The “I want to retire soon” thread (4 Viewers)

[dgreen]

All of my investments are done through work (TSP, the fed employee's version of a 401k) so I'm ignorant on how to do things outside of that. My daughter (21 and graduating college in May) recently asked me how to budget. So, we talked about that for a while and I told her she should start retirement saving as early as possible. But, I don't even know where to direct her. What's the best way for her to get started on a Roth?

 

[-OZ-]

All of my investments are done through work (TSP, the fed employee's version of a 401k) so I'm ignorant on how to do things outside of that. My daughter (21 and graduating college in May) recently asked me how to budget. So, we talked about that for a while and I told her she should start retirement saving as early as possible. But, I don't even know where to direct her. What's the best way for her to get started on a Roth?

I’d send a referral to M1 if you want. There’s a small fee until she reaches $10k. I think it’s the simplest platform but there are many others. Fidelity, Schwab, etc. a benefit of M1 is it’s easy to automate, set and forget.

 

[Judge Smails]

Here are 2 55+ communities that are still building right now here:
Star
Kuna

The good thing is that our condo will probably go for more than what we'd pay for one of these.

My buddy moved from So Cal to Star. Loves it. A bunch of us are going there at the end of the month for his birthday party. Tons to do outdoors. We’re golfing, hiking, riding bikes by the river, etc.

 

[SFBayDuck]

All of my investments are done through work (TSP, the fed employee's version of a 401k) so I'm ignorant on how to do things outside of that. My daughter (21 and graduating college in May) recently asked me how to budget. So, we talked about that for a while and I told her she should start retirement saving as early as possible. But, I don't even know where to direct her. What's the best way for her to get started on a Roth?

I’d send a referral to M1 if you want. There’s a small fee until she reaches $10k. I think it’s the simplest platform but there are many others. Fidelity, Schwab, etc. a benefit of M1 is it’s easy to automate, set and forget.

Yeah any of those work. I helped my daughter set up one at Fidelity. Well, actually I set up a Roth for a Minor for her when she was like 15, then helped her transition it to a regular Roth after she turned 18. No fees at Fidelity (other than any associated with the ETFs), but may not be as easy to automate as M1. She's the same age as yours @dgreen , and since she's still in school and just making a few grand working part time, we just contribute at tax time (I matched half of what she contributed).

Obviously the hope is that she gets a job next year that has a 401k or similar, but if it doesn't I'll likely help her set up some sort of automated savings - haven't looked into that yet.

 

[Sand]

All of my investments are done through work (TSP, the fed employee's version of a 401k) so I'm ignorant on how to do things outside of that. My daughter (21 and graduating college in May) recently asked me how to budget. So, we talked about that for a while and I told her she should start retirement saving as early as possible. But, I don't even know where to direct her. What's the best way for her to get started on a Roth?

As noted any of the above work. Good idea to stuff a Roth early in life. I managed to get my older one fully into a Roth. Younger one, not so much. I just had to buy NVDA a decade ago for him.

 

[SFBayDuck]

As I'm sure everyone knows, you have to have earned income to contribute to a Roth. My daughter only had $150 in there for years, from a tutoring gig when she was in high school, until she got a job on campus last year that allowed us to contribute again.

 

[dgreen]

As I'm sure everyone knows, you have to have earned income to contribute to a Roth. My daughter only had $150 in there for years, from a tutoring gig when she was in high school, until she got a job on campus last year that allowed us to contribute again.

So will she have to produce a paystub or something like that? Or is it just a yes/no question about whether or not you have income? She has a job at a local pottery shop and she's also been selling her own pottery to local coffee shops and nearby markets. She could produce proof of the pottery shop job but doesn't have any paperwork for her freelancing. Hmm, maybe I should look into helping her set up her own company.

 

[Instinctive]

Do you guys mean a Roth IRA or a Roth 401(k)?

One thing to teach her early might be that a Roth is a flavor, while an IRA or 401(k) are retirement accounts. Either can be a Roth or a Traditional.

 

[IvanKaramazov]

I also just got her book "How to Retire" in the mail today, I had pre-ordered it a while ago. It basically recaps of a bunch of interviews/podcasts with people like Blanchett, Guyton, Pfau, Bernstein and a bunch of others. Looking forward to continuing my education!

I've been listening to the Audible version of this while I'm out on my morning walk. I still have a couple of hours to go, but I've listened to enough that I feel pretty comfortable giving this a thumbs-up. It doesn't go into a lot of depth on anything in particular, but it provides a good overview of pretty much everything a typical person would need to think about as they approach retirement. If you're relatively new to some of these topics, like I am, the conversations here at least give you enough background to know what questions to ask as you do more research and planning.

The assorted people who the author interviews are really varied, too. A couple of them have hobby-horses related to annuities, Social Security, etc., but that's fine. I welcome alternative points of view.

Overall, this book seemed to do what it set out to do.

 

[dgreen]

Do you guys mean a Roth IRA or a Roth 401(k)?

One thing to teach her early might be that a Roth is a flavor, while an IRA or 401(k) are retirement accounts. Either can be a Roth or a Traditional.

Yeah, I'm not sure what I mean. Like I said, the only thing I've ever done is through my employer (the federal government) so I don't currently have the language to even ask the right question. If you had a 21 year old daughter who is earning some money and doesn't have a plan through an employer, what would you suggest? Is that a Roth IRA or a Roth 401(k)?

 

[Instinctive]

Do you guys mean a Roth IRA or a Roth 401(k)?

One thing to teach her early might be that a Roth is a flavor, while an IRA or 401(k) are retirement accounts. Either can be a Roth or a Traditional.

