The 4% Rule Use To Be THEE Rule But Now.....

[mathjak107]

LTC insurance is Very expensive, unless you initiate such a policy at a fairly early age. When I saw my parents beginning to decline, years ago, and taking out a home equity loan to help pay for "in home" care, we took out a LTC policy. Over the past 30 years, or so, we have paid out quite a bit in premiums, and I hope that is money down the drain, and we never need it. However, should we become disabled, there is enough built up in that policy to give us several years in a high quality Senior facility....rather than being shuffled off to some minimal State facility.

Retirement funding, and things like LTC are things that people Must take into consideration at a fairly early age, if they want to avoid issues in their later years.

Looking back, I just wish that 401K's/IRA's had been available when I first started working, and that I has been wise enough to get into such plans when I was in my 20's and 30's. IMO, that, and SS, are about the Only things our government has done to make retirement more affordable.

Unless you are surcharged later on for health issues , taking it early or later will be very close in price in the sense most are priced so when you get to the sweet spot for care you paid in about a years care in future dollars.
If you start earlier you pay in less for longer .

i had a blood test a while ago come back diabetic ..even though that wasn’t the case when I applied they saw it in the data base and I pay an extra 900 a year

 

[mathjak107]

Our partnership plan is like gold ….it protects all assets after the 3 years insurance is up …they created a special version of medicaid that will simply take over paying the bills .

there is no spend down , no look back , no cap on the stay at home spouses income .

all Assets are never touched.

it was a fabulous deal if you took advantage of it , although not cheap at all .

now the website says


IMPORTANT: As of January 1, 2021, there are no insurance companies currently offering new policy purchases of Partnership qualified products in New York State. This means that there are no new Partnership policies available for purchase at this time. This does not affect current, active insureds who are Partnership qualified.

 

[StarSong]

IMHO, retirement fund withdrawal rules of thumb should factor in the age when one begins the process. Presuming a life span of 95, the picture will look a lot different if one starts tapping funds at age 60 rather than 70.

Interesting that the article doesn't even mention this...

 

[OneEyedDiva]

Absolutely. My father tried to get LTC insurance for my mother when she was in her 50's but she had so many pre-existing conditions it was declined. She lived to be 89 y/o, the last 4 of them in Assisted Living. I calculated the total of the payments and they were almost exactly equal to the amount we received for the sale of her house, which was fully paid for.

I have also thought about LTC insurance but the premiums keep increasing, even if you have had it for years.

In a way, I was glad not to be eligible for LTC insurance. I read up on it and some of it seemed kind of sketchy. Your policy will be good IF the insurance company doesn't go out of business (naturally it would be wise to choose one of the most stable, well known companies). Premiums could rise significantly over time, there were some exclusions, etc., etc. Assisted living costs a ton. Good thing your mom has the assets to pay for it, may she R.I.P.

 

[OneEyedDiva]

One thing I want to add is that this idea of cash buffers being a safety net has really no merit .

one can simply rebalance a 60/40 , 50/50 or 40/60 and get all the cash they need anytime they need it …

even 100% equities with no cash and no bonds has a 95% success rate almost the same as 60/40 .

the reason is the bigger up years without the drag of cash and bonds compensates in the down years .

so having these cash buckets is mentally comforting , but financially really adding nothing extra

https://www.kitces.com/blog/researc...s-dont-work-unless-youre-a-good-market-timer/


https://www.kitces.com/blog/are-retirement-bucket-strategies-an-asset-allocation-mirage/

Because Muslims don't invest in interest bearing vehicles, I have no bonds in my portfolio, not even within my mutual funds, so I do rely on cash as a buffer. Learned that lesson years ago when I had more in investments and a lot less in an emergency fund. I had to sell some of the shares of what wound up growing substantially to generate the thousands I needed. It's something I regret to this day because that investment increased by $44 a share (now) and $47 a share at it's 52 week high.

 

[mathjak107]

IMHO, retirement fund withdrawal rules of thumb should factor in the age when one begins the process. Presuming a life span of 95, the picture will look a lot different if one starts tapping funds at age 60 rather than 70.

Interesting that the article doesn't even mention this...

simple answers to complex questions are going are going to be the wrong answers . so the article is really not correct

not age but years in retirement is always part of the equation . . it is just 30 years is generally used since it applys to the most popular group .

