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Thanks for posting @davidmoran. Missed the article 1st time through. One of my fears is retiring into a bear market. Plan to quazi-retire and go part time in January. Working on establishing my 3-4 year withdrawal bucket now with MM, short and ultra-short funds/ETFs, though I won't need to draw yet if I start SS (will be 66).
I have @Derf. My home made charts show not a lot of difference though. If I wait until 70, the extra money needs to come from savings, which I plan for about a conservative 5% return. The more I take at 66 to 70 the less principle to grow. I think It's a toss-up either way.
“And studies show that this is exactly when a lot of people choose to retire—the height of a bull market, when their portfolio is plump. “
Which studies? Citations appreciated. “Plump” probably isn’t a term you’d normally find in a scientific study. -
“But those same studies show that people who retire at bull-market peaks have a higher chance of running out of money.” *
Again - No citation. Seems logical however. Do we need a “study” to make the point? And what % of all retirees actually retire right at the peak of a bull market anyway? That would seem to require uncanny timing. -
“That is because they wrongly assume big returns will continue to pile up—and then they lose a big chunk of cash when bear markets arrive.”
Did these “studies” actually define / quantify / measure investors’ assumptions? I suspect not. Likely, this is the author’s own assumption (however accurate). “Pile up” / “Big chunk”? More terms you shouldn’t / wouldn’t find in a scientific study.
My take away: Hope for the best. Plan for the worst. Who knows what the future holds? Pretty smart lot of investors here. So, suspect that’s how they’re approaching retirement.
*That (second) point is valid if one is substantially invested in equities at retirement and remains so well into retirement. For example: A retirement nest egg valued at bull market peak at $500,000 would be worth substantially less a few years later at the depth of a bear market (perhaps $300,000 or $400,000).
MikeM: Have you thought about waiting until 70 to start SS withdrawal ? It's very hard to look at a 8% return each year for the next 4 years !
This is one of those common knowledge statements that seem obvious until you start thinking about them. Sure, if you delay a year, your payments on subsequent years go up 8%. But that's not an 8% return because you've given up 100% (of a year's income) to get that 8% boost on future years. It's not like putting money in a bank and getting back all of your money plus an extra 8% the next year.
As Kitces writes:
Often the decision to delay benefits is explained as being the equivalent of an 8% annual return (for those delaying past full retirement age), or a 76% cumulative return over 8 years (for delaying all the way from age 62 to 70). However, the caveat to making the decision to delay is that it also has a non-trivial “cost” in the form of benefits that aren’t received (and can’t be invested or consumed) today.
I rest my case on the last comment from the article msf presented. " In fact, ultimately the decision to delay Social Security delivers the best results when there is either unexpected inflation, unusually long longevity, or especially bad market returns, which are the exact three scenarios that traditional portfolios are the least effective at managing, making the decision to delay Social Security the ultimate form of “anti-fragile” triple hedge!" That would be like adding a fourth leg to the three legged stool.
the trust fund is projected to run out in roughly 20 years and benefits could only be paid from current Social Security taxes – which would not actually “end” Social Security payments at all, but merely would result in a 30% haircut in benefits starting in 20 years.
The 30% future reduction of SS benefit adds another layer of complexity.
@_Mikew hi sir how much stocks do you have, hopefully around 30s%right..
We maybe oversold stocks out of mama portfolio (now probably around 25%stocks rest in bonds and little cash) but not too much worries. It went up during the very bad few wks downsized in August... At least mama is happy
Mama have health issues uncontrollable diabetes don't know how long she lived but she did get social security at age 64.5 she is happy now
Maybe follow Ted and oldskeet advise (get 20s - 39s% in stocks you may not be happy during bull market but at least you won't loose your mind and millions of dollars)
@_davidrmoran.. Hope you have metals hard sole shoes lol. Thx Ted and you for reposted
As always, try and plan for bad things. As it says, obviously, assuming ~~4% of savings withdrawn annually, are you really going to also assume the bull continues ?
@davidmoran, every time I read my SS annual statement, it always stated XX% reduction on future payment. There are fewer payees than 30 years ago as the baby boomer generation are retiring today. It is good for those who are collecting SS now, but will it remain solvent in another 10 years?
"benefits will not be reduced, taxes will be raised, at nearly the last minute"
Yes, but as usual, not enough to actually fix the system permanently. They will be raised just enough to patch things over for ten years or so, at which time the problem will have to be temporarily patched yet again. Ad infinitum.
Comments
Regards,
Ted
https://www.mutualfundobserver.com/discuss/discussion/51738/about-to-retire-check-your-stock-exposure-quickly#latest
Have a good day, Derf
Which studies? Citations appreciated. “Plump” probably isn’t a term you’d normally find in a scientific study.
-
“But those same studies show that people who retire at bull-market peaks have a higher chance of running out of money.” *
Again - No citation. Seems logical however. Do we need a “study” to make the point? And what % of all retirees actually retire right at the peak of a bull market anyway? That would seem to require uncanny timing.
-
“That is because they wrongly assume big returns will continue to pile up—and then they lose a big chunk of cash when bear markets arrive.”
Did these “studies” actually define / quantify / measure investors’ assumptions? I suspect not. Likely, this is the author’s own assumption (however accurate). “Pile up” / “Big chunk”? More terms you shouldn’t / wouldn’t find in a scientific study.
My take away: Hope for the best. Plan for the worst. Who knows what the future holds? Pretty smart lot of investors here. So, suspect that’s how they’re approaching retirement.
*That (second) point is valid if one is substantially invested in equities at retirement and remains so well into retirement. For example: A retirement nest egg valued at bull market peak at $500,000 would be worth substantially less a few years later at the depth of a bear market (perhaps $300,000 or $400,000).
As Kitces writes: He's got a good, lengthy column that I've only skimmed so far. It examines your actual return, depending on assumptions about your investment rate of return, what kind of investment you make (e.g. risk-free TIPS, an immediate annuity, growth equities). Similar to @MikeM's charts, though likely more extensive (less personalized).
https://www.kitces.com/blog/how-delaying-social-security-can-be-the-best-long-term-investment-or-annuity-money-can-buy/
" In fact, ultimately the decision to delay Social Security delivers the best results when there is either unexpected inflation, unusually long longevity, or especially bad market returns, which are the exact three scenarios that traditional portfolios are the least effective at managing, making the decision to delay Social Security the ultimate form of “anti-fragile” triple hedge!"
That would be like adding a fourth leg to the three legged stool.
Different strokes for different folks, Derf
We maybe oversold stocks out of mama portfolio (now probably around 25%stocks rest in bonds and little cash) but not too much worries. It went up during the very bad few wks downsized in August... At least mama is happy
Mama have health issues uncontrollable diabetes don't know how long she lived but she did get social security at age 64.5 she is happy now
Maybe follow Ted and oldskeet advise (get 20s - 39s% in stocks you may not be happy during bull market but at least you won't loose your mind and millions of dollars)
@_davidrmoran.. Hope you have metals hard sole shoes lol. Thx Ted and you for reposted
https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around/
#3 here: https://www.marketwatch.com/story/these-7-social-security-myths-just-arent-true-no-matter-how-often-you-hear-them-2019-08-27
(and as msf points out, 'bankruptcy' is the wrong term anyway)
benefits will not be reduced, taxes will be raised, at nearly the last minute
https://www.nytimes.com/2019/09/04/upshot/recession-not-inevitable-economic-optimism.html
Yes, but as usual, not enough to actually fix the system permanently. They will be raised just enough to patch things over for ten years or so, at which time the problem will have to be temporarily patched yet again. Ad infinitum.
See also: "kicking can".