Yeah, I'm not sure what I mean. Like I said, the only thing I've ever done is through my employer (the federal government) so I don't currently have the language to even ask the right question. If you had a 21 year old daughter who is earning some money and doesn't have a plan through an employer, what would you suggest? Is that a Roth IRA or a Roth 401(k)?

A 401(k) is through an employer.

An IRA is an Individual Retirement Account.

You can contribute to both, if your employer has the first. If they don't, there are other rules that let you do more.

For the simplest thing - I strongly suggest she go to her investment company of choice (I like Vanguard because they're inexpensive) and open and IRA. Since she's early career, I tend to think a Roth IRA (where you put in money that's been taxed, but take it out tax free one day) is the right call.

 

[SFBayDuck]

So will she have to produce a paystub or something like that? Or is it just a yes/no question about whether or not you have income? She has a job at a local pottery shop and she's also been selling her own pottery to local coffee shops and nearby markets. She could produce proof of the pottery shop job but doesn't have any paperwork for her freelancing. Hmm, maybe I should look into helping her set up her own company.

I believe this only matters if she ever gets audited (I don't think the Roth custodian ie Fidelity/Vanguard/Schwab would check). So if she claims income and files taxes she can contribute that amount, up to $7,000 in 2024, to a Roth IRA. Otherwise anything else that proves the income would likely work - bank statements, 1099s, etc. Just keep some sort of record if she's not filing taxes.

As Instinctive said, unless this is being offered through her employer (which seems highly unlikely give what you shared here), we're talking about a Roth IRA. We're all recommending a Roth (instead of a "Traditional" IRA) as that money goes in already taxed and grows tax free. So it's perfect for youngsters in very low (zero?) tax brackets with lots of time to compound. Three step process:

1. Go to Fidelity or Vanguard or Schwab and open the account. It really doesn't matter much which one, they all offer pretty much the same thing. That basically gives you an empty Roth account that she can contribute to.
2. Follow their instructions on how to make a contribution (connect a bank account, send a check, whatever). That puts cash into that account. Keep in mind the rules above on how much she can contribute annually. You can make contributions for the year up to tax day, so you can make 2024 contributions up to April 15th, 2025 (which is what we do, as she then knows how much she made the prior year). You could also set up some sort of automatic monthly contribution from her linked bank account, each custodian will have their own way of doing that.
3. Invest that contribution. Unless she's really interested in learning about investing, just use that cash to purchase a total market ETF like VTI or an S&P fund like VOO. It really doesn't matter that much, at this stage you just want broad equity exposure with low fees.

If she wants to learn the basics, The Simple Path to Wealth is a good place to start. I also like The Psychology of Money.

 

[SFBayDuck]

I also just got her book "How to Retire" in the mail today, I had pre-ordered it a while ago. It basically recaps of a bunch of interviews/podcasts with people like Blanchett, Guyton, Pfau, Bernstein and a bunch of others. Looking forward to continuing my education!

I've been listening to the Audible version of this while I'm out on my morning walk. I still have a couple of hours to go, but I've listened to enough that I feel pretty comfortable giving this a thumbs-up. It doesn't go into a lot of depth on anything in particular, but it provides a good overview of pretty much everything a typical person would need to think about as they approach retirement. If you're relatively new to some of these topics, like I am, the conversations here at least give you enough background to know what questions to ask as you do more research and planning.

The assorted people who the author interviews are really varied, too. A couple of them have hobby-horses related to annuities, Social Security, etc., but that's fine. I welcome alternative points of view.

Overall, this book seemed to do what it set out to do.

I started it this weekend, a few chapters in. Agree, good mix of viewpoints.

 

[IvanKaramazov]

I also just got her book "How to Retire" in the mail today, I had pre-ordered it a while ago. It basically recaps of a bunch of interviews/podcasts with people like Blanchett, Guyton, Pfau, Bernstein and a bunch of others. Looking forward to continuing my education!

I've been listening to the Audible version of this while I'm out on my morning walk. I still have a couple of hours to go, but I've listened to enough that I feel pretty comfortable giving this a thumbs-up. It doesn't go into a lot of depth on anything in particular, but it provides a good overview of pretty much everything a typical person would need to think about as they approach retirement. If you're relatively new to some of these topics, like I am, the conversations here at least give you enough background to know what questions to ask as you do more research and planning.

The assorted people who the author interviews are really varied, too. A couple of them have hobby-horses related to annuities, Social Security, etc., but that's fine. I welcome alternative points of view.

Overall, this book seemed to do what it set out to do.

I started it this weekend, a few chapters in. Agree, good mix of viewpoints.

One of the more interesting (contrarian) guys was like "Yeah, if you're reading this book, you've probably been saving your whole life. You need to get out of that habit and get used to spending, so I recommend that my clients stop saving for retirement when they're five years out."

I actually tried to persuade my wife a year or so ago that our current savings aren't really moving the needle, like at all. I definitely want to keep socking money away, especially since I'll be retiring before SS and before Medicare, so we have a few years to plug. But if you look at what we contributed to our accounts this past year, versus the passive returns that we earned, we might as well not have contributed anything at all. The market generated well over an order of magnitude more than what we're saving. Hell, the market gave us about 150% of our household income in a single year. If we had saved every dollar we earned, our portfolio still would have out-earned us by a very healthy margin. Obviously it won't always be like this (hello, 2022), but it's kind of funny how my better half doesn't quite understand how well off we actually are. I'm sure I have a ton of company on this one in this thread. The last 12 months have been great.

 

[SFBayDuck]

One of the more interesting (contrarian) guys was like "Yeah, if you're reading this book, you've probably been saving your whole life. You need to get out of that habit and get used to spending, so I recommend that my clients stop saving for retirement when they're five years out."

