At what point in retirement does making long-term investments drop in priority? Another existential question.

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cresive
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At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by cresive »

Hello All and thanks for reading my post.

I am a few years out of retirement, est. 4-8 years. I have developed a strategy i like to cover any sequence of returns issues early on in my retirement which involves a crude spending plan for my early (go-go), middle (slow-go) and final years (no-go). One question that keeps popping up in my head is when do I switch from worrying about longevity issues and focus on spending my money.

Finances and Game Plan (all in today’s dollars):

Social Capital: (conservative estimates)
Social security: $34,000
Pension: $16,000
Passive Income: about $11,000-$15,000
Fully Funded LTC-I to cover nursing home or home care

For longevity concerns, I have just over $60,000/year to cover my needs in retirement, all with COLA adjustments built in. I plan to move to a LCOL area, so my social capital should take care of basic living needs (housing, utilities, food, clothing, etc.). That is, when I am 87 y.o. and not really traveling, have my house paid off, etc. I should be set for my needs.

Personal Capital:
Roth Savings: Estimate funds at retirement $312,500
IRA/403B/TSP: Estimated total funds: about $2,200,000.
Brokerage/savings funds: Estimated $340,000
I-bonds: Estimated $72,000

For the remaining retirement funds, I plan to set up multiple layers of a bucket system, called a pie-cake by Roger Whitney. In this plan, I will keep year 1 expenses in an online bank that pays a “salary” to my checking account every 2 weeks. I will keep years 2-5 salary in my TSP account using a balance of G and F funds to support a spending floor should a market correction occur during my early years. To fund years 6-10, I will keep funds in an IRA with an AA of 60/40 – 70/30 for growth. My remaining funds will be in a separate IRA at an AA of 90/10 – 100/0 for aggressive, long-term growth. I have Roth savings that I plan to use as an emergency fund in case I need a new HVAC/new car, etc., during retirement. I plan to maximize my salary with my IRA-like funds and use my Roth to cover any issues that would drive me into a higher tax bracket. I also have brokerage and I-bond funds, all of which will be tapped in a tax-efficient manner. Tax-efficiency will be the subject of another post.

I should have enough money to pay for a suitable retirement. I am not really worried about running out of money, but I do want to maximize my growth, especially during my early years. My question centers around when do I need to stop worrying about “tomorrow?” It is nice to have layers 3 and 4 for growth, but when do I need to focus on more near-term issues? I don’t have any estate needs and would love to have the last check I write in retirement bounce. When I reach age 80, do I really need funds in my in an account for 10+ years out? I don’t think I will live much past age 87, if I make that, so having long-term investments in my 80’s seems a folly.

What are your thoughts?

Ben
jebmke
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by jebmke »

Much too complicated for my tastes. As I approached retirement I decided our investments were too complicated and set up a fairly simple target. For tax and other reasons I could not just snap it all into place at once. So, whenever I have a chance to make a move, I move toward simple and away from complicated.

Part of being comfortable is not having to worry about figuring out what you have, where it is -- and, for me, what happens if I croak and leave it all behind to my spouse. She is perfectly capable of managing it but has no more interest in complexity than I do.
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by lazynovice »

It depends on the gap between amount needed to fund no-go and go-go. The larger the gap, the more the worry.

You estimate your assets at retirement of about 3 million, so a SWR would be 90k to 120k. I’d be surprised if you need that much more than the 60k for go-go years (a total of 150k to 180k). Unless you do, you don’t need to worry at all. I think you will have more money than you can spend depending on the length of your go-go years.

So then the question is who gets this money when you die and do you want to invest for their benefit? Our approach is to invest for ourselves until we know we will not run out. Our heirs will be happy with whatever they get. Once I am comfortable we won’t run out- for you that is 87, we’ll start investing based on our heirs’ time horizons.
backpacker61
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by backpacker61 »

cresive wrote: Sat Jun 19, 2021 8:43 am I should have enough money to pay for a suitable retirement. I am not really worried about running out of money, but I do want to maximize my growth, especially during my early years. My question centers around when do I need to stop worrying about “tomorrow?” It is nice to have layers 3 and 4 for growth, but when do I need to focus on more near-term issues? I don’t have any estate needs and would love to have the last check I write in retirement bounce. When I reach age 80, do I really need funds in my in an account for 10+ years out? I don’t think I will live much past age 87, if I make that, so having long-term investments in my 80’s seems a folly.

