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Author: mtclimber Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Planning for retirement Date: 7/20/1999 8:07 PM
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Hi,

My father asked to help him to plan a portfolio for my parents retirement. Basically they have a large mix of various investments that they've made (401Ks, IRAs, mutual funds, bonds, cash, etc) and are getting close to the retirement age (about 2-3 more years). Most of the investments are very conservative since they don't know a lot about investing.

I'd like to create a good "plan" with my Dad to make what they've saved last as long as possible. I have done some investing myself, but my goals are very different since I have many years till I retire. I also have some experience with building models and some understanding of math behind the financial markets.

I'm looking for the following:
1. A good book that talks how to plan for retirement if you are really close to it. Most books assume that you are starting early, and therefore are not very useful. I'm also interested in books that will help me build a model to forcast (with uncertainty modeling) how long the money will last

2. Any software that would make the forcasting/modeling easier. I'm used to using Excel with some plug-ins, but are there any more specialized SW packages?

I'm not looking to create an estimate -- I've done that already. I'd like to be able to say how much to invest in stocks/bonds/mutuals and how much to keep as cash; in what order use up the savings (i.e. IRA first, then 401K, then cash, then house, etc...)

Any thoughts???

P.S. Before anyone suggests a Financial planner, I'd like to do this first before we try outside help.
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Author: JDWinNOLA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12400 of 76237
Subject: Re: Planning for retirement Date: 7/20/1999 8:24 PM
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I am getting close (62) to retiring, and plan to have 95% in growth stocks and 5% removed each year and invested in SPY. Each month I will sell 1/12th for a monthly salary. Actually I will have half in FF and half in growth stocks (more or less). I think it is extremely foolish (dumb) to invest in bonds or CD's, the return is to small. I think, unless you grew up in a family of stock investors it would be hard to convince your parents to do this. Most of my peers think I'm NUTS. I still like Peter Lynch. This was his advise.

Good Luck with your father.

Jim

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12401 of 76237
Subject: Re: Planning for retirement Date: 7/20/1999 8:49 PM
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mtclimber writes (in part):

I'm also interested in books that will help me build a model to forcast (with uncertainty modeling) how long the money will last.

I reply:

Search this board for posts by intercst, who has (and posts links to) a Retirement Calculator that addresses precisely this issue. I imagine he'll be along presently to suggest source material, since you sound like a do-it-yourselfer. If the discussion gets highly technical (which in my view would be way cool), perhaps it can take place on the Math board founded by JABoa. --Bob

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12405 of 76237
Subject: Re: Planning for retirement Date: 7/20/1999 9:35 PM
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Also look at AnnC's articles over the past couple weeks in the Foolish Four daily area. She did a whole series on retirement investing.

In the same boat with my mother. My philosophy, 2 years cash in MMF/CDs, the rest in stocks (RP4, BSP, and Keystone, all screens she likes and has basic understanding of).

JLC

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Author: Lester77515 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12424 of 76237
Subject: Re: Planning for retirement Date: 7/21/1999 1:49 PM
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You might go to the Amer. Assoc. of Individual Investors website.

www.aaii.com

They are a nonprofit org. and they also have downloads of programs that may be useful. Some are free others you may have to pay for. I don't know if membership is required or not, but you can get a free two week membership too. I like them and NAIC so much that I became a life member in both organizations.

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Author: zgriner Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12426 of 76237
Subject: Re: Planning for retirement Date: 7/21/1999 2:26 PM
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Any thoughts???

The real question is: how much trust will your parents put into your plan and not disregard it when markets sour, and how much risk will you/they tolerate?

In the past (and a lot of the present), the Wise keep talking about putting your retirement money, known as the 'principal', into income-producing vehicles. The problem, as you probably know, is that these kinds of investments don't keep up with inflation.

Now, they say, to account for inflation, put a percentage of your principal into stocks based on a simple formula, usually 100 or 120 minus your age. The idea being, that the older you are, the less goes into stocks, because you have less time for a stock market recovery. The problem is, as time goes on, the retiree is expected to sell some of the stocks to make up the difference that interest, dividends, & inflation don't match. You know how likely that is going to be when the market goes south -- "Heaven forbid, the 'principal' is touched!", not to mention worries about taxes.