I actually tried to persuade my wife a year or so ago that our current savings aren't really moving the needle, like at all. I definitely want to keep socking money away, especially since I'll be retiring before SS and before Medicare, so we have a few years to plug. But if you look at what we contributed to our accounts this past year, versus the passive returns that we earned, we might as well not have contributed anything at all. The market generated well over an order of magnitude more than what we're saving. Hell, the market gave us about 150% of our household income in a single year. If we had saved every dollar we earned, our portfolio still would have out-earned us by a very healthy margin. Obviously it won't always be like this (hello, 2022), but it's kind of funny how my better half doesn't quite understand how well off we actually are. I'm sure I have a ton of company on this one in this thread. The last 12 months have been great.

Sounds like Coast FIRE - you've saved enough that you can stop doing so and coast into your retirement date, counting on the growth between now and then to get you to your FIRE number. Also sounds like I'm going to enjoy that chapter!

I did my monthly net worth statement last week, and since the market low for last year was October I'm up 47% year over year (if I go back to Sept before that dip it's more like 35%)! That's obviously due much more to market performance (S&P up 33% in that time) than my contributions. That said between getting the full $30.5 into the 401K (plus some after-tax rolled into a Roth 401K) and maxing the HSA it still makes a difference. I think about what I put away this month will be worth when it's hopefully doubled twice by the time I'm 70, and it keeps me saving.

ETA: I just looked at Fidelity - up a whopping 0.17% today....and that was equivalent to almost a full month of contributions!

 

[IvanKaramazov]

One of the more interesting (contrarian) guys was like "Yeah, if you're reading this book, you've probably been saving your whole life. You need to get out of that habit and get used to spending, so I recommend that my clients stop saving for retirement when they're five years out."

I actually tried to persuade my wife a year or so ago that our current savings aren't really moving the needle, like at all. I definitely want to keep socking money away, especially since I'll be retiring before SS and before Medicare, so we have a few years to plug. But if you look at what we contributed to our accounts this past year, versus the passive returns that we earned, we might as well not have contributed anything at all. The market generated well over an order of magnitude more than what we're saving. Hell, the market gave us about 150% of our household income in a single year. If we had saved every dollar we earned, our portfolio still would have out-earned us by a very healthy margin. Obviously it won't always be like this (hello, 2022), but it's kind of funny how my better half doesn't quite understand how well off we actually are. I'm sure I have a ton of company on this one in this thread. The last 12 months have been great.

Sounds like Coast FIRE - you've saved enough that you can stop doing so and coast into your retirement date, counting on the growth between now and then to get you to your FIRE number. Also sounds like I'm going to enjoy that chapter!

I did my monthly net worth statement last week, and since the market low for last year was October I'm up 47% year over year (if I go back to Sept before that dip it's more like 35%)! That's obviously due much more to market performance (S&P up 33% in that time) than my contributions. That said between getting the full $30.5 into the 401K (plus some after-tax rolled into a Roth 401K) and maxing the HSA it still makes a difference. I think about what I put away this month will be worth when it's hopefully doubled twice by the time I'm 70, and it keeps me saving.

ETA: I just looked at Fidelity - up a whopping 0.17% today....and that was equivalent to almost a full month of contributions!

You know what I'm enjoying about this? I didn't know any of this terminology, but I 100% knew the general concepts already. It's the joy of realizing that other people have also discovered this stuff that you've discovered independently, and now you get to learn from folks who have been thinking about this longer than you. The reference here is to "coast FIRE" which is a term I hadn't heard until up until about six months ago, and it was like "Oh, yeah, they're talking about me, to a lesser extent." Sequence-of-return risk is another one that I discovered on my own just from screwing around with spreadsheets, and I was so happy to learn that other people had already though deeply about this stuff.

 

[matttyl]

That said in my planning it's all a bonus.

Yeah I get it. If your plan works without even considering SS, you're likely in great shape.

I know it's obvious in here, but my (admittedly self-serving) bias is always towards how to push the limits to allow one to retire earlier in what might traditionally be considered an "underfunded" state (ie less than 25x expenses). So that means looking at better portfolio construction that allows a higher SWR as a baseline, ways to combat the SOR risk without a cash drag, tax strategies to minimize the amount of gross income needed each year, looking at how retirees actually spend money vs just increasing the estimates by CPI every year, flexible spending plans, and even potentially being ok with a 60-70% monte carlo "success rate". And yeah it gets a whole lot easier when I build in that 75% of my SS from age 70 on.

But I also know if I am able to retire here in the next few years in my mid-50s but then things don't go as planned, I can always go back to work in some capacity for a few years. And that very well may even be part of the plan, just shifting from my 25+ year career to something less stressful, part time, and more rewarding.

Just thinking out loud here - but if there is a chance (perhaps likelihood) of your SS benefit % dropping over time (say starting at 83% and then dropping by 1% every other year down to 73%), wouldn’t that suggest the optimal strategy would be to take SS as early as possible rather than waiting till 70?

 

[Peggy]

That said in my planning it's all a bonus.

Yeah I get it. If your plan works without even considering SS, you're likely in great shape.

I know it's obvious in here, but my (admittedly self-serving) bias is always towards how to push the limits to allow one to retire earlier in what might traditionally be considered an "underfunded" state (ie less than 25x expenses). So that means looking at better portfolio construction that allows a higher SWR as a baseline, ways to combat the SOR risk without a cash drag, tax strategies to minimize the amount of gross income needed each year, looking at how retirees actually spend money vs just increasing the estimates by CPI every year, flexible spending plans, and even potentially being ok with a 60-70% monte carlo "success rate". And yeah it gets a whole lot easier when I build in that 75% of my SS from age 70 on.

