# What's worse than lottery tickets? **URL:** \ **Category:** Macro Economic Trends and Risks\ **Created:** [November 12, 2024, 9:13pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237 "2024-11-12T21:13:15Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Hawkwin](https://g.foolcdn.com/misc-assets/discourse-member-avatar_120px_green600.png) [@Hawkwin](https://discussion.fool.com/u/Hawkwin)\ **Post date:** [November 13, 2024, 1:48pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/22 "2024-11-13T13:48:58Z")
> [@darrellquock](#): > > I will try and maximize experiences , not maximize returns that won’t make a difference. Statistically, you will be able to spend MORE (both before and after you turn on SS) if you wait to take SS. ---
**Author:** ![Hawkwin](https://g.foolcdn.com/misc-assets/discourse-member-avatar_120px_green600.png) [@Hawkwin](https://discussion.fool.com/u/Hawkwin)\ **Post date:** [November 13, 2024, 1:51pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/23 "2024-11-13T13:51:50Z")
> [@iampops5](#): > > then sequence risk is irrelevant. Absolutely not. That is not how the math works. You can have two investments with the same 10%,10 year return but if the first two years are terrible (commonly referred in industry as “Bad Timing”), then your personal rate of return will likely be half as much, or just 5%. ---
**Author:** ![Hawkwin](https://g.foolcdn.com/misc-assets/discourse-member-avatar_120px_green600.png) [@Hawkwin](https://discussion.fool.com/u/Hawkwin)\ **Post date:** [November 13, 2024, 2:16pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/24 "2024-11-13T14:16:38Z")
> **[Don’t Let Sequence of Returns Risk Cook Your Goose](https://www.kiplinger.com/retirement/sequence-of-returns-risk-can-ruin-your-retirement)** > > Adjusting your portfolio to minimize the sequence of returns risk could help your money last well into retirement and beyond. Here’s a hypothetical example of how the sequence of returns can affect your retirement outcome. Let’s say we have two investors, both of whom start retirement with [$1 million](https://www.kiplinger.com/retirement/tax-planning-strategies-if-you-have-a-million-dollars) and a plan to withdraw $50,000 a year. Over the next 30 years, **they experience the exact same average rate of return (6.3%),** but their annual returns occur in the opposite order. … ![image](https://us1.discourse-cdn.com/motleyfoolfree/original/3X/c/8/c8f187aa9172b18390892adbf1ffc4cc53888287.jpeg) More details at the link. ---
**Author:** ![DrBob2](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/drbob2/32/3456_2.png) [@DrBob2](https://discussion.fool.com/u/DrBob2)\ **Post date:** [November 13, 2024, 2:19pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/25 "2024-11-13T14:19:47Z")
> [@iampops5](#): > > If the long term S&P returns are 10% plus, and I am withdrawing money that I don’t need, then sequence risk is irrelevant. Very true. Also, the 4% (or 3% or 5%) withdrawal rate is irrelevant for those who have more money than they can spend before they die. And for those at the lower end of the scale, the withdrawal rate is also irrelevant because there is nothing they can do to make their small savings stretch far enough. It is only for those in the middle who need to worry about such things… DB2 ---
**Author:** ![MarkR](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/markr/32/2011_2.png) [@MarkR](https://discussion.fool.com/u/MarkR)\ **Post date:** [November 13, 2024, 3:25pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/26 "2024-11-13T15:25:14Z")
> [@DrBob2](#): > > And for those at the lower end of the scale, the withdrawal rate is also irrelevant because there is nothing they can do to make their small savings stretch far enough. I don’t think this is true. Let’s take an extreme example of someone (lower end of the scale) who can take Social Security at age 65 of $25,000, they can live on exactly $25,000 a year, and they have $25,000 in a savings account. They have two choices: 1. Take SS at age 65 of $25,000, and it remains at $25,000 for the next 25 years (let’s assume they live till 90) 2. Use the $25k savings account for a year, and take SS at age 66 of $27,000 ($25k + 8%) instead. Which choice is better FOR THEM? They are lower end, they don’t believe in investments, and think that they surely will be fleeced if they even try (and often that is true, they will be). So they would keep their meager savings in a savings account that sometimes barely keeps up with inflation and most of the time trails inflation by a small bit. Or they can spend down their meager savings in return for an extra $2k a year inflation adjusted “forever”. I’d argue that the second option is the better choice (with the obvious nitpicking of an additional emergency account stashed somewhere, or the ability to spend a little less than $25k in most years, or whatever assumptions you want to make about a typical lower end retiree). ---
