Home › Forums › Financial Markets/Economics › Retirement Planning: Reducing Return Target and Risk?
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scaredyclassic.
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August 26, 2021 at 12:57 AM #23126August 26, 2021 at 7:18 AM #823020
svelteParticipantThe longest downturn in the 20th century was about 10 years – The Great Depression.
Therefore at 20 years out, I would keep the pedal to the floor…keep virtually all the money in the stock market and maximized 401K contributions.
At 10 years out, re-evaluate. How is their health? Do they plan to retire early? Does the job market look good in their chosen field(s)? Is the stock market way overvalued? If poor health, early retirement, employment problems are imminent, or an extreme stock crash looks likely then move to a more conservative position.
At 5 years out, I would start moving to a more conservative position. Most financial planners would recommend 60% stock 40% stable, Warren Buffett recommends 80-90% stock 10-20% stable. They should shoot for something in that range at 5 years out, depending on their risk tolerance.
The above is what I’ve been implementing in my own life.
August 26, 2021 at 9:09 AM #823021
CoronitaParticipant[quote=svelte]The longest downturn in the 20th century was about 10 years – The Great Depression.
Therefore at 20 years out, I would keep the pedal to the floor…keep virtually all the money in the stock market and maximized 401K contributions.
At 10 years out, re-evaluate. How is their health? Do they plan to retire early? Does the job market look good in their chosen field(s)? Is the stock market way overvalued? If poor health, early retirement, employment problems are imminent, or an extreme stock crash looks likely then move to a more conservative position.
At 5 years out, I would start moving to a more conservative position. Most financial planners would recommend 60% stock 40% stable, Warren Buffett recommends 80-90% stock 10-20% stable. They should shoot for something in that range at 5 years out, depending on their risk tolerance.
The above is what I’ve been implementing in my own life.[/quote]
The is considerations to retiring early. Like soon.
As far as medical/health, it appears that with the Covered California PPO Platinum plan, it’s roughly $1600/month or $19200/year. In addition, there is a a 10% coinsurance up to $4500/year for in network or $20,000/year for out of network. So out of pocket medical cost would be $23.7k-39.2k in the worst case.
No mortgage or rent.
Passive income of $120k/year. Imho, it’s going to be tight, but assuming early retirement, doable to live off of the passive income. But the question is, what about the the retirement accounts. Assuming early retirement, they can be touched after 59 1/2 years, which would be 13 years away, instead of 19. So maybe bank that at 4% with a 50/50% split between equity and some income/dividend/fixed income basket in case things go sour for the next 10 years, and there’s maybe 9 more years after that to recover.
The other angle is if one does an early retirement, instead of at 65, I think the social security benefit is severely crippled.
One thing I was suggesting is maybe take on a job that provides health insurance to clamp down on that cost. For instance, if you work X number of hours at starbucks, you get medical coverage. Do something simple that is flexible.
August 26, 2021 at 9:40 AM #823022gzz
ParticipantNeither 4% nor 8% yields are realistic assumption for long term portfolio returns.
Your specific question needs further assumptions to answer IMO like marginal utility of wealth.
As a general answer, I think the Vanguard people are smart and trustworthy and their age cohort funds are probably the best answer as to ideal risk.
August 26, 2021 at 9:45 AM #823023ParticipantYou can see your future SS benefit if you retire today or otherwise early on its website.
I think mine was like 20k a year from about 15 years of paying in but don’t remember exactly.
Svelte: bear markets can last much longer than recessions, and indeed last for multiple generations.
It is hard to time the market I suppose but now is not a good time to be heavy in stocks IMO.
August 26, 2021 at 10:46 AM #823024plm
ParticipantI spent alot of time calculating retirement numbers this year in preparation of retiring in case the company forces people into the office (I’m way too safe about Covid)
Initially I had 10 percent in my spreadsheet for 401k performance, but changed to 9 percent recently. But this is for a very risky 401k, everything in equities, mostly sp500 index. And for that performance has been significantly better than 9 percent so I think that is a good number to use. I’ve been max out saver into 401K so the amount of money I have in there is probably too much so I can afford more risk. The RMD at age 72 is too high, thinking about t72 get money out faster later.
Until retirement age, plan is to start cashing out my brokerage accounts. Long time holder so percentage of gains that are long term are now 96 percent so its almost all tax free. So can start cashing out up to 80K at 3 percent CA tax and 0 percent fed. So the insanely low tax base will mitigate the significant reduction in income.
August 26, 2021 at 3:55 PM #823026ParticipantIn the 20 year period from 1989 to 2009, Japan’s stock market fell a total of about 75%. It still hasn’t recovered 32 years after its 1989 peak.
There’s been no great disasters or wars or anything either. Just weak corporate profits and low economic growth.
August 26, 2021 at 4:27 PM #823027scaredyclassic
Participantin spite of the fact that every prospectus warns you that past performance does not predict future results, we all kinda believe that past performance predicts future results and the prospectus is just saying that cause the dumb old stodgy SEC makes them.
August 26, 2021 at 5:03 PM #823028ParticipantI suppose that is a good argument to have bonds in your portfolio. I just looked at the four bonds I can choose from in my 401k and the yields are really bad, 1.61%, 0.3, 0.38 and -.73 for the last year. Hopefully closer to retirement the yields will be better but they seem to be uninvestable for now.
I did do some work anaylyzing the last numbers from the 2007 to 2013 US crash to figure out if it made sense to time the market and the change in performance by timing and missing by x years and for long term holders, it didn’t make sense. Better to ride out the crash in most cases. I suppose in a 401k or IRA where you can go in and out without penalty it might make more sense to switch between stocks and bonds.
I should really not be lazy and quote the text, this was in response to the Japan market perfromance one entry above
August 26, 2021 at 5:06 PM #823029Participant[quote=scaredyclassic]in spite of the fact that every prospectus warns you that past performance does not predict future results, we all kinda believe that past performance predicts future results and the prospectus is just saying that cause the dumb old stodgy SEC makes them.[/quote]
You sort of have to go by past performance. It might not match but that is the best guess. If not, my planning on getting 9 percent returns and being able to retire early is a bad decision.
August 26, 2021 at 10:45 PM #823030Participant[quote=plm][quote=scaredyclassic]in spite of the fact that every prospectus warns you that past performance does not predict future results, we all kinda believe that past performance predicts future results and the prospectus is just saying that cause the dumb old stodgy SEC makes them.[/quote]
You sort of have to go by past performance. It might not match but that is the best guess. If not, my planning on getting 9 percent returns and being able to retire early is a bad decision.[/quote]
Why is past performance the best guess?
August 27, 2021 at 8:23 AM #823031teaboy
Participant[img_assist|nid=27463|title=|desc=|link=node|align=left|width=180|height=279]
August 27, 2021 at 8:35 AM #823032CoronitaParticipantlol
August 27, 2021 at 8:54 AM #823033CoronitaParticipantThe older I get the lazier I get, I experimented in 2 retirement accounts with those time/age based target retirement funds of funds, and I didn’t think they were that bad…In a lot of way, they were good in that they were buy and forget.
For one account, it was Vanguard Target 2035 https://investor.vanguard.com/mutual-funds/profile/VTTHX
For another account, it was Vanguard Target Income
August 27, 2021 at 10:25 AM #823035Participant[quote=Coronita]The older I get the lazier I get[/quote]
It’s not lazy to focus on only the value-add tasks.
In hindsight, the periods I’ve spent the most time and effort on analyzing my stock/fund/etf picks are the periods my overall asset performance has been worst.tb
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