How to manage a retirement portfolio?

Investing Strategies Retirement Investing
21

This is so wrong.

It’s correct if you include an unstated assumption - that instead of collecting Social Security, you are spending down your accumulated savings. Once the Social Security starts, that spending ends.

Effectively, you are trading a bit of your current savings for the guaranteed** Social Security benefits. You lock in an inflation adjusted return on that part of your money.

–Peter

** That guarantee is, of course subject to some argument. If you believe that the guarantee is not so good, then collecting Social Security sooner can make sense.

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22

“This is so wrong.
It’s not even close to “an 8% raise”. It’s not any kind of “raise”. It’s getting more money for a shorter period of time in lieu of getting a lesser sum for a longer period of time.
And of course, all SS benefits go up by the same COL escalator whether or not you are collecting SS or not”

IF, and only IF, you live past the break even point, you come out ahead. If you have good genes in your family tree and your parents lived to 100, then by all means try to delay your SS. After age 85 or 86, you’ll get the increased inflation adjusted benefit for the duration of your life.

If your family tree has everyone kicking off at age 75, well, then, if you’re in the same boat with the same early demise genes…and the same habits(?) like smoking, then you’d be better off taking it at 62 if you don’t expect to be around to 85.

If you smoke, on average, you die 13 years younger that the rest of your friends who don’t smoke and drink to excess. Both lung cancer and heart problems. Dr G thinks it’s closer to 20years.

t.

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23

Bigger problem with going past 62 for taking SS is that we have no guarantees we’ll be around at 65 or 70, and by then, as noted, also declines in mobility, stamina will heavily affect us in that 5-8 years…

I retired at/near 62 not because of financials, but instead, telecom was shrinking, job pressures were rising, and they were silly enough to make me an offer that added to my pension numbers as an annuity, that since has been folded into the now Nokia pension…

Learning that I could even consider retiring at 62 was great, we traveled, Viking became our home away from home as we truly relaxed, got away, Amsterdam to Budapest, St Petersburg to Moscow, Bergen Norway to the far North land of the Midnight Sun, and back down to London as well as other jaunts… Today at 80, I really doubt those same trips would be nearly as enjoyable, maybe, but they were a bit strenuous at times…

Get out, travel, while you can!

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24

etiring at 62 was great, we traveled, Viking became our home away from home as we truly relaxed, got away, Amsterdam to Budapest, retiring at 62 was great, we traveled, Viking became our home away from home as we truly relaxed, got away, Amsterdam to Budapest, St Petersburg to Moscow, Bergen Norway to the far North land of the Midnight Sun, and back down to London as well as other jaunts… Today at 80, I really doubt those same trips would be nearly as enjoyable, maybe, but they were a bit strenuous at times…

Get out, travel, while you can! , Bergen Norway to the far North land of the Midnight Sun, and back down to London as well as other jaunts… Today at 80, I really doubt those same trips would be nearly as enjoyable, maybe, but they were a bit strenuous at times…

Get out, travel, while you can!

Yup, that was one of my points. When Covid hit virtually all travel shut down, you could not go anywhere even if you had the money. No Amsterdam, no Budapest, no Vienna, no Norway…maybe some of those are starting to open up. Not Australia or New Zealand, though.

And now, you can’t go to St Petersburg or Moscow. That option has been closed off. IN 2018 we took a 13 day river cruise from Moscow to St. Petersburg.

Travel and do stuff when you can, because later on it may not be possible.

The purpose of money in retirement is to be able do DO things, not to have the best grade of gruel spooned into your mouth in the old-age home.

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25

Along the way, long before I was even 60, the company (Western Electric at the time, had a retirement seminar locally, inviting a representative from the local Social Security folks… And that was when I first learned, or considered retiring at 62… 62 is 62, take it as you’re not guaranteed to get, in my case 65_8 months… We weren’t near ready then, so it was just a dream, but other co-workers were on the edge, and as it worked out, many hadn’t saved/invested, didn’t have working wives, so were stuck, but as time went on, the company made offers of time & cash, so it did help lower the manhood…

