Retirement detail we don't hear about much

[disneysteve]

My cousin retired 11 years ago. Two years ago, I sat down with him and reviewed his entire estate because he is terminally ill and I'm his executor.

In December 2018, his main IRA was worth $372,000.
He takes a monthly draw of $1,565 from that account, so in the past 24 months he's withdrawn $37,560.

We sat down the other day to review everything again and update my notes.
That same IRA today is worth $433,000. It has grown by $61,000 even though he has taken out $37,560.

Obviously, market performance is a factor, and the market has been hot, but looking back over the 10 years since he moved that account to where it is now, it's grown nearly every year despite his monthly draw down from it.

I think we tend to gloss over this detail in retirement planning. Well managed, there's a good chance that your money will continue to grow even after you retire as long as your spending is not excessive. And his withdrawal is about 10% of the balance 2 years ago which is a very high rate. Had he been doing the typical 4%, he'd have even more money today than he started with.

It also shows that it's possible to retire with less than recommended, withdraw more than recommended, and still have things turn out okay. It's riskier that way but it's not automatically doomed to fail.

I think this ties in well to LAL's Retirement Reality thread and other recent conversations we've been having.

[Jluke]

Yeah. That’s why some people still insist on an asset allocation of 30-40% stocks in retirement.

[disneysteve]

Yeah. That’s why some people still insist on an asset allocation of 30-40% stocks in retirement.

Absolutely. Singuy had a thread not long ago saying that the whole theory of switching to a more conservative portfolio when you retire is misguided.

I don't actually know the allocation of his account but if it grew that much despite his 10% withdrawal rate, clearly he has substantial stock exposure. This certainly shows the benefit of remaining invested and not switching to bonds and CDs just because you're retired.

[Fishindude77]

Sad deal, unfortunate situation, but good money problem to have.
He should be able to do some nice gifting to those close to him.

We've been taking $48,000 (4% rate at time we started) out of our IRA (formerly 401k) for three years now and it has grown by approx. $400,000
Could probably pretty safely increase our withdrawal amount a bit.

[Like2Plan]

Yeah. That’s why some people still insist on an asset allocation of 30-40% stocks in retirement.

You would think that 100% cash would be rock solid, but.... Oddly enough, the monte carlo simulations that I have seen give a smaller chance of success over time if you have anything less than 30% stocks. This is due to the inflation factor.

[Like2Plan]

Absolutely. Singuy had a thread not long ago saying that the whole theory of switching to a more conservative portfolio when you retire is misguided.

I don't actually know the allocation of his account but if it grew that much despite his 10% withdrawal rate, clearly he has substantial stock exposure. This certainly shows the benefit of remaining invested and not switching to bonds and CDs just because you're retired.

I've seen different ideas on this. One that intrigued me was basically you increase your bond allocation until you reach retirement age and then switching back to increasing stock allocation as you get closer to your expiration date--the idea being you have the highest bonds at retirement (for sequence of returns risk) and then as you get older you may be investing the portfolio more for your heirs. There are several caveats to this, of course.

[corn18]

I try to minimize the growth in my 401k (traditional IRA) to minimize taxes. My 401k is 100% bonds and grows very little. My Roth IRAs are 100% stocks and my taxable account is 82% stocks. Something to think about.

[disneysteve]

We've been taking $48,000 (4% rate at time we started) out of our IRA (formerly 401k) for three years now and it has grown by approx. $400,000
Could probably pretty safely increase our withdrawal amount a bit.

Exactly my point. I understand the Trinity study and what it showed, but I wonder how many people refrain from retiring because of it. Sure, a 4% WR gives you a 95% chance of not outliving your money, but maybe you could retire a couple of years sooner or use a 5% WR and still be just fine. A 90 or 85% chance of success is still quite high. And if you do start to see your balance dropping or the market has a down year, you could trim back temporarily.

Also, we often ignore the fact that spending tends to be higher in the early years of retirement and then taper off so that's a factor too.

[Singuy]

Yeah. That’s why some people still insist on an asset allocation of 30-40% stocks in retirement.

Or 100% from my thread..lol

However I think one must go conservative if the environment warrants that to be the better bet..

In a low or zero interest environment, the risk lies in bonds,, not stocks. The other way around in a high interest environment.

[disneysteve]

You would think that 100% cash would be rock solid, but.... Oddly enough, the monte carlo simulations that I have seen give a smaller chance of success over time if you have anything less than 30% stocks. This is due to the inflation factor.

Sure. You need growth in your portfolio otherwise you steadily lose ground over time. You lose buying power. If you are all cash and you're earning 0.5% but inflation is even 1 or 2%, a few years of that and suddenly your income isn't going as far as it had been.

[corn18]

Or 100% from my thread..lol

However I think one must go conservative if the environment warrants that to be the better bet..

In a low or zero interest environment, the risk lies in bonds,, not stocks. The other way around in a high interest environment.

It' a crappy time to retire. Stocks are expensive AND bonds are expensive AND interest rates are low. I think Singuy has the right idea going after growth stocks. I should give you $1M and let you do your thang.

[LivingAlmostLarge]

I try to minimize the growth in my 401k (traditional IRA) to minimize taxes. My 401k is 100% bonds and grows very little. My Roth IRAs are 100% stocks and my taxable account is 82% stocks. Something to think about.

So I did that for a couple of years but I switched DH's 401k completely to 100% S and P. Mostly because the choices were bad. The choices are awful to be honest so its 85% S and P 15% international. I also gave up on bonds and decided we'd do better to just have cash since we tend to have so much cash carrying around for market dips and just in general.

Question for fishingguy what percentage are you in stocks and what has the $400k return been? 15%? 10%? $400k is good if the portfolio small but not as much if it's a bigger portfolio. Steve does your cousin draw out that much because he wants to or where is the rest of his retirement?

Personally I think it's better to be more aggressive. I wish my parents would invest instead of sitting in cash but like my mom says "oh i don't ask anyone for money...I just don't want to lose money." She literally has no idea about money and until my dad dies and I take over they will manage their own investments. I just pray and am grateful that the person helping them now is not a thief. They aren't putting my parents in C shares of mutual funds or moving money around so it disappears...this has happened when my parents were Youngers and more "with it". They were just always not smart with money and too embarrassed to say anything.

[disneysteve]

Steve does your cousin draw out that much because he wants to or where is the rest of his retirement?

When he first retired, he needed the money because he was 55 and some other stuff wasn't accessible yet. Later his pension kicked in and then at 62 he claimed SS because by then he knew his cancer diagnosis so there was no point in holding out for a higher payment he wouldn't be around to collect. He has another IRA and takes a monthly draw from that too. And he has some individual dividend-paying stocks to round things off. He has lived very nicely for 11 years and in the end unfortunately will leave behind a nice chunk of change since he'll be dying at 66.

[disneysteve]

my mom says "oh i don't ask anyone for money...I just don't want to lose money."

Such a very common mindset. Many people only recognize one type of risk: principal risk. They don't see inflation risk. As long as their balance never goes down, they're happy, even if they are steadily losing buying power.

[bennkar]

I had this situation with my mother. I got her into investing in stocks around 2014 (thankfully). Usually she only puts in and doesn't take out, but around year end 2020 she sold some so she would $25k in cash in case she wanted to buy the leased car she had that would end this January. Well she did take out the money for that, and yet since that sale the balance has recovered that plus another $50k. Of course in her case she gets SS and still works from home, and those alone more than cover her expenses, so she never takes any out. She would be world travelling now, if only she could.

If she went with the usual retirement advice.... well she wouldn't feel nearly as flush with cash like she does today.