Retirement Planning

One word

INSURANCE

 

There really is not special number as much of it depends on your own
risk factors plus the type of income/age of retirement you want.

Risk can be determined by how well you could sleep at night if your portfolio drops 10%, 20% or more over a time frame. Those and many other questions would portray your risk factor and help you or an advisor determine what a applicable mix of asset classes (to answer your intl investments question).

Most people give market returns at an average of 7% to 8%, but as this growth is not linear and is made up of wild up and down swings, monte carlo simulations are used to give a more accurate percentage success/failure rate based on hundreds of different market climates.

Age is based on actuarial tables for men and women, but with healthcare evolving how it has, children born today are expected to live to be 120!!

Have someone put together a complete plan outlining your risks and needs so you know whether based on your profile you need to work for longer, save more or if you're accumulating enough you may be able to lower your risk and still retire with what you desire.

 

1. 6 or 7% is common, the historical return on a broad stock portfolio is north of 10% but that would be 100% invested and not having some fixed income increases your risk profile.

2. Yep, that is the standard plan. There are new mutual funds that will actually adjust your allocation as you age. If you are an active savy investor you'll probably want to manage your allocation yourself, especially in a low interest enviroment where interest income is difficult to come by. I live on my portfolio so I am primarily in fixed income instruments but I have to take some risks in my choice of bonds to keep my yields up, i.e. I just bought some Univision bonds that yield 7.85% and some private issue drilling company bonds that pay 10%.

3. I usually hear 20% but you need to look deeper than that. I mean Europe is a different enviroment than SE Asia, than South America. The easy way is to just invest in something like American Funds World Growth (CWGIX ) and let the pros do what they get paid for.

4. If I were 35 I'd be thinking 100, science marches on. I think for those under 35, their life span will only be limited by the amount of money they have to spend on health care. Right now my Mom is 85 and she wishes she could die even though she's the healthiest 85 you ever saw. Ethical suicide could become an option in your lifetime.

5. I'm closer to it than you but I don't see that life gets a lot cheaper. Whatever you gain in mortgage costs and deciding that just whatever plaid clothes you have in the closet are all you will ever need, are matched by health care costs and assited living costs. Assisted living costs right now are probably more than your present mortgage. Assisted living insurance started when you are younger could be a good idea.

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Just call Lance on his radio show on KSEV 700 @ 6PM and ask him exactly your questions. He would appreciate a good call.

 

First of all, I'm no investment professional, but I'll take a crack at it :

1) Around 8%. Assume lower, though.

2) Theoretically, yes. The investments you put your money into will be less risky, and their potential returns will be less.

3) I don't think there is any conventional wisdom : your age/investment timeline, retirement age, expenses, risk aversion, etc. all play into building a good portfolio for you.

4) I think most estimates ask you to think in the 80's. Shoot for 90's and hopefully you'll be safe.

5) Whether or not expenses drops depends on you. For some expenses can actually go up because now they have more free time to take vacations, travel, goof off, get bored and buy stupid stuff online they don't need, etc. Others live a far more simple life. It's difficult for people who are used to "the good life" in their 30's and 40's to say "I'm going to live off just the necessities" in later life.

 

I'm screwed.

 

Yeah retirement is a b****, especially if you've spent all your money raising kids. The good news is you'll get it back from them. I'll be getting your kid's money too.

http://www.chron.com/cs/CDA/printstory.mpl/business/4237273

Oct. 4, 2006, 10:20PM



Fed chief urges action on boomer burden
Retirement of 78 million looms over economy
By JEANNINE AVERSA
Associated Press

WASHINGTON - Unless Social Security and Medicare are revamped, the massive burden from retiring baby boomers will place major strains on the nation's budget and the economy, Federal Reserve Chairman Ben Bernanke said Wednesday.

"Reform of our unsustainable entitlement programs" should be a priority, he said in remarks to the Economics Club of Washington. "The imperative to undertake reform earlier rather than later is great."

It marked the Fed chief's most extensive comments to date on the challenges facing the United States with the looming retirement of 78 million baby boomers.