First, you & your parents have to decide how long they want their money to last. There have been many posts & articles, here on TMF and elswhere, indicating that if you keep your principal in the stock market, based on historical returns, you shouldn't withdraw more than 5% per year if you want the principal to last forever.

For retirement investing, I suggest a variation I call the total return method. Your parents decide how much of a draw they want/need to get from their entire principal, per year. When they are ready to retire, they put that much, and an extra 3 months worth, into a money-market fund. They take another 2-4 years worth of draw, and invest the money in a ladder of CDs/T-notes/AAA-bonds of their choice (no bond funds) that will come due annually or semi-annually, for the next 2-4 years. The rest of the money is invested in a stock or mutual fund portfolio (check out the various TMF portfolios and workshops). All interest and dividends are deposited into the money market fund.

The idea of this division is not to generate monthly income. The 'income' comes from draw of the money market fund. 2-4 years of draw is put into CD/T-note/bond to have cash available if the market is down so that the stock porfolio is allowed to gyrate without affecting the draw (and your stomachs). At the end of a year, the draw is adjusted for inflation, regardless of the performance of the portfolio. If the portfolio is down from the previous year, use the CD/T-note/bond that comes due to fund the money market fund, and live off that for another year. If the portfolio is up, ladder the maturing CD/T-note/bond for a longer maturity and sell enough stock to put a year's draw into the money market fund.

Zev



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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: 12430 of 76237
Subject: Re: Planning for retirement Date: 7/21/1999 4:15 PM
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Bob78164 writes

Search this board for posts by intercst, who has (and posts links to) a Retirement Calculator that addresses precisely this issue.

Here's the link to the Retire Early Safe Withdrawal Calculator:

http://www.geocities.com/WallStreet/restud1.html

intercst



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Author: moseykitty One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12433 of 76237
Subject: Re: Planning for retirement Date: 7/21/1999 4:49 PM
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2. Any software that would make the forcasting/modeling easier. I'm used to using Excel with some
plug-ins, but are there any more specialized SW packages?

*****

Jane Bryant Quinn recommended using the forcasting model provided by:

http://www.financialengines.com/

You can enter just about any fund/stock and it will generate expected protfolio outcomes.


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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12434 of 76237
Subject: Re: Planning for retirement Date: 7/21/1999 7:00 PM
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"I'm looking for the following:
1. A good book that talks how to plan for retirement if you are really close to it. Most books assume that you are starting early, and therefore are not very useful. I'm also interested in books that will help me build a model to forcast (with uncertainty modeling) how long the money will last

2. Any software that would make the forcasting/modeling easier. I'm used to using Excel with some plug-ins, but are there any more specialized SW packages?

I'm not looking to create an estimate -- I've done that already. I'd like to be able to say how much to invest in stocks/bonds/mutuals and how much to keep as cash; in what order use up the savings (i.e. IRA first, then 401K, then cash, then house, etc...)"


I am behind in reading posts, but poster "intercst" seems to have done much research on these issues; if he does not respond, you may wish to try e-mailing him.

Regards, JAFO

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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: 12437 of 76237
Subject: Re: Planning for retirement Date: 7/21/1999 7:51 PM
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moseykitty writes,

Jane Bryant Quinn recommended using the forcasting model provided by:

http://www.financialengines.com/

You can enter just about any fund/stock and it will generate expected protfolio outcomes.


If you use the Financial Engines (FE) software, make sure that you understand that FE assumes that you liquidate your portfolio and buy an immediate life annuity when you retire. This will likely result in a lower "safe" inflation adjusted withdrawal rate because you have to adjust the fixed annuity payment for inflation as you get older. For more on this, see link:

http://www.geocities.com/WallStreet/8257/fineng.html

While buying an immediate life annuity may be regarded as a conservative strategy, it also means you may need a larger nestegg to generate the same level of inflation adjusted income. This may requiring working (and saving) longer.

intercst

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