Yesterday's post about taking 4% of principal as retirement income from the portfolio elicited a couple of opposing views which makes for a good debate.It is possible that this decade ends up being breakeven (or worse) for equities. While a ten year hitch with little to show is not unprecedented you figure most people have three to three and half decades to accumulate money. It seems like most people don't save much in their 20s but maybe that is wrong. So they have their 30s, 40s, 50s and a few years in their 60s.
Once we get out of this funk domestic equity returns could be a few percentage points below normal for a while and folks may not put enough in foreign or other assets to make up for weak domestic results.
How many people are going to be able to save more money? It would be difficult for someone saving 10% to say to themselves 'equities might be in trouble I need to up my savings to 20%' and then actually follow through on that.
How many people can look at the things they spend money on and realize 'hey I need to spend less money starting right now' and then actually do it?
It seems like the biggest risks to a successfully executed financial plan are poor investment results (either from the market or bad decisions made), not enough saved or spending too much. Another risk is inflation but I think that is less about poor execution than just how the chips fall. Another element is the idea of retiring early like at 55 or 60. So being cynical for a moment, people want to retire ten years early, spend as much as they want, never have a bear market again and not have to do anything in retirement but play golf and travel.
Well, something will have to give.
If a plan does not allow for snags and then there is a snag; big trouble. I've written about this topic quite a few times and I think the way to come at it is figuring how to take pressure off the portfolio. Working (either retiring later or post-retirement work) is one way to relieve portfolio pressure.
I've mentioned what a couple of retired people I know do for income before, one new one is a friend who does dog sitting, has more work than she wants and covers about 1/4 of her expenses. Finding something the can be part time to cover a meaningful chunk of the monthly budget can be the thing that gets a person under 4% thus becoming a real difference maker.
One outside the box idea that will appeal to some people is working in professional sports. I got an email from Major League Baseball (something I apparently subscribed to through redsox.com) about job opportunities throughout major league baseball like operating the electronic strike zone equipment and a couple of other things.
We have three minor league teams here in Prescott and they each provide about three or four months of seasonal work to all sorts of people who are on the ball enough to check it out.
The possibility of having to give something up is difficult for many people to accept. People who can come to grips with this have a better chance of their plan working out the way they hope.
10 comments:
With 2/3 of our economy depended on consumer spending, wouldn't we be in the tank if people wised up and started saving more rather than spending all of their money on crap they don't need and going into debt? Isn't this the type of thing that has screwed Japan?
the savings rate in Japan is much higher than ours could ever be (subjective opinion). The savings rate in Japan is one of several things that have hurt them. I believe that an adjustment period of transitioning to a higher savings rate would be, in the long run, more benign that the consequence of a zero savings rate (zero isn't right because of how 401ks are counted). Further, very few people will actually increase there savings rate.
I do not think you consider poor health of a spouse or yourself enough. This does not mean a nursing home, but might mean working in retirement can be more difficult or less profitable.
I still think planning on 3% for retirement even if only as a back up plan as prudent. I think planning on working longer while you are healthy is also prudent.
I do agree with you that work in retirement is a good idea for most be it part time or seasonal if feasible.
I semi retired in my 40's and plan to work to 70+. I decided part time work made for a better life even if I need to work longer in life.
Roger, can/would you comment on how your investing process varies for retirees? I understand the disclosure issues and ask only in the spirit of borrowing process that you advocate. Thanks for whatever you can share.
How did I not know that iShares had ETF allocation portfolios (not the target retirement ETFs)? Those might be an interesting thing to compare performance to.
The job of the advisor is to manage the clients' accounts in such a way that the client does not have to go back to work. If the advisor can't do that, then what the heck is he being paid for? Maybe the advisor should look for other work or at least charge no fees when he can't get above a certain minimum return, say the return on 10 year treasuries. Are there that many incompetent advisors out there that they can't even do that? What the heck are investors paying for then? Might as well be in cd's at the local bank. Geez, telling people to go back to work so they can pay an advisor who lost half their money. Give me a break.
When you hire a professional for advise, whether that is a Doctor, a Lawyer, an accountant, a plumber, or a financial advisor, you get an opinion from a knowledgable individual. It's not uncommon to get conflicting opinions, and experts can be wrong.
Why would you expect a financial advisor to always be right? What you pay for, based on what I've determined from my own research, is a consistent philosophy of management, strategy, and goal setting. Most people don't have this discipline by themselves, or their time is better employed in making money through their own profession than managing their own money. anon 3:32, Doctors misdiagnose patients all the time. Lawyers lose cases. Accountants give bad tax advise. Why should you hold financial advisors to a higher standard, assuming they were not guilty of neglect or criminal behavior?
Sam
anon 3:32 I am assuming you do not have an adviser and you probably never should.
one other thing i would add to anon 3:55's comments. lets say that this turns out to be the depression all over again and US stocks drop 80%. what if in the time stocks drop 80% your adviser only loses you 25%? would that result be worth paying for?
Dear Roger,
Hi there, my name is Sam. I was just reading through your blog tonight and I really enjoyed the investment information you've posted - I think my readers would too.
I have a blog that I call "Residual Income Business" which seems to compliment the content on your blog. You can find it here: http://www.income-king.com.
Since our blogs relate in topic, I thought it would benefit both of us and our readers to exchange Blogroll links. Please shoot me a quick email (income.king.blog@gmail.com) if you're interested and I'll put your link up right away!
I've been putting lots of design work, copy writing, and energy into this website and I'm planning on growing it to a fairly large level over the next 6 months to 1 year.
Thanks in advance and hoping we can do this exchange!
Warm regards,
Sam
Be disciplined. While its good to go to the movies, dine, have a binge once in a while, don't compromise on the money you have decided to set aside every month for retirement. And importantly do a 'cost-benefit analysis'. If the Rs 1,000 you spent on movies and dinner last week was instead invested in an equity fund, it would have grown to nearly Rs 20,000 (at 10% compounded growth) after 30 years!
Retirement Plans, Retirement Savings, Retirement Investments,Retirement Income, Retirement Funds,Home based Business
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