But I also know if I am able to retire here in the next few years in my mid-50s but then things don't go as planned, I can always go back to work in some capacity for a few years. And that very well may even be part of the plan, just shifting from my 25+ year career to something less stressful, part time, and more rewarding.

Just thinking out loud here - but if there is a chance (perhaps likelihood) of your SS benefit % dropping over time (say starting at 83% and then dropping by 1% every other year down to 73%), wouldn’t that suggest the optimal strategy would be to take SS as early as possible rather than waiting till 70?

I'd say in general yes. Since SS increases each year for cost of living based on the CPI-W I've argued that you should be able to beat that increase by just taking it early and investing it. Paper napkin math it's hard to catch up investing a higher amount at age 70 against investing the lower amount at age 62 (break even is like at year 90). In your scenario you have cost of living minus 1%. But that assumes you don't need the money to live/spend which is one of many factors.

All things being equal I'm a take SS early advocate. Working through the scenarios and factors I think we're starting my wife off at age 62 and then possibly waiting for mine as insurance for her.

 

[Peggy]

I also just got her book "How to Retire" in the mail today, I had pre-ordered it a while ago. It basically recaps of a bunch of interviews/podcasts with people like Blanchett, Guyton, Pfau, Bernstein and a bunch of others. Looking forward to continuing my education!

I've been listening to the Audible version of this while I'm out on my morning walk. I still have a couple of hours to go, but I've listened to enough that I feel pretty comfortable giving this a thumbs-up. It doesn't go into a lot of depth on anything in particular, but it provides a good overview of pretty much everything a typical person would need to think about as they approach retirement. If you're relatively new to some of these topics, like I am, the conversations here at least give you enough background to know what questions to ask as you do more research and planning.

The assorted people who the author interviews are really varied, too. A couple of them have hobby-horses related to annuities, Social Security, etc., but that's fine. I welcome alternative points of view.

Overall, this book seemed to do what it set out to do.

I started it this weekend, a few chapters in. Agree, good mix of viewpoints.

One of the more interesting (contrarian) guys was like "Yeah, if you're reading this book, you've probably been saving your whole life. You need to get out of that habit and get used to spending, so I recommend that my clients stop saving for retirement when they're five years out."

I actually tried to persuade my wife a year or so ago that our current savings aren't really moving the needle, like at all. I definitely want to keep socking money away, especially since I'll be retiring before SS and before Medicare, so we have a few years to plug. But if you look at what we contributed to our accounts this past year, versus the passive returns that we earned, we might as well not have contributed anything at all. The market generated well over an order of magnitude more than what we're saving. Hell, the market gave us about 150% of our household income in a single year. If we had saved every dollar we earned, our portfolio still would have out-earned us by a very healthy margin. Obviously it won't always be like this (hello, 2022), but it's kind of funny how my better half doesn't quite understand how well off we actually are. I'm sure I have a ton of company on this one in this thread. The last 12 months have been great.

Being able to do the mega backdoor roth the last 5 or 6 years just before retirement for me has me feeling the opposite. Being able to sock away 90k into roth accounts per year isn't insignificant no matter how high the total balance is. I just wish we had that option sooner. (I guess it wasn't available before 2014, our company didn't start offering it until 2017 or 18). I'm going to be able to work a month or so in 2025, vacation days really, and I'm plowing all of it into Roth. That also gets me some earned income for 2025 that I can sneak in another 8k into regular roth. It may seem like it's not moving the needle much, but, what's that going to be 30 years from now.

And go ahead and punch me in the nose because I have to learn to not get on the wife about buying something from Amazon every single day for $20. It's hard to stop being thrifty!

 

[-OZ-]

ETA: I just looked at Fidelity - up a whopping 0.17% today....and that was equivalent to almost a full month of contributions!

Up 5% the last month. Which is more than we contribute in a year now. We’ve basically gone coast FI. I don’t plan to stop working any time soon so we spend and give more. In the next 13 months, we have 6 vacations planned (including an Ironman race). None are elaborate but we’re enjoying the time when we can.

 

[dino259]

Do you guys mean a Roth IRA or a Roth 401(k)?

One thing to teach her early might be that a Roth is a flavor, while an IRA or 401(k) are retirement accounts. Either can be a Roth or a Traditional.

Yeah, I'm not sure what I mean. Like I said, the only thing I've ever done is through my employer (the federal government) so I don't currently have the language to even ask the right question. If you had a 21 year old daughter who is earning some money and doesn't have a plan through an employer, what would you suggest? Is that a Roth IRA or a Roth 401(k)?

Lots of good help here. Just take notes and piece it together. Your TSP is like a 401k. This is offered by an employer. More and more companies offer a Roth version. Roth or traditional is just a matter if it is pretty or post tax. Then there is the ira, again either traditional or Roth. This like the 401k and tsp are retirement specific accounts. They have rules for when and how you can withdraw money either after retirement or even before. After that you have the basic brokerage account where you can invest and withdraw as you please.

Generally people suggest starting with the 401k for as much as needed to get the full company match. Good companies will offer free matching funds on a portion of what you put in. Say if I put in 6% of my income they will put in 3% for me. There is an annual $ limit to how much you can put in.

After that generally switch over to the ira. Again there is an annual $ limit. The switch is because you have more control over the ira than the 401k for investments within the ira than the ira.

After fully funding the ira then go back to the 401k. As you know this all depends on earned income and if that is from a job with a 401k.