What are your thoughts?

Ben
The biggest "hole" it seems to me in your post is that there isn't a "deep dive" into what you estimate your living expenses in retirement will be.

If your retirement expenses are ~100K$/year, it looks to me as if you should be in very fine shape. If it's 200K$/year, then it seems more sketchy.

I also agree with the previous poster, that things are unnecessarily complicated.

I would just break it into two parts, and each of those into two parts.

Income
  • Guaranteed income (Social Security, pension)
  • Portfolio (assets you manage yourself to provide income to cover expenses)
Expenses
  • Required expenses (health insurance, housing costs, groceries, transportation costs)
  • Discretionary expenses (travel, entertainment, dining out, charitable contributions)
I also wouldn't bank on expiring at 87. If you live longer than that, it could become quite expensive, and you couldn't just go back to work to make up for any shortfall.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
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cresive
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by cresive »

backpacker61 wrote: Sat Jun 19, 2021 9:02 am
cresive wrote: Sat Jun 19, 2021 8:43 am I should have enough money to pay for a suitable retirement. I am not really worried about running out of money, but I do want to maximize my growth, especially during my early years. My question centers around when do I need to stop worrying about “tomorrow?” It is nice to have layers 3 and 4 for growth, but when do I need to focus on more near-term issues? I don’t have any estate needs and would love to have the last check I write in retirement bounce. When I reach age 80, do I really need funds in my in an account for 10+ years out? I don’t think I will live much past age 87, if I make that, so having long-term investments in my 80’s seems a folly.

What are your thoughts?

Ben
The biggest "hole" it seems to me in your post is that there isn't a "deep dive" into what you estimate your living expenses in retirement will be.

If your retirement expenses are ~100K$/year, it looks to me as if you should be in very fine shape. If it's 200K$/year, then it seems more sketchy.

I also agree with the previous poster, that things are unnecessarily complicated.

I would just break it into two parts, and each of those into two parts.

Income
  • Guaranteed income (Social Security, pension)
  • Portfolio (assets you manage yourself to provide income to cover expenses)
Expenses
  • Required expenses (health insurance, housing costs, groceries, transportation costs)
  • Discretionary expenses (travel, entertainment, dining out, charitable contributions)
I also wouldn't bank on expiring at 87. If you live longer than that, it could become quite expensive, and you couldn't just go back to work to make up for any shortfall.

Sorry about that. I will be at the $100K area. My estimate is now $118,000. This will require about $60K from my savings. As I said, I am not worried about covering my expenses, as I should be okay. That, plus my LTC-I should cover me in my later years.
delamer
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by delamer »

EDIT: Just read your last post, OP, after I posted the comments below. I guess I don’t get what you are worried about…

====

You said you have $60,000 to cover your needs, from your pension, SS, etc.

What you didn’t say is how much you hope to spend each year. Covering your needs is different than a complete budget.

If you put aside $150,000 for emergencies, that would leave you with $2.8 million to invest (and that’s assuming that you don’t save anything else before you retire).

Barring a specific medical diagnosis, no one how long they’ll live. Prudent planning means figuring on a 30-year retirement.

There’s two paths you can take:

1) At a 4% safe withdrawal rate, you get an additional $112,000/year (inflation adjusted) to spend if you put at least 30% of your portfolio in stocks. If you can live comfortably on a $172,000/year, then put everything in the LifeStrategy Growth fund and/or the L2050 fund.

They hold lots of stocks and you’ll get growth, assuming you can handle the volatility.

If you want to scale back your stocks as you age, do so. Since you don’t have any legacy needs, do what’s comfortable for you.