Yes, we ran the other way on the Viking Russia trip, St Pete to Moscow, glad we did it back then, 2012, entry after the flight was quite a zoo, huge area, semi-lines, only to find we needed that pesky declaration form, a Portugues couple helped figure it out, then back to the back of the line and through… Viking was still waiting on us, knowing our flight had arrived, and very well handled from there onward… Our main guide, Tatiana was great, no subject, topic was off the table… A maybe late 40s lady, English teacher in St Petersburg, she spent the rest of her time on the ship. Divorced, grown son woking in Alaska, I asked her how she will ever meet another husband, being on the ship so much. Without hesitation, “Oh, I’ll find a guy with a nice car and it will be fine…” Many other conversations, presentations, Russian history, the reality of their world… Great trip…

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26

thejusticier asks,

Hi,

I am 54 yol. I want to retire in the next year or two. I have had a career, saved, and maxed my 401K (I have no pension) every year since I graduated from grad school almost 3 decades ago.
Since I started working I have been investing my savings first in mutual funds then in individual stocks and ETFs.

I am interested to hear about the experience of people who have retired and who are deriving their retirement incomes mainly from their investment portfolios.

I’m 66 and retired at age 38 way back in 1994 once I’d accumulated enough savings to make a paycheck unnecessary (i.e., 25 times my annual living expenses.) I’ve generally been following the “4% rule” over the past 28+ years.

I summarized my approach in January of this year on the Retire Early Home Page.

Minimizing the “Skim” – the Key to Retiring Early
https://retireearlyhomepage.com/minimizing_the_skim.html

The three biggest things people miss?

(1) Free Obamacare – I’d estimated $20,000/year for health insurance age 60 to 65. I actually was paying $1.43/month (less than $20/year) for Obamacare the last few years before I turned 65 and qualified for Medicare. You just need to do a bit of planning ahead of time to limit interest and dividend income and focus on capital gains to meet the Obamacare income limits. Better to have that $100,000 in my pocket than lost to excessive Executive Compensation in the health insurance industry.

(2) Half-price, inflation-adjusted life annuities – if you don’t have any health conditions that predict a shorter lifespan, it really makes sense to delay Social Security to age 70. The Federal Gov’t is essentially letting you buy an inflation-adjusted life annuity for about half of what an insurance company would charge you for the same monthly benefit. Like “free Obamacare”, it’s too good a deal to pass up.

(3) The “4% rule” defines the worst case, not average performance – If you don’t happen to retire on the eve of the next Stock Market Crash of 1929 and ensuing Great Depression, the "4% rule will likely leave you with more money than you can spend. After 28 years of 4% annual withdrawals, and 50% stock market declines in 2000 and 2008, my retirement portfolio has exploded in value compared to what I started with in 1994.

And you didn’t need to buy DELL and Pfizer 30 years ago to do it. Any number of reasonably diversified portfolios would have gotten you there.

2021 Update – Real-Life Retiree Investment Returns
https://retireearlyhomepage.com/reallife22.html

intercst

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27

Even for a few years, 7% scares me today. S&P down 20%. So the dollars that there were 7% in January would be 8.75% today.

That’s the whole purpose of holding cash (+other non-volatile investments) for the money I need in the short term (until I start taking SS). By having that asset allocation, I’m down way less than 20%.

Another way of looking at the withdrawals is that I’m taking 3% from the “long term” portfolio that’s designed to last 35+ years, plus taking one fifth of the “all cash” savings account in the year I’m 62, then will take one fourth in the year I’m 63, etc. The savings account will run out in the year I turn 67.

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28

Travel and do stuff when you can, because later on it may not be possible.

The purpose of money in retirement is to be able do DO things, not to have the best grade of gruel spooned into your mouth in the old-age home.

Sure, and there will be many who have no option but to take SS early if they want cash to spend. However, that does not make it a lesser option to consider taking SS at FRA or 70 for those of us with plenty of cash to spend before taking SS. Taking SS now would not improve our ability to travel, even if conditions for travel were perfect. Postponing SS to 70/FRA for DH and I maximizes the safety valve quality for us, which was the original intent of SS, and the one method I’ve identified towards protecting ourselves from ourselves as we age, a critical need given the way Dad declined mentally and the Alzheimer’s that runs in my family.

Not all investment strategies are best or even possible for everyone. That does not mean they are not valid strategies to understand and run the numbers for, to see if they make sense for you.

I know this question has been asked many times before, but if you answered, I don’t recall the reply. If you had not been drawing on SS, would you not have been able to go on your cruises?

IP

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29

After 28 years of 4% annual withdrawals, and 50% stock market declines in 2000 and 2008, my retirement portfolio has exploded in value compared to what I started with in 1994.

I seem to remember you saying you live on 1%, so were you really taking 4% the past 28 years?

