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Author: JAlanSnyder Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1483  
Subject: Retirement draw-down, what am i missing? Date: 3/12/2006 10:25 AM
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Reading all of the retirement planning scenarios you always see references to the annual "draw-down" of funds from your account. So if I have x dollars and I withdraw 5% annually my money will last me y years.

I'm projecting approx 2 million in retirement savings at age 60. At that time I should have no mortgage (2 homes. both paid for), kids out of college, etc. I know there will be taxes, healthcare insurance, etc. but it seems to me that I should be able to live comfortably on the 100k or so that I should be able to generate from that *without* having to touch the principal. I live on less than that now. Is this is a reasonable expectation or am I missing something?

Thanks,
Jeff
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Author: JonathanRoth Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 919 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 3/12/2006 10:34 AM
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Don't forget about inflation. To leave the principle untouched and the income to keep pact with inflation, spend the interest/income earned less the current rate of inflation. So, if inflation is 3% and the return is 6%, there is 3% spendable, on $2M = $60k. Generally I've heard a safe after inflation rate of return being around 4%, which provides $80k on $2M.

Also consider projected lifespan when considering investment options at 60. A reasonable lifespan for an otherwise healthy person at 60 is probably 30 years or so. Thus having a significant portion of assets in stocks for capital appreciation is reasonable, which will help with inflation concerns.

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 920 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 3/13/2006 6:13 PM
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...it seems to me that I should be able to live comfortably on the 100k or so that I should be able to generate from that *without* having to touch the principal. I live on less than that now. Is this is a reasonable expectation or am I missing something?

Just to give you an idea of how inflation will impact that $100K, here are some numbers: I currently live on ~ $50K/year. At an inflation rate of 4.33% over the next 20 years, I will need to withdraw ~ $111K just to maintain my current standard of living. In 30 years I will have to withdraw $170K.

From 1992-2004 the annual inflation rate averaged 2.56%. But the annual inflation rate from 1960-2004 averaged 4.43%, due to several periods when the inflation rate was double digits.

2old



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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 924 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 3/28/2006 6:50 AM
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How old are you now?

Have you planned to have SOME income from a pension or Social Security?
You need to combine ALL sources of expected income and compare that with expected expenses.

A side issue (sorry to those this may anger):

As has recently been observed, it's a shame that Bush and company will probably pour a TRILLION dollars into the Iraq "war", when maybe $650 billion could have probably totally solved the entire SS problem for the next 75 years, this helping many millions of Americans in retirement.

One has to wonder: Which benefits the American people more? Ensuring that Social Security will be there to help everyone? Or wasting precious funds in Iraq, doing little more than upsetting everyone and eventually having to pack up and leave, anyway?

Anyway, good luck with your planning.

Vermonter (happily retired now on far less than that for several years)

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 926 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 3/31/2006 2:55 PM
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Don't forget about fluctuations in the underlying value of your retirement savings. If they're in equities then their value will change over time. Bear markets and "corrections" can wipe out 30%-50% of the value of your savings in a very short period of time.

To help get through these times, you'll want your retirement funds to provide more than the minimum of what you need. Re-invest the excess to continue building up your networth and insulate yourself from these unfortunate but expected occurances.

Jim

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 927 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 3/31/2006 3:19 PM
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Jim2B;;

To help get through these times, you'll want your retirement funds to provide more than the minimum of what you need. Re-invest the excess to continue building up your networth and insulate yourself from these unfortunate but expected occurances.

I appreciate the advice, which is pretty much the straight party line, of course.

A question for you: Just how does one "insulate" against "unforunate but expected occurrences"? I know of nothing that is "safe" except maybe CD's at the bank or sticking my money under a mattress or in a safe deposit box.

The way I do it is to maintain a balanced portfolio, as I said, with most in good mutual funds (which I also check and change periodically, though not very often), plus some equities that I shepherd carefully, sometimes buying and selling some of those from day to day. In other words, I try to have SOME "insulation", but I also work at making a buck wherever I can to keep the boodle growing.

We all have to do what works for us.

Vermonter

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 928 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 4/9/2006 12:25 PM
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<<To help get through these times, you'll want your retirement funds to provide more than the minimum of what you need. Re-invest the excess to continue building up your networth and insulate yourself from these unfortunate but expected occurances.

I appreciate the advice, which is pretty much the straight party line, of course.