2) Put everything into cash once you retire. Divide your $3 million by 30. That leaves you $160,000 total to spend each year, but without any inflation adjustment for most of it.

Virtually no risk of running out of money, but your spending power will decline over time.

I’m being slightly facetious in that obviously you have multiple paths between the two above. But unless your total budget is approaching (or over) $200,000/year or you decide that a legacy is important, you can follow almost any investment plan and be financially secure in retirement.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by Fishing50 »

I agree with the others, it's complicated...I started in the same place a few years ago.
You can stop worrying about tomorrow, now.
I think tax efficient, early retirement consumption from brokerage, Roth, and IRA is the perfect solution.

Resolving the same dilemma from the complicated buckets and layers of money, I calculated the asset allocation which became less bonds than our targeted 70/30 allocation for the overall portfolio. Utilizing rising equity glidepath after our April 2020 rebalancing into equities, we'll stay at 80/20 for life. We had a bond tent, but an unexpected promotion has increased our pension reducing any required withdrawals. I definitely want to spend more money in early retirement, but I'm more afraid of assets not keeping up with inflation and regretting departing the workforce early during my peak earning years. Now I'm focused on maximizing tax efficient income each year through tax gain harvesting to produce additional income during early retirement at a 2% (or lower) annual withdrawal rate. We may do Roth conversions if we dip into the 12%/15% tax brackets, but any 22% withdrawal will likely be consumed. We'll take it year by year in our 50s, spending will accelerate to in our 60s to at least 4% withdrawal rate and her social security. I don't yet have a good plan for RMD tax torpedo, maybe we'll be healthy enough to enjoy extravagant consumption.

Just some thoughts...YMMV :beer
Retired Military Officer. 80% equites / 20% bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash), 33% taxable, 30% Roth, 37% tax deferred. Gone Fishing At 52yrs old!
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by LilyFleur »

Hi, Ben.

Are you single? Have you used an RMD calculator to see how RMDs might affect your income and your tax bill? I retired early, with a pension and a small part-time job, but I have started doing some Roth conversions. Single tax brackets are very challenging. My 401k is not as large as yours, nor am I still contributing, but it is difficult to make a dent in it with the recent growth.

I do my best to figure out a financial plan on my own, using the resources here as well. However, I have found the once-a-year complementary meeting with my Schwab advisor to be helpful, also. Schwab's proprietary software uses Monte Carlo simulations, and the plan that I am given gives me a yearly "spend" (taxes already subtracted) from today through age 90. I think it's a valuable data point, and my advisor has never been pushy with me. I have a brokerage account there, and a 401k elsewhere.

https://www.schwab.com/ira/understand-i ... lators/rmd
chris319
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by chris319 »

Hi Ben -

You've got a few things to learn about personal finance 8-)
Social security: $34,000
Pension: $16,000
Passive Income: about $11,000-$15,000
You omitted any periodicity from these figures. Soc sec is a stream of periodic payments. $34,000 per what? Per year? Per month? Per week?

Same with your pension. Is it a lump sum or an annuity? If the latter, it will also be a stream of periodic payments, probably monthly.

Same with "passive income".

You're all focused on income/assets. I urge you to get a fix on your monthly expenses. You can divide that into two categories: discretionary and non discretionary. Non discretionary is anything you can't not pay, e.g. rent/mortgage payments/HOA dues, property tax if any, groceries, electricity, Internet/telephone, insurance, prescriptions/medical, etc. Discretionary is things such as travel, dining out, movies, hobby expenses, etc. I came up with a figure by tracking my actual expenditures and reverse-engineering a budget from that, so the budget figures are what I typically spend on those things. Once you've done that you compare it to your expected income. You want to have a positive monthly cash flow, i.e. your monthly income should exceed your monthly expenditures. You can do this with something as basic as a spreadsheet program. I do this at the end of every month.

You can then set up what I call a "virtual savings account". It is simply the sum of all of your monthly cash flows. If you took in $1,000 in a month but only spent $750, that's $250 into your "virtual savings account". When the time is right you can make a deposit with your broker or take a trip to Hawaii, provided you have the funds in your virtual savings account.

