Financial Independence and Retirement

John L from NJ posted over 2 years ago:

For 50% of retirees (the poorest), Social Security is all they need to maintain their life style. So 32% of those who actually need to save for retirement are confident and the rest are not confident. This may reflect their actual financial conditions or a lack of knowledge concerning how much is needed to fund retirement. The 4% rule works pretty well as a guide most of the time. It only leads to old age poverty when stock market valuations are extremely high (i.e. 1965, 1966, 1998, 1999, and 2000). Just 5 out of the 152 years since 1872. Then there are the times when the market is under valued at the beginning of retirement. In these retirements, the 4% rule results in under spending and extremely high inheritances. I am about as confident as a retiree can be about the future based on analyzing the past. But as the past is not a good forecast tool; maybe no one should be confident other than those who will exclusively live on Social Security.

Curtis G... from Texas posted over 2 years ago:

My financial advisory firm offers investment portfolios of ETFs (after recently switching from mutual funds). I track the prices of these ETFs and basically they've dropped in price since February, 2022. Currently the firm has gotten out of bonds altogether but remains in stocks. Their money market fund is currently paying 5.2%, which I believe is better than the returns of their ETFs. Therefore I am now out of stock ETFs for 2 reasons: the money market is doing better than stocks, and I'm trying to reduce the impact on my portfolio by RMDs and advisor fees.

Barry from TX posted over 2 years ago:

Welcome, Cynthia. Charles is a hard act to follow. I read the referenced survey to get a deeper insight into the data there. Confidence is a “fuzzy” concept to measure. Dan Kahneman won a Nobel prize for demonstrating how fragile confidence is within each of us, over time, and across groups, even professionals, including the financial professionals he, Dick Thaler, and Terry Odean studied. A key finding in “Thinking Fast and Slow” (2011) is that “a mind that follows “WYSIATI” (“What you see is all there is”) will achieve high confidence much too easily by ignoring what it does not know. It is therefore not surprising that many of us are prone to have high confidence much too easily by ignoring what it does not know” (p. 239). You may want to review TFAS to ensure your educational planning assimilates a regime of practice and feedback which is essential for obtaining expertise and confidence. As you say in the precis of your plan, “Retirement is a goal that requires making good decisions throughout one’s life, and we believe this targeted content will help investors like you better make those decisions.” This a tougher crowd than Charles. They “don’t know what they don’t know” and therefore lack the ability to know the size of the jumps their mind makes when they say they are/are not confident, unlike Charles who can dip instantly recall and relate the parables of perseverance learned from his marathon training and experiences on how to set and achieve long-run goals and to pace oneself to have resources to reach the retirement finish line. Living is a marathon. Retirement is the finish line.

John L from NJ posted over 2 years ago:

Oh my Lord - Curtis G. Investing is a long term strategy that if successful can yield great rewards. Speculation on the other hand is for gamblers. Timing the market is impossible. Money market funds are earning 5.2% but that is before inflation. So your real return is much lower and is temporary as interest rates will change in the future. Stocks have earned 6.5% plus inflation in the long run (30 years plus) in the past going back as far as we have good data - 1871. Stocks have not done well in the last several years (since the end of 2021) and your ETFs have dropped in value like the market. But before the end of 2021, stocks had been going up since 2008 with some big corrections in between. Bonds are another story. As everyone recently discovered, Bonds especially long term can lose value in a hurry when rates go up. But no one knew in 2020 what was going to happen in the next three years. Any strategy that requires forecasting is going to fail. So here is my advice: take a big slug of your retirement money and put it in a cheap total market stock index fund. Leave it grow there for the long term (30 years +) and resist the temptation to monkey with it no matter what the stock market does. If the future is at all like the past, this strategy will result in you having funds in your old age and potentially leaving a nice inheritance. Retirement investing is just that simple. And you don't need to buy another newsletter or platinum membership from the AAII.

John L from NJ posted over 2 years ago:

Barry - Retirement is not the finish line for investing. Investing continues during retirement and your planning horizon may be as long as your wife or your children live. Since retirement is the main reason for investing (college and other big purchases are the others), it seems to me that adding a retirement newsletter to the AAII is redundant.

Barry from Texas posted over 2 years ago:

John, you are absolutely right. I got carried away with my marathon metaphor. In fact, I use the same logic you outlined as my investing model. I use my wife's life expectancy for planning investment actions. Our only daughter is married and has her own financial plan. Our granddaughters are in both plans. They have their own financial plans. All I need now are great-grandkids. Thanks for the note.