Retirement Targets

[CycloneSpinning]

Lots of discussion about the proper retirement mix between equities and fixed income. Unfortunately, there is no clear cut answer. There are so many factors involved such as your tolerance for risk, withdrawal rate in retirement, amount saved, and your reaction when the inevitable correction occurs.

I have been retired since 2021 and still have 95 percent in equities. Most financial advisors say that I’m nuts. However, my withdrawal rate is only about one percent because I am blessed with a pension. If my withdrawal rate was closer to the norm of four percent instead of one percent, I wouldn’t have such an aggressive allocation. Rather, I would have approximately 5-7 years of annual living expenses in cash and fixed income. Therefore, when a market correction occurs, I wouldn’t have to liquidate stocks to live on.

Sequence of returns risk is a big deal when you’re selling investments, but not when you’re accumulating them. If you are withdrawing four percent right after you retire and a correction occurs, it will have a profound impact on your portfolio. That’s why I have always felt that the risk of a market correction is much greater right after you retire than shortly before you retire. If a correction occurs shortly before you’re planning to retire, you can always work an extra couple years.

This seems to be a pretty good take. I think you rightly identify the sequence of returns risk (and when the issue is greatest). I was of a similar mindset regarding being very heavy equities until recently. I still plan to be heavier in equities than what was traditionally recommended, but after I got through the excitement of maybe I’ll call it my mass accumulation phase…I realized that I both don’t want way more than I need and don’t want my kids to have way more than they need either. I also see no reason to retire earlier than 55.

Believing then that I would rather spend thousands with my kids now rather than give them millions when I die, I’m actually more into planning for milestones when I can take money out of the market rather than trying to pile up money by leaving it in….and I’ve slightly cut back on the retirement savings. We’re no longer close to maxing out 401ks…just contributing at the match level. We still max out our Roth IRAs, but that’s mostly because we can get the contributions out whenever we want (and don’t need that money now anyway). I also max out or HSAs, but I’m going to slowly filter some money out of those (rather than just leave them to fully build to retirement). Basically I don’t plan to let expenses go without reimbursement for probably more than 5-8 years (haven’t fully settled on a date yet).

With that in mind, growing money at a 6-8% return with less downside risk is probably going to provide me with more joy than reaching for 8-10%

 

[Bader]

Lots of discussion about the proper retirement mix between equities and fixed income. Unfortunately, there is no clear cut answer. There are so many factors involved such as your tolerance for risk, withdrawal rate in retirement, amount saved, and your reaction when the inevitable correction occurs.

I have been retired since 2021 and still have 95 percent in equities. Most financial advisors say that I’m nuts. However, my withdrawal rate is only about one percent because I am blessed with a pension. If my withdrawal rate was closer to the norm of four percent instead of one percent, I wouldn’t have such an aggressive allocation. Rather, I would have approximately 5-7 years of annual living expenses in cash and fixed income. Therefore, when a market correction occurs, I wouldn’t have to liquidate stocks to live on.

Sequence of returns risk is a big deal when you’re selling investments, but not when you’re accumulating them. If you are withdrawing four percent right after you retire and a correction occurs, it will have a profound impact on your portfolio. That’s why I have always felt that the risk of a market correction is much greater right after you retire than shortly before you retire. If a correction occurs shortly before you’re planning to retire, you can always work an extra couple years.

You have a significant pension and had a 10% 401k match? :try-not-to-cry.gif:

My Dad started working at Deere in '80 so was able to receive both a full pension and 401k matching after Deere stopped doing pensions among the professional staff.

 

[Jayshellberg]

You have a significant pension and had a 10% 401k match? :try-not-to-cry.gif:

My Dad started working at Deere in '80 so was able to receive both a full pension and 401k matching after Deere stopped doing pensions among the professional staff.

Yes, I was very fortunate to have both. However, I wouldn’t characterize my pension as significant. Replaces about 45 percent of my pre-retirement net income, but drops to 35 percent in three years when I turn 62 when I can draw SS. Don’t intend to draw SS at this time, but my pension still drops.