Something to think about is a SPIA, a Single-Premium Immediate Annuity. You can shop for them at immediateannuities.com. For my pension I had the options of a lump sum or a life annuity. I opted for the life annuity and will receive an income stream for life. The only hitch is that the annuity payment is not adjusted for inflation.
Financial decisions based on emotion often turn out to be bad decisions.
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by namajones »

cresive wrote: Sat Jun 19, 2021 8:43 am

What are your thoughts?

Ben
Nice plan! I'm probably doing something similar if I were to measure it all out as you have. I think my "safe funds" stretch longer than yours because I factor in the possibility, however remote, that the market could go down 50-90 percent and then stay down at bear levels for the rest of my life.

Most do not factor that in, but then again, I live by the motto "hope for the best, but plan for the worst."
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by cresive »

chris319 wrote: Sun Jun 20, 2021 4:22 pm Hi Ben -

You've got a few things to learn about personal finance 8-)
Social security: $34,000
Pension: $16,000
Passive Income: about $11,000-$15,000
You omitted any periodicity from these figures. Soc sec is a stream of periodic payments. $34,000 per what? Per year? Per month? Per week?

Same with your pension. Is it a lump sum or an annuity? If the latter, it will also be a stream of periodic payments, probably monthly.

Same with "passive income".

You're all focused on income/assets. I urge you to get a fix on your monthly expenses. You can divide that into two categories: discretionary and non discretionary. Non discretionary is anything you can't not pay, e.g. rent/mortgage payments/HOA dues, property tax if any, groceries, electricity, Internet/telephone, insurance, prescriptions/medical, etc. Discretionary is things such as travel, dining out, movies, hobby expenses, etc. I came up with a figure by tracking my actual expenditures and reverse-engineering a budget from that, so the budget figures are what I typically spend on those things. Once you've done that you compare it to your expected income. You want to have a positive monthly cash flow, i.e. your monthly income should exceed your monthly expenditures. You can do this with something as basic as a spreadsheet program. I do this at the end of every month.

You can then set up what I call a "virtual savings account". It is simply the sum of all of your monthly cash flows. If you took in $1,000 in a month but only spent $750, that's $250 into your "virtual savings account". When the time is right you can make a deposit with your broker or take a trip to Hawaii, provided you have the funds in your virtual savings account.

Something to think about is a SPIA, a Single-Premium Immediate Annuity. You can shop for them at immediateannuities.com. For my pension I had the options of a lump sum or a life annuity. I opted for the life annuity and will receive an income stream for life. The only hitch is that the annuity payment is not adjusted for inflation.
Chris,
I will take your idea of focusing on monthly expenses to heart. I agree with your concept However, I did mention that all the social income was yearly
"Finances and Game Plan (all in today’s dollars):

Social Capital: (conservative estimates)
Social security: $34,000
Pension: $16,000
Passive Income: about $11,000-$15,000
Fully Funded LTC-I to cover nursing home or home care

For longevity concerns, I have just over $60,000/year to cover my needs in retirement"

I wanted to focus in more general terms to move the focus from the financial "weeds" and emphasize the more synoptic idea of when do you stop worrying about long-term growth and just worry about spending down your savings. In the early stage of retirement, I have a nice bucket-like strategy to help me navigate any sequence of risk returns. This has the "final" bucket filled with equities,etc. for long-term growth--i.e. a hedge against inflation. My question was more, when does inflation become less of a risk. I should have been more clear in my OP.

Ben
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cresive
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by cresive »

namajones wrote: Sun Jun 20, 2021 4:28 pm
cresive wrote: Sat Jun 19, 2021 8:43 am

What are your thoughts?

Ben
Nice plan! I'm probably doing something similar if I were to measure it all out as you have. I think my "safe funds" stretch longer than yours because I factor in the possibility, however remote, that the market could go down 50-90 percent and then stay down at bear levels for the rest of my life.

