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June 09, 2010


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Interesting article. In a much more primitive way, something vaguely along these lines has occurred to me. Because I was forced into early retirement by the Recession-That-Is-Not-a-Depression (unless you're unemployed), I had to start taking retirement at a time when my investments were down $180,000. At the same time, a house my son & I were copurchasing dropped in value by 60 grand, from what we can tell, permanently.

I realized I needed to draw down as little as possible from investments until the economy recovers. So I decided to try to live on a combination of part-time teaching income and the reduced Social Security I was forced to take before "full" retirement age.

The state forces its retirees to withdraw something from their retirement funds during the three years that it pays out unused sick leave earnings, which for me amounted to about $20,000. So, between now and February 2012, I'm withdrawing the absolute minimum I can take out. I figured how much that would be and then rolled the remainder out of the 403(b) into a larger, professionally managed IRA, which outperforms the 403(b). In 2012, when all of the retiree sick leave is paid out and when Social Security's earned-income limitation will not longer apply, I will quit taking any drawdown from savings.

Interestingly, my lifestyle has not changed significantly despite a huge drop in income. It's much cheaper to live in retirement than one imagines. And teaching a couple of freshman comp courses a semester is not what anyone would call very hard work. I intend to continue "working" part-time as long as I can dodder into a classroom. I figure the longer I can defer drawdowns, the better I can live in advanced old age.

Since eventually we probably will have to walk from the copurchased house -- I won't be able to afford my share of the mortgage after I can no longer work -- the loss of the $80,000 I put into the down payment and upgrades will need to be recovered by gains in the stock market. Let's hope things stabilize sometime in the next five years or so! ;-)

The "annual course corrections" you mention are very important. The sequence of returns on risky investments is critical, as those who have recently retired have found out. The ability to work part time as the previous commentator mentioned is also important. It may be more difficult to avoid the 20% of failures than generally realized, especially with the demographic challenges the country faces. We are navigating uncharted waters.

At present the leading economists seem to be more worried about deflation than about inflation and with so many people unemployed and underemployed there isn't much pressure driving prices upwards.

My wife and I retired in 1992 with zero debt and two pensions, then a few years later at age 62 we took social security so now we get a nice influx every month of four deposits into our credit union savings account. Since our home is paid for and we live in the San Francisco Bay Area where property taxes are limited by law to a maximum increase of 2%/annum our housing costs are minimal and fairly flat with time. Utilities such as gas, electric, cable, phone, internet, water, garbage etc. have also not undergone significant increases partly because we now have more efficient appliances, double pane windows, mature shade trees, and the maximum insulation. It also helps that we live in a mild climate where air conditioning is not a necessity - turning on a whole house fan to suck in cold air from the bay and the ocean after sunset on the hottest days (maybe 10) works very well.

We also live close to major fruit and vegetable growing regions (I also grow a lot of my own) so food is also not a major expense now that there are just two mouths to feed.
We also have all of the furniture and things we need so we don't have to buy a lot of "stuff" these days. Our two cars are '91 and '98 with low mileage and we don't put many miles on them these days so transportation also isn't a major expense.

Other than the taxes from mandatory IRA distributions, which we pay out of our capital, the largest expense we have is an optional one, it's our annual vacation which this year is a river cruise starting in Switzerland and ending in Belgium, it is costing us over $18K but we could have saved a lot on it if we had been willing to fly coach, go at the cheapest time of year, and have a cabin on the lowest deck, which we're not.

The fictional couple in this article are in above average shape in my opinion. The article is flawed however because it made no mention of healthcare and assisted living costs which are always the big unknowns as you get into the final stretch. If either of them are forced into a situation where full time care is required, and they lack insurance, their money will disappear fast - that's the dilemma as I see it. None of us know what are final years have in store, I have known cases that span the whole spectrum and unless you want to end up as a ward of the state, having lots of money is the best solution in the worst case scenario. This is why more and more money equates to more and more security - if you end up not needing it then your heirs will be very grateful.

Good post OL. My plan for 2012 is river cruise from Amsterdam to Vienna. I expect to spend around what you, are for the same reasons.

I also agree that too many folks forget the healthcare/long term care insurance.
We don't plan to leave a legacy but we probalbly will. As you say at the end of your post, better to have it and not spend it all than the alternative.

Do you recall a website that allows a user to input basic retirement planning data, and then the website backtests the plan using historical market returns by picking numerous different start-years? The site then spits out a single graph plotting all 80 scenerios' hypothecial account balances over the next few decades. I recall it being fairly elegant, and ultimatly served to measure the feasibility of a plan in a manner similar to this post, because if you have a year like 2008 right when you intended to start retirement it has a much greater impact on your retirement outcome than if you're in your 3rd year of retirement savings.

Now I can't recall the website.

I believe what you are talking about can be found on T. Rowe Price and/or Fidelity.
It's called a Monte Carlo if I am not mistaken

Our early retirement plans do seem a little more stable thanks to my husband's pension. We're also saving as much as we can part with now so that we'll have a ton of wiggle room later.

A Monte Carlo simulation is when you have a whole bunch of parameters and you want to obtain backtested results varying one or more parameters in order to get an idea how changing certain variables affect the outcome. It's also used frequently in scientific analysis. Your computer also uses the method every time you play a card game in order to simulate shuffling a deck of cards, it's based upon an algorithm that generates random numbers.