 

[Jayshellberg]

This seems to be a pretty good take. I think you rightly identify the sequence of returns risk (and when the issue is greatest). I was of a similar mindset regarding being very heavy equities until recently. I still plan to be heavier in equities than what was traditionally recommended, but after I got through the excitement of maybe I’ll call it my mass accumulation phase…I realized that I both don’t want way more than I need and don’t want my kids to have way more than they need either. I also see no reason to retire earlier than 55.

Believing then that I would rather spend thousands with my kids now rather than give them millions when I die, I’m actually more into planning for milestones when I can take money out of the market rather than trying to pile up money by leaving it in….and I’ve slightly cut back on the retirement savings. We’re no longer close to maxing out 401ks…just contributing at the match level. We still max out our Roth IRAs, but that’s mostly because we can get the contributions out whenever we want (and don’t need that money now anyway). I also max out or HSAs, but I’m going to slowly filter some money out of those (rather than just leave them to fully build to retirement). Basically I don’t plan to let expensed go without reimbursement for probably more than 5-8 years (haven’t fully settled on a date yet).

With that in mind, growing money at a 6-8% return with less downside risk is probably going to provide me with more joy than reaching for 8-10%

You plan is solid. Further, I don’t blame you one bit for scaling back your equity percentage. You’ve done a great job at accumulating assets for retirement. One of mistakes that I made, among others, was not going in 100 percent equities from the beginning. Luckily, I corrected the error after five years. However, if you’re near retirement or new retired, a limiting your equity percentage to 70-80 percent is prudent for most people. I also agree with spending money on your loved ones while you’re alive. Hard to get any satisfaction out of them enjoying it when your six feet under.

 

[CycloneSpinning]

You plan is solid. Further, I don’t blame you one bit for scaling back your equity percentage. You’ve done a great job at accumulating assets for retirement. One of mistakes that I made, among others, was not going in 100 percent equities from the beginning. Luckily, I corrected the error after five years. However, if you’re near retirement or new retired, a limiting your equity percentage to 70-80 percent is prudent for most people. I also agree with spending money on your loved ones while you’re alive. Hard to get any satisfaction out of them enjoying it when your six feet under.

It will probably comes as no surprise to anyone interested in this thread that this has not been an easy decision for me. I’m much more comfortable saving than I am spending. Even recently having sold some equities, it pains me when the market has gone up after. But I hit a market and paid myself. I’ve also made a couple decisions of late to not optimize as much as I would have in the past. That’s somewhat of a pay myself play as well. Optimization takes a lot more time and brainpower.

I’ll no doubt continue to work my way through some of my plans. I don’t know that I can say I would recommend others follow my lead, but I’m glad I’m trying to lean in this direction right now.

 

[1SEIACLONE]

This seems to be a pretty good take. I think you rightly identify the sequence of returns risk (and when the issue is greatest). I was of a similar mindset regarding being very heavy equities until recently. I still plan to be heavier in equities than what was traditionally recommended, but after I got through the excitement of maybe I’ll call it my mass accumulation phase…I realized that I both don’t want way more than I need and don’t want my kids to have way more than they need either. I also see no reason to retire earlier than 55.

Believing then that I would rather spend thousands with my kids now rather than give them millions when I die, I’m actually more into planning for milestones when I can take money out of the market rather than trying to pile up money by leaving it in….and I’ve slightly cut back on the retirement savings. We’re no longer close to maxing out 401ks…just contributing at the match level. We still max out our Roth IRAs, but that’s mostly because we can get the contributions out whenever we want (and don’t need that money now anyway). I also max out or HSAs, but I’m going to slowly filter some money out of those (rather than just leave them to fully build to retirement). Basically I don’t plan to let expenses go without reimbursement for probably more than 5-8 years (haven’t fully settled on a date yet).

