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Personal Finances / Credit Cards and Consumer Debt
|Subject: Re: Get me off this crazy machine!!!||Date: 5/28/1998 7:11 PM|
|Author: cable666||Number: 1870 of 310649|
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.