SS turned on (whatever that looks like in 2042) and decide from there.

The bolded is exactly my thinking. Keep up to date on it and learn about it but it's not something I'm considering at the moment.
I'm considering a cash bucket of around 2 years using an average bear market length of 18 months. It's a good selling point for my wife who is slowly coming around to the idea. Two years of cash still keeps us below 4% to cover expenses. And we aren't really ready for another year or two anyway.

It seems up to 10% is fine, more than that starts to drag on your portfolio enough to negatively impact SWR.

The other way I’ve changed my thinking around the cash topic is with my emergency fund. When you’re working, that is there both to cover you in case of a job loss, and to cover large and unexpected expenses. Once you retire that first part isn’t a concern anymore, so you don’t need as much sitting there. I think there are people that have been great savers that in retirement are holding 3-4-5 years of cash to fund their spending and still keeping a year or two in an emergency fund. Now your true cash allocation could be 25% or more.

I think my approach will be to have a “sinking fund” set up that I’ll fill with like 2% of my home’s value as a starting point to cover unexpected maintenance and repairs (I just did my roof last year so should be good there for 20+ years). Then I’ll build into my spending model continuing to fund that as well as any large and expected (but somewhat discretionary) expenses, like a new car in 10 years or a special family vacation in 5 years, and slowly fill that fund from my withdrawals to cover those.

This is part of why I think I’m going to go with just one year (approx 5%) in cash outside of that fund so even when it’s at its fullest before a big expense I’m still keeping most of my money working in the market. And by turning off dividend reinvesting, that cash and bond interest will be filling that cash account over time, so I may start the year at 5% but it’ll be climbing throughout the year. Withdrawals (if I’m not doing annually, leaning quarterly) would come out of that amount over 5% and out of the best performing assets.

Maybe this falls into a kind of bucket strategy itself, but it seems to me a way to keep the focus on a total return/SWR maximization approach while having at least some of your known expenses (the next year’s living and pre-planned) already in cash.

I'd also be curious to know how much of the spending they have covered in cash is discretionary. I might do 3 years in cash of non-discretionary, but I don't think I'd cover the discretionary part (certainly not all of it) of it b/c I know if there's a downturn in the market, I can just dial my spending back for a few years. This also comes back to have much of a spending buffer you have. If you just have say $10k in discretionary spending budgeted, that's a lot less maneuverability than if you had $50k budgeted b/c you're planning a lot of expensive vacations. In the latter, I can dial that down $30k and still have some fun but cheaper vacations.

 

[IvanKaramazov]

The other way I’ve changed my thinking around the cash topic is with my emergency fund. When you’re working, that is there both to cover you in case of a job loss, and to cover large and unexpected expenses. Once you retire that first part isn’t a concern anymore, so you don’t need as much sitting there. I think there are people that have been great savers that in retirement are holding 3-4-5 years of cash to fund their spending and still keeping a year or two in an emergency fund. Now your true cash allocation could be 25% or more.

This is a mistake that I feel like my wife and I are sort of sleepwalking into. Our long-term savings have been 100% in equities until fairly recently. This year I've moved some funds out of stocks and into treasury bonds, in what is essentially a bucket strategy. These are individual bonds that I plan to hold to maturity, and their maturity dates are staggered based on when I expect to need those funds, like of like a bond ladder but not that complicated. This is part of a rebalancing process that I plan to spread out over a couple of years. (These transactions are taking place in a taxable account -- we're keeping our Roths in equities unless there's a good reason to do otherwise).

But of course, "treasury bonds that you plan to hold to maturity" are essentially cash. And we have damn near six figures just sitting there in our savings account at the moment because my wife is very concerned about monthly cash flow, to the point of abject paranoia. I don't know why she wants so much cash there, but she's always been like this and I've let her manage our day-to-day finances so that she feels like she has everything under control. But the end result is that we're going to end up with a somewhat stupid amount of cash or cash equivalents at this rate.

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market. Getting there is a more complex process than I thought it would be. But I've got several years yet.

 

[SFBayDuck]

This is a mistake that I feel like my wife and I are sort of sleepwalking into. Our long-term savings have been 100% in equities until fairly recently. This year I've moved some funds out of stocks and into treasury bonds, in what is essentially a bucket strategy. These are individual bonds that I plan to hold to maturity, and their maturity dates are staggered based on when I expect to need those funds, like of like a bond ladder but not that complicated. This is part of a rebalancing process that I plan to spread out over a couple of years. (These transactions are taking place in a taxable account -- we're keeping our Roths in equities unless there's a good reason to do otherwise).

But of course, "treasury bonds that you plan to hold to maturity" are essentially cash. And we have damn near six figures just sitting there in our savings account at the moment because my wife is very concerned about monthly cash flow, to the point of abject paranoia. I don't know why she wants so much cash there, but she's always been like this and I've let her manage our day-to-day finances so that she feels like she has everything under control. But the end result is that we're going to end up with a somewhat stupid amount of cash or cash equivalents at this rate.

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market. Getting there is a more complex process than I thought it would be. But I've got several years yet.

I mean there's nothing inherently wrong with a bunch of cash, particularly if it helps you (or your wife) sleep at night. Just be aware of the trade-offs, and it sounds like you absolutely are.

But what are the durations? Short-term bonds are typically considered 1-3 years, and I do think of those as "cash equivalents", along with things like CDs, money markets, etc. Intermediate bonds are typically in that 4-10 year duration, and that's what tends to fill the bond bucket in a trad 60/40 for example. I don't think too many people go out longer than that in retirement accounts*.

There is also the idea of a bond tent that Kitces has talked about as you go into retirement to help battle SOR risk, I think @Sand was the one who first exposed me to that concept. Kind of sounds like what you might be doing.

From Kitces' website:

.....the optimal glidepath for asset allocation appears to be a V-shaped equity exposure, that starts out high in the early working years, gets lower as retirement approaches, and then rebuilds again through the first half of retirement. Or viewed another way, the prospective retiree builds a reserve of bonds in the final decade leading up to retirement, and then spends down that bond reserve in the early years of retirement itself (allowing equity exposure to return to normal).

So if you have a bunch in that 4-10 year bucket, I'd consider those "bonds" not "cash" when it comes to evaluating your asset allocation. But that's just me!


*I have almost entirely 25+ year STRIPS funds like GOVZ and EDV, but that's because their purpose is different in my portfolio than short-term income. It's about owning uncorrelated assets and the higher vol of the longer term bonds theoretically allows you to hold less for the same basic effect.

 

[IvanKaramazov]

This is a mistake that I feel like my wife and I are sort of sleepwalking into. Our long-term savings have been 100% in equities until fairly recently. This year I've moved some funds out of stocks and into treasury bonds, in what is essentially a bucket strategy. These are individual bonds that I plan to hold to maturity, and their maturity dates are staggered based on when I expect to need those funds, like of like a bond ladder but not that complicated. This is part of a rebalancing process that I plan to spread out over a couple of years. (These transactions are taking place in a taxable account -- we're keeping our Roths in equities unless there's a good reason to do otherwise).

But of course, "treasury bonds that you plan to hold to maturity" are essentially cash. And we have damn near six figures just sitting there in our savings account at the moment because my wife is very concerned about monthly cash flow, to the point of abject paranoia. I don't know why she wants so much cash there, but she's always been like this and I've let her manage our day-to-day finances so that she feels like she has everything under control. But the end result is that we're going to end up with a somewhat stupid amount of cash or cash equivalents at this rate.

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market. Getting there is a more complex process than I thought it would be. But I've got several years yet.

I mean there's nothing inherently wrong with a bunch of cash, particularly if it helps you (or your wife) sleep at night. Just be aware of the trade-offs, and it sounds like you absolutely are.