A question for you: Just how does one "insulate" against "unforunate but expected occurrences"? I know of nothing that is "safe" except maybe CD's at the bank or sticking my money under a mattress or in a safe deposit box.
>>





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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 929 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 4/9/2006 12:29 PM
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<<I appreciate the advice, which is pretty much the straight party line, of course.

A question for you: Just how does one "insulate" against "unforunate but expected occurrences"? I know of nothing that is "safe" except maybe CD's at the bank or sticking my money under a mattress or in a safe deposit box.
>>
>>


The straight party line is the idea of maintaining a five year CD ladder to protect yourself from being forced to sell stocks at the bottom of a bear market.


That's a pretty reasonable recomendation, although I wonder whether five years is really long enough. The more cash you have outside of stocks and such the more risk you run falling behind inflation and such.

It's a balance. You need to decide what you figure is reasonable.



Seattle Pioneer

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 930 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 4/9/2006 2:32 PM
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SP:

It's a balance. You need to decide what you figure is reasonable.

Exactly -- and that's different for everybody! As I've said, in my IRA, most is in diverse mutual funds, but I dabble with individual equities, too -- some "safe" and a few "wild ones" that I buy and sell, sometimes in a day! All in all, it grows, so.... it works for me!

Vermonter

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 931 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 4/10/2006 9:20 AM
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The straight party line is the idea of maintaining a five year CD ladder to protect yourself from being forced to sell stocks at the bottom of a bear market.


I'm curious about the logistics of the 5-year CD ladder. Does this mean having 5 CD's that mature each in a different year? And do you keep your annual requirement in each CD so that the money is available each year? I'm not sure how this would work, and would like some explanation.

My brother just retired in January, and I've been helping him with some of his plans, so this might be something for me to suggest to him. And we're not that far from retirement ourselves. As soon as the kids' finish college, which is about 7 years away, we'll be making all preparations to retire as soon as we're comfortable, which might actually be 2 or 3 more years depending on a few external factors like if I can get medical from my employer if I'm here for some number of years or til some age, something I have not yet looked into but is on my To Do list.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 932 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 4/10/2006 10:34 AM
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<<The straight party line is the idea of maintaining a five year CD ladder to protect yourself from being forced to sell stocks at the bottom of a bear market.


I'm curious about the logistics of the 5-year CD ladder. Does this mean having 5 CD's that mature each in a different year? And do you keep your annual requirement in each CD so that the money is available each year? I'm not sure how this would work, and would like some explanation.
>>


Yes, that's the plan. The idea is to give you some flexibility in selling off stocks or other assets to fund the CD or bond purchase in case you are in a down stock cycle. What you would like to avoid is having to selling stocks in a bear market ---this arrangement give you flexibility and a cash cushion to live on.



Seattle Pioneer

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Author: zmei91 Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 935 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 7/9/2006 4:07 PM
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I've long been qurious about this 4% drawdown figure. It appears that one can buy a lifetime annuity (at age about 60) that will pay closer to 5.5%/year of your purcahse price, or about 5% with cost-of-living adjustment.

Or am I missing something?

Thanks,

zmei

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Author: ImAGolfer Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 936 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 7/9/2006 7:18 PM
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I've long been qurious about this 4% drawdown figure. It appears that one can buy a lifetime annuity (at age about 60) that will pay closer to 5.5%/year of your purcahse price, or about 5% with cost-of-living adjustment.

Hi Zmei. What happens to that 5% draw after a couple of years of 3.5% inflation? Just food for thought.

Regards,

ImAGolfer

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Author: crashdamage Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1002 of 1483
Subject: Re: Retirement draw-down, what am i missing? Date: 10/11/2006 3:40 PM
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{I've long been qurious about this 4% drawdown figure. It appears that one can buy a lifetime annuity (at age about 60) that will pay closer to 5.5%/year of your purcahse price, or about 5% with cost-of-living adjustment.Or am I missing something?
Thanks,
zmei }

Check out the Rule Your Retirement web page, the 2 year anniversary issue had a really nice article on the pro/con of annuities.
Basically, you are buying insurance, giving up potential growth for that peace of mind of a "guaranteed” payout. Note that some people, my Mom for one, lost out big time when the insurance company behind the annuity went belly up, so choose carefully.

Perhaps a cake and eat it too approach might be prudent, invest some of your assets in a good asset allocation mix, and some in an annuity. As for myself, I hear the word “Annuity”, and run the other way


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