Deleted
Deleted Member
Posts: 0
|
Post by Deleted on Nov 14, 2021 22:50:12 GMT
What we need to save to have decent retirement. I have 12 years to retirement. (hopefully)
Current number, in todays dollars, I see in the news is:
$2 Million + paid off house (ie. no mortgage) + SS
I know it varies by where you live and quality of life you want to live.
Living in SFO Bay area or New York this number is much higher.
|
|
|
Post by steelpony10 on Nov 15, 2021 0:09:46 GMT
@waffle ,
Well you can’t have too much I suppose. We tried to live a reasonable life style and put aside as much as possible invested to our risk limits evenly balancing our three sectioned plan.
Reasonable, risk limits and portfolio plans are all negotiable. Luckily we had a 30+ year trial run with our parents, modified that to our needs and tried to negate the flaws.
One of your future unknowns is how much money you’ll need to spend. So I think it comes down to how much you want to sacrifice during your working life for the shorter time you have left. It worked out great for us since we started early, were living the experience with our parents and markets cooperated. Lots of luck and compounding did the work. I wouldn’t ever feel financially secure with any portfolio balance.
|
|
|
Post by Mustang on Nov 15, 2021 3:46:56 GMT
What we need to save to have decent retirement. I have 12 years to retirement. (hopefully) Current number, in todays dollars, I see in the news is: $2 Million + paid off house (ie. no mortgage) + SS I know it varies by where you live and quality of life you want to live. Living in SFO Bay area or New York this number is much higher. Using the "4% Distribution Rule" you are talking about almost $100,000 per year adjusted for inflation. I would hope a retiree could live on that.
|
|
|
Post by FD1000 on Nov 15, 2021 4:55:47 GMT
Fidelity like 10-15 times your yearly expense, not including SS + pension. I like 20 times and why I retired at 25+ times. Less than 3 years, it's already 40+times and 90-95% came from bond performance.
|
|
|
Post by alvinthechipmunk on Nov 15, 2021 9:38:29 GMT
A brilliant way to express it: "Successful people delay gratification. They bargain with the future." ---Jordan Peterson. "Success" to me involves more than just the money. But without the money, you can't retire. Saving (investing) for retirement is delaying gratification. One's ability to retire will involve luck, ambition, determination, education. And whether or not you were lucky enough to inherit a pile of money, too.
$2M needed? GTFO. Even here, where the cost of living is beyond outrageous, we do fine with my SS and pension, while she is still working--- and she's "young" enough to keep working for a lotta years. But things are way more complicated today than they used to be: it is a common requirement here these days for household income to reach THREE TIMES the amount of the monthly rent, or else.... forget about it. I think that's just insane, and should be a criminal offense, to demand such a thing from people. We passed the credit checks. Household income met the "3X" threshold, barely. What enabled us to move into this better place was showing the Realtor my portfolio. There was enough to make their decision pretty easy.
Delay gratification. Stash away all that you can, before life gets complicated with mortgages and babies and tuition.
|
|
|
Post by yogibearbull on Nov 15, 2021 12:38:10 GMT
|
|
|
Post by Chahta on Nov 15, 2021 14:59:20 GMT
I have no real formula for what works, but I (we) live comfortably on my SS, her SS + pension, splitting expenses. I rarely dip into the taxable account unless it is for an extra that doesn't fit into my SS allotment. I think @waffle 's estimate of $2m in 12 years is smart.