But what are the durations? Short-term bonds are typically considered 1-3 years, and I do think of those as "cash equivalents", along with things like CDs, money markets, etc. Intermediate bonds are typically in that 4-10 year duration, and that's what tends to fill the bond bucket in a trad 60/40 for example. I don't think too many people go out longer than that in retirement accounts*.

There is also the idea of a bond tent that Kitces has talked about as you go into retirement to help battle SOR risk, I think @Sand was the one who first exposed me to that concept. Kind of sounds like what you might be doing.

From Kitces' website:

.....the optimal glidepath for asset allocation appears to be a V-shaped equity exposure, that starts out high in the early working years, gets lower as retirement approaches, and then rebuilds again through the first half of retirement. Or viewed another way, the prospective retiree builds a reserve of bonds in the final decade leading up to retirement, and then spends down that bond reserve in the early years of retirement itself (allowing equity exposure to return to normal).

So if you have a bunch in that 4-10 year bucket, I'd consider those "bonds" not "cash" when it comes to evaluating your asset allocation. But that's just me!


*I have almost entirely 25+ year STRIPS funds like GOVZ and EDV, but that's because their purpose is different in my portfolio than short-term income. It's about owning uncorrelated assets and the higher vol of the longer term bonds theoretically allows you to hold less for the same basic effect.

Thanks. I've never heard of a "bond tent" before, but that's exactly what I've been planning on / hoping for. I've been philosophically opposed to bonds for most of my investing life, because I want the returns from equities and I don't mind on-paper downswings, of which I've experienced several (we all have). But the first few years of retirement are uniquely different. If things go well, those will be our most precarious years -- no labor income, and "just enough" of a nest egg to retire on. If we can get through the first 3-5 years without touching our equities corpus, we should be good to to go, and then I can quit worrying about the specifics of how we do annual expenses. But logically, everybody is probably at their most vulnerable during those first few years.

 

[SFBayDuck]

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market.

Separated this out because I have a hard time understanding how people plan to actually execute this, would love your (and others') thoughts as I'm honestly curious. Let's say you have 10% in cash, which is 2 1/2 years of spending. We hit a bear market, a drop of 30%. No sweat, you've got the first year's cash to pull out and don't have to sell any equities (or bonds in a 2022 scenario). But now you're down to 6% cash, and you're probably pretty damned uncomfortable only having that much.

And what about a bear market that does last 1.5 years or more ('69, '72, '81, '00)? You enter year 2 still in a bear market, make your withdrawal and are now down to 2-4% cash. Don't you just end up selling still in a bear market to get yourself back up to 10%? Or do you really just ride it all the way to zero if need be? I just can't imagine most people who are most comfortable with that bucket type of strategy being psychologically able to let that bucket get near empty during an extended bear market.

 

[IvanKaramazov]

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market.

Separated this out because I have a hard time understanding how people plan to actually execute this, would love your (and others') thoughts as I'm honestly curious. Let's say you have 10% in cash, which is 2 1/2 years of spending. We hit a bear market, a drop of 30%. No sweat, you've got the first year's cash to pull out and don't have to sell any equities (or bonds in a 2022 scenario). But now you're down to 6% cash, and you're probably pretty damned uncomfortable only having that much.

And what about a bear market that does last 1.5 years or more ('69, '72, '81, '00)? You enter year 2 still in a bear market, make your withdrawal and are now down to 2-4% cash. Don't you just end up selling still in a bear market to get yourself back up to 10%? Or do you really just ride it all the way to zero if need be? I just can't imagine most people who are most comfortable with that bucket type of strategy being psychologically able to let that bucket get near empty during an extended bear market.

I've thought about this exact issue and I don't have an answer for you. I think I'd just prefer to psychologically cope with the discomfort of spending down my cash reserves (knowing that the market does eventually rebound) rather than selling, but it's easy to say that while I'm sitting here today, four years or so from having to worry about it for real.

I'm understand that some of this is just mental accounting for peace of mind, and I'm okay with that. In a related example, we paid off our mortgage back in 2018 and bought our new home with cash. I completely understood the mathematical argument against doing that at the time, but I can honestly say that I've never looked back on it with regret, even when inflation was peaking a year or so ago. There's a lot to be said for having simple finances, even if it means passing up on some arbitrage opportunities. This is sort of the same thing. If the market tanks by 50% on the day after I retire, I can just ride it out like I've ridden out other market setbacks. So I'll sit on some bonds. I can talk myself into thinking of the foregone returns on those bonds like insurance premia.

Edit: Really though, there is no getting around the fact that I will be unhappy if the market tanks right after retirement. I should feel bad about that, and there is no strategy that will remove that particular risk. Aside from working longer to build up a larger-than-necessary nest egg, which I have already decided against doing. I might be over-sharing here a little, but that's because I want to hear about it if I'm being irrational somehow.

 

[TwinTurbo]

It's not all about money. In general life satisfaction is at a maximum about 65-80, so there is some effect simply due to season of life.

Wait, people are most satisfied with their lives from ages 65-80, or am I misunderstanding?

That's correct. Many studies out there. Here is one graph.

Redirect Notice

Not gonna lie. I find that result very surprising too.

I think its more the late game looks so good because the middle game is so bad once people enter the 40-60 range.

 

[Chemical X]

The other way I’ve changed my thinking around the cash topic is with my emergency fund. When you’re working, that is there both to cover you in case of a job loss, and to cover large and unexpected expenses. Once you retire that first part isn’t a concern anymore, so you don’t need as much sitting there. I think there are people that have been great savers that in retirement are holding 3-4-5 years of cash to fund their spending and still keeping a year or two in an emergency fund. Now your true cash allocation could be 25% or more.

This is a mistake that I feel like my wife and I are sort of sleepwalking into. Our long-term savings have been 100% in equities until fairly recently. This year I've moved some funds out of stocks and into treasury bonds, in what is essentially a bucket strategy. These are individual bonds that I plan to hold to maturity, and their maturity dates are staggered based on when I expect to need those funds, like of like a bond ladder but not that complicated. This is part of a rebalancing process that I plan to spread out over a couple of years. (These transactions are taking place in a taxable account -- we're keeping our Roths in equities unless there's a good reason to do otherwise).

But of course, "treasury bonds that you plan to hold to maturity" are essentially cash. And we have damn near six figures just sitting there in our savings account at the moment because my wife is very concerned about monthly cash flow, to the point of abject paranoia. I don't know why she wants so much cash there, but she's always been like this and I've let her manage our day-to-day finances so that she feels like she has everything under control. But the end result is that we're going to end up with a somewhat stupid amount of cash or cash equivalents at this rate.

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market. Getting there is a more complex process than I thought it would be. But I've got several years yet.

i’ve been a lurker here, wife is working while i have gave up my job. i recently made an asset shift to more high yield dividend stocks, in addition a TTT bond fund. i semi loaded up on verizon and altria, with the goal of dividend income reinvestment. same with the bond fund. the 20% jump in altria price is an unexpected benefit.

 

[Sand]

I think @Sand was the one who first exposed me to that concept.

You make it sound like I'm a flasher.

 

[-OZ-]

I think @Sand was the one who first exposed me to that concept.

You make it sound like I'm a flasher.

It's not all about money. In general life satisfaction is at a maximum about 65-80, so there is some effect simply due to season of life.

Wait, people are most satisfied with their lives from ages 65-80, or am I misunderstanding?

That's correct. Many studies out there. Here is one graph.

Redirect Notice

Not gonna lie. I find that result very surprising too.

I think it’s more the late game looks so good because the middle game is so bad once people enter the 40-60 range.