30 years coupled with the fact most wont live 30 years in retirement , ends up being a 100% success rate with at least 35-40% equities .

here is the chart extending things out longer

 

[mathjak107]

Because Muslims don't invest in interest bearing vehicles, I have no bonds in my portfolio, not even within my mutual funds, so I do rely on cash as a buffer. Learned that lesson years ago when I had more in investments and a lot less in an emergency fund. I had to sell some of the shares of what wound up growing substantially to generate the thousands I needed. It's something I regret to this day because that investment increased by $44 a share (now) and $47 a share at it's 52 week high.

what about a spia annuity ? that is inurance . it is like buying a pension .

 

[JimBob1952]

Because Muslims don't invest in interest bearing vehicles, I have no bonds in my portfolio, not even within my mutual funds, so I do rely on cash as a buffer. Learned that lesson years ago when I had more in investments and a lot less in an emergency fund. I had to sell some of the shares of what wound up growing substantially to generate the thousands I needed. It's something I regret to this day because that investment increased by $44 a share (now) and $47 a share at it's 52 week high.

Diva, this is a serious question, no disrespect intended. I understand the Muslim position on interest. Is it the same for dividends?

 

[HoneyNut]

I sure appreciate the info in these types of threads. I feel like I am not really capable to do my own financial management but I also feel like I can't afford to pay anyone to do it. The free financial advisor from Fidelity has not been very useful (33% helpful, 33% not helpful, 33% UNhelpful).

I was trying a calculator on the internet, that had options to analyze different scenarios, and one of them was a U-shape in the spending, that is, spend more the first years of retirement (60s) when still able to travel, spend the least in the 70s when not traveling but not yet having extra health costs, then spend more the last years for assistance and health costs. It seemed like a better analysis than just same income every year.

I'm so freaking out about it all now that my retirement is in less than a month. When I first started planning a few years ago I expected to spend the first 5 years of retirement in my house, and putter around the property. But now that I am much less frisky already and I fear I might have limited time to have the ability to travel, I am thinking to sell the house and use a big chunk of the money for traveling.

I've always thought that worst case I could live abroad on my Social Security amount, but that sounds kind of scary, I'm not sure I could make the leap. Perhaps in a few years I could make a few trips to places like Panama and Portugal and see what it might be like to live there. I wish I had a spouse or best friend to spend retirement with, it is paralyzingly scary to actually do the things I want myself to do.

 

[mathjak107]

Diva, this is a serious question, no disrespect intended. I understand the Muslim position on interest. Is it the same for dividends?

I will guess and say no since dividends are a return of capital and not interest . Whatever your investment is worth is reduced by the payout by the same amount ….it starts out being acted on by markets as if you had a lower amount invested if you dont reinvest , no different then a fund distribution
but dividends come from stocks and stocks are not the same as fixed income ….fixed income belongs on one side of the portfolio and stocks regardless if they pay a dividend are on the other .

one does not replace the other normally

 

[OneEyedDiva]

what about a spia annuity ? that is inurance

Nope. It's considered like interest. Although the progressive view, knowing that many Muslims live in the west, is that up to 5% is allowed but it's preferable that we stay away from it. Muslims are not to charge interest either.

 

[mathjak107]

I sure appreciate the info in these types of threads. I feel like I am not really capable to do my own financial management but I also feel like I can't afford to pay anyone to do it. The free financial advisor from Fidelity has not been very useful (33% helpful, 33% not helpful, 33% UNhelpful).

I was trying a calculator on the internet, that had options to analyze different scenarios, and one of them was a U-shape in the spending, that is, spend more the first years of retirement (60s) when still able to travel, spend the least in the 70s when not traveling but not yet having extra health costs, then spend more the last years for assistance and health costs. It seemed like a better analysis than just same income every year.

I'm so freaking out about it all now that my retirement is in less than a month. When I first started planning a few years ago I expected to spend the first 5 years of retirement in my house, and putter around the property. But now that I am much less frisky already and I fear I might have limited time to have the ability to travel, I am thinking to sell the house and use a big chunk of the money for traveling.

I've always thought that worst case I could live abroad on my Social Security amount, but that sounds kind of scary, I'm not sure I could make the leap. Perhaps in a few years I could make a few trips to places like Panama and Portugal and see what it might be like to live there. I wish I had a spouse or best friend to spend retirement with, it is paralyzingly scary to actually do the things I want myself to do.

The smile shaped spending pattern comes from research by Ty BERKE and also from the SUN LIFE study .

that showed We tend to spend in a smile shape WHEN WE HAVE DISCRETIONARY MONEY .

we spend more in the early years going and doing in our go go years …then spending falls off a cliff in our slow go years , then it ramps up again in the no go years …..that which we no longer do , go or buy tends to offset what we do continue to spend on that went up .

the end result is seniors need a lot less inflation adjusting then they think over time .

the problem is , that many of us may slow spending on ourselves but ramp up spending on the kids and grandkids …I know we do

 

[mathjak107]

Nope. It's considered like interest. Although the progressive view, knowing that many Muslims live in the west, is that up to 5% is allowed but it's preferable that we stay away from it. Muslims are not to charge interest either.

