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Alright retirees, how'd you do it?

I've been wanting to retire since I started working.  While I wanted to retire "young," a few bear markets got in the way, so I'm no longer that young but (hopefully) less than 5 years away.  I could make it 10, but would rather not.  I've been pushing it back for years.  At some point, I'll be dead.  And that would suck.

But figuring out my "retirement" portfolio is a head-scratcher.  I want to start transitioning to it, maybe test drive it a little, so I don't get it wrong.  It needs to last 40 years (at least I hope it needs to).

I've read a ton of stuff with wildly different advice.  Bucket strategy vs. 4% withdraw vs. 50% stocks vs. 20% stocks vs. dynamically increasing stocks over time, to whatever some non-retired MBA thinks will get more clicks.  

So forget all that.  There are a bunch of smart people here with their own retirements that they didn't get wrong. So how'd you do it?  What'd you buy?  What would you have told yourself to start doing 5 years before you retired?

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Re: Alright retirees, how'd you do it?

I think the main thing is construct a lifestyle that can be easily supported by the capital + retirement income you actually have. 

For me the key thing has been to keep "fixed costs" (required monthly expenses) to a minimum. That means no debt servicing, minimal taxes, house fully paid off, etc.

I wouldn't be happy if I had to count on Mr. Market, so I make no assumptions about future returns. Basically, I just use investment returns for discretionary things, like a owning a holiday home. All "fixed costs" are covered by SS, pension, and rental income; that includes food, property taxes, medical care, transportation, etc.

Investment strategies are not critical. Future returns are unpredictable. The Covid-19 crash may or may not be one in a series. With bonds yielding almost nothing, we're forced to take risks. But, I can't control the outcome. All I can really control is how I live and what I spend.

Maybe read Taleb's "Anti-fragile" book?

Hope that helps.

N.

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Re: Alright retirees, how'd you do it?

I second Norbert’s points. Not having a pension (other than S.S.), I’m more dependent than Norbert on investment returns. My investment approach has been to keep 40% to 50% of financial assets in stocks, the rest in low-volatility assets. (Usually TREA, otherwise MM. Have always expected bonds to be undone by rising interest rates. Maybe one day they finally will be!) So, I have the comfort of knowing that I could go a very long time without having to sell stocks when they’re down. I’m too lazy to bother with a formal budget, but I have a sense of what I can reasonably spend in a year, given my assets and my life expectancy. I retired in 2013, and some of my indulgences will be coterminous with the bull market.

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Re: Alright retirees, how'd you do it?

Different strategies work.  The bucket approach works.  The "4% rule" works.  So does the percent of portfolio method and others.  What you pick depends on how involved you want to be in trading investments and how stable you want your income to be.  It is not once size fits all.

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Re: Alright retirees, how'd you do it?

Hi.

I like Nobertc's response. Right on. I looked at what my guaranteed income contracts would provide (SS, State plans etc.) and not so much an investment plan to meet our needs. We looked at how we spent, the variable in retirement finances that we have the most control over and not so much on anticipated income we had little control over once invested. We keep  enough cash to cover the difference between income and spending if negative to cover 2 years of spending before selling investments. All of this is not rocket science and this information is quiet available. What I have noticed is that many pre-retiree's do not do a very good job of predicting their spending for their new lifestyle. I have often seen where they spend more in retirement than they did when working. One thing I suggest you be is debt free before getting too excited about retiring if you are in the average range of wealth.     Good luck, BTW, what day is this? It has been that long for us.

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Re: Alright retirees, how'd you do it?

Norbert has provided you with a fundamental premise:

"All I can really control is how I live and what I spend."

Bob (20 years retired)

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Re: Alright retirees, how'd you do it?


@unbiased2020 wrote:

I've been wanting to retire since I started working.  While I wanted to retire "young," a few bear markets got in the way, so I'm no longer that young but (hopefully) less than 5 years away.  I could make it 10, but would rather not.  I've been pushing it back for years.  At some point, I'll be dead.  And that would suck.

But figuring out my "retirement" portfolio is a head-scratcher.  I want to start transitioning to it, maybe test drive it a little, so I don't get it wrong.  It needs to last 40 years (at least I hope it needs to).