NGL, while I’m enjoying our 40s, 60s sound great as we’ll be retired with more freedom. Probably some health issues but we’ll deal with those.
Seeing my in laws and a good friend of mine enjoying their 60s while my parents enjoyed them far less just emphasizes the need to stay healthy.

 

[-OZ-]

Let's say you have 10% in cash, which is 2 1/2 years of spending. We hit a bear market, a drop of 30%.

That’s why something like 60/30/10 is better than 90/10 in retirement. Or follow a risk parity portfolio.

 

[SFBayDuck]

Let's say you have 10% in cash, which is 2 1/2 years of spending. We hit a bear market, a drop of 30%.

That’s why something like 60/30/10 is better than 90/10 in retirement. Or follow a risk parity portfolio.

Sure, I’m assuming a trad 60/40 as the baseline for most people, who are then moving 8–12-16 percent or more into cash. But what do you do in a 2022 scenario? You probably burn down that cash bucket that then has to be refilled, if you’re holding a few years in cash for the explicit purpose of avoiding selling assets that are down.

I’ve already begun the transition to a risk parity style portfolio. Other than the sinking fund mentioned above I don’t plan to do buckets or liability matching longer term. But that’s easy for me to say now with at least a few years left of working.

However since I’m trying to RE in my mid-50s, I will need to have funds I can access between then and 59 1/2. But that’s more about asset location than asset allocation. Still plenty of work to do there to build up after-tax accounts to bridge me for a few years, and I do plan to keep earning some income for a while.

I also have the thought that once I hit FI my stressful job may not feel so stressful anymore, and maybe I would stay and work another couple of years. But I hope not, as the whole idea is to give me the time to do all the things I want to do that I just don’t have time to do now.

(this post is kind of all over the place, came down with the ‘vid this weekend and I’m not at 100%!)

 

[-OZ-]

also have the thought that once I hit FI my stressful job may not feel so stressful anymore, and maybe I would stay and work another couple of years. But I hope not, as the whole idea is to give me the time to do all the things I want to do that I just don’t have time to do now.

We’re in a good place but I’m finding I like my job and what extra we can do while I keep at it. Definitely agree that a generally low stress job with some flexibility is the way to go when you can.

 

[fruity pebbles]

Let's say you have 10% in cash, which is 2 1/2 years of spending. We hit a bear market, a drop of 30%.

That’s why something like 60/30/10 is better than 90/10 in retirement. Or follow a risk parity portfolio.

Sure, I’m assuming a trad 60/40 as the baseline for most people, who are then moving 8–12-16 percent or more into cash. But what do you do in a 2022 scenario? You probably burn down that cash bucket that then has to be refilled, if you’re holding a few years in cash for the explicit purpose of avoiding selling assets that are down.

I’ve already begun the transition to a risk parity style portfolio. Other than the sinking fund mentioned above I don’t plan to do buckets or liability matching longer term. But that’s easy for me to say now with at least a few years left of working.

However since I’m trying to RE in my mid-50s, I will need to have funds I can access between then and 59 1/2. But that’s more about asset location than asset allocation. Still plenty of work to do there to build up after-tax accounts to bridge me for a few years, and I do plan to keep earning some income for a while.

I also have the thought that once I hit FI my stressful job may not feel so stressful anymore, and maybe I would stay and work another couple of years. But I hope not, as the whole idea is to give me the time to do all the things I want to do that I just don’t have time to do now.

(this post is kind of all over the place, came down with the ‘vid this weekend and I’m not at 100%!)

Kind of what I’m wondering. When I don’t “need” the income from my job anymore, maybe my stressful job will be less so.

 

[KGB]

The other way I’ve changed my thinking around the cash topic is with my emergency fund. When you’re working, that is there both to cover you in case of a job loss, and to cover large and unexpected expenses. Once you retire that first part isn’t a concern anymore, so you don’t need as much sitting there. I think there are people that have been great savers that in retirement are holding 3-4-5 years of cash to fund their spending and still keeping a year or two in an emergency fund. Now your true cash allocation could be 25% or more.

This is a mistake that I feel like my wife and I are sort of sleepwalking into. Our long-term savings have been 100% in equities until fairly recently. This year I've moved some funds out of stocks and into treasury bonds, in what is essentially a bucket strategy. These are individual bonds that I plan to hold to maturity, and their maturity dates are staggered based on when I expect to need those funds, like of like a bond ladder but not that complicated. This is part of a rebalancing process that I plan to spread out over a couple of years. (These transactions are taking place in a taxable account -- we're keeping our Roths in equities unless there's a good reason to do otherwise).

But of course, "treasury bonds that you plan to hold to maturity" are essentially cash. And we have damn near six figures just sitting there in our savings account at the moment because my wife is very concerned about monthly cash flow, to the point of abject paranoia. I don't know why she wants so much cash there, but she's always been like this and I've let her manage our day-to-day finances so that she feels like she has everything under control. But the end result is that we're going to end up with a somewhat stupid amount of cash or cash equivalents at this rate.

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market. Getting there is a more complex process than I thought it would be. But I've got several years yet.

i’ve been a lurker here, wife is working while i have gave up my job. i recently made an asset shift to more high yield dividend stocks, in addition a TTT bond fund. i semi loaded up on verizon and altria, with the goal of dividend income reinvestment. same with the bond fund. the 20% jump in altria price is an unexpected benefit.

Can you post or pm me with your basic "plan"

I may be in a similar situation soon

 

[Alex P Keaton]

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market.

Separated this out because I have a hard time understanding how people plan to actually execute this, would love your (and others') thoughts as I'm honestly curious. Let's say you have 10% in cash, which is 2 1/2 years of spending. We hit a bear market, a drop of 30%. No sweat, you've got the first year's cash to pull out and don't have to sell any equities (or bonds in a 2022 scenario). But now you're down to 6% cash, and you're probably pretty damned uncomfortable only having that much.

And what about a bear market that does last 1.5 years or more ('69, '72, '81, '00)? You enter year 2 still in a bear market, make your withdrawal and are now down to 2-4% cash. Don't you just end up selling still in a bear market to get yourself back up to 10%? Or do you really just ride it all the way to zero if need be? I just can't imagine most people who are most comfortable with that bucket type of strategy being psychologically able to let that bucket get near empty during an extended bear market.

I've thought about this exact issue and I don't have an answer for you. I think I'd just prefer to psychologically cope with the discomfort of spending down my cash reserves (knowing that the market does eventually rebound) rather than selling, but it's easy to say that while I'm sitting here today, four years or so from having to worry about it for real.

I'm understand that some of this is just mental accounting for peace of mind, and I'm okay with that. In a related example, we paid off our mortgage back in 2018 and bought our new home with cash. I completely understood the mathematical argument against doing that at the time, but I can honestly say that I've never looked back on it with regret, even when inflation was peaking a year or so ago. There's a lot to be said for having simple finances, even if it means passing up on some arbitrage opportunities. This is sort of the same thing. If the market tanks by 50% on the day after I retire, I can just ride it out like I've ridden out other market setbacks. So I'll sit on some bonds. I can talk myself into thinking of the foregone returns on those bonds like insurance premia.

Edit: Really though, there is no getting around the fact that I will be unhappy if the market tanks right after retirement. I should feel bad about that, and there is no strategy that will remove that particular risk. Aside from working longer to build up a larger-than-necessary nest egg, which I have already decided against doing. I might be over-sharing here a little, but that's because I want to hear about it if I'm being irrational somehow.

Disclaimer: I lurk in here all the time but rarely post

I don’t think your approach is irrational, far from it. Of course there is some risk in extreme scenarios but in those cases you have a range of options: 1) spend less in the short run, 2) get a job of some kind to supplement your income temporarily, 3) sell down assets at suboptimal valuations.

