Questionaire for people starting retirement planning

[bjl584]

More questions to add

25) Which of the following makes sense to you
a) Set aside a given amount of money per month to invest, and have that amount taken from bank account (or paycheck) as an electronic funds transfer
b) write a check once a month and send money to brokerage or investment firm
c) invest a single lump sum now and never or rarely send in additional monies to invest
d) because income is variable, you cannot do a) or b), but need a workable solution.
e) set aside a given amount in savings, then once or twice per year write a check to deposit money into an investment

I do "a." The first of every month money is drawn electronically from my bank and is transferred into my various funds at my brokerage account. I treat this transfer as a "bill" that must be accounted for when doing my budget for the month.

[toboramai]

Should this be a sticky and add to it as needed?

[disneysteve]

I don't pay attention to the change in dollars for single investments. Rather, I consider the percentage change in relation to my target allocation, & then allocate new money into the laggards. No matter how bad they perform, I don't think I can consistently do better in anything else, so I won't be changing plans.

Are you talking just about mutual funds? I certainly wouldn't advise following that plan with individual stocks as you may be pouring money into a bottomless pit. Even with mutual funds, there have been funds that have folded over the years so you still need to have some caution and make sure the NAV isn't dropping for some reason that would make you want to get out.

[Beppington]

Are you talking just about mutual funds? I certainly wouldn't advise following that plan with individual stocks as you may be pouring money into a bottomless pit. Even with mutual funds, there have been funds that have folded over the years so you still need to have some caution and make sure the NAV isn't dropping for some reason that would make you want to get out.

Yes, mutual funds; actually index mutual funds. So, the chance of one/ any of these folding should be about the same as the chance of the global financial markets folding.

If that happens, well, I've got my gun & some bottled water.

[jIM_Ohio]

Are you talking just about mutual funds? I certainly wouldn't advise following that plan with individual stocks as you may be pouring money into a bottomless pit. Even with mutual funds, there have been funds that have folded over the years so you still need to have some caution and make sure the NAV isn't dropping for some reason that would make you want to get out.

Steve- remember this started with me asking a question if you invested $5000 and the market turned into $2500...

I like to use dollar amounts, because my experience suggests that people weak at math do not fully comprehend percentages.

If I worded question, you invest money and it loses 50% does not have same impact. $5000 was chosen because it is amount of IRA, so a newbie reading the questionaire at some point will be advised to open an IRA with $5000, and the goal is to make sure they stay the course through the first 12-13 months of their plan.

[disneysteve]

Yes, mutual funds; actually index mutual funds. So, the chance of one/ any of these folding should be about the same as the chance of the global financial markets folding.

In that case, I agree.

Steve- remember this started with me asking a question if you invested $5000 and the market turned into $2500...

a newbie reading the questionaire at some point will be advised to open an IRA with $5000, and the goal is to make sure they stay the course through the first 12-13 months of their plan.

Jim, I totally understand and agree. I think using numbers makes things more real to people, especially those who aren't so good at math.

I just wanted to point out that buying on drops isn't always a good idea if you don't understand the reason for the drop.

[Snodog]

Nice job Jim.

[jIM_Ohio]

Nice job Jim.



Personally I don't think a person needs to save this much especially if they are in a lower tax bracket where Social Security will amount to a large part of their income.

There is a difference between a target, and the real amount you need.

I labeled that as a target to project what is needed 30-50 years from now.

You quoted the disclaimer

This number is a target, it is not exact science... if you plan to retire in 30 years, the 40k you spend now might change depending on paying for kids college, paying off a mortgage, moving to a state with higher (or lower) taxes. The purpose of the target is to establish sticker shock only. Because of taxes, social security, pensions, inheritances, selling of a business and many other factors, the sticker shock can be reduced when you are within 5-10 years of retirement.

To do a retirement income worksheet, you would include the SS which would reduce the $1 M target, you would include pensions, possibly being in a lower tax bracket, and other reduced (or increased) expenses relative to the current expenses used to calculate the target. Moving to a smaller house, travel expenses, health care expenses and similar are not built into the target, it is only a means to help a person estimate what they might need to save based on historical data.

The target is important because based on the trinity study, if you hit the 25X target and are willing to stick with a 60-40 portfolio for 30+ years, you can retire immediately. (60-40 portfolio lasted 30 years in 95% of time periods dating back to before great depression).

Meaning if you spent 40k per year, and won the lottery tonight earning a $1 M prize after taxes, you could retire. If you need to learn more about the 25X number, search the web for trinity study.

25X is a 4% withdraw rate, that is a moderate withdraw rate. I know someone drawing down 8% in retirement, which to me is borderline psychotic, but his health is also not the best, so he probably does not need to plan for a 30 year retirement either.

If you adjust withdraw rate based on various parameters, you can account for:
a) less need for full income in retirement (lower income=higher withdraw rate)
b) live longer (lower withdraw rate)
c) more conservative portfolio than 60-40 (lower withdraw rate)

and more... this was meant to get someone in the ball park for how much they need, it possible a person spending 40k needs less than $1 M, but I would contend they need closer to $1 M than they do to $500k (meaning the target gives them the "max" amount, but target is only a target until you know your actual retirement expenses.

Thx for reply.

[Snodog]

You quoted the disclaimer

Yes I carelessly missed the disclaimer. Sorry bout that.