I've read a ton of stuff with wildly different advice.  Bucket strategy vs. 4% withdraw vs. 50% stocks vs. 20% stocks vs. dynamically increasing stocks over time, to whatever some non-retired MBA thinks will get more clicks.  

So forget all that.  There are a bunch of smart people here with their own retirements that they didn't get wrong. So how'd you do it?  What'd you buy?  What would you have told yourself to start doing 5 years before you retired?


           Well my wife and I team managed 2 retirement portfolios of our Depression era parents from 1982-2017. We basically took orders the first 20 years on how they wanted that done. They had a great distrust of markets and specifically dependence on any printed advice. They all wanted a customized investment portfolio specific to their needs which we provided. Utility stock income to cover current needs with everything else held in reserve.

            Being as sharp as we thought we were naturally in our well educated minds there was no way that would work long term. As the years passed we developed the same skepticism of Mr. Market and now invest the same way with modifications of what we saw as correctable flaws, specifically a bigger reserve is needed for sudden permanent income changes.

             We semiretired at 59.5 and 48 respectively when we could get our hands on our TIRA with no penalty. We took over or helped manage and eventually deconstructed a joint family business over the next 6 years. So I suppose we had an option to ease out, live partially on TIRA income letting us run up SS close to the family max at that time of about 5.2k a month off the top of my head.

               In the end instead of utilities we converted our TIRA to CEF’s to provide nearly 2x income to needs with the excess compounding in PONAX at 5%. Volatility is then our friend some years at RMD time. Our taxable account is all held in reserve. Our assets are split in half and income from the TIRA is transferred each month to a cash account and all excess income in the TIRA gets auto invested in PONAX. So we have a perpetual money machine compounding at twice our personal inflation rate not as dependent on markets or market movers, with little stress, maintenance or work, more leeway to be free spenders, fewer decisions and not requiring as much mental capacity which is important to us as we age. No rules, studies, allocations, buckets etc, either. We became just like our parents, big surprise. 😂

                *The utility method lasted until early 2017 and was modified with index investing and some CEF’s when they completely turned everything over to us including bill payment in early 2000 or so.

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Re: Alright retirees, how'd you do it?

For my wife and I to retire, we had to deal with the reality of how all those ongoing expenses, that continue after we discontinued "employment related income".  For many retirees, they continue to receive "employment related income" in the form of pensions from their employer, as well as health related coverage, from their previous employer.  Others used their "employment related income" while working, to create retirement income by purchasing annuities with their employment savings, purchasing rental homes with their employment savings, and waiting until they were 65 to get Medicare. 

For us personally, my wife and I maximized employment 401/403/457 retirement plans while working, and built up a large enough mutual fund investments, that we could count on to cover expenses, if we did not take too much riskiness that could deplete them in a market crash.  We created large enough savings accounts, that we could live on them for at least 6 months, in case we lost our jobs while working.  We covered  healthcare costs through Medicare health plans, and we never bought new cars.  When our old cars quit working, we would buy a better used car to replace it.  With homes, we paid off our mortgage while still working, and when we moved, we made sure we could purchase a new home with the proceeds from the sell of our previous home.  My wife and I live frugally, without a company pension plan, by controlling our expenses, investing very conservatively to not threaten our principal, and living on Social Security and Medicare, plus Required Minimum Distributions from our IRAs (Converted all of our 401/403/457 company retirement plans to a consolidated IRA).

So our retirement plans started very early while still working, and carefully managing resources that would be necessary when we stopped working, being clear on income streams we would have after retirement, and ensuring we covered healthcare as part of our plan for retirement.  We did not have those golden parachute pension plans after retirement, so we developed a very frugal IRA asset plan that would not require aggressive riskiness after we retired.

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Re: Alright retirees, how'd you do it?

So many good tips in here, I don't know where to begin with thanks.  Appreciate the focus on the "spend" side Norbert--hadn't put enough thought into that part of the plan but absolutely can control "retiring" outstanding debt over the course of the next few years.

I also like the idea of utilities, Steelpony.  I've had a very small allocation to utilities over the last 15 years--found them to be quite volatile and not the reliable "safe haven" once promoted, but I'm going to take a closer look, maybe add some individual positions.  My depression-era grandparents only trusted owning equities in utilities, insurance companies--and AT&T.  They had a modest lifestyle, but she never worked and my grandfather's WWII pension enabled them to have more than enough money for their lives. 