 

[Sand]

I’ve already begun the transition to a risk parity style portfolio.

UPRO/TMF at 55/45 is a risk parity style portfolio. Just sayin'.

Kind of what I’m wondering. When I don’t “need” the income from my job anymore, maybe my stressful job will be less so.

At least in my experience, no.

 

[Nugget]

I’ve already begun the transition to a risk parity style portfolio.

UPRO/TMF at 55/45 is a risk parity style portfolio. Just sayin'.

Kind of what I’m wondering. When I don’t “need” the income from my job anymore, maybe my stressful job will be less so.

At least in my experience, no.

I think Bogleheads had a monster thread following Hedgefundie’s Excellent Adventure (55 TMF/45 UPRO). I dont have the nerves for that play.

 

[SFBayDuck]

I’ve already begun the transition to a risk parity style portfolio.

UPRO/TMF at 55/45 is a risk parity style portfolio. Just sayin'.

Kind of what I’m wondering. When I don’t “need” the income from my job anymore, maybe my stressful job will be less so.

At least in my experience, no.

I think Bogleheads had a monster thread following Hedgefundie’s Excellent Adventure (55 TMF/45 UPRO). I dont have the nerves for that play.

Yeah , some serious cojones on that one. I’ll have to look for that thread.

I have started adding UPRO to my portfolio. Actually having some fun with some sample risk parity portfolios in three of my smaller accounts (BolerageLink 401K, Brokerage Link Roth, HSA). Figured ATHs is a good time to make some of those transitions. Haven’t added any UPRO to my primary IRA, but may sprinkle some into my primary Roth.

Sounds complicated, but I’m actually slowly selling off the dozens of funds and individual stocks I’ve accumulated over the years and consolidating in a few growth and scv etfs, gold etfs, GOVZ/EDV, DBMF, and UPRO. May keep the REITs I’ve accumulated. I think I am going to keep a couple of separate IRAs in case I want to 72T one of the smaller ones to help me get to 59 1/2.

 

[jamny]

Our FA's have us at 65/25/5 gold etf/5 cash. Our cash is in a money market fund (SNSXX) that has a 4.7% yield
They've built up our bond portfolio to 26 bonds, stretching out to 2036
Our previous 12 months bond interest and stock dividends equal about half of our annual expenses so if we hit a rough market, hopefully we can live on that and whatever cash we have until there's a recovery. We plan on meeting with them next year to work out a strategy for retirement but I'm curious to see how they feel about it since they'll be making less going forward. It'll be an interesting test to see where their motivation lies.

 

[jamny]

Another good article

Especially the discussion on buckets in the Dynamic Asset Allocation section.

Thanks, as usual Kitces is pretty balanced.

The bucket thing is just mental accounting. It makes (some) people feel better. Now I think some people go overboard and end up with 15-20% cash/equivalents, and that is going to lower your SWR. Roger Whitney has his pie-cake version with 5 years in cash. That’s like 20%, seems crazy to me. But if you like working longer or spending less in retirement, knock yourself out.

I do like that we’re seeing more and more recognition that 4% is actually super conservative. Bengen himself says with a more diversified portfolio it’s at least 4.8%, and Kitces touches on that a little in the article. And still, at those levels most people will end up with as much or more money at death than they retired with.

The guaranteed income approach for essentials or minimum dignity floor or keep the lights on or whatever you want to call it is interesting to me. Not sure I’ll go that route, but I used to fall into the “annuities = bad” camp and have come around to the idea that some, like a SPIA, could have a place. I need to continue to dig into that world a bit more and get more educated on the topic. But in any event I don’t think I’d consider it until I was probably 70 and have SS turned on (whatever that looks like in 2042) and decide from there.

The bolded is exactly my thinking. Keep up to date on it and learn about it but it's not something I'm considering at the moment.
I'm considering a cash bucket of around 2 years using an average bear market length of 18 months. It's a good selling point for my wife who is slowly coming around to the idea. Two years of cash still keeps us below 4% to cover expenses. And we aren't really ready for another year or two anyway.

It seems up to 10% is fine, more than that starts to drag on your portfolio enough to negatively impact SWR.

The other way I’ve changed my thinking around the cash topic is with my emergency fund. When you’re working, that is there both to cover you in case of a job loss, and to cover large and unexpected expenses. Once you retire that first part isn’t a concern anymore, so you don’t need as much sitting there. I think there are people that have been great savers that in retirement are holding 3-4-5 years of cash to fund their spending and still keeping a year or two in an emergency fund. Now your true cash allocation could be 25% or more.

I think my approach will be to have a “sinking fund” set up that I’ll fill with like 2% of my home’s value as a starting point to cover unexpected maintenance and repairs (I just did my roof last year so should be good there for 20+ years). Then I’ll build into my spending model continuing to fund that as well as any large and expected (but somewhat discretionary) expenses, like a new car in 10 years or a special family vacation in 5 years, and slowly fill that fund from my withdrawals to cover those.

This is part of why I think I’m going to go with just one year (approx 5%) in cash outside of that fund so even when it’s at its fullest before a big expense I’m still keeping most of my money working in the market. And by turning off dividend reinvesting, that cash and bond interest will be filling that cash account over time, so I may start the year at 5% but it’ll be climbing throughout the year. Withdrawals (if I’m not doing annually, leaning quarterly) would come out of that amount over 5% and out of the best performing assets.

Maybe this falls into a kind of bucket strategy itself, but it seems to me a way to keep the focus on a total return/SWR maximization approach while having at least some of your known expenses (the next year’s living and pre-planned) already in cash.

I'd also be curious to know how much of the spending they have covered in cash is discretionary. I might do 3 years in cash of non-discretionary, but I don't think I'd cover the discretionary part (certainly not all of it) of it b/c I know if there's a downturn in the market, I can just dial my spending back for a few years. This also comes back to have much of a spending buffer you have. If you just have say $10k in discretionary spending budgeted, that's a lot less maneuverability than if you had $50k budgeted b/c you're planning a lot of expensive vacations. In the latter, I can dial that down $30k and still have some fun but cheaper vacations.

I like the idea of calculating cash on non-discretionary. Makes sense. Our biggest expenses are vacation and restaurants, so that would be easy to cut back on.

 

[Mookie]

Let's say you have 10% in cash, which is 2 1/2 years of spending. We hit a bear market, a drop of 30%.

That’s why something like 60/30/10 is better than 90/10 in retirement. Or follow a risk parity portfolio.

Sure, I’m assuming a trad 60/40 as the baseline for most people, who are then moving 8–12-16 percent or more into cash. But what do you do in a 2022 scenario? You probably burn down that cash bucket that then has to be refilled, if you’re holding a few years in cash for the explicit purpose of avoiding selling assets that are down.

I’ve already begun the transition to a risk parity style portfolio. Other than the sinking fund mentioned above I don’t plan to do buckets or liability matching longer term. But that’s easy for me to say now with at least a few years left of working.

However since I’m trying to RE in my mid-50s, I will need to have funds I can access between then and 59 1/2. But that’s more about asset location than asset allocation. Still plenty of work to do there to build up after-tax accounts to bridge me for a few years, and I do plan to keep earning some income for a while.

I also have the thought that once I hit FI my stressful job may not feel so stressful anymore, and maybe I would stay and work another couple of years. But I hope not, as the whole idea is to give me the time to do all the things I want to do that I just don’t have time to do now.

(this post is kind of all over the place, came down with the ‘vid this weekend and I’m not at 100%!)

Kind of what I’m wondering. When I don’t “need” the income from my job anymore, maybe my stressful job will be less so.

