Retirement Targets

[BCClone]

Sure there is, but are you the one averaging 10% return per year over a 30 year period? Statistics are great, but in this discussion, they are basically worthless, because it's an average, meaning that some stocks like Apple grew while others didn't.
Now if you know which stocks are going to return 10% per year over the next 30 years than you should be investing not only your money but other peoples as well.

Your 20-to-30-year average also shows nothing, because most people, unless they purchased an Apple or Microsoft are not going to hold a stock over that long of a time period. People made fortunes owning Enron stock also, until the company went bankrupt. It’s all about getting in and holding on till the best time to sell, which unless you are a Warren Buffet type, most of us do not have that type of knowledge.

I’ve been talking mutual funds and index funds. They hold hundreds of stocks. Not 2-3. If you look at any growth mutual funds from 2000 on, which includes 9/11, the tech crash and so on, nearly all show 8% plus returns.

I looked at IPERS and they project average annual returns of 7%. So why is it so crazy for them to get 7 and mutual funds to get 8%.

One thing I didn’t know is that IPERS does not have a COLA.

 

[BCClone]

Not sure what you are arguing or upset about. Sounds like you think the IPERS should provide a much higher guaranteed benefit based on market returns and the contributions participants you
or your spouse put in.

I don’t have a dog in this race, but have experience on the subject, Having said this, the expectation that a defined benefit plan provide an return a market rate of return is unrealistic. Over the past 50 years, the market has returned 10 percent on average. However, very few people, myself included, have earned such a return. Plus, the IPRPS have a fiduciary responsibility to its participants. Therefore, rather than investing 100 percent in equities, they also invest in fixed income, real estate, and cash-like investments. Consequently, an 5-6 percent return in more realistic.

If you want a market rate of return without guaranteed income for life, the stock market can provide this, but not a defined benefit plan to my knowledge. They are just different animals.

I’m not upset. I just think IPERS provides a poor return. Their own webpage said they project 7% annual rate of returns for the fund. So why is 8% (which most of my funds have done, their combined average is over that) is considered fantasy numbers? It doesn’t have a COLA either. So if you live to 80, that payment is now about 45% dollars wise after a 3% inflation.

 

[SEIOWA CLONE]

I’ve been talking mutual funds and index funds. They hold hundreds of stocks. Not 2-3. If you look at any growth mutual funds from 2000 on, which includes 9/11, the tech crash and so on, nearly all show 8% plus returns.

I looked at IPERS and they project average annual returns of 7%. So why is it so crazy for them to get 7 and mutual funds to get 8%.

One thing I didn’t know is that IPERS does not have a COLA.

So now we are down to an 8% return, what happened to the 10% return you were talking about before? Oh, that is an average of the entire market, which few people will ever achieve over a 30-year time period.

You said that in the fine print a teacher could opt out of IPERS when they are first employed, according to their own list of opt outs, public school educators are not on the list. Mostly people at community colleges and elected officials, in fact I know a former coach that worked at IHCC for 25 years, asking him about his retirement, and he should be fine, and he said "No, that they talked him into placing his money in another retirement vehicle, and now it was basically worthless." His words, not mine.

I get you hate IPERS, but for 100's of thousands of Iowans it's a great program, I am glad to be part of it, and I have never spoken to anyone that wished they were in another program when they hit retirement age. We can also collect SS, which some states like Missouri and Illinois does not allow, they chose to opt out when the programs were started in the 30's.

 

[clonechemist]

It gets drawn down since many people decide to stick a bunch in a money market or savings that pays like 1%. They have a plan that does well for them, then as soon as they retire to go into ultra conservative mode and run away from the plan that got them there. Maybe change from aggressive growth to a growth and income that will pay you most of what you want in dividends and let’s the capital ride.

The original research by Bengen that inspired the ‘4% rule’ assumed that the portfolio remained 50% bonds and 50% large cap stocks. And even that portfolio frequently had significant draw down over 30 years, depending on timing.

The idea that anyone can leave their whole 401k in index funds and *safely assume* that they can withdraw 4% forever until they die is bollocks.

Will it work in some cases? Yes. Will it leave people destitute in other cases? Yes.

 

[clonechemist]

I guess I know a lot of no ones.

Average S&P return over the last 30 years is just shy of 10%.

Is that 10% average return inflation adjusted?

No, it’s not.

Historical inflation-adjusted growth in US stock market is about 6.6% annually.