Appreciate hearing of any of your portfolio's as well, thanks so much for this.

 

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Re: Alright retirees, how'd you do it?

My suggestion is to study/learn all the rules/guidelines for how/when to retire, to accumulate/invest prudently to get ready financially, but do allow a gradual transition period (e.g., phased-retirement of working part-time or less) to enter into retirement organically and practically. 

The real challenges for retirement may lie in the mental state (e.g., boredom, restlessness), social status; in addition to the obvious financial feasibility.   

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Re: Alright retirees, how'd you do it?

Read  articles focused on sequence of return risks and follow their advice; basically, enter retirement with reduced stock holdings and increase over time if conditions warrant.  Your most at risk time, financially, in retirement, is the 5 years before, and the 2 years after first retiring.

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Re: Alright retirees, how'd you do it?


@unbiased2020 wrote:

So many good tips in here, I don't know where to begin with thanks.  Appreciate the focus on the "spend" side Norbert--hadn't put enough thought into that part of the plan but absolutely can control "retiring" outstanding debt over the course of the next few years.

I also like the idea of utilities, Steelpony.  I've had a very small allocation to utilities over the last 15 years--found them to be quite volatile and not the reliable "safe haven" once promoted, but I'm going to take a closer look, maybe add some individual positions.  My depression-era grandparents only trusted owning equities in utilities, insurance companies--and AT&T.  They had a modest lifestyle, but she never worked and my grandfather's WWII pension enabled them to have more than enough money for their lives. 

Appreciate hearing of any of your portfolio's as well, thanks so much for this.

          Well if you find utilities volatile don’t do anything I suggested. Ha. Ha. I don’t like volatility either you never get used to it. I’ve been dealing with it since the late seventies though.   *The first huge choice you need to make is to spend down your assets over time or invest for more predictable but maybe less income to fill an income gap in retirement or a combo of the two.*  You seem like a spend down fund investor then, safety first. We took the other route. Steep drops mean cheap income is on sale. Volatility becomes an asset not a nemesis. Lemons become lemonade. Don’t care about values to a point as long as our investments keep paying out cash quicker then we can spend it with some left over. We would hate waiting for Mr. Market to bless us in unknown amounts at unknown times as a primary source of income. In our situation spend down is virtually eliminated or delayed along with penny pinching, market timing, complication, endless tinkering, stress etc. for fear of running out of money due to unknowns despite what all the “experts” preach over and over.  

            We do have some pure growth though for when Mr. Market is in a better mood to diversify our income further because over time this is more lucrative but as mentioned occurs in unpredictable spurts. So an element of TR. We stick with large caps indexes for the least volatility and max predictably. Our cash is held in a national muni fund.

 

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Re: Alright retirees, how'd you do it?


@unbiased2020 wrote:

I've been wanting to retire since I started working.  While I wanted to retire "young," a few bear markets got in the way, so I'm no longer that young but (hopefully) less than 5 years away.  I could make it 10, but would rather not.  I've been pushing it back for years.  At some point, I'll be dead.  And that would suck.

But figuring out my "retirement" portfolio is a head-scratcher.  I want to start transitioning to it, maybe test drive it a little, so I don't get it wrong.  It needs to last 40 years (at least I hope it needs to).

I've read a ton of stuff with wildly different advice.  Bucket strategy vs. 4% withdraw vs. 50% stocks vs. 20% stocks vs. dynamically increasing stocks over time, to whatever some non-retired MBA thinks will get more clicks.  

So forget all that.  There are a bunch of smart people here with their own retirements that they didn't get wrong. So how'd you do it?  What'd you buy?  What would you have told yourself to start doing 5 years before you retired?


Well, here's how I looked at things 25 years ago.  I had, by that time, a good handle on my monthly, quarterly, and yearly expenses.  I was a salaried engineer for 36 years.  So the first thing I did was to figure out what my expenses would be the day after I quit work.  First thing was that I would no longer contribute to my retirement and savings accounts  After considering several things, like no more commuting costs, no more daily lunches, and such, I figured my normal everyday living expenses would be roughly 75-80% of that on the day before I retired.

I then looked at how much I was going to get from my pension and Social Security, so the difference, between my income and my expenses, came out to be some number.  I then simply calculated the percent of that number to the total value of my nestegg.  For me, the resultant was just under 5%.