Having enough money to retire is comforting, but the stress of a job doesn't go away unless/until you restructure. I reached the point of financial comfort last year (56), but had persistent HBP and some other minor medical stuff that was largely stress related. After talking it over with my boss, who wants to keep me around in some capacity for as long as possible, we scaled back my hours and my responsibilities. The end result is that I'm still working about 30 hours/wk and probably will continue to scale back until I'm fully retired in a few years (58-60).

For now, this strategy continues to be fulfilling (I'm not ready to putter around the house all day) and financially rewarding (I'm not touching my investment accounts, P/T allows me to build credit towards pension, and I still get health benefits) while it seems to be helping me find better balance. I suspect that this slow creep towards full retirement will help ease the eventual transition for me (I have friends who struggled with abruptly retiring), but i also recognize that others may not have this flexibility, or desire, to continue working in a more limited capacity but it is something to consider.

 

[SFBayDuck]

Having enough money to retire is comforting, but the stress of a job doesn't go away unless/until you restructure. I reached the point of financial comfort last year (56), but had persistent HBP and some other minor medical stuff that was largely stress related. After talking it over with my boss, who wants to keep me around in some capacity for as long as possible, we scaled back my hours and my responsibilities. The end result is that I'm still working about 30 hours/wk and probably will continue to scale back until I'm fully retired in a few years (58-60).

For now, this strategy continues to be fulfilling (I'm not ready to putter around the house all day) and financially rewarding (I'm not touching my investment accounts, P/T allows me to build credit towards pension, and I still get health benefits) while it seems to be helping me find better balance. I suspect that this slow creep towards full retirement will help ease the eventual transition for me (I have friends who struggled with abruptly retiring), but i also recognize that others may not have this flexibility, or desire, to continue working in a more limited capacity but it is something to consider.

Yeah, the more I thought about it the less I believed I'd suddenly feel less stressed at work once I hit my FI number. I'm in tech sales and the stress simply never goes away because as an individual contributor there are several layers of people above me that get paid on what I do.

I do love that many people can scale back their hours or consult as a transition into retirement, and your scenario with a pension and health care factored in sounds ideal! In my field I've never heard (nor can I really imagine) any scenario where that would work. Consulting on GTM strategies and tactics? Maybe, but that's more likely an option for someone who's been a VP or CRO. But that's ok, I'd like to do something completely different, anyway, as a way to continue to make some income and stay engaged and curious for a few more years once I finally pull the plug on this career.

 

[Mookie]

Having enough money to retire is comforting, but the stress of a job doesn't go away unless/until you restructure. I reached the point of financial comfort last year (56), but had persistent HBP and some other minor medical stuff that was largely stress related. After talking it over with my boss, who wants to keep me around in some capacity for as long as possible, we scaled back my hours and my responsibilities. The end result is that I'm still working about 30 hours/wk and probably will continue to scale back until I'm fully retired in a few years (58-60).

For now, this strategy continues to be fulfilling (I'm not ready to putter around the house all day) and financially rewarding (I'm not touching my investment accounts, P/T allows me to build credit towards pension, and I still get health benefits) while it seems to be helping me find better balance. I suspect that this slow creep towards full retirement will help ease the eventual transition for me (I have friends who struggled with abruptly retiring), but i also recognize that others may not have this flexibility, or desire, to continue working in a more limited capacity but it is something to consider.

Yeah, the more I thought about it the less I believed I'd suddenly feel less stressed at work once I hit my FI number. I'm in tech sales and the stress simply never goes away because as an individual contributor there are several layers of people above me that get paid on what I do.

I do love that many people can scale back their hours or consult as a transition into retirement, and your scenario with a pension and health care factored in sounds ideal! In my field I've never heard (nor can I really imagine) any scenario where that would work. Consulting on GTM strategies and tactics? Maybe, but that's more likely an option for someone who's been a VP or CRO. But that's ok, I'd like to do something completely different, anyway, as a way to continue to make some income and stay engaged and curious for a few more years once I finally pull the plug on this career.

Completely understand. I considered a total change and briefly thought about becoming a school bus driver as it would still count as service towards my pension. Although working school hours and getting summers off appealed to me, the pay cut and dealing with little brats and their overbearing parents did not.

 

[fruity pebbles]

Having enough money to retire is comforting, but the stress of a job doesn't go away unless/until you restructure. I reached the point of financial comfort last year (56), but had persistent HBP and some other minor medical stuff that was largely stress related. After talking it over with my boss, who wants to keep me around in some capacity for as long as possible, we scaled back my hours and my responsibilities. The end result is that I'm still working about 30 hours/wk and probably will continue to scale back until I'm fully retired in a few years (58-60).

For now, this strategy continues to be fulfilling (I'm not ready to putter around the house all day) and financially rewarding (I'm not touching my investment accounts, P/T allows me to build credit towards pension, and I still get health benefits) while it seems to be helping me find better balance. I suspect that this slow creep towards full retirement will help ease the eventual transition for me (I have friends who struggled with abruptly retiring), but i also recognize that others may not have this flexibility, or desire, to continue working in a more limited capacity but it is something to consider.

Yeah, the more I thought about it the less I believed I'd suddenly feel less stressed at work once I hit my FI number. I'm in tech sales and the stress simply never goes away because as an individual contributor there are several layers of people above me that get paid on what I do.

I do love that many people can scale back their hours or consult as a transition into retirement, and your scenario with a pension and health care factored in sounds ideal! In my field I've never heard (nor can I really imagine) any scenario where that would work. Consulting on GTM strategies and tactics? Maybe, but that's more likely an option for someone who's been a VP or CRO. But that's ok, I'd like to do something completely different, anyway, as a way to continue to make some income and stay engaged and curious for a few more years once I finally pull the plug on this career.

Yeah, I’m lucky to have a job where I can cut hours and actually have. I’m down to 30 hours a week and I just told them I’m taking every third Saturday off which will make my hours 30,30,20 on a three week cycle. Sounds like a dream schedule but it honestly still feels like a lot. I’m either getting old or worn down. Used to love the excitement of it, now it feels like war torn battlefield every night

 

[ConstruxBoy]

Having enough money to retire is comforting, but the stress of a job doesn't go away unless/until you restructure. I reached the point of financial comfort last year (56), but had persistent HBP and some other minor medical stuff that was largely stress related. After talking it over with my boss, who wants to keep me around in some capacity for as long as possible, we scaled back my hours and my responsibilities. The end result is that I'm still working about 30 hours/wk and probably will continue to scale back until I'm fully retired in a few years (58-60).

For now, this strategy continues to be fulfilling (I'm not ready to putter around the house all day) and financially rewarding (I'm not touching my investment accounts, P/T allows me to build credit towards pension, and I still get health benefits) while it seems to be helping me find better balance. I suspect that this slow creep towards full retirement will help ease the eventual transition for me (I have friends who struggled with abruptly retiring), but i also recognize that others may not have this flexibility, or desire, to continue working in a more limited capacity but it is something to consider.

Yeah, the more I thought about it the less I believed I'd suddenly feel less stressed at work once I hit my FI number. I'm in tech sales and the stress simply never goes away because as an individual contributor there are several layers of people above me that get paid on what I do.

I do love that many people can scale back their hours or consult as a transition into retirement, and your scenario with a pension and health care factored in sounds ideal! In my field I've never heard (nor can I really imagine) any scenario where that would work. Consulting on GTM strategies and tactics? Maybe, but that's more likely an option for someone who's been a VP or CRO. But that's ok, I'd like to do something completely different, anyway, as a way to continue to make some income and stay engaged and curious for a few more years once I finally pull the plug on this career.

You seem to know a ton about this. Have you considered becoming a Financial Planner?

