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|Subject: Re: Get me off this crazy machine!!!||Date: 5/28/1998 7:11 PM|
|Author: cable666||Number: 1870 of 307558|
This is very good thread The consensus so far is that I am sufficiently funded retirement wise to stop contributions, and to even take a large chunk from my nest egg. I'm sure a lot of people are in a similar situation: Do I fund my retirement? Or do I pay down debt? Perhaps we should move this thread to the retirement board?
My assumptions about retirement funding are being faulted as flawed, selfish, and irresponsible. Perhaps they are. In my defense, I would like to explain my reasoning:
(1) Contributions to 401K:
I only contribute to my 401K to the point of matching funds. In my case, 6% of gross pay. In 1997 that was $3827. I've participated in retirement board for a long time, and the consensus there is always contribute to your 401K to the point of no match first before paying debts. It is very "unfoolish" to walk away from free money.
(2) My "large" current balance:
My nest egg only got to $250K because I started early, invested in high-risk funds, and got lucky. The "success" is due to a small number of very sucessful stock. The same factors that gave me success on paper can just as easliy turn around and bit me. I anticipate that my portfolio will make a few major corrections over the next 60 years. I only happen to be "up" today. Tomorrow my portfolio could be down 30% or more.
(2) My retirement model assumptions:
I agree that my numbers seem too conservative, but I stand by them. I reached these numbers after building a very complex retirement model that I felt realistically reflected my plans and assumptions. The retirement calculators I tried were too simple, so I built my own.
After three years of fine tuning and experiments, I came to the following conclusions:
(A) It is not how much you contribute that makes or breaks you, it is two other factors, when you start, and the rate of return on your investments. A small and regular contribution started early enough and in the right investments will beat anything you start in your 40's, no matter how much money you throw at it.
(B) Inflation in the later years of retirement takes a huge toll on your nest egg. Even very moderate inflation will wipe you out given enough time.
That is why I started early, invested high risk, and assume I need a nest egg of at leat $3mill the day I retire.
In my defense, my model does not plan for a beach home, country club retirement. Far from it. I assume that I will need 70% of my pre-retirement income, most of which will gradually be spent on medical care. According to discussions on the retirement board, this is a prudent number.
(3) Investment Rate Of Return:
I project that my average rate of return on my investments gradually drops from 12% today to a low of 6% at age 80 as my portfolio shifts from high risk to low-risk over my life time. My model adjusts the returns every 5 years to reflect the shift to conservative investments designed to preserve principal.
I assume an inflation factor of 4.5% over my lifetime. Again, this is based on discussions from the retirement board. I think it is a prudent number.
(5) Social Security/Medicare:
I assume that I will not get anything from SS or medicare. I think that by the time I get the age when I can ask for benefits, I will be means tested down to a token amount of money. I assume there will be no medicare.
(5)Cost of living:
Because I assume I will not have any medical insurance help (medicare), any savings from no mortgage will be eaten up by increased medical expenses. My model starts my retirement income at 70% of my last annual wage, and then keeps pace with inflation. Most retirement calculators do not do this.
My model assumes a modest 3% annual increase in income between now and the day I retire. This is below my model's inflation rate and so far has right on.
My model assumes that I will need to fund myself and my wife (same age) to age 99. Most of our families live well into their 90's. I do not plan to leave a nest egg, unless I die early.
(8) Future dollars
Keep in mind that 1 million dollars in 2040 will not buy you very much. Yea, you could retire very, very well on a million today. Try it in 2040 and make it last 20 years.
So do any of these factors seem out of line to you?
Beyond the factors of my retirement calculator, I have more personal and deep rooted reasons for refusing to tap my nest egg. The reason is my deepest fear of not being in command of my destiny when I reach my 60's. I base this fear on seeing what is happening to family and friends that are reaching that age without preparing themselves financially. I don't know any retired people that retired on their terms.
I'll give you specific examples.
My mother is approaching 60, has only $20K in her 401K, and is dumping 15% of her salary into it. When my father died of cancer 4 years ago, she was left with nothing. No life insurance, no estate, no nest egg. They had spent all of their money paying off credit cards. Now she is working herself to death trying to catch up. She feels she has to work twice a hard as everyone else in her office because of her age. She feels that as an older worker, the company would love to replace her with a cheaper, younger person. She does good work, but the pace and the pressure is making her ill. It breaks my heart to see her pushing herself to exaustion every day.
A friend of mine is a 57 year old pilot with a major airline. He hurt his back in a car accident 10 years ago and finds it difficult to work with out a lot of back pain. He can't quit because he is not vested in his pension plan for 5 more years. He is not in control, his pension rules are.
My best friend's father retired after working 30 years for the same company with a nice retirement pension. In the 80's, KK&R(??) bought out the company, looted the pension fund, and delared bankruptcy. He lost his retirement income for years, had to sue, and ended up with 50 cents on the dollar. He is not living the retirement he planned.
My ex-girlfriend's mother is a 73 year old real-estate agent. Not because she wants to be, but because she has to work to pay the mortgage. She spent her years paying for cars, credit cards, college, etc. She works her self to death, even though her health is poor. It is sad to watch. She despertly wants to retire, but she can't.
My greatest fear is not having the security of working as much or as little as I want at a point in my life when I am least able to do anything about it. There are too many things that can derail the best layed plans.
I don't want to be beholden to any person, pension, company, or goverment agency just to keep a roof over my head or to see a doctor when I need to. If I get hurt and can no longer work, I want to know I have an option.
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