In his remarks, Bernanke did not offer Congress and the Bush administration recommendations on how the massive entitlement programs should be changed. Efforts by the administration to overhaul the Social Security program — once a centerpiece of President Bush's second-term agenda — sputtered last year, meeting resistance from Republicans and Democrats alike.

As the population ages, the nation will have to choose among higher taxes, less nonentitlement spending by the government, a reduction in spending on entitlement programs, a sharply higher budget deficit or some combination, Bernanke said.

Government spending on Social Security and Medicare alone will increase from about 7 percent of the total size of the U.S. economy to almost 13 percent by 2030 and to more than 15 percent by 2050, he said.

Bernanke declared: "The fiscal consequences of these trends are large and unavoidable."

The government recorded a budget deficit of $319 billion last year. This year's red ink is projected by the White House to total around $296 billion.

Financially shoring up Social Security and Medicare will involve difficult choices by lawmakers and other policymakers, Bernanke said.

For instance, if the government tried to finance projected entitlement spending entirely by revenue increases, the taxes collected by the federal government would have to rise from about 18 percent of the total size of the economy to about 24 percent in 2030, he said.

If the government attempted a fix through spending cuts, spending for programs other than Social Security and Medicare would need to be cut sharply — the equivalent "to a budget cut of approximately $700 billion in nonentitlement spending," he said.

In his speech, Bernanke did not discuss the future course of interest rates.

During a brief question-and-answer period afterward, he said a "substantial correction" was taking place in the housing market, which will be a drag on the economy's growth. He estimated that the housing slowdown would trim about one percentage point off growth in the second half of this year.

Some of the fallout from the now-cooling housing market, however, should be cushioned by other positive factors, including good job creation and income growth, Bernanke added. The housing cooldown holds important implications for consumer spending and overall economic activity.

"How far will this correction go? It is very difficult to tell, is the honest answer," Bernanke said.

 

If there is any political Karma, when the children of the baby boomers take over political power they will pull our entitlement plug.

(Hey, we are still paying for Iraq, we can't be buying all ya'll' Little Rascals!)

 

1. 7-8% BEFORE inflation; thus a 3-5% real return.

2. maybe. if you retire at 65 and live to 95 (see below), your money has to last 30 years. that is completely brutal when you do the math. my plan is to have 65% equity exposure at retirement which I am shooting age 70.

3. International exposure is in the eye of the beholder. some people hate the thought of investing their money overseas. for the other people, 1/3 of your total equity may be a good place to start. btw, international equity is a good portfolio diversifier, so it is good risk.

4. 95+ years is a better bet.

5. you get what you pay for with free retirement calculators.

RANT on
I think that some folks get over-obsessed with The Number. The Number is always changing year to year. And The Number contains so many wild *ss guesses (like RoR, inflation, retirement age, length of retirement, retirement expenses, SS income, etc) that it is pretty much meaningless.

Calculating The Number is a worthwhile exercise, especially for those people who need a wakeup call. What is really needed is a savings plan and a ton of flexibility once you are retired.

As an example people who retired in 1970 and withdrew 4% of their a year went bankrupt before they died due to the 73-74 bear market. They needed the flexibility to be spendthrift during the bear market and recovery (or the foresight of buying an annuity).
RANT off

 

I think people have underused international markets, people are just now catching up. I don't see why you should not have about equal equity in international markets as the US. 1) there is now more equity overseas or close to it (I think the total US and non US markets are close to even); 2) there are more high growth opps in emerging markets IMO, and 3) so much of our debt is being gobbled up by other nations/foreigners (dollar may have to get weaker and weaker).

For me about 40% US stock, 40% Int stock and 20% other (mix of bonds and REIT funds--both in US, other developed markets and emerging markets) seems right. You can get good low cost international exposure with Fidelity's International Spartan (index) + Emerging Markets fund or say split between Vanguard's EFTs (Vipers) for Europe, Asian and Emerging Markets for example.

Also, rebalance to the overall strategy (40-40-20) everyr year or so. When I get with say 15 years of retirement of course the % equities (80% above) will start going down.

 

I just shoot for retiring with 5 million liquid assetts and hope I don't outlive it. Simple enough