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June 1, 2012 at 7:44 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744815June 1, 2012 at 7:32 PM in reply to: How are people dumber than us going to make out with their 401(k)s? #744814
an
Participant[quote=flu]Why does an investment have to be “cute” in order for it to be a investment? It seems like we’re mixing up personal consumptive item (something personally you would occupy) for something to is suppose to produce a return.[/quote]I totally agree. There no reason why you need to mix personal consumption item with a product for other to consume that suppose to produce a return. As long as you feel safe with the area, that’s all that really matter. The rest is all about cash flow.
[quote=flu]Hey, as much as I think MM is a great opportunity (well, was 3 months ago), I wouldn’t want to live there (no offense AN……If’s a fine area….Just my personal preference…)[/quote]None taken. I would say the same for most part of CV too. We looked there before buying in MM. I rather have a house in MM and investment properties over a house in CV. We all have our own taste and priorities.
June 1, 2012 at 5:11 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744806Participant[quote=ltsdd]
No, your fixed income bucket should not be the largest bucket. But then again, there is no such thing as a one-size-fits-all solution. [/quote]Exactly. For me, it would be. Since I know I’ll be extremely risk adverse when I’m in retirement. I won’t retire until I can be extremely risk adverse with my investment.[quote=ltsdd]Yes, I ignored it because I am not sure what you’re trying to show here. With $2.4M at retirement and you chose to w/d $100K/year? Why $100K? How long do you plan to have your nest egg last?
How much you should w/d a year should not only be determined by how much you have but also how long you plan to live off of that nest egg. If you’re worrying about depleting the nest egg too quickly then reduce your withdrawal or increase your nest egg. As for me, if I want that $2.4M to last 30 years then I would withdraw no more than $80K on my first year. During the subsequent years, how much I can take out will determined by how well my portfolio is doing. The withdrawal RATE is constant not the withdrawal AMOUNT. It’s called fluctuations.[/quote]
I pick $100k because the original debate is about comparing pension with $100k/year + COLA vs 401k. So I’m trying to remove as much variable as possible.June 1, 2012 at 9:57 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744741Participant[quote=ltsdd]You’re assuming that as a retiree you’ll stick your entire nest egg into a single S&P or the DOW “bucket”. But that’s not how the that thing works. And the assumption that you’ll withdraw the constant amount every year is also flawed. These buckets are rolling buckets – you’ll need to rebalance every year. On lean years you’ll need to withdraw less. So sure you’ll run into some rough times here and there, but the whole idea is that that doesn’t matter if you have money invested for now (ultra defensive, principle preserving) for the near-term and the long-term(go for broke, swing for the fences). In other words if you plan to live for another X years after you retired, then put 1/3 of your nest egg under your mattress (and replenish at the end of each year). Another 1/3 in some other not so risky investment And for the last 1/3, invest as you are investing today. This is just a general example, but you get the idea of splitting your nest egg into various buckets.
BTW., I haven’t read up Ray Lucia’s books, but BStein did mention RL in his book. I like BStein’s method in that he took various strategies (RL buckets of $$, Galeno’s, etc..) and refined them by running those through various scenarios and making adjustments. As a bonus, his self-deprecating sense of humor makes his books both educational and entertaining.[/quote]
I assume that because if I don’t, how are you going to get an average of 7.5% return from your total portfolio?Now, since you’re using the bucket of money strategy, then I’d have to take in a much lower assumption of average return. Since I’d be in retirement, my fixed income bucket will be the largest bucket. Looking at CD rate today, I’d be lucky to get 2%. Stocks is negative YTD and negative for 2011.
Are you ignoring the example I gave of a retiree in 2000 with $2.4M? If you use the bucket strategy, you’d be much better off than putting 100% into S&P and DOW, but your total nest egg is still greatly depleted.
I only assume constant withdraw because I’m trying to reduce the amount of variables when comparing 401k vs pension. If you use less, then sure, you don’t have to deplete your 401k as much. But if you don’t spend $100k/year, then with a pension, you could save the difference and start to grow that money too. But adding this extra variable makes it that much harder to do an apple-to-apple comparison.
June 1, 2012 at 9:43 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744740Participant[quote=SK in CV]I’m not assuming anything other than the facts presented. Pension v. 401K. Both private and public retirees could have other assets or no other assets. There’s really no question that the 401K provides greater flexibility. The pensioner can’t decide to skip distributions for a year, or reduce distributions in order to reduce taxes. [/quote]Of course 401k is more flexible. No one is disputing that. We’re debating which one has more value over the retirement life. I go for pension. You might get the flexibility of 401k but you’re at the mercy of the market. Pension on the other hand is slow and steady and predictable. Tortoise and the hair?