 

[Jayshellberg]

I’m not upset. I just think IPERS provides a poor return. Their own webpage said they project 7% annual rate of returns for the fund. So why is 8% (which most of my funds have done, their combined average is over that) is considered fantasy numbers? It doesn’t have a COLA either. So if you live to 80, that payment is now about 45% dollars wise after a 3% inflation.

I understand your frustration, I just think it’s misplaced, in my opinion. No defined benefit plan that I am aware of can earn 8 percent on average over the long-term. That is because such plans are guaranteeing it’s participants income for life once they start taking withdrawals, even without a Cola. Hence, the plan administrators must take a more cautious view when making investments decisions because the payments are on them, not the participants.

On the other hand, I think an 8 percent average return over a 30-year time frame is realistic on a 401k or 403b because the participants can place a much higher percentage of their investments in equities. In other words, the participants are assuming the risk, not the plan administers.

I always viewed mu defined benefit plan or pension as a positive as was not caught up on the rate of return. The plan allowed me to take risk in other area, such as my 401k, that I wouldn’t have been able to do without a defined benefit plan.

 

[Jayshellberg]

The original research by Bengen that inspired the ‘4% rule’ assumed that the portfolio remained 50% bonds and 50% large cap stocks. And even that portfolio frequently had significant draw down over 30 years, depending on timing.

The idea that anyone can leave their whole 401k in index funds and *safely assume* that they can withdraw 4% forever until they die is bollocks.

Will it work in some cases? Yes. Will it leave people destitute in other cases? Yes.

The phenomenon is referred to the sequence of returns. People can depend on market return averages when they are contributing. However, when you are withdrawing funds, market return averages don’t apply so much. Rather, it comes down to what your returns are in the first few years on withdrawing funds.

 

[FallOf81]

Just save 10% of your income starting off your career. Can be a balanced portfolio and not chasing sectors that did great the prior year. Always pay yourself first. Live below your means on the work journey. That's not an insult. Reap the rewards once you retire. Don't get into your 50s expecting the stock market to make up for your lack of saving in your 20s, 30s, 40s when you should have been saving. And sure as hell don't be dependent on the stock market to see you through to the grave.

 

[Jayshellberg]

When your wife gets her next statement, it will show the total amount that she will get as a lump sum. How much she gets per month would be determined by her highest 5-year average, have at least 30 years in and the plan she decides to take. There are 7 plans to choose from, plan 1 gets the highest amount per month, but you leave nothing to your spouse, we chose plan 6. By choosing that plan, we will receive less per month than plan one, but our amount is locked in for the two of us. If either one of us passes, the other spouse will continue to receive the same amount until they also pass away. For us, I was more worried about leaving my wife with less income if I should die, then the extra $500 a month I would be getting if I had taken plan 1. Under plan 6 if either passes the remaining spouse will continue to receive what we will get starting in June of this year.

I applaud you for your choice. Females live approximately eight years longer than males on average. Many times I see people gravitating towards the highest payment and/or as soon as they can get paid. This is short-sided, IMO. The following is an example.

My father-in-law started talking SS as soon as he was eligible at 62. He really didn’t need the money. Rather, he was just concerned about getting the money out he put into the system. His wife did not work outside the home. When she turned 62, she claimed SS based off his work record, which resulted in her receiving 50% of what he was receiving.

My father-in-law passed away at 78, which is close to the break even point. However, his wife now receives his SS amount, which is much lower than what he would have received if he had waited until the full retirement age of 67. His wife is now 82 and will likely live another 10-15 years given her family history.

The bottom line is you should consider your spouses needs as well as you own needs when making pension and SS decisions.

 

[qwerty]

The bottom line is you should consider your spouses needs as well as you own needs when making pension and SS decisions.

This is exactly right (Jay and I think alike on most of this). I have countless spreadsheets showing variants of SS at different ages, different investment rates, etc. and was always planning on starting at 62 as a typical
"true" breakeven is mid to late 80s or even into your 90s, and I doubt I live that long. Most breakeven point calculations don't take into count you spending your other retirement funds, etc., only SS at one age vs a second age (meaning they assume you keep working between the early age and later age).

After serious consideration, I am pushing my SS back to 67 so my wife will have decent spouse and survivor benefits after I am gone. Bonus is, I will be drawing down 401k funds to reduce my RMDs after age 75.

 

[yowza]

I guess I know a lot of no ones.