|
|
|
Post by win1177 on Nov 15, 2021 20:58:46 GMT
What we need to save to have decent retirement. I have 12 years to retirement. (hopefully) Current number, in todays dollars, I see in the news is: $2 Million + paid off house (ie. no mortgage) + SS I know it varies by where you live and quality of life you want to live. Living in SFO Bay area or New York this number is much higher. Reading about safe withdrawal rates, and the new “safe withdrawal rare” recommended by Morningstar is 3.3%, instead of the prior 4%. This is assuming one has a “balanced “ portfolio, lives 30 years, and wants a 90% “success rate”. As high as equity prices are now (P/E, P/B, low dividend yields, etc.), and given such low bond yields, that is the number I’m using. I’m also planning on self funding for potential LTC expenses, etc. We have no debt, fully paid off house, medium sized pension (about 1/3 of needs), and will both be eligible for SS. So with our large portfolio we should be fine. But, I agree, it is a little unnerving to take the plunge and retire this year! I would calculate what one’s spending needs will be, and plan on that 3.3% withdrawal rate. Win
|
|
|
Post by Mustang on Nov 17, 2021 14:03:52 GMT
I am hardly an expert but I would take that recommendation with a grain of salt. In another thread I pointed out some of the problems I've read with Monte Carlo analysis. Basically small changes in inputs can make a big difference in the results and Morningstar has been writing about the demise of the 4% Rule for some time now. John Rekenthaler wrote an article in Morningstar (October 8, 2020) “The Math for Retirement Income Keeps Getting Worse: Revisiting the 4% Withdrawal Rule.” He said in 2013 he thought everything was OK. He now writes we are in changing times. His article compared a 2013 retirement to a 2020 retirement. He said in 2013 the yield on treasury bonds was 3.6% and inflation was 2.3%. That made the real return 1.3%. In 2020 he said that yield was 1.4% and inflation was 1.7%. That made the real return negative. He showed that a portfolio of 100% treasury bonds would run out after 24 years. That is not a surprise. He found nothing new. All of the studies (Bengen, Trinity, Pfua 2018 update) show that 100% bond portfolios usually fall short. As for stocks, Rekenthaler said in 2013 the price/earnings ratio of the S&P 500 was 17. In 2020 it was 27. (The norm is around 20.) According to the Shiller CAPE (Cyclically Adjusted Price Earnings) ratio he was using that meant the market is overvalued, that prices are too high and a correction is coming. Using Buffet’s forecasting formula he tested a portfolio of 50% S&P 500 stocks and 50% treasury bonds and showed that it survived a 30-year payout period. I found that interesting. In spite of the eye catching headline, he proved it could still be successful. He just didn't like the ending balance. Another Morningstar analyst (Amy Arnott “Will the Real Retirement Income Number Please Stand Up, March 3, 2021) using Monte Carlo analysis and a different set of assumptions found that the 4% Rule had an 86% chance of success. Not bad but she seemed to be shooting for 90% even though a lot of analysts think that when using Monte Carlo analysis a 70% probably of success is acceptable. I read one article that said 50% might be acceptable. But he phrased it differently. Its not a 50% chance that the portfolio will fail. It a 50% chance that adjustments might be needed. www.kitces.com/blog/monte-carlo-retirement-projection-probability-success-adjustment-minimum-odds/Inputs determine outputs. Here are their inputs: equity returns 6-11%, fixed income returns 2-3.5%, inflation 2.1% and a 30-year payout period. Here is a comparison of initial withdrawal rates to Pfau’s historical data findings. The top percentage the rate for a portfolio that is 75% stock. The bottom is the rate for a portfolio that is 50% stock: Payout Period Their Computer Pfau's Update 15-years 6.0%/6.4% 6%/6% 20-years 4.7%/4.9% 5%/5% 30-years 3.2%/3.3% 4%/4% 40-years 2.7%/2.8% 4%/3% Not a big difference and they didn't report the margin of error. But, I found this to be very interesting. For the input bonds has a return that is 4 to 7% less than stocks. Yet for every single payout period the portfolio with more bonds allowed for a larger initial withdrawal. That pretty much defies logic. They also said that the initial withdrawal rate could be increased from 3.3% to 3.9% by reducing the probability of success to 80%. (Arnott’s said a 4% withdrawal rate had an 86% probability of success.) Inputs determine outputs and no one can see the future. I wouldn't let this one article change your strategy. Please remember these are worst case scenario numbers and over the course of the next 30 years some adjustment might be necessary. Little adjustment like not taking a full inflation increase each year can make a big difference. On one test I did using Vanguard Wellington just taking a one percentage point (2% instead of 3%) inflation increase each year added 5 years to the portfolio's life.
|
|
|
Post by Fearchar on Nov 17, 2021 17:52:59 GMT
here's the rub;
30 year treasuries is what most pension plans are funded with.