 

[SFBayDuck]

You seem to know a ton about this. Have you considered becoming a Financial Planner?

Thanks, and funny you should mention that! As a kid I would go with my dad to his stock broker meetings, and I invested my commercial fishing money in a few stocks (after buying an Atari and a dirt bike, of course). I would regularly watch the Nightly Business Report and Wall Street Week on PBS. As a teenager my favorite movie was Wall Street, and besides wanting to be Bud Fox I was damn near obsessed with the real-life versions of the portrayals in the movie like Boesky and Milken (who of course, like Fox in the movie, both ended up in prison. Then I got to college and declared a business major with a plan to specialize in finance - but man, did that turn out to be a lot of math! So I ended up double majoring in management and toga parties, and six short years later I graduated and fell into a sales job. Twenty-eight years later, I'm still grinding away at it.

But now, as my interests have shifted back to where I started but in a much more realistic way, I might be coming full circle. This all started as a selfish endeavor a few years ago to figure out how to retire sooner, but soon I went from 15-20 hours a week of sports and training podcasts to 20 hours a week of retirement planning podcasts and lots of blogs and books. So while the investing piece is still interesting, that's become secondary to the retirement planning side. And in talking with my friends, all in our mid-late 50s, it's top of mind for a lot of us. And many don't know where to start or are convinced they need $3.5M or think they'll never be able to. I want to help them, and others like us.

So I've started to look into the certifications that are available. Not sure a full fledged CFP is where I'd go because of the three year work requirement, although it's a thought (if I could find a firm interested in hiring a mid-50s reformed tech sales guy). The Retirement Income Certified Professional is interesting to me, as it's focused specifically on the areas I want to work with. I think you also have to have three years of experience to use the designation, but if I call myself a retirement "coach" and have that education as a backing, that might be the way to go. Still a ton of research to do both on how to get there and the best business model, but my current thinking is an "advice only" role that charges a fixed fee for a retirement plan, with built in follow ups, access to self-serve tools, etc.

 

[IvanKaramazov]

You seem to know a ton about this. Have you considered becoming a Financial Planner?

Thanks, and funny you should mention that! As a kid I would go with my dad to his stock broker meetings, and I invested my commercial fishing money in a few stocks (after buying an Atari and a dirt bike, of course). I would regularly watch the Nightly Business Report and Wall Street Week on PBS. As a teenager my favorite movie was Wall Street, and besides wanting to be Bud Fox I was damn near obsessed with the real-life versions of the portrayals in the movie like Boesky and Milken (who of course, like Fox in the movie, both ended up in prison. Then I got to college and declared a business major with a plan to specialize in finance - but man, did that turn out to be a lot of math! So I ended up double majoring in management and toga parties, and six short years later I graduated and fell into a sales job. Twenty-eight years later, I'm still grinding away at it.

But now, as my interests have shifted back to where I started but in a much more realistic way, I might be coming full circle. This all started as a selfish endeavor a few years ago to figure out how to retire sooner, but soon I went from 15-20 hours a week of sports and training podcasts to 20 hours a week of retirement planning podcasts and lots of blogs and books. So while the investing piece is still interesting, that's become secondary to the retirement planning side. And in talking with my friends, all in our mid-late 50s, it's top of mind for a lot of us. And many don't know where to start or are convinced they need $3.5M or think they'll never be able to. I want to help them, and others like us.

So I've started to look into the certifications that are available. Not sure a full fledged CFP is where I'd go because of the three year work requirement, although it's a thought (if I could find a firm interested in hiring a mid-50s reformed tech sales guy). The Retirement Income Certified Professional is interesting to me, as it's focused specifically on the areas I want to work with. I think you also have to have three years of experience to use the designation, but if I call myself a retirement "coach" and have that education as a backing, that might be the way to go. Still a ton of research to do both on how to get there and the best business model, but my current thinking is an "advice only" role that charges a fixed fee for a retirement plan, with built in follow ups, access to self-serve tools, etc.

Programs leading to a CFP are great alternatives to a finance major, especially for people who actually want to do financial counseling as opposed to "finance." You don't need to know how to price bond options or how to derive the CAPM model from scratch if you just want to help people get a handle on their household investments. Those programs usually have little or no math, also.

Something to keep in mind for folks whose kids are still in school.

(Edit: Finance is a great major too, but there is a lot of math and that is not for everyone).

 

[SFBayDuck]

Programs leading to a CFP are great alternatives to a finance major, especially for people who actually want to do financial counseling as opposed to "finance." You don't need to know how to price bond options or how to derive the CAPM model from scratch if you just want to help people get a handle on their household investments. Those programs usually have little or no math, also.

Something to keep in mind for folks whose kids are still in school.

(Edit: Finance is a great major too, but there is a lot of math and that is not for everyone).

I don't think that was an option back when I went to school, at least not here at U of O. But I've seen that more and more recently, love whenever academia picks up on what would actually prepare people for certain careers and puts together curriculum to support that. A few years back I was responsible for a summer intern, and he was actually majoring in Sales at Michigan St. That sure wasn't a thing a few decades before (and I think is still rare). Oregon started a Sports Marketing program my last year here, which I might have pivoted to but just couldn't bring myself to become a 7th year senior.

 

[-OZ-]

You seem to know a ton about this. Have you considered becoming a Financial Planner?

Thanks, and funny you should mention that! As a kid I would go with my dad to his stock broker meetings, and I invested my commercial fishing money in a few stocks (after buying an Atari and a dirt bike, of course). I would regularly watch the Nightly Business Report and Wall Street Week on PBS. As a teenager my favorite movie was Wall Street, and besides wanting to be Bud Fox I was damn near obsessed with the real-life versions of the portrayals in the movie like Boesky and Milken (who of course, like Fox in the movie, both ended up in prison. Then I got to college and declared a business major with a plan to specialize in finance - but man, did that turn out to be a lot of math! So I ended up double majoring in management and toga parties, and six short years later I graduated and fell into a sales job. Twenty-eight years later, I'm still grinding away at it.

But now, as my interests have shifted back to where I started but in a much more realistic way, I might be coming full circle. This all started as a selfish endeavor a few years ago to figure out how to retire sooner, but soon I went from 15-20 hours a week of sports and training podcasts to 20 hours a week of retirement planning podcasts and lots of blogs and books. So while the investing piece is still interesting, that's become secondary to the retirement planning side. And in talking with my friends, all in our mid-late 50s, it's top of mind for a lot of us. And many don't know where to start or are convinced they need $3.5M or think they'll never be able to. I want to help them, and others like us.

So I've started to look into the certifications that are available. Not sure a full fledged CFP is where I'd go because of the three year work requirement, although it's a thought (if I could find a firm interested in hiring a mid-50s reformed tech sales guy). The Retirement Income Certified Professional is interesting to me, as it's focused specifically on the areas I want to work with. I think you also have to have three years of experience to use the designation, but if I call myself a retirement "coach" and have that education as a backing, that might be the way to go. Still a ton of research to do both on how to get there and the best business model, but my current thinking is an "advice only" role that charges a fixed fee for a retirement plan, with built in follow ups, access to self-serve tools, etc.

We should start an old fart firm. Duckin’ Oz’s counseling and coaching.

 

[SFBayDuck]

We should start an old fart firm. Duckin’ Oz’s counseling and coaching.

Love it, as I know this is something you've looked into as well!

Have you dug into the available certifications much yet?

 

[-OZ-]

We should start an old fart firm. Duckin’ Oz’s counseling and coaching.

Love it, as I know this is something you've looked into as well!

Have you dug into the available certifications much yet

Not yet. I keep meaning to.

 

[IvanKaramazov]

I have a dumb question related to health insurance for people who retire before Medicare eligibility.