Average S&P return over the last 30 years is just shy of 10%.

They always focus on the bad years.

 

[yowza]

Sure there is, but are you the one averaging 10% return per year over a 30 year period? Statistics are great, but in this discussion, they are basically worthless, because it's an average, meaning that some stocks like Apple grew while others didn't.
Now if you know which stocks are going to return 10% per year over the next 30 years than you should be investing not only your money but other peoples as well.

Your 20-to-30-year average also shows nothing, because most people, unless they purchased an Apple or Microsoft are not going to hold a stock over that long of a time period. People made fortunes owning Enron stock also, until the company went bankrupt. Its all about getting in and holding on till the best time to sell, which unless you are a Warren Buffet type, most of us do not have that type of knowledge.

It's called diversification. No one should ever hold just one stock. That's why you go with an index and its verifiable as to index returns over long periods.

 

[KnappShack]

It's called diversification. No one should ever hold just one stock. That's why you go with an index and its verifiable as to index returns over long periods.

Warren Buffett

"You know, we think diversification is—as practiced generally—makes very little sense for anyone that knows what they’re doing...it is a protection against ignorance."

I'm not sure if that's an argument for or against diversification

 

[yowza]

Warren Buffett

"You know, we think diversification is—as practiced generally—makes very little sense for anyone that knows what they’re doing...it is a protection against ignorance."

I'm not sure if that's an argument for or against diversification

For it. If one is not an "expert" in such matters, then S&P 500 index or like index. It's verifiable what it has returned over the decades and yes, it has some bad years in there and I am sure the 1970s were not good, but 3o to 40 year term on average is not negative. It's pretty well known, most fund managers don't beat the market index return, which again says just invest in the index. Some fund managers do beat it and some individuals do as well.

I saw the Enron comment in there and if someone is dumb enough to invest everything in one stock then they deserve what comes to them.

 

[KnappShack]

For it. If one is not an "expert" in such matters, then S&P 500 index or like index. It's verifiable what it has returned over the decades and yes, it has some bad years in there and I am sure the 1970s were not good, but 3o to 40 year term on average is not negative. It's pretty well known, most fund managers don't beat the market index return, which again says just invest in the index. Some fund managers do beat it and some individuals do as well.

I saw the Enron comment in there and if someone is dumb enough to invest everything in one stock then they deserve what comes to them.

Dumb or greedy?

 

[yowza]

Dumb or greedy?

Either or both for sure! But hey, I am sure there are a rare handful of individuals that works out for. Like lottery winners.

I posted S&P 500 returns by year in my next post.

 

[yowza]

 

[Bestaluckcy]

When people work for a company they sometimes like to invest in their company’s stock. I have seen it with John Deere workers and Monsanto workers I have known. Sometimes the company offers their stock to their employees at discount. When I was younger I bought into the recommendation not to take the added risk of owning a lot of ones company stock. In hindsight I should have bought a truck load, but I didn’t buy Apple or Microsoft or Amazon or..... Needless to say indexers can live comfortably but may not rival Gates or Buffett.

 

[SEIOWA CLONE]

For it. If one is not an "expert" in such matters, then S&P 500 index or like index. It's verifiable what it has returned over the decades and yes, it has some bad years in there and I am sure the 1970s were not good, but 3o to 40 year term on average is not negative. It's pretty well known, most fund managers don't beat the market index return, which again says just invest in the index. Some fund managers do beat it and some individuals do as well.

I saw the Enron comment in there and if someone is dumb enough to invest everything in one stock then they deserve what comes to them.

A lot of the people that were investing heavily in Enron worked there, their retirement accounts were with the company. Enron is an example for any investor, ride the wave, but always be prepared to jump out. You are looking for long term gains, not get rich quick schemes.

 

[CycloneSpinning]

When people work for a company they sometimes like to invest in their company’s stock. I have seen it with John Deere workers and Monsanto workers I have known. Sometimes the company offers their stock to their employees at discount. When I was younger I bought into the recommendation not to take the added risk of owning a lot of ones company stock. In hindsight I should have bought a truck load, but I didn’t buy Apple or Microsoft or Amazon or..... Needless to say indexers can live comfortably but may not rival Gates or Buffett.

But honestly if someone came up to me and offered me Gates or Buffett type money…or $4 million. I’d take $4 million every time. That’s too much money…too many headaches. I don’t want it. I think $10 million is about ideal, but I’d rather have 4 mil than billions.