At that time (the late 90's), the 4% rule of thumb was in its infancy, and I knew that, should I actually withdraw and spend at a 5%, I would have something like a 50/50 chance that my nestegg would last 30 years.  I don't remember the actual number, but it was nowhere near a certain 100%.

I knew that the Probability Of Success could go up ifn I did certain things.  I could reduce my withdrawal requirement, down from the 5% number, I could reduce down my required lifetime, from the 30 year number, and/or increase my 'allocation' to stocks, where a 100% stock market index fund portfolio had a higher POS than any other stock/bond market index fund allocation.

But I also realized that all of the retirement withdrawal studies that ended with disaster (running out of money by depleting/spending down the nestegg) resulted from the strict requirement that the amount of cash taken out of the portfolio always went UP in time, being adjusted for inflation.  That is, all the studies and models used a REAL rate of withdrawal, say 4%, not a NOMINAL 4%.  And whenever I looked at nominal withdrawal rates, the POS went up considerably even though nothing else changed.

Whenever that light went on, I started to think of other types/methods of retirement withdrawals in terms of how much cash did I REALLY need each year, going forward.  All things considered, I first switched to the method of retirement withdrawal similar to the RMDs for traditional IRAs specified by the IRS.  Specifically, I first switched from a real or nominal rate of withdrawal based upon the initial starting value of my retirement portfolio to a percentage of the yearly value of my portfolio.  SO, whenever times were good, I took out more cash.  Whenever times were tough, I took out less, in both cases compared to taking out the same amount of cash each year.

That simple change ended up giving me a 100% Probability Of Success of guaranteeing that I wouldn't run out of money by the simple application of Zeno's paradox.  In this case, ifn I always took out, say, 5% of the yearly value of my portfolio, I always left behind 95%, or most of it.  So, as long as the value of my portfolio increased at least with inflation each year, so would my 5% annual withdrawal from it!

The final realization I came to is that all of the studies looked at total return, where the value of a portfolio increased, over time, with dividends and distributions always being reinvested.  My realization is that, should I be able to construct a portfolio that distributed more than 5%, I could withdraw and spend my 5% and have some left over to reinvest.

So that's what I did, starting 2 years before I retired but on the day my ex called it quits.  We took her lump sum pension payout (half of her annuity) and invested it in Vanguard's High Yield bond fund, VWEHX, which was paying something like 6% way back then.  But we didn't withdraw and spend it, since I was still working.   It was our 'dry run'.  Then, whenever I called it quits two years later, I took my 401k retirement savings and an unused sick leave account and invested that into individual higher yielding stocks, each paying at least a 4% yield, in accordance with a former M* guy, Josh Peters.  I don't remember the details, but I recall my whole portfolio was about 60/40 individual stocks/VWEHX, and it's overall weighted distribution yield was around 7% or so.

Over the last 17 years, my portfolio has gone through lots of changes.  At all times, the amount of income (divey, coupon, and distribution cash) generated by my portfolio each quarter was MORE than what I took out and spent.  Until this year, my 'coverage' was about 2.1 times my withdrawal requirement and that amount of distribution cash increased at about a 19%/year over the last 10 years.

I manage to the cash flow of my portfolio, not its total return.  Finally, I've never taken anywhere near a real, inflation adjusted amount out each year.  Most of the time, it stays constant for a few years and, every so often, I have big expenses (new car, travel, vacations, grandkids, and stuff.)

Hope this helps.

ElLobo, de la casa de la toro caca grande
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Re: Alright retirees, how'd you do it?


@madphil wrote:

Read  articles focused on sequence of return risks and follow their advice; basically, enter retirement with reduced stock holdings and increase over time if conditions warrant.  Your most at risk time, financially, in retirement, is the 5 years before, and the 2 years after first retiring.


If I had followed your advice to enter retirement with reduced stock holdings in 2010 I would have missed out in one of the greatest stock market recoveries in history where my assets went up 250% by increasing investments in undervalued sectors such as financial services, REITs, tech, pharma,telecom, and just kept adding to them.

the reason I chose to increase my equities in 2010 was because the federal reserve promised to do everything in its power to keep the economy from crashing and flooded the financial sector with $3T in cash to make loans and preserve bank liquidity.