 

[SFBayDuck]

It's only one day so I know it's really just noise, but still interesting to see how my portfolio is acting today. NASDAQ is currently down 0.9%, S&P down 0.5%. And I'm up slightly on the day. And I'm 90% in ETFs so it's not some individual stock doing well, in fact NVDA is a top 3 holding of the individual stocks I do have and it's getting hammered. It's the diversification I've added over the past 6-12 months.

Long term treasuries - up
Gold - up
Small Cap Value - up
REITS - up
Casualty and Property insurance - up

 

[Peggy]

@SFBayDuck have we talked about Stephen Cassaday in here and his research that leads him to recommend 80-20 portfolio to most of his clients going into retirement? I saw his name and research referenced in another book I was reading and I can't really find it. I did find the following study (haven't read it all yet) that makes reference to Cassaday many times. The Executive Summary settles on a 60-40.

https://www.financialplanningassociation.org/sites/default/files/2021-07/x%20%20Blanchett%20-%20Dynamic%20Allocation%20Strategies%20for%20Distribution%20Portfolios.pdf

My portfolio is 75-25 and with cash that I don't really count (though I should) I'm probably closer to 70-30 heading into retirement. I think I will be able to stomach greater swings that most people and I want to take advantage of higher returns.

 

[Gatorade]

A couple of weeks ago in this thread, insurance was the main topic. I commented on my Humana plan and how great and low cost it was. I believe someone in the industry said to watch for plans being discontinued. I just receive notice that my plan was not being renewed. Guess I need to look into other options now. My wife has United health care plan with zero premium . Not sure right now what other benefits and limits it has, but will check into that soon. Located in SC.

 

[SFBayDuck]

@SFBayDuck have we talked about Stephen Cassaday in here and his research that leads him to recommend 80-20 portfolio to most of his clients going into retirement? I saw his name and research referenced in another book I was reading and I can't really find it. I did find the following study (haven't read it all yet) that makes reference to Cassaday many times. The Executive Summary settles on a 60-40.

https://www.financialplanningassociation.org/sites/default/files/2021-07/x%20%20Blanchett%20-%20Dynamic%20Allocation%20Strategies%20for%20Distribution%20Portfolios.pdf

My portfolio is 75-25 and with cash that I don't really count (though I should) I'm probably closer to 70-30 heading into retirement. I think I will be able to stomach greater swings that most people and I want to take advantage of higher returns.

I don't think so, thanks for sharing! I just read the exec summary, but look forward to reading the whole study later.

This part jumped out at me:

The absolute differences in the probability of failure among glide paths for shorter distribution periods and lower real withdrawal rates (less aggressive scenarios) were minor. The absolute differences for longer distribution periods and higher real withdrawal rates (more aggressive scenarios) were considerable.

Well, yeah! If you don't spend any money then it doesn't matter what you do. If you want to be aggressive with your withdrawal rate, then portfolio construction becomes much more important.
Go to firecalc and change the portfolio assumptions. $1M with an aggressive 6% wr with spending $60K per year, 30 year timeframe:

• With their standard "Total Market" 75/25 - 54% success rate.
• Tweak it to 40% S&P, 35% SCV, and 25% treasuries (so still 75/25) - 69% success rate

I'm not saying that's even optimized, just a quick example.


I was listening to Kitces' podcast today with an RIA talking about using a 70% bonds/30% stocks portfolio for most of his clients, and essentially not selling equities and relying primarily on the bond income for retirement spending. Kitces kept asking him how it works, and about 25 minutes in he casually mentions most of his clients have withdrawal rates at 2% or below. Kind of important information to know! I'd stop listening (only half way through), but they're going to talk about closed end bond funds being used to generate higher yields, and I'd like to learn more about that.

 

[matttyl]

A couple of weeks ago in this thread, insurance was the main topic. I commented on my Humana plan and how great and low cost it was. I believe someone in the industry said to watch for plans being discontinued. I just receive notice that my plan was not being renewed. Guess I need to look into other options now. My wife has United health care plan with zero premium . Not sure right now what other benefits and limits it has, but will check into that soon. Located in SC.

Yes, that was me. Sorry you received that notice, just another reason why I don’t sell Medicare advantage plans. Once retired, I’d prefer the “set it and forget it” mentality. Let me know if you have any specific questions.

 

[Peggy]

@SFBayDuck have we talked about Stephen Cassaday in here and his research that leads him to recommend 80-20 portfolio to most of his clients going into retirement? I saw his name and research referenced in another book I was reading and I can't really find it. I did find the following study (haven't read it all yet) that makes reference to Cassaday many times. The Executive Summary settles on a 60-40.

https://www.financialplanningassociation.org/sites/default/files/2021-07/x%20%20Blanchett%20-%20Dynamic%20Allocation%20Strategies%20for%20Distribution%20Portfolios.pdf

My portfolio is 75-25 and with cash that I don't really count (though I should) I'm probably closer to 70-30 heading into retirement. I think I will be able to stomach greater swings that most people and I want to take advantage of higher returns.

I don't think so, thanks for sharing! I just read the exec summary, but look forward to reading the whole study later.

This part jumped out at me:

The absolute differences in the probability of failure among glide paths for shorter distribution periods and lower real withdrawal rates (less aggressive scenarios) were minor. The absolute differences for longer distribution periods and higher real withdrawal rates (more aggressive scenarios) were considerable.

Well, yeah! If you don't spend any money then it doesn't matter what you do. If you want to be aggressive with your withdrawal rate, then portfolio construction becomes much more important.
Go to firecalc and change the portfolio assumptions. $1M with an aggressive 6% wr with spending $60K per year, 30 year timeframe:

• With their standard "Total Market" 75/25 - 54% success rate.
• Tweak it to 40% S&P, 35% SCV, and 25% treasuries (so still 75/25) - 69% success rate

I'm not saying that's even optimized, just a quick example.