Why ? Dividends don’t have to even come from profits …they are an amount refunded to you voted on by a board whether they made money or not …as you know a dividend payment is a wash , so I am not sure why it is looked at like interest .

if a mutual fund gave you a distribution it is the same exact process.


how would one even know what portion of a dividend is from interest the stock got itself ?


i can see not owning bank stocks because they make money off interest . But companies usually make money off their products.

so I don’t quite follow the logic as it applies to stocks other than stocks that make money loaning it out

 

[OneEyedDiva]

Why ? Dividends don’t have to even come from profits …they are an amount refunded to you voted on by a board whether they made money or not …as you know a dividend payment is a wash , so I am not sure why it is looked at like interest .

if a mutual fund gave you a distribution it is the same exact process.

how would one even know what portion of a dividend is from interest the stock got itself ?

We can get dividends and capital gains, they are from different sources than interest. I had this conversation with someone at the credit union years ago. They were calling what was actually interest..dividends. There is a difference. I have an Islamic book on finance that explains the difference and the reasoning. When I put my hands on it, I'll either post a screenshot or quote the text. @JimBob1952

 

[mathjak107]

We can get dividends and capital gains, they are from different sources than interest. I had this conversation with someone at the credit union years ago. They were calling what was actually interest..dividends. There is a difference. I have an Islamic book on finance that explains the difference and the reasoning. When I put my hands on it, I'll either post a screenshot or quote the text.

That makes sense ….interest that Is being called dividends I can see being a no no …

interest on bond funds is usually called dividends as opposed to interest.

a balanced fund would also have interest disguised as a dividend payment

 

[StarSong]

simple answers to complex questions are going are going to be the wrong answers . so the article is really not correct

not age but years in retirement is always part of the equation . . it is just 30 years is generally used since it applys to the most popular group .

30 years coupled with the fact most wont live 30 years in retirement , ends up being a 100% success rate with at least 35-40% equities .

here is the chart extending things out longer

Maybe I'm doing the math wrong, but let's look at the risk-free option of 0% stocks, taking 4% for 25 years. Even assuming 0% interest rates in gov't insured passbook accounts, a 4% draw would have a 100% success rate, not 77%. (4% X 25 years = 100%)

While not completely out of the stock market, my risk tolerance is a whole lot lower than during earlier periods of my life.

 

[mathjak107]

Maybe I'm doing the math wrong, but let's look at the risk-free option of 0% stocks, taking 4% for 25 years. Even assuming 0% interest rates in gov't insured passbook accounts, a 4% draw would have a 100% success rate, not 77%. (4% X 25 years = 100%)

While not completely out of the stock market, my risk tolerance is a whole lot lower than during earlier periods of my life.

Because inflation will eat you alive …your draw buys less and less each year .

those who retired in 1965 or 1966 were destroyed by inflation as their yearly draws tripled to pay the same bills.

they went broke way before they ran out of time without big pay cuts in draw .

plus not every expense fits in that years budget … cars, roof , ac replacement , even dental can make mince meat out of a budget.

3% inflation alone would drive your income down to half or less.

could you take a 25% to 50% cut in pay ? Well that is what inflation would do to you via your calculation.

Compared to a 50/50 portfolio ending with more than you even started with 90% of the 121 rolling 30 year cycles we had …as well as a 67% of the time you ended with more than 2x what you started with ….50% of the time 3x what you started with

which is the real dangerous situation?

 

[mathjak107]

In the years after 1965, the perfect storm of retirement killing conditions took place.

Inflation grew rapidly over the following decade, exceeding 10% in several years in the 1970’s and averaging 6% a year from 1965 to 1985.

Interest rates rose rapidly, from ~4% in 1965 to ~8% in 1970, up to 15% in 1982, causing bonds prices to plummet.

The combo of fast rising high inflation and rising interest rates destroyed bonds.


Stocks also performed horribly. Adjusted for inflation, the stock market didn’t rise above its 1965 value until 1992, 27 years later.

Dividends moved sideways over 2 decades

The most insidious portfolio killer was inflation.

Retirees were pulling out way more dollars to live then they ever imagined .