This is off the topic but relates to your post.
We have already done "The Great Rivers of Europe" GCT river cruise with the itinerary that you mentioned, only we did it in the reverse direction in 2008. It's a really great trip! The one we're doing this year will be for the second time, the first time was in 2005, and in 2011 we're doing the "Eastern Europe to the Black Sea" river cruise with a pre-trip in Transylvania.

The whole idea being that if you don't spend it your kids will. Our kids' generation will likely be OK because of inheritances, however their kids' generation could be in trouble when they hit retirement age because a majority of the younger generation seem to be spenders rather than savers from what I have observed and they have hit an economy not seen since the great depression. How about today's news of GM and Ford moving manufacturing jobs to Mexico - who do they favor the shareholders or the workers?

Old Limey:
They favor their Shareholders and themselves. but you knew that.
May I ask, did you do Viking or Tauck? Or is there some else?

Other readers, if you want to visit Europe, consider a river tour.Seemly pricey but not when you consider what they include.

Perfect for BFS one day, ;-}

My wife and I love Grand Circle Travel, their river cruises are absolutely perfect for seniors. They own their own ships which hold a maximum of about 160 passengers, great crews, excellent food, service, and entertainment, and daily sightseeing in small groups. At night you tie up right in the small town you are visiting. There's no way we would ever go on a gigantic ocean cruise liner and be one of thousands. If you compare GCT's trips with similar companies they offer far better value. The company was formed in 1958 to serve AARP members and purchased by the present owners in 1985. Their website shows the countless awards they have received from organizations that review travel companies, such as Conde Nast and Travel & Leisure. This will be our 13th. trip with them (all excellent in every way, especially their program directors) so we are Inner Circle members now which gives us extra benefits, 10% discount on everything we buy on board, invites to the Captain's table, faster access number when we contact them.

It's the same at Fidelity Investments, when you become a member of a private client group, you are assigned to a V.P at a nearby investor center. They have three support levels based upon the size of your accounts - Private client access - Premium client access - Everyone else. When I call there's never any wait time and I speak with the most senior people.

What we need to do for the next generation is work out the Healthcare/Medicare-Medicaid/Illegal Immigrant/Social Security/Teachers Union/Auto Factory Workers Union/ALL Unions?/Welfare/Fannie Mae/Sallie Mae/Subsidized Housing/Subsidized Federal Student Loans/Unemployment/Overpaid CEO Crisis!!!

...And of course the oil spill in the Gulf...forgot greedy BIG OIL...Get it done already, BP!

@ Old Limey:

The above was in regard to your ponderance of the state of the union once our kids' kids are grown (in case anyone wondered what that rant was about!);

Also, thanks for your insight about the health ins. and long-term care insurance. That's exactly what I thought of when I read the post. I rec'd a brochure through the mail yesterday about LTCI and it stated that 10.3 mil. Americans currently need ltc. Of those, 42% are between 18 and 64 y.o.! I am 40...husband is it too early to consider purchasing LTCI?

It also states that the annual cost can vary from $32,500/yr. to $75,000/yr. depending on the type of facility, type of care, and location of residence.

OK...this is my last comment...I think.

...the reason I wonder about LTCI is because Alzheimer's runs in both my husband's and my grandmother and his grandmother;

We both witnessed first-hand how awful it was for everyone...first my grandmother was asking strange questions that no one understood...then her condition quickly deteriorated and her last years were spent being shuttled around from family to family, and then finally into a state-funded facility after her house was sold (she was not at all destitute but somehow --?-- she was declared so by her children who were advised by a lawyer and an accountant!).

Same type of story w/the other grandmother.

I don't want that to happen to either one of us as we are in our final years!

As life expectancy keeps increasing more and more people will live long enough to where they require some level of assistance. We have not purchased LTCI but we have enough money to do whatever needs to be done.
Two older friends of ours recently sold their home and moved into a retirement community, the husband is in a very early stage of Alzheimers but otherwise healthy. They used the proceeds from their home to buy into a 2 Br condo for about $900K. They then have to pay about $6K/month for maid service and 2 meals/day. The facility also has a higher level of care available, not permanent but for people that are recovering from surgery and will be able to return to normal in a matter of weeks. When both husband and wife are deceased the condo gets sold back to the retirement community and the proceeds given to their estate. They have 3 levels of housing, 1 Br and 2Br condos and Villas. The community is in a picturesque area but still only a few miles away from suburbia, and is one of the higher end facilities. There are others that are much more expensive because in Silicon Valley there are a lot of extremely wealthy people.
It is exactly for this kind of "final years" situation that we are glad that it will be there for us if it should be needed. Hospice care is another thing altogether but that usually doesn't last for very long.

The nation's problems are still manageable at this time, it's the projection for 30 years from now that are scary. Did you realize that the population of the earth increases by 1 billion every 12 years - this is the real root of all the problems. Too many human beings using up the last of the non renewable natural resources that took billions of years to be formed. The world has already picked all of the low hanging fruit, that's why we are now drilling for oil that is 15,000 ft. below the service.

@Old Limey - Welcome dose of reality there.

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