The increase in asset value allows me to live comfortably off investment income, retirement distributions and SS without having to sell stocks which continue to appreciate and will be passed on to my heirs with stepped up basis.

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Re: Alright retirees, how'd you do it?

2012 and 2013 brought big changes for me. In 2012 my single elder brother passed suddenly at age 59 and I finalized a divorce. I inherited 2 IRA's from my brother and wrote a $100k check to my ex. In 2013 the US mail trucking contract my partner and I were operating was cut by 40% so we gave 60 days notice and by the end of the year had sold our assets and dissolved the company. I was 55.

I calculated that the inherited IRA's would get me to early SS and I decided to stop working full time and see how it went. I haven't had a W2 since 2013. My total portfolio is almost what it was in Jan 2014 and I withdraw about 4% which is about what my total portfolio yield is. I will file for SS next month and start collecting in Sept so I'll probably re-invest my inherited IRA draws back into my taxable until they're gone.

Currently I'm about 78% stocks/MLPs and 22% fixed/cash. My house is paid for and I have no debt. I did begin to work about 20 hours a week for a friend this year doing fence estimates from home to stay busy and might make about $12k.

As far as putting off retirement that's up to you but sometimes you have to make a decision and then make it work as you go. You can't know all the unknowns.

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Re: Alright retirees, how'd you do it?

MNfish observed:

"You can't know all the unknowns."

Right.  And they are likely to make an appearance in one way or another--just as they did in one's working life.

Retirement isn't one decision: it's about adapting.

Bob

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Re: Alright retirees, how'd you do it?

Hi All.

So, to all the "working stiffs" who may be reading this thread, you are looking at successful retirements acquired from a variety of perspectives once again proving there is no "perfect" way to accomplish this. However, note that in most cases, spending is of great concern and kept in line with assets. Also, most entered retirement debt free, maybe allowing for drastic reductions in spending when necessary?

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Re: Alright retirees, how'd you do it?

It's like trying to lose weight. Easy to say. Not so easy to do.

The Galeno Way (married with children)

1. Pay yourself first. 10-20% of gross salary into an 80/20 port.

2. 5% rule. When you reach 100/5 assets dial down to 60/40. You're almost THERE.

3. 4% rule When you reach 100/4 assets dial down to 40/60. You are THERE.

The MGTOW Way (single no baggage)

1. Pay yourself first. >20% of gross salary into an 80/20 port.

2. 5% rule. When you reach 100/5 assets you're almost THERE.

3. 4% rule you are THERE. Ready. Aim. FIRE!

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Re: Alright retirees, how'd you do it?


@GLI2019 wrote:

MNfish observed:

"You can't know all the unknowns."

Right.  And they are likely to make an appearance in one way or another--just as they did in one's working life.

Retirement isn't one decision: it's about adapting.

Bob


The BIGGEST adaption was going from accumulating to decumulating.  25% pre-retirement salary going in, 5% coming out for me!

ElLobo, de la casa de la toro caca grande
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Re: Alright retirees, how'd you do it?


@GLI2019 wrote:

MNfish observed:

"You can't know all the unknowns."

Right.  And they are likely to make an appearance in one way or another--just as they did in one's working life.

Retirement isn't one decision: it's about adapting.

Bob


@GLI2019

Bob,

abqtod recommended a wonderful book to me years ago.  It was called "Superforecasting". I enjoyed it so much that I read it twice; both times at the hotel when I was traveling. The book focuses on your thinking style, and then starting with knowing what can be known.  Here is a summary:

Michael Mauboussin: How To Improve Your Forecasting Ability ...

A neighbor's tree recently fell through the roof of a rental property. By first putting emotions and blame aside, I am able to focus on understanding the exact nature of the damage along the limits of my insurance coverage. From this perspective, I can reasonably estimate the the impact this tree has on my personal finances. Making immediate reality-based changes will improve the odds of a better-than-anticipated outcome.  If I get this first estimate wrong, then I will simply make subsequent decisions intended to improve or correct the pathway to resolution. 

My wife asked "Why aren't you mad"?  "You don't seem to be worried about anything".  To which I asked, "Would being worried and mad help?"

And on it goes. From trees, to teeth, to other family emergencies.

Holiday

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