By the time. The smoke cleared the fact the greatest bull market in history was in their time frame did not help as they already spent down to far for markets to help

Few even gave it a thought prior since inflation was low and not even on the radar

 

[JimBob1952]

We can get dividends and capital gains, they are from different sources than interest. I had this conversation with someone at the credit union years ago. They were calling what was actually interest..dividends. There is a difference. I have an Islamic book on finance that explains the difference and the reasoning. When I put my hands on it, I'll either post a screenshot or quote the text. @JimBob1952

Thank you Diva!

 

[StarSong]

Because inflation will eat you alive …your draw buys less and less each year .

those who retired in 1965 or 1966 were destroyed by inflation as their yearly draws tripled to pay the same bills.

they went broke way before they ran out of time without big pay cuts in draw .

plus not every expense fits in that years budget … cars, roof , ac replacement , even dental can make mince meat out of a budget.

3% inflation alone would drive your income down to half or less.

could you take a 25% to 50% cut in pay ? Well that is what inflation would do to you via your calculation.

Compared to a 50/50 portfolio ending with more than you even started with 90% of the 121 rolling 30 year cycles we had …as well as a 67% of the time you ended with more than 2x what you started with ….50% of the time 3x what you started with

which is the real dangerous situation?

Thank you for clearing that up. I understand now. Was not figuring in the ravages of inflation.

 

[mathjak107]

Thank you for clearing that up. I understand now. Was not figuring in the ravages of inflation.

Typically you want to at least use a portfolio that will give you 3 to 6% OVER INFLATION …

there are many conservative portfolios ranging from 25-40% equities that have a good history of doing that.

wellesly is perfect for the job as well

 

[mathjak107]

The efficacy of this long standing rule for withdrawing retirement funds for your portfolio is being questioned. I've read several articles about it over the last few years, below is the latest.
https://www.kiplinger.com/retirement/retirement-planning/603831/the-4-rule-faces-new-problems-today
Here is an alternate method for retirement withdrawal...The Bucket method:
Bucket 1: Cash and liquid assets, for near term expenses of a year or more
Bucket 2: For 5 or more years of living expenses and contains high yield fixed income & some dividend paying investments
Bucket 3: Long term portion contains stocks and more volatile bond types.
Bucket maintenance may be required.
https://www.morningstar.com/articles/840177/the-bucket-approach-to-retirement-allocation
I don't have a "strategy" because I don't need to make withdrawals from my retirement nest egg. Your thoughts?

if one is not creating their own PERPETUAL income off their pile of money , then they dont need a bucket system.

but in my opinion, scrimping and saving over a life time , only to not to enjoy that money as part of ones budget and lifestyle is an inefficient use of what one worked so hard to accumulate .

personally i would never have that money my portfolio can generate not part of our yearly budget .

those who do choose to let the money just sit and spend little of it can stuff it in a matteress for all it counts .

if it is legacy money it can be 100% equities .


so money that has no defined use , needs no defined investment plan

 

[OneEyedDiva]

Maybe I'm doing the math wrong, but let's look at the risk-free option of 0% stocks, taking 4% for 25 years. Even assuming 0% interest rates in gov't insured passbook accounts, a 4% draw would have a 100% success rate, not 77%. (4% X 25 years = 100%)

While not completely out of the stock market, my risk tolerance is a whole lot lower than during earlier periods of my life.

This is from Hugh Chou's Retirement Payout calculator (located in drop down menu under the Retirement heading)
https://www.hughcalc.org/savings.cgi
The figures used, except for the interest rate, are there by default and can be changed to fit an individual's scenarios. I had to use 1% interest rate because it doesn't allow 0% interest to be entered. But just as an example, I kept the defaults, except the interest rate (default is 5.5%).
"For a retirement account of $ 300,000 at a interest rate of 1 % with an inflation rate of 3.5 % a year

Your Initial Monthly Payout : $ 743.98 Over 25 Years"​

Piggy backing off @mathjak107's point: Using my inflation calculation app which only allows inputs up to 2015, you would have needed $1,358.39 in 2015 to buy what $743.98 would have bought in 1990 due to inflation during that period.

 

[mathjak107]

many people use these simple reverse amortization calculators where you put in some return and it tells you how long the moneywill last .

they couldn’t be more wrong because sequence risk is the biggest factor , not the return .

you can have a difference of 15 years between the best and worst sequences in a30 year retirement with the same average return

 

[Aunt Bea]

IMO the biggest risk in all of this is our own bad behavior.

I've known several people that were not realistic about forecasting expenses, separating needs from wants, and balancing their fixed costs in retirement against their income.

Too many people keep nibbling away at their investments and promising themselves that they'll do better next year or YOLO until a couple of bad years cause them to start chasing higher yields and the whole thing goes into a downward spiral.