**Author:** ![iampops5](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/iampops5/32/1543_2.png) [@iampops5](https://discussion.fool.com/u/iampops5)\ **Post date:** [November 13, 2024, 6:45pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/27 "2024-11-13T18:45:08Z")
I don’t see how your hypothetical scenario has anything to do with my situation. Your scenario covers $1M invested on day one. I am talking about investing monthly SS checks starting at FRA. Even if I suffered a 50% crash at the end of the first year, only that (roughly) $40k would lose half its value and subsequent purchases would pick up twice as many shares at half the price. And so on with millions of variable outcomes. I may well have just gotten lucky but we at least need to compare apples to apples to learn from each other. ---
**Author:** ![Hawkwin](https://g.foolcdn.com/misc-assets/discourse-member-avatar_120px_green600.png) [@Hawkwin](https://discussion.fool.com/u/Hawkwin)\ **Post date:** [November 13, 2024, 6:55pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/28 "2024-11-13T18:55:42Z")
> [@iampops5](#): > > I don’t see how your hypothetical scenario has anything to do with my situation. Your scenario covers $1M invested on day one. I am talking about investing monthly SS checks starting at FRA. Sequence of return risk still exists. I am not going to belabor this topic as we have discussed it here ad nauseam and you have already made your decision. I will simply state that unless you run your own Monte Carlo analysis, you will never know for sure. At best, you are making a guess and even when you think you are right, the math may say you were always wrong, especially if you live into your 90s. It may never feel wrong (that is the way our brains work on such confirming decisions) but again the math may show otherwise. ---
**Author:** ![syke6](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/syke6/32/26265_2.png) [@syke6](https://discussion.fool.com/u/syke6)\ **Post date:** [November 13, 2024, 7:05pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/29 "2024-11-13T19:05:07Z")
> [@iampops5](#): > > It seems to me that there is some sort of noneconomic value in maximizing your money while you are young enough to enjoy it. There totally is. The point is that in most cases delaying SS allows you to safely spend **more** money in the earlier years. ---
**Author:** ![iampops5](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/iampops5/32/1543_2.png) [@iampops5](https://discussion.fool.com/u/iampops5)\ **Post date:** [November 13, 2024, 7:17pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/30 "2024-11-13T19:17:19Z")
I ran multiple variations of Monte Carlo analyses before I retired and participated in hundreds of conversations at the old tmf on that topic. I agree that a $1M investment on day one of retirement can produce really disastrous long term results if you suffer a massive crash early in retirement. But retiring at 67 and putting monthly SS checks totaling $40k that year only subjects that $40K to sequence risk. No matter how disastrous your early returns during those first four years, only that money is subject to sequence risk. Even if my analysis is flawed, your criticism makes no sense to me. ---
**Author:** ![Hawkwin](https://g.foolcdn.com/misc-assets/discourse-member-avatar_120px_green600.png) [@Hawkwin](https://discussion.fool.com/u/Hawkwin)\ **Post date:** [November 13, 2024, 7:21pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/31 "2024-11-13T19:21:11Z")
> [@iampops5](#): > > But retiring at 67 and putting monthly SS checks totaling $40k that year only subjects that $40K to sequence risk. That isn’t really the risk. What did you live on at 67 when you took SS and instead of living off of it, reinvested it? Did you pull from investments or spend down cash? > [@iampops5](#): > > Even if my analysis is flawed, your criticism makes no sense to me. That is OK, that is why I am not trying to belabor this topic or otherwise convince you. You already made your decision and even if I could convince you, it would provide you no value. ---
**Author:** ![iampops5](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/iampops5/32/1543_2.png) [@iampops5](https://discussion.fool.com/u/iampops5)\ **Post date:** [November 13, 2024, 7:33pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/32 "2024-11-13T19:33:48Z")
Agreed. But if you don’t need the money and have enough to spend either way, monthly purchases of stocks with early SS checks collected increase your likely long term returns with money you don’t need and with less risk than putting $1M at risk on day one of retirement. A first world problem to be sure. I am sorry I started the conversation to be honest but I felt I owed you and hawkwin a reply. ---
