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I read now on HD concern for the 4% withdrawal strategy, potential – inevitable – market declines, the lack of COLAs in pensions (mine included) and annuities, asset allocation, general concern about preserving life-long retirement income and more. All of which is clearly justified.
I have said many times and been criticized as often, that the key to a secure retirement is a strategy that provides more steady income than one thinks they need based on pre-retirement income and lifestyle. It’s a cushion, insurance if you will.
Regardless of what a calculator may show, starting retirement with 70-80% or even I’ve read 40% of pre- retirement income is risky business or at least if events turn sour, cause for sleepless nights. I also suggest that the more modest a persons income, the greater the risk. No matter how frugally or modestly people live, stuff happens before and after retirement.
Knowing I had a pension and Social Security and following the belief we were not going to spend less in retirement-that’s aggregate spending beyond necessities including some ongoing modest saving, helping family, travel, giving, etc., I built assets that would generate income when needed and deal with emergencies. The assets come from a 401k plan and non-qualified investments over my working life. However, I also did not spend bonuses and retained stock compensation that only started when I was age 62.
My strategy was and is simple, don’t plan for change in lifestyle, plan to continue your lifestyle and plan for as much of the “what if” as possible. In other words, live as far away from the edge, the adequate, the sufficient as possible. And, it’s all relative to doing so based on a persons pre-retirement income.
My retirement planning was solely focused on replacing my pre-retirement salary, nothing else was considered. Yes, a pension made the goal easier, but I cannot see myself doing anything different even with investments and a purchased annuity although no doubt our pre-retirement lifestyle would have been different. I also admit it would have been a struggle if my goals included early retirement.
There are different approaches for sure, but isn’t the common goal all the income you need for as long as you need it regardless of uncontrollable events?
We understand everyone’s situation is different. We knew we had two SS incomes and one full pension and two what I call half pensions coming. For those reasons we kept it simple by taking SS at fra . We didn’t and some need it so we invest it monthly and use the leftover income to build our cash accounts
Hello all, this is my first post and I have come to this blog through reference from the NYT article today. My condolences to the family of Mr. Clements and his friends and followers.
I am a CPA and have been in private practice for 3 plus decades. In my experience there may be other factors to consider within this important post.
There are large difference between the acquisition versus the maintenance of wealth. The maintenance cost of wealth is usually significantly lower than earnings required to fund the acquisitions.
In some circumstances, using the formula above may not be a realistic goal. I work primarily in health care, M&A and international taxation. Most physicians I serve average between $ 750k to a1M K per year. To sustain such earnings using a 4% cap rate exceeds 18M in net wealth. In 2025, the maximum Defined benefit asset value allowed at age 65 retirement age is between 3M and 3.5M. This doesn’t approach the type of funding needed to sustain this level of income.
Another implied assumption above is that people consistently earn similar amounts through the years. Being on the entrepreneurial side of life, this approach is the exception rather than the rule for my professional practice. Most of my clients do NOT consistently earn the same money year over year.
I am firmly in the camp of zero debt (on personal assets) as you approach retirement. Reduce, reduce and further reduce debt and monthly overhead as much as possible. Live conservatively and below your means throughout your life. Don’t try to keep up with your perception of what your peers are doing, earning or pretending to earn. 🙂
George
I retired from medical practice just over 7 years ago and lived in the manner you recommended in your final paragraph. My income did vary from year to year like many others. I’m out of the loop, but have read median physician income (all specialties combined) is in the 330,000 to 375,000 range. Those earning over 750,000 per year are in the top quartile. It appears that your physician clients are among the higher earners. I enjoyed your first post George.