I was listening to Kitces' podcast today with an RIA talking about using a 70% bonds/30% stocks portfolio for most of his clients, and essentially not selling equities and relying primarily on the bond income for retirement spending. Kitces kept asking him how it works, and about 25 minutes in he casually mentions most of his clients have withdrawal rates at 2% or below. Kind of important information to know! I'd stop listening (only half way through), but they're going to talk about closed end bond funds being used to generate higher yields, and I'd like to learn more about that.

I'll have to go get the exact quote I read last night, but, it was saying that Cassaday did some historical research shows being more aggressive rewrites the 25x rule to 20x. It suggested to move away from your age in bond and used a different rule, 120 minus something. All that feels right to me and I figured I could find it by just remembering the odd spelling of Cassaday, but, I was having trouble finding it. But then I found this that might be it:

https://cassaday.com/wp-content/uploads/2020/06/Journal-of-Financial-Planning.pdf

That's the first I've ever heard of the Diesel system though.

The DIESEL system is based on historical evidence thatproperly diversified portfolios containing an optimum mixof asset classes and subclasses have generated anaverage total return greater than a bond or mostly bondportfolio and have done so with acceptable volatility

 

[Peggy]

Here he clearly wants to dispel the 4% rule.

THE DIESEL®-POWERED PORTFOLIO - Cassaday & Company, Inc

An Alternative to Conventional Wisdom on Retirement Withdrawal

cassaday.com

I haven't read all these, just skimmed and bookmarked for later so sorry if they aren't useful.

 

[tri-man 47]

Got my wife's quarterly statement on her retirement account a couple days ago, and dropped that number into my tracking spreadsheet along with my retirement pot (my university-related TIAA investment pool). I happened to take a step-back look at the current numbers compared to year-end 2023 (and year-end 2022). Wow!!! I'm continuing to enjoy this final round of compounding. In a year like this one, I'm "making" much, much more on the retirement funds than I do on my university salary. And this with a fair amount of liquidity in my fund (30% in money market funds). Crazy.

 

[Sand]

they're going to talk about closed end bond funds being used to generate higher yields, and I'd like to learn more about that.

Definitely report back on that, if you could.

On the allocation, I keep aiming for 70/30, but equity performance keeps pushing me off of that. I keep dumping new funds into bonds, but it just isn't enough. (Yeah, I know, whine whine whine!).

 

[SFBayDuck]

they're going to talk about closed end bond funds being used to generate higher yields, and I'd like to learn more about that.

Definitely report back on that, if you could.

On the allocation, I keep aiming for 70/30, but equity performance keeps pushing me off of that. I keep dumping new funds into bonds, but it just isn't enough. (Yeah, I know, whine whine whine!).

Will do. I actually paid like $50 for an online course on Closed End Fund investing a year or so ago, from David Stein who does the Money for the Rest of Us podcast. Basically walked through how he uses the free Fund Screener at CEFConnect to look for funds trading at unusually high discounts to NAV, as well as ways to evaluate the stability of the payouts. I've played around with it a little, bought and sold a couple of CEFs, but haven't spend too much time on it. But the high distribution rates of many of them certainly caught my attention.

 

[Nugget]

they're going to talk about closed end bond funds being used to generate higher yields, and I'd like to learn more about that.

Definitely report back on that, if you could.

On the allocation, I keep aiming for 70/30, but equity performance keeps pushing me off of that. I keep dumping new funds into bonds, but it just isn't enough. (Yeah, I know, whine whine whine!).

Good problem to have!

I think 70/30 is where I want to end up. Target is 60/40 in 401K that I let drift - will likely rebalance annually. Roth is 100% US equities, brokerage, MMF, and Ibonds get me around 75/25.

 

[Peggy]

@SFBayDuck have we talked about Stephen Cassaday in here and his research that leads him to recommend 80-20 portfolio to most of his clients going into retirement? I saw his name and research referenced in another book I was reading and I can't really find it. I did find the following study (haven't read it all yet) that makes reference to Cassaday many times. The Executive Summary settles on a 60-40.

https://www.financialplanningassociation.org/sites/default/files/2021-07/x%20%20Blanchett%20-%20Dynamic%20Allocation%20Strategies%20for%20Distribution%20Portfolios.pdf

My portfolio is 75-25 and with cash that I don't really count (though I should) I'm probably closer to 70-30 heading into retirement. I think I will be able to stomach greater swings that most people and I want to take advantage of higher returns.

Boy that was a lot of fancy colored graphs to say 100 equity portfolio will perform the best, but, it's too risky so better to stay with 60-40 for most investors. Lol. And they end up calling out Cassaday for suggesting a withdrawal rate of 7%.

All in all my take away, or my self fulfilling prophecy, is that 60-40 is about as conservative as you'd ever want to get. 70-30 seems about right and then at age 65-70 after the portfolio has grown, hopefully, turn the boosters back on to 80-20 or better. Like we've discussed a lot of the rules of thumb are conservative, for your average investor that might not be able to stomach a downturn in the market. Too bad people like Cassaday turn that fact into a sales pitch for things like Diesel, but then again, some people need money managers.

 

[-OZ-]

It's only one day so I know it's really just noise, but still interesting to see how my portfolio is acting today. NASDAQ is currently down 0.9%, S&P down 0.5%. And I'm up slightly on the day. And I'm 90% in ETFs so it's not some individual stock doing well, in fact NVDA is a top 3 holding of the individual stocks I do have and it's getting hammered. It's the diversification I've added over the past 6-12 months.