**Author:** ![syke6](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/syke6/32/26265_2.png) [@syke6](https://discussion.fool.com/u/syke6)\ **Post date:** [November 13, 2024, 7:44pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/33 "2024-11-13T19:44:38Z")
No need to be sorry and I appreciate the reply, I’m just not understanding what you are saying. ---
**Author:** ![iampops5](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/iampops5/32/1543_2.png) [@iampops5](https://discussion.fool.com/u/iampops5)\ **Post date:** [November 13, 2024, 7:49pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/34 "2024-11-13T19:49:45Z")
I am either wrong or inarticulate or both. If $40,000 invested the first day of retirement subjects me to the same amount of sequence risk as putting $1M down on the first day of retirement, then my risk assessment is flawed. ---
**Author:** ![Hawkwin](https://g.foolcdn.com/misc-assets/discourse-member-avatar_120px_green600.png) [@Hawkwin](https://discussion.fool.com/u/Hawkwin)\ **Post date:** [November 13, 2024, 8:34pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/35 "2024-11-13T20:34:52Z")
> [@iampops5](#): > > the same amount of sequence risk Not the same, but it still exists. What did you live on when you turned on SS? Did you spend down cash or take income from at-risk investments? You don’t need to answer. I will use a hypothetical. If a person spent cash for three years, then all they really did was move move cash into the market for those three years by taking cash out of SS and investing it - a shell game. All else being equal, one would have more lifetime income by already having that cash invested in the first place and take income from it instead of pulling it from SS. If one instead pulled from investments (the preferred solution), then one may subject their SS to a higher tax rate. They would also have to take out more from investments for those 3 years (no spending of the SS) and because they took SS earlier than necessary, they would have to take more from those investments later in life to make up the difference - increasing the risk a bad year or two could ruin the lifetime income. Note, all of this is based on an assumption that a person is trying to maximize their lifetime spending and that their life expectancy is into the mid to late 80s - and that they never make any market-timing adjustments. YMMV. ---
**Author:** ![iampops5](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/iampops5/32/1543_2.png) [@iampops5](https://discussion.fool.com/u/iampops5)\ **Post date:** [November 13, 2024, 8:52pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/36 "2024-11-13T20:52:15Z")
Last question only because I feel I can learn from you, syke6 and intercst because i am often wrong and don’t know it. If you decide to retire at 67 and delay to 70, and the markets suffer a huge crash, I assume you spend your cash first rather than spend down your crashing stocks. Which means you kept 3 years’ worth of money in underperforming cash which is also a drag on returns. True? ---
**Author:** ![jerryab2](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/jerryab2/32/3274_2.png) [@jerryab2](https://discussion.fool.com/u/jerryab2)\ **Post date:** [November 13, 2024, 8:57pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/37 "2024-11-13T20:57:48Z")
> [@iampops5](#): > > the markets suffer a huge crash, I assume you spend your cash first rather than spend down your crashing stocks. Unanswered question: Are the crashing stocks likely to bounce back? Or are they headed for bankruptcy? Sell the likely-BK stocks (get something rather than nothing), otherwise keep the ones that likely will recover. The future value of the recovered stocks will likely far outstrip any return you could get on current cash in a reasonable market. ---
