Article about the challenges of self-funded retirement

[disneysteve]

https://stocks.apple.com/AjeJAf41XTpKtzKKBWHTdNQ

This is a good little article about the growth of self-funded retirement. Those of us entering or approaching retirement now are largely dependent on our own savings in 401k accounts and IRAs as opposed to pensions.

The biggest challenge, as noted in the article, is figuring out how much you can safely spend each month when you aren’t getting a fixed guaranteed check every month. It creates a constant sense of anxiety even for people with plenty of money. There’s always that fear that you could overspend and run out of money.

I definitely can relate to that in my own situation. Even though I’m not 100% retired yet, that’s largely because I’m not confident that we have “enough”. Once I stop working, restarting isn’t a simple matter so I want to be 100% sure before I burn that bridge. If I knew there would be a check every month for a set amount from a pension, it would be far easier.

[Petunia 100]

Well, you can always take a portion of your savings and buy an immediate annuity, essentially buying yourself a pension.

[disneysteve]

Well, you can always take a portion of your savings and buy an immediate annuity, essentially buying yourself a pension.

True but that’s a poor choice for numerous reasons. It’s much better to control your own fund but many don’t feel they have the knowledge to manage those funds well.

Personally, I’m closely tracking everything since I went per diem back in August. In a few months, I will sit down and do some serious number crunching to see how the year has gone and be able to come up with a much more solid plan going forward.

[bjl584]

I want to avoid drawing on the principal.
The only way I see to accomplish that is to let my assets cashflow with rents, interest, and dividends.

[Fishindude77]

Nobody cares about you as much as you. Even if you are planning on getting a pension, you better be saving a substantial nest egg and / or creating some alternate income streams as well. There have been lots of horror stories of pension funds raided, poorly invested, etc. with the recipients coming out on the short end. Why trust the other guy to look after your future?

[myrdale]

First, people in general are pretty uninformed when it comes to their money and retirement savings, I think most of the people who contribute here are the exception, not the rule.

Second, informed or not, if you're directing your own 401(k) you are responsible for the decisions that get made. You have the ability to grow your money exponentially, or lose it all over night. It scares me every time I hear the radio advertisement for "convert your retirement to gold".

Lastly, at the point you're ready to retire, you should have some idea of what your budget is going to look like for the next potentially 35 years.

Assuming you retired at 65 with $1,000,000 in cash, and live to 100, you could draw $28,500 per year.

If you've got that $1,000,000 invested and you're earning 5% per year, suddenly you've got a draw of $50,000 per year interest only with out ever touching the principle.

Your living expenses are probably going to go down some, but your medical expenses may increase. Your discretionary spending could vary depending on which direction that total nest egg is moving.

Most of all, don't forget inflation!!! When you're 75 and decide you need a new car, and it is priced $80,000 (in reality this is maybe 10 or 20 years away). All of a sudden $1M in the bank isn't so much any more.

[LivingAlmostLarge]

First, people in general are pretty uninformed when it comes to their money and retirement savings, I think most of the people who contribute here are the exception, not the rule.

Second, informed or not, if you're directing your own 401(k) you are responsible for the decisions that get made. You have the ability to grow your money exponentially, or lose it all over night. It scares me every time I hear the radio advertisement for "convert your retirement to gold".

Lastly, at the point you're ready to retire, you should have some idea of what your budget is going to look like for the next potentially 35 years.

Assuming you retired at 65 with $1,000,000 in cash, and live to 100, you could draw $28,500 per year.

If you've got that $1,000,000 invested and you're earning 5% per year, suddenly you've got a draw of $50,000 per year interest only with out ever touching the principle.

Your living expenses are probably going to go down some, but your medical expenses may increase. Your discretionary spending could vary depending on which direction that total nest egg is moving.

Most of all, don't forget inflation!!! When you're 75 and decide you need a new car, and it is priced $80,000 (in reality this is maybe 10 or 20 years away). All of a sudden $1M in the bank isn't so much any more.

This is true. My mom's $60k pension was golden in 2007 when she retired. Now in 2023 it looks a lot less generous. But still it's a pension! Second her all paid for medical is still looking golden.

[LivingAlmostLarge]

Also this is what I was saying. I have always wonder what retirement would look like when the majority of people start retiring without defined benefit plans.