Long term treasuries - up
Gold - up
Small Cap Value - up
REITS - up
Casualty and Property insurance - up

just looked, today made me more than I earn in a month.

Got my wife's quarterly statement on her retirement account a couple days ago, and dropped that number into my tracking spreadsheet along with my retirement pot (my university-related TIAA investment pool). I happened to take a step-back look at the current numbers compared to year-end 2023 (and year-end 2022). Wow!!! I'm continuing to enjoy this final round of compounding. In a year like this one, I'm "making" much, much more on the retirement funds than I do on my university salary. And this with a fair amount of liquidity in my fund (30% in money market funds). Crazy.

YTD, more than my total income. this includes basically 0% savings rate this year (paid cash for the SUV along with some house projects).

 

[jamny]

I went to a dermatologist for the first time and under occupation, I put retired.
It's not official yet but felt good to write it.

 

[belljr]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

 

[Instinctive]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

I see how rules of thumb like that have their places, but it's less about income replacement and more about spending replacement. Like we make ~650k this year...no way in hell I'd need 70% of that per year in retirement.

My budgets have $100k a year for comfortable and $150k a year for fancy retirement.

 

[jamny]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

A very basic calculation would be to calculate your annual expenses and multiply that by 25. That's the savings/investment number you should be in the range of to retire.
Very simplistic but a good starting point.

 

[NutterButter]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

"live off of" as in just pay the bills and basic expenses? that seems really high for that. I think its just easier to add up your known expenses, give yourself a play budget depending on your desires and then a little cushion on top of that.

 

[-OZ-]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

"live off of" as in just pay the bills and basic expenses? that seems really high for that. I think its just easier to add up your known expenses, give yourself a play budget depending on your desires and then a little cushion on top of that.

2%-3% from investments for “basic living”, 2% flexible for extras seems reasonable to me.

 

[Peggy]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

As everyone else says it's your spend, not income. There are several ways to do it:
1 - What I do is track every dollar, the old fashion way, keep every receipt and log it in a spreadsheet. I've been doing this for many years so I know my spend. If you're fancy there are apps that will do it for you.
2 - There are only two buckets Save or Spend. Save is savings account, 401k, roth, money market whatever. Everything else is spend if you do not save it. So you can figure your spend by taking your income minus your save too.

 

[Instinctive]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

As everyone else says it's your spend, not income. There are several ways to do it:
1 - What I do is track every dollar, the old fashion way, keep every receipt and log it in a spreadsheet. I've been doing this for many years so I know my spend. If you're fancy there are apps that will do it for you.
2 - There are only two buckets Save or Spend. Save is savings account, 401k, roth, money market whatever. Everything else is spend if you do not save it. So you can figure your spend by taking your income minus your save too.

I do kind of a mix.

NFCU and Chase both auto categorize things and you can download. I have to do some tweaks (like golf isn't a category so I reclassify a bunch of "Health and Wellness" to "Golf").

So I can get a granular view.

But on my main tab, it's just a sum total of every NFCU expense (because the Chase bill is paid out of that) and I do a savings rate of total income minus total expenses each year.

 

[SFBayDuck]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

As others have said, it's better to focus on expenses than current income. Around 60-70% of my current "expenses" are made up of retirement account savings, non-retirement saving/investment, college costs, and taxes. Other than (some) taxes, all that will be gone when I retire. And I don't even have work transportation, work clothing, lunches out as I work from home, for some people that'd make up another sizable percentage of income. Having no mortgage can have a huge impact. Take all of that into consideration, and it could be reasonable that someone might only need like 25%-30% of their working income in retirement. I think this is where a lot of the "I'll never be able to retire" sentiment comes from for some people, they're anchoring on 25x their current income and not what they'll actually need.

 

[-OZ-]

it could be reasonable that someone might only need like 25%-30% of their working income in retirement.

This seems crazy to me but I guess some can do that if their mortgage is paid, kids are launched, etc.
We’ll get there when we’re like 90.

 

[Peggy]

It's only one day so I know it's really just noise, but still interesting to see how my portfolio is acting today. NASDAQ is currently down 0.9%, S&P down 0.5%. And I'm up slightly on the day. And I'm 90% in ETFs so it's not some individual stock doing well, in fact NVDA is a top 3 holding of the individual stocks I do have and it's getting hammered. It's the diversification I've added over the past 6-12 months.

Long term treasuries - up
Gold - up
Small Cap Value - up
REITS - up
Casualty and Property insurance - up

just looked, today made me more than I earn in a month.

Got my wife's quarterly statement on her retirement account a couple days ago, and dropped that number into my tracking spreadsheet along with my retirement pot (my university-related TIAA investment pool). I happened to take a step-back look at the current numbers compared to year-end 2023 (and year-end 2022). Wow!!! I'm continuing to enjoy this final round of compounding. In a year like this one, I'm "making" much, much more on the retirement funds than I do on my university salary. And this with a fair amount of liquidity in my fund (30% in money market funds). Crazy.

YTD, more than my total income. this includes basically 0% savings rate this year (paid cash for the SUV along with some house projects).

Good segue into the asset allocation discussion. You'll lose about that much too if and when we have a true correction. Imagine just going into retirement, could you stomach it and ride it out to the next high?

 

[Peggy]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

As everyone else says it's your spend, not income. There are several ways to do it:
1 - What I do is track every dollar, the old fashion way, keep every receipt and log it in a spreadsheet. I've been doing this for many years so I know my spend. If you're fancy there are apps that will do it for you.
2 - There are only two buckets Save or Spend. Save is savings account, 401k, roth, money market whatever. Everything else is spend if you do not save it. So you can figure your spend by taking your income minus your save too.