[quote=SK in CV]
Most of this doesn’t matter. I was only comparing pension v. 401K at retirement age. How it happened is incidental. I’m not sure what the 2.5% growth is you’re referring to. SD cops pension COLA’s are capped at 2%. And their average pensions are under $65K[/quote]Here is one document. I was talking about SD police, since I don’t have that number. I’d take your word for it and say it’s capped at 2%. It doesn’t change the calculation all that much when, even if you account for 0% COLA, the pension number still look more lucrative compare to $3M in 401k at 55.[quote=SK in CV]As I said, the COLA’s aren’t 2.5-3.5%, they’re capped at 2%. And the assumption was not death after 30 years, at 4% it lasts over 38 years. And you overestimate life expectancies. 80 may be the new 70, but 100 certainly won’t be.
If you win the lotto, are you going to take the annual payout or the lump sum?[/quote]
Again, real life experience doesn’t pan out the way you expected. I just gave you an example of a retiree in 2000. If you’re in the private sector with $2.4M in 2000, you’ve already blown through $1.2M and you’ve seen 0% nominal growth. Do you expect the remaining $1.2M will be sufficient to last for the next 18 years? This is comparing $100k draw down like a $100k pension. If you count in the exact draw down of the pension, i.e. $100k for the first year + COLA each year after that. The remaining $1.2M would look even more abismal.WRT to the lotto question, how’s that any different than your original question of whether I’d take $100k/year or $3M lump sum? My answer is still the same. I’d take the annual payout. This is assuming I win the lottery at 55 and not at my current age. If it’s at my current age, then I have more than enough time to ride through the peak and valley, so I’d take the lump sum.
June 1, 2012 at 12:12 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744712Participant[quote=ltsdd]That’s what I used to think. But I am really sold on idea of splitting your retirement $$ into various buckets so on the one hand you’ll know you will have steady flow of income for x number of years regardless of how the market performs; and on the other hand you’ll know that your retirement $$ will have the opportunity to grow.
I was referring to the S&P & DOW. The DOW might be lower in 2009 and 2010 compared to 1999 and 2000, respectively. However, the returns during the 10-year periods were still positive. You’re right about the possibility of depleting your nest egg. That’s why I don’t think you want to switch to investments that could barely keep up with inflation during your retirement years.[/quote]
I understand what you’re talking. I assume you’re referring to the bucket of money strategy from someone like Ray Lucia?That would be my 2nd option. My 1st option, if I achieve my net egg goal, is to accumulate enough where I can ladder CDs and make more than enough on dividend to live on. If I fail to reach my 1st option, then bucket of money strategy would by my 2nd option. But that just mean I failed and am just trying to make due.
Return between 1999-2009 and 2000-2010 were not positive. They were negative. Like I explained in an early post, depletion of the nest egg drastically affect your average return. So, if you have $2.4M in 2000, over the last 12 years, assuming you have the stomach to keep 100% of your net egg in the S&P, you’re not only negative nominally, you’re depleting your nest egg at $100k a year, which is $1.2M over that 12 years. So, 1/2 of your nets egg is gone and you’re only 12 years into your retirement. Do you think the remaining $1.2M can last you the next 18 years? What if Europe or China goes into the toilet in the next year or two and we’ll see another crash. What would happen to that remaining $1.2M? This is why I wouldn’t want to be in the market if I’m retired.
Participant[quote=ocrenter]sugar activates the same regions of the brain as cocaine.[/quote]
So does, sex, excerise, listen to soothing music, spicy food, sun light, laugh, cry, and chocolate.[quote=ocrenter]The key here is introduction to the population of extremely plentiful and very cheap highly processed food and drinks rich in fat and sugar.
The effect is similar to when the inner city population was introduced to extremely plentiful and very cheap highly processed crack.
In the case of crack, the addiction rate skyrocketed. In the case of cheap high calorie processed food and drinks, the obesity rate skyrocketed.[/quote]Again your crack and sugar analogy is ludicrousness.
Even if I agree with your premise, it’s impossible to regulate. Unlike tobacco, which doesn’t go into anything else. If you attack the root of the sweet problem, which is sugar and not soda, and tax it, then you all of a sudden introduce artificial food inflation, since sugar is in a lot of different things. Which mean you’ll be hurting the poor and middle class the most, since food cost will affect them the most.
