How are you planing for retirement?

[GG]

This raises an interesting question about the culture of investing. What he did is only different in magnitude from what an invester does who shifts retirement funds from bonds to speculative stocks.

 

There is a pervasive belief that retirement portfolio's should be designed so that they become more conservative as you get closer to retirement, and this has led to the proliferation of retirement-date funds. Can anyone point me to a mathematical rationale of this stategy versus others? To my eye, they are underperformers in the sense of absolute return. You are gaining increasing certaintity as your retirement approaches, but at the cost of expected gain. That may be desirable for some, but it certainly isn't highlighted.

 

It is like advising poker players to reduce the stakes of the games they play as midnight approaches. It may be a valuable psychological strategy, but it questionable that it should be seen as poker strategy.

 

As Chef alludes in the other post, as you get older liquidity becomes more paramount. That's why asset classes with highest historical returns also happen to be less liquid or more volatile. There's a reason to the madness of shifting towards safer lower yielding investments as the retirement age approaches. You should start out swinging for the fences in your 20's and slowly ratchet that down over the years after hopefully you've built up enough principal to live during the retirement.

 

The proper analogy to the poker game is would you increase your stakes as midnight approaches knowing that your pot will be the only thing that will pay for your cab ride home that night.

[Chef Jim]

As Chef alludes in the other post, as you get older liquidity becomes more paramount. That's why asset classes with highest historical returns also happen to be less liquid or more volatile. There's a reason to the madness of shifting towards safer lower yielding investments as the retirement age approaches. You should start out swinging for the fences in your 20's and slowly ratchet that down over the years after hopefully you've built up enough principal to live during the retirement.

 

The proper analogy to the poker game is would you increase your stakes as midnight approaches knowing that your pot will be the only thing that will pay for your cab ride home that night.

 

It's not only the lack of liquidity of more aggressive investing. Let's say you're retired with $1m and generating $50k in income annually. Then the market smacks you down a la 2008 and now you've got $600k but you still need the $50k in income. At that rate you'll be out of money and back to work in no time. Distribution strategies many times are way more important than accumulation strategies. There needs to be a balance during retirement between the income you need and growth needed to combat inflation.

[Live&DieBillsFootball]

I never recommend target date or life cycle funds because the fund company chooses the equity to bond mix which does not take in to account the investors risk tolerance. So you want to retire in 25 years but you're a very aggressive or conservative investor the portfolio is not necessarily going to reflect that. And sure asset allocation is probably the most important tool for reaching your retirement goal but what's also very important is saving the right amount and dollar cost averaging.

 

I'm not an investment advisor but I can see 2 uses for this kind of fund. First for someone just starting out it allows them to diversify using one fund. They may not have enough money to meet the minimums of enough funds to properly diversify. Second, on a temporary basis when you are investing additional money. I have done this when my portfolio is reallocated once a year, but I decide to add additional money at a different time of the year. In this way, the new funds are similarly diversified without having to allocate the new money to a bunch of funds. Then when the annual reallocation comes around, it gets allocated according to my long-term plan.

[Chef Jim]

I'm not an investment advisor but I can see 2 uses for this kind of fund. First for someone just starting out it allows them to diversify using one fund. They may not have enough money to meet the minimums of enough funds to properly diversify. Second, on a temporary basis when you are investing additional money. I have done this when my portfolio is reallocated once a year, but I decide to add additional money at a different time of the year. In this way, the new funds are similarly diversified without having to allocate the new money to a bunch of funds. Then when the annual reallocation comes around, it gets allocated according to my long-term plan.

 

Yes they work for people who do things themselves. I don't work with do-it-yourselfers.

[meazza]

The challenge with rental properties is keeping them rented and the lack of liquidity. Many time during retirement you need a chuck of money for something. With rental properties you've created somewhat of a pension which is ok but only having an income stream and no principal to tap into could be a challenge through your lifetime. For me:

 

Between my wife and I we have two IRAs, two Roth IRAs, a SEP IRA, two 401ks, and two cash value life policies for additional tax free money. I'm also accumulating stock options with my company. I intend to be retired between 55-60. So when I was a chef I ate well, now as and investment advisor I plan well.

 

Hopefully you hit a gym in the time being or else you won't get to enjoy your nestegg

[Chef Jim]

Hopefully you hit a gym in the time being or else you won't get to enjoy your nestegg

 

Well seeing I've dropped nearly 20lbs this year and eat nothing but salads for lunch during the week I think I'll be around for awhile. But if not someone's going to be enjoying my nest egg.

[meazza]

Well seeing I've dropped nearly 20lbs this year and eat nothing but salads for lunch during the week I think I'll be around for awhile. But if not someone's going to be enjoying my nest egg.

 

I dropped 35

 

Good job.

[Chef Jim]

I dropped 35

 

Good job.

 

Yeah I heard. Was the amputation painful?

[meazza]

Yeah I heard. Was the amputation painful?

 

[DC Tom]

There are some pretty sharp people here and I wonder how you are planing your retirement. I have very little in IRA's, I put all my extra money in rental property [Wonderful tax benefits, by the way.]

Background-53, figure 15 years to go.

 

I plan on dying young. I have no expectation of making it to 50.

[BillsFanNC]

I max my 401k account every year, have Roth's for both the wife and I and also put some away into taxable funds each year. I use low cost index funds through Vanguard and Fidelity, with an appropriate equity / bond split for my risk tolerance. I rebalance yearly to get back to my desired equity/ bond ratio. Many will scoff at index funds, and it's true that they will never beat the market, but it's also highly unlikely that anyone in actively managed funds will either in the long run. Costs (load funds, management fees etc.) matter when it comes to investing. Index funds have very low costs, actively managed funds do not to say the least. In fact some actively managed funds have fees so high that it can be called nothing else but robbery. I would not advise having all your retirement nest egg in rental properties, just as it wouldn't be a good idea to have everything in equities. Diversification is crucial for managing risk. If you do not feel comfortable investing yourself you should find a fee only financial planner to help you out.