I do kind of a mix.

NFCU and Chase both auto categorize things and you can download. I have to do some tweaks (like golf isn't a category so I reclassify a bunch of "Health and Wellness" to "Golf").

So I can get a granular view.

But on my main tab, it's just a sum total of every NFCU expense (because the Chase bill is paid out of that) and I do a savings rate of total income minus total expenses each year.

I think I shared this before, but, I'm old so I get to tell stories over and over. I found a spreadsheet called PearBudget. I like it because it breaks it down into Regular Expense, Irregular Expenses and Variable Expenses and sort of helps you plan a budget. I adjust the budget each year based on last year's spend, or life changes. The following is what I came up with

Regular (that are known and shouldn't change much): Garbage Bill, Water Bill, Internet, Power, Phone bill, Car Insurance, Property Tax, Home Insurance
Irregular (ones that you have less control over): Medical, Emergency, Home Repairs, Auto, Hobby, Vacation
Variable (day to day): Gas, Grocery, Amazon, Clothing, Entertainment, Dining Out, Home Depot, Dogs

 

[Peggy]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

As others have said, it's better to focus on expenses than current income. Around 60-70% of my current "expenses" are made up of retirement account savings, non-retirement saving/investment, college costs, and taxes. Other than (some) taxes, all that will be gone when I retire. And I don't even have work transportation, work clothing, lunches out as I work from home, for some people that'd make up another sizable percentage of income. Having no mortgage can have a huge impact. Take all of that into consideration, and it could be reasonable that someone might only need like 25%-30% of their working income in retirement. I think this is where a lot of the "I'll never be able to retire" sentiment comes from for some people, they're anchoring on 25x their current income and not what they'll actually need.

I don't count savings as spend. I take it out right off the top because like you said it's gone when you retire and don't have any income anyway.

Mortgage can be a big one. One that you'll have to add is health insurance if you retire early. I hope to offset that one with property tax and cost of living by relocating. It will take a couple years to shake out though. I think we talked health insurance a few pages back, but, that's one that scares people from retiring early. It's not as scary if you figure out the costs and factor it into your spend ahead of time and/or offset it like I did.

 

[belljr]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

As others have said, it's better to focus on expenses than current income. Around 60-70% of my current "expenses" are made up of retirement account savings, non-retirement saving/investment, college costs, and taxes. Other than (some) taxes, all that will be gone when I retire. And I don't even have work transportation, work clothing, lunches out as I work from home, for some people that'd make up another sizable percentage of income. Having no mortgage can have a huge impact. Take all of that into consideration, and it could be reasonable that someone might only need like 25%-30% of their working income in retirement. I think this is where a lot of the "I'll never be able to retire" sentiment comes from for some people, they're anchoring on 25x their current income and not what they'll actually need.

I don't count savings as spend. I take it out right off the top because like you said it's gone when you retire and don't have any income anyway.

Mortgage can be a big one. One that you'll have to add is health insurance if you retire early. I hope to offset that one with property tax and cost of living by relocating. It will take a couple years to shake out though. I think we talked health insurance a few pages back, but, that's one that scares people from retiring early. It's not as scary if you figure out the costs and factor it into your spend ahead of time and/or offset it like I did.

Not 100% sure what I pay but my federal health insurance I can take into retirement Plus a smallish pension will help

 

[-OZ-]

It's only one day so I know it's really just noise, but still interesting to see how my portfolio is acting today. NASDAQ is currently down 0.9%, S&P down 0.5%. And I'm up slightly on the day. And I'm 90% in ETFs so it's not some individual stock doing well, in fact NVDA is a top 3 holding of the individual stocks I do have and it's getting hammered. It's the diversification I've added over the past 6-12 months.

Long term treasuries - up
Gold - up
Small Cap Value - up
REITS - up
Casualty and Property insurance - up

just looked, today made me more than I earn in a month.

Got my wife's quarterly statement on her retirement account a couple days ago, and dropped that number into my tracking spreadsheet along with my retirement pot (my university-related TIAA investment pool). I happened to take a step-back look at the current numbers compared to year-end 2023 (and year-end 2022). Wow!!! I'm continuing to enjoy this final round of compounding. In a year like this one, I'm "making" much, much more on the retirement funds than I do on my university salary. And this with a fair amount of liquidity in my fund (30% in money market funds). Crazy.

YTD, more than my total income. this includes basically 0% savings rate this year (paid cash for the SUV along with some house projects).

Good segue into the asset allocation discussion. You'll lose about that much too if and when we have a true correction. Imagine just going into retirement, could you stomach it and ride it out to the next high?

Yes. I’m a decade away anyway. I’ll get 25% bonds and the combination of federal civilian, military (with health insurance) and VA will help us ride any down market.

 

[bcat01]

I know this varies greatly is 70% still the "number" you should be able to live off of.

Lets say a married couple gross income combined is 250K.

How much would they likely need to retire at say 65?

No mortgage (maybe a small balance left)

As everyone else says it's your spend, not income. There are several ways to do it:
1 - What I do is track every dollar, the old fashion way, keep every receipt and log it in a spreadsheet. I've been doing this for many years so I know my spend. If you're fancy there are apps that will do it for you.
2 - There are only two buckets Save or Spend. Save is savings account, 401k, roth, money market whatever. Everything else is spend if you do not save it. So you can figure your spend by taking your income minus your save too.

#2 works for me. Then if there are expenses you have now and will not have in retirement (mortgage...) you can take those out of expenses in retirement. You can also add in expenses expected in retirement (travel, healthcare...).