We're planning to retire in our mid/late 50s, so we will need to buy private insurance for a few years. My thinking is that I should not be too terribly worried about this because while I will owe income taxes on my pension and (eventually) SS, I will not have Medicare, SS, or any type of health insurance deducted from any of my income sources in retirement. In essence, I am getting all of my non-FIT monthly payroll deductions "returned" to me when I retire, and by my calculations that amount will easily cover private insurance times two.

(It is important to note here that my retirement plan involves replacing 100% of my gross household income, less retirement savings obviously. I am intentionally building in what I think is a healthy margin for error by not adjusting for taxes and other stuff that I know I will get a break on. My calculations are also all based on the 4% rule, so if push comes to shove I can probably just take a larger withdrawal rate for a finite number of years until Medicare arrives.)

The reason why I bring this up is because my wife is worried about this particular topic, but it seems like few people who have actually gone through this consider it that big a deal. I randomly watch videos and read articles with "retirement prep" advice, and this topic either never comes up or gets handwaved away, and I'm thinking this is why but I'm not sure.

 

[Nugget]

Health insurance between retirement and Medicare scares me a bit - thanks for asking the question. My GF is looking at retiring from a university - they offer a continuation of the current health insurance where the retiree basically picks up the premium cost. Depending on when pensions kick in and how much you can control your “income”, you may be able to qualify for an ACA subsidy.

 

[Peggy]

I just want to have a few years of expenses set aside so that we never have to sell stocks in a bear market.

Separated this out because I have a hard time understanding how people plan to actually execute this, would love your (and others') thoughts as I'm honestly curious. Let's say you have 10% in cash, which is 2 1/2 years of spending. We hit a bear market, a drop of 30%. No sweat, you've got the first year's cash to pull out and don't have to sell any equities (or bonds in a 2022 scenario). But now you're down to 6% cash, and you're probably pretty damned uncomfortable only having that much.

And what about a bear market that does last 1.5 years or more ('69, '72, '81, '00)? You enter year 2 still in a bear market, make your withdrawal and are now down to 2-4% cash. Don't you just end up selling still in a bear market to get yourself back up to 10%? Or do you really just ride it all the way to zero if need be? I just can't imagine most people who are most comfortable with that bucket type of strategy being psychologically able to let that bucket get near empty during an extended bear market.

I've thought about this exact issue and I don't have an answer for you. I think I'd just prefer to psychologically cope with the discomfort of spending down my cash reserves (knowing that the market does eventually rebound) rather than selling, but it's easy to say that while I'm sitting here today, four years or so from having to worry about it for real.

I'm understand that some of this is just mental accounting for peace of mind, and I'm okay with that. In a related example, we paid off our mortgage back in 2018 and bought our new home with cash. I completely understood the mathematical argument against doing that at the time, but I can honestly say that I've never looked back on it with regret, even when inflation was peaking a year or so ago. There's a lot to be said for having simple finances, even if it means passing up on some arbitrage opportunities. This is sort of the same thing. If the market tanks by 50% on the day after I retire, I can just ride it out like I've ridden out other market setbacks. So I'll sit on some bonds. I can talk myself into thinking of the foregone returns on those bonds like insurance premia.

Edit: Really though, there is no getting around the fact that I will be unhappy if the market tanks right after retirement. I should feel bad about that, and there is no strategy that will remove that particular risk. Aside from working longer to build up a larger-than-necessary nest egg, which I have already decided against doing. I might be over-sharing here a little, but that's because I want to hear about it if I'm being irrational somehow.

- I think I've unintentionally built up some extra reserves because it took me a couple years to decide to pull the plug while aggressively socking away into retirement accounts.
- I get a large lump sum of cash at retirement that I'm looking to put into bond ladders/tents for the time 4-5 year time period between retirement and when I can actually start using retirement funds.
- I too will not have a mortgage and know that I can scale way back on spending if needed for a couple years.
- We're moving to a place with a much lower cost of living.
- Worst case scenario I go back to work part time for a couple years.

 

[Peggy]

I have a dumb question related to health insurance for people who retire before Medicare eligibility.

We're planning to retire in our mid/late 50s, so we will need to buy private insurance for a few years. My thinking is that I should not be too terribly worried about this because while I will owe income taxes on my pension and (eventually) SS, I will not have Medicare, SS, or any type of health insurance deducted from any of my income sources in retirement. In essence, I am getting all of my non-FIT monthly payroll deductions "returned" to me when I retire, and by my calculations that amount will easily cover private insurance times two.

(It is important to note here that my retirement plan involves replacing 100% of my gross household income, less retirement savings obviously. I am intentionally building in what I think is a healthy margin for error by not adjusting for taxes and other stuff that I know I will get a break on. My calculations are also all based on the 4% rule, so if push comes to shove I can probably just take a larger withdrawal rate for a finite number of years until Medicare arrives.)

The reason why I bring this up is because my wife is worried about this particular topic, but it seems like few people who have actually gone through this consider it that big a deal. I randomly watch videos and read articles with "retirement prep" advice, and this topic either never comes up or gets handwaved away, and I'm thinking this is why but I'm not sure.

I've never thought of it that way because my cost tracking doesn't include it in my gross income. I have to add it back in. If yours does then you're right it's probably already accounted for.

I still have some homework to do to figure out the number for me to add back in. I've been less worried about it because of moving to a lower cost of living area. My tax difference just on property tax alone will pay for a good chunk of it. But, it's still a number I need to figure out.

 

[SFBayDuck]

I have a dumb question related to health insurance for people who retire before Medicare eligibility.

We're planning to retire in our mid/late 50s, so we will need to buy private insurance for a few years. My thinking is that I should not be too terribly worried about this because while I will owe income taxes on my pension and (eventually) SS, I will not have Medicare, SS, or any type of health insurance deducted from any of my income sources in retirement. In essence, I am getting all of my non-FIT monthly payroll deductions "returned" to me when I retire, and by my calculations that amount will easily cover private insurance times two.

(It is important to note here that my retirement plan involves replacing 100% of my gross household income, less retirement savings obviously. I am intentionally building in what I think is a healthy margin for error by not adjusting for taxes and other stuff that I know I will get a break on. My calculations are also all based on the 4% rule, so if push comes to shove I can probably just take a larger withdrawal rate for a finite number of years until Medicare arrives.)

The reason why I bring this up is because my wife is worried about this particular topic, but it seems like few people who have actually gone through this consider it that big a deal. I randomly watch videos and read articles with "retirement prep" advice, and this topic either never comes up or gets handwaved away, and I'm thinking this is why but I'm not sure.

Not a dumb question at all! It is interesting to me that you don't seem to think it's a big deal, when some of the people I talk to see health insurance as the single biggest reason to keep working (or to get a part time job in retirement). Not saying either is correct or the right way to look at it, and it's probably pretty unique to the individual.

Not my strongest area of expertise, but from what I do know essentially your options are COBRA (which won't last long enough in your scenario), purchasing private insurance, or purchasing through the ACA marketplace in your state (there is some sort of faith-based shared cost thing that isn't actually insurance I've heard referenced, but I don't know anything about that). That's assuming you don't have insurance offered through your current employer in retirement, as sometimes can come with a pension (that's what my retired parents have, thanks to my mom's federal pension and benefits).

It sounds like you're looking at private insurance, and that should be pretty straightforward - the cost should be the cost. If you can easily cover that cost in your budget with your pension, then sounds like you're good. And with your pension income, this might be the best option for you.