 

Check out these forums, they were invaluable to me as I learned about investing for retirement.

 

http://www.bogleheads.org/forum/index.php

[Jim in Anchorage]

A friend of mine was doing something similar. He had about 20 rental houses in Florida. About 6 years ago, his net worth was about $1.5 million. He ended up taking out home equity loans to buy some additional prepeties. Today, he is down to about 8 properties, most of which he is trying to sell through short sales. His net worth is now negative. In addition to the rental properties, he also operates a home repair business. Since the majority of his work has been done on his own houses, he has reported very little income from his business. As a result, he has paid very little social security taxes over the years. He's now in his late 40's, he has pretty much lost all of the rental property that he was going to use to retire on, and his projected soc sec benefits are squat.

 

Basically a reminder that we all need to diversify. Put as much money in IRA's and 401k's as you can afford. Try to save 10% of your income toward your retirement and start EARLY. Make sure that you diversify your investments. Take advantage of Roth ira's. There are a lot of benefits to Roths in addition to the tax free withdrawals.

That's a tough situation, particularly in Florida. But I can see his line of reasoning since at that time real estate was going uo 30% a year. In fact I have a book written by a so called real estate guru in Florida[2003] that advises exactly that strategy.

Aside from real estate and renters though, my strategy is completely different. I don't care if the value of the property goes up or down. Thats unimportant since I am not selling. What I do care about is a positive cash flow from the rent's after everything is paid [and I mean everything-mortgage, tax's , insurance, utility's, everything]. I can't tell you how many time's I have had this conversation with a real estate agent- me"Why should I buy this? I will be bleeding $1000 a month." REA-"Well, your looking for the property to appreciate" Pass.

Depending on my circumstances I can ether pay extra on the principle,or not. When the note is paid I have two choices-keep it, since now the rent is pure income, or sell if the market is right.

 

And my golden rule is NEVER borrow against the property. I would rather keep one then lose them all.

And I am NOT Scooby but I am not talking $8000 Buffalo rentals here. They are 4 unit buildings in the $400,000 range.

 

And as I mentioned, the tax breaks on rental property are fantastic. Every time a renter flushes the toilet I deduct it.[Water bill]

[whateverdude]

I use ETF (exchange traded funds) bonds and stocks. Stay away from single stocks and bonds, unless you like to gamble and know what your doing. Weight them accordingly to your retirement horizon.

 

On the bond side: keep in mind that interest rates will be going up within the next year or 2 so keep to short term bonds or bonds with a low durations. High yield corporate bonds can earn you a lot right now but they are high risk. GNMA bonds are pretty safe. I like PIMCO and Vanguard bonds.

 

On the stock side: twenty five percent of your stock holdings should be in foreign stocks and currency. Emerging markets like VWO, developed markets like EAF index. I also like EWC,EWZ,EPP,EWS,EWH. I think the real growth going forward is outside the US. I like VB for small caps. DBC, MOO,XME, OIH,GLD ETP for commodity/resources. I also like high dividend yield ETF's. I like GBT for large cap overseas exposure and good dividend yield. XLV for health play.

 

Remember in the past it was hard to beat the S&P index unless you were a day trader or put all your eggs in one or 2 stocks and get lucky.

 

Most people will brag about their hits and never about all their failures.

[taterhill]

Blue Horseshoe Loves Anacot Steel

[ExiledInIllinois]

I am indifferent to money.. Who cares! I give extra to the gov't.

 

 

I just keep singing:

 

 

"I wanna love you, and treat you right

I wanna love you, every day and every night

We'll be together, with a roof right over our heads

We'll share the shelter, of my single bed

We'll share the same room, JAH provide the bread

 

Is this love, is this love, is this love

Is this love that I am feeling (repeat)

I wanna know, wanna know, wanna know now

I got to know, got to know, got to know now

 

I'm willing and able

So I throw my cards on your table

I wanna love you and treat you right

 

I wanna love you, every day and every night

We'll be together, with a roof right over our heads

We'll share the shelter, of my single bed

We'll share the same room, JAH provide the bread

 

Is this love, is this love, is this love

Is this love that I am feeling (repeat)

Oh yes I know, yes I know, yes I know now (repeat)

 

I'm willing and able

So I throw my cards on your table

See I wanna love you, I wanna love and treat

You right, I wanna love you, every day and every night

We'll be together, with a roof right over our heads

We'll share the shelter, of my single bed

We'll share the same room, JAH provide the bread"

 

 

 

After 17 years of marriage, I do not think the wife is buying it anymore. She wants to know what our retirement plans are... Good thing I have that half mil is socked away!

 

[Jim in Anchorage]

I said SOME pretty sharp people here.

[John Adams]

After 17 years of marriage, I do not think the wife is buying it anymore. She wants to know what our retirement plans are... Good thing I have that half mil is socked away!

 

 

Half a mil ain't getting you far.

[Jim in Anchorage]

Half a mil ain't getting you far.

Considering he's right on the edge of being in a institution, no.

[ExiledInIllinois]

Half a mil ain't getting you far.

 

I know... I got 25 years to retirement...

[ExiledInIllinois]

Considering he's right on the edge of being in a institution, no.

 

Believe me... I told my wife to just shoot me (not that it has crossed her mind through the years!)