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30

Retired at 52.5 some 23 years ago now.

Portfolio was 70% stocks, with IRA about 50/50 stocks/vs bonds/REITS/GNMA

IRA keeps climbing even with now 4%+ RMDs.

Did tons of travel when first retired - for 10+ years. Then slowed down a bit. Lots of overseas trips, Asia, Europe. Weeks at a time.

Hit my 70s and slowed down a bit. Seen enough of Europe and hit most of the things I wanted to see and visit.

I like the Scott Burns approach to retirement - as noted in Spend to the End. Most people can make the most of their retirement savings EARLY in their retirement. Later, they tend to travel less and spend less. Hit your 80s and you’re likely not off for weeks at a time. Part of what folks call ‘consumption smoothing’.

https://www.cfainstitute.org/en/research/financial-analysts-…

https://books.google.com/books/about/Spend_Til_the_End.html?..

t

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31

If you had not been drawing on SS, would you not have been able to go on your cruises?

Don’t know, but do know that it would have been a lot tighter.
Going from memory, our SS was about $33,000/yr when we started it at 62.
The 13 day River cruise Moscow to St. Petersburg cost $11,000 total.
The average cost of our cruises & travel, 2009-2017, was $22,100 per year. Blown waaaaay up by the 80 day Asia & Pacific rim cruise at $65,000.

So the early SS more than covered all the cruises.

Last cruise was in 2019. Because ALL TRAVEL SHUT DOWN.
The Moscow to St. Petersburg river cruise was in 2018. If we had waited to 2019, we wouldn’t have been able to go. And, of course, now you also couldn’t go. Unpredictable when US citizens will be able to go again.

St. Pete was beautiful. The Hermitage, Church of the Spilled Blood, etc. Lots of history and neat & beautiful buildings. Hydrofoil boat from The Hermitage to Peterhof.

"Currently unavailable...unavailable to book via Tripadvisor." Duh!

But to get back to your question, “If you had not been drawing on SS, would you not have been able…”

It’s not about me. Not about our personal situation.
It’s a general point, that you can do things at 62 that you might not be able to do at 70+, and you cannot spend money at 62 that you won’t get until 70.

It would be a shame to eschew travel & other things just so you’d have more monthly income at 70—and then at 70 all you can do it look at travel brochures.

As the saying goes, nobody on their deathbed says “I wish I had spent more time at the office instead of with family.”

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32

The down side of dividends is that stock holder is forced to recognize income at the convenience of company whose stock is held. If the stock holder sells stock to cover their cash needs, the income is recognized when they chose.

The upside of dividends, you get them like clockwork*. I know my budget is X and my dividends are X+Y so I’m good. Stock market down 30% this year and 10% next year, doesn’t matter. No worries about will my portfolio grow enough to make up for the loss and I don’t find myself looking to trim the budget in year 5. I just find it easier to plan when I know I have a certain amount coming in.

JLC

  • there is always the chance a dividend is cut or eliminated but there are ways to stack the odds in your favor.
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33

The upside of dividends, you get them like clockwork*.

This is true for those who need cash like clockwork. Some people do, others don’t. What is missing from the discussion about dividends is that it isn’t one size fits all, there are situations which make dividends a good or bad fit.

What follows not specific about this thread.

The same lack of discussion is true with Roth vs. Traditional IRAs, Roth IRAs aren’t automatically the best fit, the answer is it depends (and here’s the criteria… )

This group is were people come for information relevant to their specific situation. Generic answers, such as dividends and Roth IRAs without explanation of how it fits their situation, does them a disservice.

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34

It would be a shame to eschew travel & other things just so you’d have more monthly income at 70—and then at 70 all you can do it look at travel brochures.

Very much agree, but IP’s question goes more to whether you need SS at 62 or 65 to travel and enjoy yourself or whether it is just accumulating in some bank account. If you already have plenty (as she apparently does), you can delay SS without any meaningful loss of activity or purchasing power. If living expenses, including lots of travel, would be ‘tight’ then it certainly makes sense to take SS as early as you can.

This conversation (once again) goes under the heading of “different strokes for different folks”.

Pete

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35

IP writes,

Sure, and there will be many who have no option but to take SS early if they want cash to spend. However, that does not make it a lesser option to consider taking SS at FRA or 70 for those of us with plenty of cash to spend before taking SS. Taking SS now would not improve our ability to travel, even if conditions for travel were perfect. Postponing SS to 70/FRA for DH and I maximizes the safety valve quality for us,

Exactly!