If your goal is to stamp out obesity, then sugar shouldn’t be your own target. Work hours, vacation days, portion size, fat, complex carbohydrate, video games, computers, and many other should have the same amount of scrutiny. After all, if we go back to single income family and mom make home cook meals for dinner and dad and kids brown bag for lunch, then the obesity probably would probably be a non-issue or at least drastically reduced. Also, if kids go outside to play like they used to, instead of sitting in front of the TV or computer, then they would burn off the sugar they consumed.
May 31, 2012 at 11:46 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744709Participant[quote=SK in CV]
The assertion (I believe) was that a $100K pension was the equivilent to a $3Million 401K. It simply isn’t. Nothing about annual raises. Nothing about inflation. With a 401K you have unlimited flexibility. Skip withdrawals entirely until you’re 70. Even after that, minimum distributions are pretty small. 100% of any remaining balance can be left to an heir, with a pension you can’t do that. (Possibly a lower survivor annuity.)[/quote] You’re assuming those in the public sector have no saving and their only source of money saved for retirement is the pension. These flexibility also apply to the money public employee save. If anything, they have much more flexibility. Since they can just spend their pension money for retirement and the money they’ve been saving since they start working can grow until that die without ever being touch. That would be a huge chunk of money if they let it grow for 60+ years. We all know time is compound interest best friend. Especially when it money is allow to grow without being withdrawn.[quote=SK in CV]The only way to compare is doing a NPV analysis. That, of course, ignores the possibility of a premature death, in which case the value goes way down. So even using a 40 year life is probably overstating the requirement. 30 is probably more reasonable for retiring at 55.[/quote]
NPV is not the only way to compare. But lets take the NPV number. $100k pension growing at 2.5%, the NPV would be ~$2.4M. That’s still a huge chunk of money. Assuming you’re in the private sector, to amass $2.4M by the time you’re 55 and you start working at 22. You’d have to save on average of $72k/year for 33 years if you have no growth. But, I’m sure you’ll say, but you have to take growth into consideration. So, I use 8% growth, which is definitely on the high side. You’d still have to save $15k/year, every year for 33 years to amass $2.4M nest egg. How many 22-30 year old do you know that save $15k/year every year since they get out of college at 22?[quote=SK in CV]S&P compound annual growth rate of more than 7.5% going backwards from 2011, for any period more than 16 years. [/quote]Past performance is no guarantee of future return. At this snap shot in time, I definitely don’t expect the S&P to grow at 7.5%. If it does, the S&P will be at ~4200 in 16 years. It’s currently at ~1300 today. I wish it would but I’m not holding my breath. The S&P was at ~1400 in 2000. We’re 12 years past that point and we’re below that peak. If you expect average 7.5% return from S&P every 16 years, the S&P need to be at ~4400 for you to meet that 7.5% average goal. I don’t have a crystal ball, but I don’t see the S&P getting anywhere near 4400 in 4 years. Do you?
[quote=SK in CV]Using 4%, you could get annual payments of $100K a year for 38 years with $2.4 million, assuming the first payment was at the beginning of the first year. (Monthly payments would probably come close to extending that life to 40 years.)[/quote]Again, even at 4% is no walk in the park, depending on when you retire. The last 12 years is no walk in the park. To get 4% average annual return from 2000, S&P needs to be at ~2600 in 4 years. I don’t see S&P doubling in 4 years. So, if you have that $2.4M in 2000, over the last 12 years, assuming you have to stomach to keep 100% of your net egg in the S&P, you’re only only negative nominally, you’re depleting your nest egg at $100k a year, which is $1.2M over that 12 years. So, 1/2 of your nets egg is gone and you’re only 12 years into your retirement. Do you think the remaining $1.2M can last you the next 18 years?
[quote=SK in CV]So at 55 years old, if someone is going to offer you either a $100K a year or $3 million in a 401K, which one are you going to take?[/quote]I’d take $100k a year in a heart beat. But these pension are not just $100k/year, it’s $100k/year + yearly increases of 2.5%-3.5%. I’d take that in a heart beat.
All of these calculation is assuming you’d die after 30 years. The pension looks even more lucrative if life expectancy get to 40 years. With the advancement of medicine in the last 30 years, I expect that in 30 years from now, 100 years old will be the new 70.