Most do not factor that in, but then again, I live by the motto "hope for the best, but plan for the worst."
Thanks for the response. Glad to hear my idea is not too far out there.
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by WoodSpinner »

Ben,
cresive wrote: Wed Sep 08, 2021 9:57 am Thanks for the response. Glad to hear my idea is not too far out there.
The approach is a reasonably good one but I have a few suggestions:
  1. Develop a toolset that allows you to track your Cashflow needs (year over year) and be able to relate that to the PieCake slices you are building. This will go along way towards a establishing a comfort level.
  2. Test out your plan, understand which slice you will be spending from, refilling from under a variety of circumstances:
    - 5 year Bear Market
    - 5 year Bull Market
    - 10 year Mixed Market
    - Sudden Large expense
There isn’t a clear answer to your basic question though since it’s very subjective and seen through your own eyes and emotions. You seem to have more than enough assets for Retirement given what has been posted.

What I don’t understand is why the concern for long term growth? Why is this important to you?

Once we know more about your Why we can provide better insights on the How and When.

WoodSpinner
WoodSpinner
hvaclorax
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by hvaclorax »

OP,
I like the plan. Only place I can see failure is prolonged inflation. This is a tough nut to crack.Personally I am continuing 70/30 mix in retirement. Don’t think other investments provide the protection I want. SS would be good if it comes to the worst case scenario. You will have that plus pension, I don’t. I would consider legacy needs or charitable gifting. I’ll admit my view is considerably different now than 4-6 years pre-retirement. Now I planning for my heirs rather than myself.
HVAC
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cresive
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by cresive »

hvaclorax wrote: Thu Sep 09, 2021 4:22 am OP,
I like the plan. Only place I can see failure is prolonged inflation. This is a tough nut to crack.Personally I am continuing 70/30 mix in retirement. Don’t think other investments provide the protection I want. SS would be good if it comes to the worst case scenario. You will have that plus pension, I don’t. I would consider legacy needs or charitable gifting. I’ll admit my view is considerably different now than 4-6 years pre-retirement. Now I planning for my heirs rather than myself.
HVAC
Good point. I hadn't considered prolonged inflation. This is why I asked the forum!!

Thank you,
Ben
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cresive
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by cresive »

WoodSpinner wrote: Wed Sep 08, 2021 3:36 pm Ben,
cresive wrote: Wed Sep 08, 2021 9:57 am Thanks for the response. Glad to hear my idea is not too far out there.
The approach is a reasonably good one but I have a few suggestions:
  1. Develop a toolset that allows you to track your Cashflow needs (year over year) and be able to relate that to the PieCake slices you are building. This will go along way towards a establishing a comfort level.
  2. Test out your plan, understand which slice you will be spending from, refilling from under a variety of circumstances:
    - 5 year Bear Market
    - 5 year Bull Market
    - 10 year Mixed Market
    - Sudden Large expense
Excellent point!! I will do some dry testing as you suggest. Thank you.

There isn’t a clear answer to your basic question though since it’s very subjective and seen through your own eyes and emotions. You seem to have more than enough assets for Retirement given what has been posted.

What I don’t understand is why the concern for long term growth? Why is this important to you?

Some of this is academic, but some is my desire to bounce the last check I write, just before I die. I am okay with my plans as long as I am save and secure, but I don't want to be eating ramen noodles so my heirs can eat filet mignon. I am just looking at optimizing my spend-down plan. I am a few years out, so it is really academic at this point.


Once we know more about your Why we can provide better insights on the How and When.

Again, I am just trying to learn and gain perspectives.

Thanks,
Ben


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WoodSpinner
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Re: At what point in retirement does making long-term investments drop in priority? Another existential question.

Post by WoodSpinner »

Ben,

I am hardly an expert but have been retired almost 4 years now and remembered what it felt like to plan and optimize. My best suggestion is to be resilient and keep an eye on things. There is only so much you can plan for or control. The desire for Control and Safety is real and understandable. That said, it is illusory and so much depends on your own Outlook.

Best of luck!

WoodSpinner
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