With that in mind, growing money at a 6-8% return with less downside risk is probably going to provide me with more joy than reaching for 8-10%

You cannot get so carried away with retirement planning that you forget to live your life today. The hard part is getting a balance that allows you to do both. Spend money on yourself and your kids, while making sure your future retirement are also provided for.

 

[Jayshellberg]

It will probably comes as no surprise to anyone interested in this thread that this has not been an easy decision for me. I’m much more comfortable saving than I am spending. Even recently having sold some equities, it pains me when the market has gone up after. But I hit a market and paid myself. I’ve also made a couple decisions of late to not optimize as much as I would have in the past. That’s somewhat of a pay myself play as well. Optimization takes a lot more time and brainpower.

I’ll no doubt continue to work my way through some of my plans. I don’t know that I can say I would recommend others follow my lead, but I’m glad I’m trying to lean in this direction right now.

Transitioning from an accumulation mode to a spending mode is difficult for many of us. In fact, some people, like my uncle, never was able to make the transition. His frugality won out at the end, and he was never able to fully enjoy the fruits of his labor. After witnessing that, I vowed to never let that happen to me.

 

[KnappShack]

Transitioning from an accumulation mode to a spending mode is difficult for many of us. In fact, some people, like my uncle, never was able to make the transition. His frugality won out at the end, and he was never able to fully enjoy the fruits of his labor. After witnessing that, I vowed to never let that happen to me.

I truly believe this will be a large problem for me. Even more than transitioning away from work.

Spending is foreign to me. My wife? Not so much. So maybe it'll work out, but I will be tempted to live on as little as possible

 

[ISUATC]

Transitioning from an accumulation mode to a spending mode is difficult for many of us. In fact, some people, like my uncle, never was able to make the transition. His frugality won out at the end, and he was never able to fully enjoy the fruits of his labor. After witnessing that, I vowed to never let that happen to me.

I am going to have trouble shutting down accumulation mode. Been wired that way my whole life. Once a tightwad always a tightwad.

 

[Des Moines Clone]

I am going to have trouble shutting down accumulation mode. Been wired that way my whole life. Once a tightwad always a tightwad.

Same here. I don't want to die with a lot of money, but I have a bad feeling that I will, lol

 

[Jayshellberg]

I

I am going to have trouble shutting down accumulation mode. Been wired that way my whole life. Once a tightwad always a tightwad.

You’re correct. Frugal individuals don’t suddenly turn into spendthrifts, even after they have accumulated assets. I am on the frugal side of the spectrum, but I have been working on loosening the purse strings. For example, my wife and I plan to purchase our dream house in 2025. We plan to use the equity in our current home and sell investments to pay cash for the property.

Transitioning from an accumulation mindset to a spending mindset does not need to occur overnight or be a 180 degree shift. However, taking children and grandchildren on vacations, helping them fund their college education or Roth accounts, gifting money to your kids for a home purchase, etc. can be very fulfilling.

We will still bequest a sizable amount to our children. However, we would rather leave them enough where they can do something, not an amount where they don’t have to do anything.

 

[JEFF420]

I am going to have trouble shutting down accumulation mode. Been wired that way my whole life. Once a tightwad always a tightwad.

you could always start a new family with a 22 year old babe?

 

[FallOf81]

you could always start a new family with a 22 year old babe?

Or get 3 to match your age.

 

[CascadeClone]

Or get 3 to match your age.

Sounds expensive, but what's the point of wealth if not for such things?

 

[FallOf81]

Sounds expensive, but what's the point of wealth if not for such things?

Exactly.
And you've got your golf foursome as well. Not to mention another kind of foursome.
Who wants to be the richest guy in the cemetery anyway!

 

[CascadeClone]

Exactly.
And you've got your golf foursome as well. Not to mention another kind of foursome.
Who wants to be the richest guy in the cemetery anyway!

This is the best retirement advice in this whole thread.

 

[Kinch]

Well the article I read about 99 year old Jimmy Carter today says he's been watching Law and Order during his 8 months in hospice

Interesting tidbit I learned today. Jimmy deregulated a bunch of things including the home brewing industry.