But with the ACA, which I've looked into a little, there can be a sweet spot of income where it can be a pretty good deal. Make enough to be above the line for Medicaid, but not enough to not qualify for subsidies (technically a tax credit, I think). I've played around with the site in Oregon, and if you and a spouse earn less that $220,791 you can get some amount of subsidies. So picking a random PPO plan with a $3,500 deductible:

• If I make $235K the full monthly premium is $1,706.
• If I make $150K, that drops to $1,426 a month thanks to the subsidy
• Where it gets interesting is if I only make $75K, then it's only $862 a month!
• And it keeps dropping from there down to about $40,900 in income, where it drops another 50% to only $423/month. Below that, and you're in the Medicaid program.

There are cheaper and more expensive plans, but the point is that if you are able to "manage" the income you recognize every year it can be huge. This is based upon a Modified Adjusted Gross Income, so does include not only wages or pension but also untaxed SS, interest, cap gains, rental income, Roth conversions, etc. But if you are living in early retirement largely off of already taxed savings, capital gains, or Roth distributions, you could theoretically be spending $150K a year but have a much, much lower MAGI depending on where that money is coming from.

With a pension you're going to have a floor on that MAGI, but unless it's super high it might be worth exploring the ACA route.

 

[SFBayDuck]

I also didn't really answer what I think your actual question was, which is are you thinking about it all correctly. I think so? You have guaranteed income with a pension, you have retirement savings, and you have SS you'll turn on at some point. In retirement you won't be paying those employment taxes or having your health insurance premiums withheld from your check. So if you're going to have a gross income across those sources that's the same as you have now, sure that gap could cover your health care costs.

I guess I think about it differently, focused not on income (net or gross) today and how much of that I'll be able to replicate in retirement, but rather on what my projected expenses will be in retirement as the starting point. I don't think either approach is necessarily better, and as long as everything is being considered (included any taxes you will have to pay in retirement) you probably end up in the same place.

ETA: If your pension isn't inflation adjusted you would want to consider that your health insurance costs will likely increase and make sure you don't end up short in 8-9 years before you get to Medicare. But sounds like you have plenty of cushion there.

 

[matttyl]

I have a dumb question related to health insurance for people who retire before Medicare eligibility.

We're planning to retire in our mid/late 50s, so we will need to buy private insurance for a few years. My thinking is that I should not be too terribly worried about this because while I will owe income taxes on my pension and (eventually) SS, I will not have Medicare, SS, or any type of health insurance deducted from any of my income sources in retirement. In essence, I am getting all of my non-FIT monthly payroll deductions "returned" to me when I retire, and by my calculations that amount will easily cover private insurance times two.

(It is important to note here that my retirement plan involves replacing 100% of my gross household income, less retirement savings obviously. I am intentionally building in what I think is a healthy margin for error by not adjusting for taxes and other stuff that I know I will get a break on. My calculations are also all based on the 4% rule, so if push comes to shove I can probably just take a larger withdrawal rate for a finite number of years until Medicare arrives.)

The reason why I bring this up is because my wife is worried about this particular topic, but it seems like few people who have actually gone through this consider it that big a deal. I randomly watch videos and read articles with "retirement prep" advice, and this topic either never comes up or gets handwaved away, and I'm thinking this is why but I'm not sure.

Sorry, but what’s the question? I’m a health insurance agent, happy to chat with you about your situation if you’d like.

 

[belljr]

That's the one benefit if I retire, I just keep paying premium for my insurance. Not sure what happens when I'm medicare eligible

 

[SFBayDuck]

I have a dumb question related to health insurance for people who retire before Medicare eligibility.

We're planning to retire in our mid/late 50s, so we will need to buy private insurance for a few years. My thinking is that I should not be too terribly worried about this because while I will owe income taxes on my pension and (eventually) SS, I will not have Medicare, SS, or any type of health insurance deducted from any of my income sources in retirement. In essence, I am getting all of my non-FIT monthly payroll deductions "returned" to me when I retire, and by my calculations that amount will easily cover private insurance times two.

(It is important to note here that my retirement plan involves replacing 100% of my gross household income, less retirement savings obviously. I am intentionally building in what I think is a healthy margin for error by not adjusting for taxes and other stuff that I know I will get a break on. My calculations are also all based on the 4% rule, so if push comes to shove I can probably just take a larger withdrawal rate for a finite number of years until Medicare arrives.)

The reason why I bring this up is because my wife is worried about this particular topic, but it seems like few people who have actually gone through this consider it that big a deal. I randomly watch videos and read articles with "retirement prep" advice, and this topic either never comes up or gets handwaved away, and I'm thinking this is why but I'm not sure.

Sorry, but what’s the question? I’m a health insurance agent, happy to chat with you about your situation if you’d like.

I knew we had an expert in here somewhere. What do you typically see people who retire in the 50-65 age range do for health insurance? I'm sure the answer is "it depends", but would love to hear your thoughts.

 

[Sand]

(Edit: Finance is a great major too, but there is a lot of math and that is not for everyone).

Every engineering student just snorted.

 

[matttyl]

I have a dumb question related to health insurance for people who retire before Medicare eligibility.

We're planning to retire in our mid/late 50s, so we will need to buy private insurance for a few years. My thinking is that I should not be too terribly worried about this because while I will owe income taxes on my pension and (eventually) SS, I will not have Medicare, SS, or any type of health insurance deducted from any of my income sources in retirement. In essence, I am getting all of my non-FIT monthly payroll deductions "returned" to me when I retire, and by my calculations that amount will easily cover private insurance times two.

(It is important to note here that my retirement plan involves replacing 100% of my gross household income, less retirement savings obviously. I am intentionally building in what I think is a healthy margin for error by not adjusting for taxes and other stuff that I know I will get a break on. My calculations are also all based on the 4% rule, so if push comes to shove I can probably just take a larger withdrawal rate for a finite number of years until Medicare arrives.)

The reason why I bring this up is because my wife is worried about this particular topic, but it seems like few people who have actually gone through this consider it that big a deal. I randomly watch videos and read articles with "retirement prep" advice, and this topic either never comes up or gets handwaved away, and I'm thinking this is why but I'm not sure.

Sorry, but what’s the question? I’m a health insurance agent, happy to chat with you about your situation if you’d like.

I knew we had an expert in here somewhere. What do you typically see people who retire in the 50-65 age range do for health insurance? I'm sure the answer is "it depends", but would love to hear your thoughts.

Well, it depends….haha

Generally, their only option is an individual policy (not tied to any employer).

First things first - COBRA could be a viable option for some period of time. If you’ve already hit your deductible for instance, or it’s better coverage than anything in the individual market. Max time for cobra is 18 months (unless due to death of employee, dependents can remain for up to 36).

So, looking in the individual market (with a private insurance carrier), you can either buy “on exchange” or “off exchange” (directly from the carrier). Buying “on exchange” could limit your options, but is the only way to obtain subsidies (tax credits) to lower your premiums. I have folks with incomes just over the poverty line/Medicaid who pay next to nothing for their coverage, but it’s typically an HMO and often with high deductibles and out of pockets. Buying “off exchange” may give you more/better options - but you forgo any subsidies you may have been eligible for. For some people that’s worth it to be able to buy a policy with a PPO (or similar) type network.

Markets can be very regional in terms of pricing and policy availability. Here in Va where I am, the early years of the ACA had one carrier and pretty high prices when compared to similar group type policies. More recently the market has stabilized and more carriers have joined, more policy types are available (especially off exchange), and prices are now very similar to what a group policy would be on a per person level.

For me personally (due to a health situation my child had a few years back, which could return) THE MOST important thing to me is a broad insurance network (PPO), followed closely by a max OOP that won’t financially destroy me. Other people may be ok with a smaller network and shop based on lower premiums. It all depends on the person/family. Happy to chat with you if you’d like.

 

[NutterButter]

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).