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Author: yttire Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76406  
Subject: 3 stage plan for retirement Date: 10/14/2003 9:33 AM
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I have been asking myself what percentage of a portfolio belongs in aggressive small caps, or even stocks for that matter. And the best answer I can come up with is:

Have a three stage plan.

Stage 1: assume the absolute worst, and that you are going to have negative overall stock market returns, and that you are going to retire fairly late (late 60's or early 70's), so have an investment plan outside of stocks which will allow you to retire at that point.- pay down your mortgage early, (or invest in bonds if you trust them) and then when your mortgage is through get an investment property (or more bonds) and whittle that one away. You can plan on living on social security to supplement this modest portfolio such as it is. Plan a minimal consumption for this plan so you don't have to sink too much money into it. However, it gives you guaranteed food, even if pototatoes, on the table.

Stage 2: Have a stock portfolio which will allow you to bring in the time horizon of stage 1. This will hopefully draw you down into your early 60's for retirement, and is aggressive. (read- completely in stock market, but in indexed funds or diversified large caps)

Stage 3: Any extra money you have to play with. You could dump it all in HG or other small caps. This will ideally draw down the date even further than stage 2.

Now this stage 3 comes with a disclaimer. Any money you are putting in may fail to shorten your stage 2 plan. Thus, you have to balance your stage 2 and stage 3.. if you are really interested in pushing down your retirement age, GUARANTEED, then you actually should put the money in stage 2. If you are interested in POSSIBLY bringing in that date a lot, but willing to wait for your normal stage 2 date, then put it all in stage 3 investments.

So lets say your stage 3 investments perform really well for a couple years and expand as a percentage of your portfolio.. you have to decide whether you want to "lock in" your reduced date, or continue to play the odds with it.. this could be a yearly or quarterly decision based on your current attitude and mood.

Now the really tricky part is: given a particular amount of savings and a particular age - how do you figure out how much money belongs in each part? I haven't figured that out yet but I think some simple financial calculators can do the trick.

(I am going to post this on another board as well since I typed it all up)
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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37495 of 76406
Subject: Re: 3 stage plan for retirement Date: 10/14/2003 11:30 AM
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>>Stage 1: assume the absolute worst, and that you are going to have negative overall stock market returns, and that you are going to retire fairly late (late 60's or early 70's),

Last week a study was posted at my work by a Nobel Laureate showing that one loses 1-2 years of life for each year they work after 50. Those retiring at 50 in the study lived to about 87, while those retiring at 65 lived on average, 2 years.

So any retirement scenario in which you grind away at work til your early 70s won't have to worry as much about long term retirement planning.

>>Now the really tricky part is: given a particular amount of savings and a particular age - how do you figure out how much money belongs in each part?

In other words, how do I allocate my assets among stocks, real estate, bonds, and cash? That's been the subject of thousands of books, articles, and TMF msg board discussions.

Nick

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Author: MonsterDL One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37496 of 76406
Subject: Re: 3 stage plan for retirement Date: 10/14/2003 12:12 PM
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Depending on your age, you may be being a bit too conservative here. While equities may very well lose ground for a year or two or five in a row, history has indicated that over 10, 20, and more years, the stock market is the best way to compound your investment. If your time horizon for retirement is at least 10 years off, you should really consider an asset allocation that includes at least 40% stocks, not just stocks as an after-thought.

In terms of specific asset allocation, do some reserach on "efficient frontiers" and how you can reduce your risk and volatility through proper diversification for the long-haul. One book that I would recommend is "The Intelligent Asset Allocator" by William Bernstein.

Don't let anyone us (on TMF or elsewhere) tell you the proper allocation for you. This is a highly personal decision that should be based on your specific goals, time horizon, risk aversion, and preferences. Do your own research, solicit opinions, and then make your own informed decision. Understanding exactly what you're doing and why will make it a lot easier for you to sleep at night.


Monster D

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Author: drnonlinear Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37502 of 76406
Subject: Re: 3 stage plan for retirement Date: 10/14/2003 4:40 PM
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Nick wrote:
"Last week a study was posted at my work by a Nobel Laureate showing that one loses 1-2 years of life for each year they work after 50. Those retiring at 50 in the study lived to about 87, while those retiring at 65 lived on average, 2 years."

Could you please post a link to this most interesting study?

TIA,
-dr.nonlinear-



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Author: Disraeli Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37525 of 76406
Subject: Re: 3 stage plan for retirement Date: 10/15/2003 6:52 PM
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I find this extremely unlikely. Would you give us some way to find this article?

Bennie

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37526 of 76406
Subject: Re: 3 stage plan for retirement Date: 10/15/2003 8:42 PM
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yobria writes,

Last week a study was posted at my work by a Nobel Laureate showing that one loses 1-2 years of life for each year they work after 50. Those retiring at 50 in the study lived to about 87, while those retiring at 65 lived on average, 2 years.


I wonder if that "Nobel Laureate" worked for Boeing? <grin>

A similiar "study" has been making the rounds at the Seattle aircraft manufacturer.

http://www.speea.org/publications/files/spotlite/Spotlite_july_00.html#story6

Excerpt:

There is a popular myth that one dies sooner if one continues to work rather than take early retirement. Over the years, misleading charts have been circulated around Boeing showing that the later one retires, the lower the average age at death. These graphs give the impression that working longer leads to an earlier death. The charts that circulate usually show that an employee who retires at age 65 receives an average 18 monthly checks before dying. Even though these charts are incorrect, they continue to circulate around the company every couple of years.

SPEEA recently received an updated chart from Boeing showing the status of retirees under the heritage Boeing Company Employee Retirement Plan (see chart depicting January 1, 2000 data). Each point in the plot represents a retiree. The X-axis shows the age at retirement. The Y-axis shows one of two things: If the retiree is still alive, it shows how many years the employee has been retired. If the retiree has died, it shows how many years the employee lived during retirement.

This chart shows that those who retire at age 65 live much longer than the myth of "18 months". In fact, many who retire at 65 live many years.

Some of the points gather together in vertical columns: there are vertical columns of points at age 55, 62 and 65. These correspond to when early retirement is first possible ... when Social Security may be first paid ... and when Social Security is fully payable. There is also a less distinct clumping at age 60, when the Boeing benefit is unreduced.

The points also gather in two horizontal lines. One at 0 "years since retirement". These are generally employees in poor health who retire and immediately pass away. The other horizontal line is at 4.5 years since retirement. This line is caused by the early retirement window that was offered in 1995 which was very popular.

</snip>


intercst

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37537 of 76406
Subject: Re: 3 stage plan for retirement Date: 10/18/2003 10:24 PM
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I keep forgetting to copy the article when I'm in the break room! Will do it next week and get back to you with the details.

Nick

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37538 of 76406
Subject: Re: 3 stage plan for retirement Date: 10/18/2003 10:43 PM
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You're right, and the study has since been refuted:

http://www.cie-gnyc.org/president2002/life_span.doc

Nick

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