tj:“In retirement, I would want something with minimum management but I gather that there will be adjustments required on how much one withdraw each year depending on market conditions? I guess one other component of income from the market would be dividends.”
The 4% rule means your total take from your portfolio is 4% - whether you take dividends, REIT income, bond/CD interest, etc.
Of course, if you are in high cost mutual funds - well, if they are taking 0.3% or 0.5% of your assets each year for management, you only get to take 3.7% or 3.5%. They get their share. That is why you want ultra low cost funds like Vanguard SP500, Total stock market, with 0.05% expenses. It’s even worse if you are in a managed fund that takes 1% off the top, plus mutual fund expenses.
tj: " Ex social security and some other pension incomes (do most people considering doing the 4% rule have pensions?"
Probably not. Pensions went the way of the dinosaur for most back in the 1980s when the tax laws made corporations wanting to avoid annual pension top offs required by the government. So they started 401Ks, and many folks who HAD pensions found themselves with ‘pension credits’ in their 401K instead of a pension. Now, only federal and state workers, teachers, and some local government workers still have pensions. Most corporations ended theirs.
In my case, in the 1980s, my company converted nearly all to 401K. If you had enough years of service and age (total like 55) you could stay in the pension plan. When you retired at 65, they would buy you an annuity and wash their hands of any further obligation. I didn’t qualify and probably a good thing as I bailed out of that company at age 52.5.
And yes, of course I had to think about 35 year portfolio since the average person lives into the 80s from age 52.
tj: " I would think if one had a benefit-defined pension, s/he would not be having the conversation we are having here?), could relying on investments to generate income/cashflow for retirement be completely passive?"
Most retired folks don’t want to be ‘speculating’ in the stock market. As you noted you are down 50% this year. the indexes are down 20%. big difference.
Of course, if you have a nice pension, and get SS at age 65, you probably don’t need much income from your portfolio…as of course you would if you had neither. Few have a pension these days. A small percent of population.
As you noted you’re saving 1/3rd of your salary. Obviously for retirement.
TJ:“I want to consider that component before adding social security which I assume will not be much when I will be eligible to take it. What is the range of monthly income one could expect from s.s. now? I don’t have a pension to speak of. I’ve had 401Ks.”
Well, who knows? SS isn’t going away but the benefits might be reduced in 15-30 years. Now, Medicare gobbles up a portion of my SS…they deduct it right out of SS. The more you make (increasing brackets) the more Medicare gobbles up.
tj:“May I ask when you retired, did you target 30 years, or more?”
I retired at 52.5. Planned to hopefully make it to late 80s but SS says the average person doesn’t make late 80s unless female.
When you hit age 72 now…you must start taking RMDs from any IRA/401Ks. That starts at about 3.5% and ratchets up each year. Once you hit 72, you’ll automatically be forced to take near 4% out.
Oh, and the other disadvantages to sector funds and other high flyer mutual funds is that you can whacked with unplanned ‘capital gains’ even though YOU didn’t sell. If the fund has large withdrawals they have to sell - usually stocks held a long time with gains…you get some of the tax bill.
I have some corporate bonds, a slug of REITS in my IRA. So far so good. It’s about 50/50 but overall I’m at about 70/30 now.
Now depending WHEN you bought your stocks…you still might be ‘up’ from when you bought them. If you bought them as they skyrocketed…well…that’s a different story.
Yes, dividends are nice…low tax rate!
t.