What people don’t understand is that delaying SS to age 70 actually increases the money you can safely spend age 62 to 70 because it increases the amount of money you’ll likely have over you’re lifetime by about $200,000 for a couple. You don’t need to wait until you’re 80 to spend that SS windfall. You can shift it forward and spend it now if you know you’re unlikely to want to take a cruise when you’re older.

intercst

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36

As the saying goes, nobody on their deathbed says “I wish I had spent more time at the office instead of with family.”

No, but your kids might say that of you if they are the ones spooning that gruel into your mouth.

It’s a general point, that you can do things at 62 that you might not be able to do at 70+, and you cannot spend money at 62 that you won’t get until 70.

Luckily for us, spending time in crowds is not our idea of a good time, so we continue to go to our vacation home and rent vacation rentals that we can drive to…all while putting our SS on hold until we get older.

IP,
not at all deprived

37

This conversation (once again) goes under the heading of “different strokes for different folks”.

And run your numbers…

IP

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38

fdoubleol asks,

I seem to remember you saying you live on 1%, so were you really taking 4% the past 28 years?

The “4% rule” is take 4% of you initial portfolio balance, and adjust that initial number for inflation each year. So if I was taking $40,000 from a $1 million portfolio in 1994, I’d be taking $74,810 for 2022 with the inflation adjustment.

If my portfolio had increased tenfold from $1 MM to $10 MM, $74,810/year is less than a 1% withdrawal.

(Note: Those aren’t my actual numbers, but most TMF long-timers know that I’ve been a long-term buy and hold (LTB&H) investor in Tech and Drugs for the past 35+ years. After I retired in 1994, DELL and Pfizer exploded in value and I made a few million just from that. And I never bought a boat, nor “invested” in real estate, so that windfall has just been compounding in the stock market for the past 25 years.

You might ask, “If you have $10 MM, why aren’t you spending $400,000/year?”. The answer is that “I would, if I could find anything that provided $400,000/yr of value to me.”

For example, I could afford a 5,000 SF home, but I’d feel stupid paying property taxes and utilities on a lot of space I’m not using. Not to mention the fact that single family real estate tends to be a terrible investment versus the stock market.

So the lesson from this is that early retirement really isn’t about the money. I’ve found that the true luxury in life is “Not having anything you have to do, and not having anyone you have to report to.” (Obviously, I’m not married.)

intercst

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39

JLC analyzes,

The upside of dividends, you get them like clockwork*. I know my budget is X and my dividends are X+Y so I’m good. Stock market down 30% this year and 10% next year, doesn’t matter. No worries about will my portfolio grow enough to make up for the loss and I don’t find myself looking to trim the budget in year 5. I just find it easier to plan when I know I have a certain amount coming in.

I try to keep my dividend income well below 50% of my annual spending, then get the remainder from capital gains where I control the timing of the income tax liability.

I see little utility in having dividend income in excess of my annual spending needs, paying taxes on that dividend income, and then reinvesting it. Much better to just let that money remain invested and compounding without taking the income tax hit.

But that’s just me.

intercst

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40

Hi Intercst,

4% rule: I ran some sims using market data and I see that retiring in 1994 was not a bad year to do so but of all the 100+ years one could have retired, certain years are more difficult. For example I saw that retiring at the end of the sixties, the terminal value (after 40 years given my conditions) would have been considerably less than if one were to retire in the 40s or in the 80s. In recent past, it seems that retiring in early 80s would have given the highest terminal value after 40 years.

Based on a portfolio that would ‘track the market’ and assuming similar market statistics for the next 40 years, the difference in terminal value can be quite large depending on the period of time the retirement is initiated.

If one has taken his or hers retirement at the end of 2021 at the peak of the market. S/he would be down 20 or 30% or more down after they took their initial 4%. What would you tell them? you are fine. Just follow the 4% rule (initial 4% and same yearly sum+inflation adjustment)?

Besides investing, from where have your income and cashflow come from? if all have come from your portfolio, do you simply put your money in indexes or do you manage your portfolio’s composition?

Your item#1 has been something I have been considering. If you can control your income draw, you may be able to take advantage of subsidized and lower medical insurance rates. I was quite surprised at this when I first saw that.
Item#2: how much differential would you estimate taking s.s. at 62 vs at 70yol? I assume that in the limit, this difference would be similar?