Negative yielding 30 year TIPS are relatively new. That started just last year. February-April of this year, 30 year TIPs briefly went positive ~0.2%.
30 year TIPS are currently yielding -0.48%. As the FED eases, I expect they will rise, but not much higher than 0.5%.
I believe Monte Carlo analysis generally assume 30 year treasuries are positive after inflation. But, that's not true today and probably won't be until sometime next year.
So, while historically
|
|
|
Post by Fearchar on Nov 17, 2021 17:58:48 GMT
|
|
bf22
Commander
Posts: 135
|
Post by bf22 on Nov 17, 2021 18:40:56 GMT
I believe that the Monte Carlo simulations are backward looking, i.e. use historic rates/returns. Some people believe that after 35 years of bond rates coming down, we won't see the same historic bond returns for the next few years at least.
|
|
|
Post by yogibearbull on Nov 17, 2021 18:51:22 GMT
While Monte Carlo simulations use historical ranges for data, they generate thousands of randomized scenarios that aren't historical.
Historical backtesting uses actual fund data & set or rolling periods.
|
|
|
Post by Fearchar on Nov 17, 2021 19:01:15 GMT
As Yogi said.
Monte Carlo simulations generate a wide range of possible outcomes. They don't provide a single answer although people tend to look for that.
Likewise, there isn't 1 right way to run the simulation. All types of assumptions and options are available. So, technically; GI = GO is entirely possible too. But the saving grace is that they provide a wide range of possible outcomes.
|
|
|
Post by FD1000 on Nov 17, 2021 21:30:32 GMT
here's the rub; 30 year treasuries is what most pension plans are funded with.
Negative yielding 30 year TIPS are relatively new. That started just last year. February-April of this year, 30 year TIPs briefly went positive ~0.2%. 30 year TIPS are currently yielding -0.48%. As the FED eases, I expect they will rise, but not much higher than 0.5%. I believe Monte Carlo analysis generally assume 30 year treasuries are positive after inflation. But, that's not true today and probably won't be until sometime next year. So, while historically Calpers, the largest public pension fund in the United States, with more than $469 billion in assets under management, has 3+ times in (MBS + corp) than in treasuries.( link). Not all bonds are treasuries, individual investors can invest in other categories. I never invested money directly in treasuries, even when I had high % in stocks. Attachments:
|
|
|
Post by Fearchar on Nov 18, 2021 13:48:56 GMT
Thanks FD;
My Bad!
so, they are:
48% Equity 27% Debt 9% Real Estate 8% Cash 6% Private Equity 1% Infrastructure 0.3% Forest
Of the Debt they are 39% Corporate 28% Mortgages 20% US Treasury 10% ABS 3% Foreign
I'm really glad to see they accounted for every penny too!
|
|
|
Post by yogibearbull on Nov 18, 2021 14:30:30 GMT
|
|
|
Post by steadyeddy on Nov 24, 2021 1:04:45 GMT
yogibearbull, they show 20% in private fixed income in the PDF. What do you think that is?
|
|
|
Post by yogibearbull on Nov 24, 2021 1:11:48 GMT
steadyeddy, that is fixed-income that is not publicly traded including private loan pools and direct loans that TIAA itself makes. Point I was making was that pension funds don't rely heavily on Treasuries and lot of things on the list is stuff that you and I cannot tap into as retail customers.
|
|
|
Post by steadyeddy on Nov 24, 2021 1:18:18 GMT
steadyeddy , that is fixed-income that is not publicly traded including private loan pools and direct loans that TIAA itself makes. Point I was making was that pension funds don't rely heavily on Treasuries and lot of things on the list is stuff that you and I cannot tap into as retail customers. yogibearbull, thanks that makes sense. I was watching a YouTube video where the guy was screaming at the top of his lungs that Pension funds are taking on HUUUGE risks to payout to the pensioners.. and glad to see TIAA is being prudent in their investment mix.
|
|