**Author:** ![Hawkwin](https://g.foolcdn.com/misc-assets/discourse-member-avatar_120px_green600.png) [@Hawkwin](https://discussion.fool.com/u/Hawkwin)\ **Post date:** [November 13, 2024, 9:05pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/38 "2024-11-13T21:05:34Z")
> [@iampops5](#): > > If you decide to retire at 67 and delay to 70, and the markets suffer a huge crash, I assume you spend your cash first rather than spend down your crashing stocks. Great question! Assuming one has cash, then yes - but your question illustrates the additional opportunity you can provide yourself by waiting. That crash may not come at age 67 but instead at age 68 or 69. That may then be an outstanding time to then turn on SS (again, assuming you don’t have cash to spend). In doing so, you have now removed that Bad Timing from your withdrawal strategy. In other words, be delaying (and giving yourself that opportunity) you have reduced the potential for Bad Timing. > [@iampops5](#): > > Which means you kept 3 years’ worth of money in underperforming cash which is also a drag on returns. If one kept cash, they very likely would have been **worse off** if the market gained 30% over the next 3 years and took SS and dollar-cost averaged in to equities than if they had that cash fully invested and dollar-cost averaged out and left SS alone with its 8% annual increase. Excess cash is for comfort but it actually reduces one’s odds of maximizing income. Hawkwin Can’t argue much with comfort. ---
**Author:** ![Goofyhoofy](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/goofyhoofy/32/4721_2.png) [@Goofyhoofy](https://discussion.fool.com/u/Goofyhoofy)\ **Post date:** [November 13, 2024, 9:53pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/39 "2024-11-13T21:53:39Z")
Lost in this thread is the value of a dollar to someone who is 63 versus the value of that same dollar when they are 83 (or 93.) I think if you polled the older people on this board whether there is a difference between those two dollars you would find a resounding “yes” as an answer. But I would agree if the object of your particular game is to end up with the biggest pile of George Washington’s when you die, then waiting and stacking the resulting increases up in your closet is a better alternative. ---
**Author:** ![iampops5](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/iampops5/32/1543_2.png) [@iampops5](https://discussion.fool.com/u/iampops5)\ **Post date:** [November 13, 2024, 11:29pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/40 "2024-11-13T23:29:42Z")
In the actual event I did increase my cash position at the end of 2021 and said so at the time because I thought the markets were severely overpriced, and I decided to start averaging my SS in in the summer of 2022 because they were selling at a much lower price but I didn’t know when to get back in so I dollar cost averaged. In hindsight I may have been wrong but lucky. Thanks for the discussion. Sometimes I learn new things by revisiting topics even though they have been beaten to death and taken to the glue factory. ---
**Author:** ![MarkR](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/markr/32/2011_2.png) [@MarkR](https://discussion.fool.com/u/MarkR)\ **Post date:** [November 13, 2024, 11:43pm UTC](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237/41 "2024-11-13T23:43:50Z")
> [@Goofyhoofy](#): > > Lost in this thread is the value of a dollar to someone who is 63 versus the value of that same dollar when they are 83 (or 93.) I think we are talking about two different things. If a retiree (or retiree couple) at age 62 (or 63, 65, 67, whatever) don’t have enough money to properly enjoy their retirement while they still can (before their bodies deteriorate too much) then of course I say they should take the social security money and use it. But that isn’t what we are talking about here (for the most part). We are talking about a person/couple that HAS two (or even three) sources of income in retirement and _chooses_ to take the social security money early because of “I can take it at age 62 and invest the money in the stock market”. The case here is a retiree/couple that HAS some money saved, and the choice being made is to either take social security early for that extra cruise or two, or to spend their own savings on that extra cruise or two (while they are still healthy enough to enjoy it). Either way they will take that extra cruise or two. And the math (actuarial and probability and risk) tells us that for the vast majority of such people, it is better to spend your savings and take the social security later. Basically, it’s stating that it is better to take a guaranteed level annual 8%, inflation adjusted, tax deferred, no-fee, return for 8 years (age 62 to 70) than to invest in some variable return, taxable, not necessarily inflation adjusted, with fees, investment for those 8 years. Saying someone should deny themselves gratification now in return for gratification in the future is an entirely different discussion (heck, it’s the very basis of saving for retirement!). And the age at which denied gratification should end is also another discussion. [Previous page](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237.md?page=1) [Next page](https://discussion.fool.com/t/whats-worse-than-lottery-tickets/110237.md?page=3)