May 31, 2012 at 11:22 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744708Participant[quote=CDMA ENG]I wanted to say something to this earlier and I know its a bit late but simply… I don’t support most of these activities by the goverment… Nor do I want it…
CE[/quote]
You’re definitely much more righteous than I am then.May 31, 2012 at 11:21 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744707Participant[quote=ltsdd]I agree. It sucks to have to work all your life and still not able to have a worry-free retirement. If your goal is to preserve the principle and investing like one then you’re going to run into the risk of running out of money before you die. Here’s one tidbit about the market, I don’t think it ever had a negative return over any 10-year period.[/quote]
The only time you can truly have a worry-free retirement is when your money can make more money from extremely safe investment (CD) than you can spend. Then you can a more worry-free retirement. I’m definitely not risk adverse by any stretch of the imagination, at least not right now. This is because I know I have time on my side and I can ride through any down turn and I’m still making money so I can dollar cost average if I need to. However, I know that when I retire, I will be extremely risk adverse. Which mean I won’t want to retire until I can truly live off the earning of my money when it’s mostly in CD and bonds. I’m sure most retiree would fee the same way.With your tidbit, which market are you referring to? The DOW is lower in 2009 than 1999, it’s lower in 2010 than 2000, it’s lower in 1975 than 1965, it’s lower in 1982 than 1972, it’s basically flat between 1962-1982 with some swing between 600-1000. The S&P was lower in 2010 than 2000, lower in 2009 than 1999 & lower in 1975 than 1965. Again, these 10 years period might not matter as much to those who are working. But to those who are retired, 10 years with 0 or negative growth means they have to deplete their nest egg. Depleting nest egg means they’ll have less $ to participate in the market when they come back up. Which mean they would have to earn a much higher % of return to make up for the amount of money they lose when the market crash.
ParticipantSo we’re comparing food to crack now? I guess I have no rebuttal to that.
May 31, 2012 at 6:06 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744679Participant[quote=SK in CV]So what you’re showing there is if the annual pension payments are invested every year for 30 years it will be worth that much? That’s not the same as retiring with a $3 million 401K.
For it to be equivilent to a $3 million 401K, you have to start with $3 million and reduce it every year by the $100K and add investment income. I don’t have to do the calculation. I know that 7.5% annual investment return will yield $225K a year without ever reducing principle.
But I did the calc. $1,250,000 with annual withdrawals of $100K on the first day of the year, 7.5% earnings will last for more than 40 years.[/quote]
I see you’re adding in the anual investment return for the 401k side. I didn’t do that. If you add in investment return, then you’re adding risk. BTW, where can I invest that guarantee 7.5% for 30 years? I S&P didn’t do that between 1950-1980. It’s definitely below its 2000 value. Will we cross the 2000 value in nominal term any time soon? I have no idea. This is why I assume 0% investment return. There are so many variables. If you retired in 2000 and you put your money in index S&P, you lost money in nominal term over the last 12 years. I haven’t even counted inflation or the expected 7.5% return.May 31, 2012 at 5:57 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744678ParticipantCan you explain why we need to take NPV into consideration?
My calculation is just the total amount of money someone with $100k pension would get over 30 years assuming 2.5% anual raises.
If there’s no raise, $100k/year for 30 years = $3M. But because of the 2.5%, it comes out to be about $4.39M.
Everyone invest, spend, save differently in retirement. Which is why I’m trying to make it simple and not count in the appreciation during retirement and I assume total depletion at 30 years.
So, if I count in NPV, which if I assume 4% discount rate like you suggested, then you’re right, it’ll be more like $2.4M. But if you take inflation into consideration for this calculation, then you’d have to take inflation into consideration for the 401k case as well. Assuming you have no growth in your 401k over 30 years.
Participant[quote=sdrealtor]AN
You do know those numbers include the short sales with offers on them already. There are actually only 19 active detached homes and 7 active condos on the market at this moment. Half of those have been on the market 14 days or less so you can pretty much cut the inventory at least in half of that as most of it will soon be gone too.[/quote]
Oh, I know. But this is the easiest way for me to put some data. Even including SS, the numbers are pitiful. For an area with over 70k people, to have less than 150 properties for sale is pretty sad. Now, the number w/out SS is abismal.May 31, 2012 at 5:33 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744672Participant[quote=SK in CV]I presume you think this somehow shows that a $100K pension is like a $3 Million 401K? It doesn’t.[/quote]
Based on the excel sheet I showed, assuming you live for 30 years, $100k pension at the start would be equivalent to $4.39M 401k if you stop investing and deplete it by death after 30 years. If you keep on investing, then you run into the risk of the $4.39M losing value but the flip side of that is you would make money if the market goes up. This is assuming 2.5% yearly pension payout increase. The number would be higher if you assume 3.5%.Now, my math might be wrong. If it is, feel free to post your own excel data and show me where I made the mistake. I’ll gladly admit my mistake. Plainly saying “it doesn’t” won’t cut it. Just like the phrase you see at the bottom of this page “In God We Trust. Everyone Else Bring Data.”.
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