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Robert Frey

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    • Interesting Article. As a (now retired) financial planner that has run hundreds of projections for clients on reputable planning software, a few comments:

      1. As Richard points out, the assumptions are critical, must be realistic, and must include everything. Almost all clients forget to include large, infrequent expenses, such as vehicle replacement costs,maintenance and renovation expenses on the home, and (if no ltc insurance is in place) potential long term care costs. Portfolio return and volatility must be conservative. For most, assuming a 4% over inflation return on a retirement portfolio seems a bit risky in my opinion. However, if the client has significant stable guaranteed lifetime income from other sources, it may be reasonable.
      2. Running a retirement projection for someone already years into retirement, who may have annuity type income already coming in (Social Security benefits and pensions) such as Richard or myself, is probably not overly useful. We undoubtedly already have more than enough income and investments to carry us through in almost any scenario.
      3. Good planning software highlights the impact of "sequence risk," the chance that a retiree heavily dependent on the investment portfolio for retirement income encounters a poor string of returns early in retirement, markedly impacting the success of the plan.
      4. The real benefit of planning software is for the client, especially one heavily dependent upon the investment portfolio for retirement income, just a few years away from retirement, as the projection illustrates whether the client's plans are realistic, and the huge impact that making some changes (retiring later, not purchasing a second home, etc.) may have on the client's ultimate success.
      Retirement planning software is an extremely valuable tool, but must be used properly and is only very important in certain situations.

      Post: Faulty Assumptions

      Link to comment from February 21, 2024

    • Reference the waiting until 70 to collect Social Security: For a married couple, yes, it is a complex decision. However, for a single person in relatively good health, it's simple - wait until 70. The potential retiree should consider Social Security benefits as part of the overall retirement "portfolio". Delaying benefits yields (based on annuity tables) an effective guaranteed 4% over inflation return (on the increase in benefits) for every year of delay up until 70. One cannot achieve that in any other investment. As far as the very common argument that a retiree (one with other invested assets) cannot afford to wait to collect, the answer is simple - he/she cannot afford to retire at that point. Reference the unimportance of the portfolio mix beyond stocks: bonds: That was probably true up until 2010 or so. However, investors who tilted their stock portfolios towards value, small cap, and international stocks have been heavily penalized over the last 10-15 years versus investors in S&P Index 500 funds, due to the huge outperformance of the top seven tech stocks in the 500 index and the prolonged underperformance (versus the US) of international and emerging market stocks. Hopefully, that cycle will reverse, but it has gone on for a very long time.

      Post: No Need to Dwell

      Link to comment from February 7, 2024

    • Hank, Thank you for your service! One of the smartest moves you made was staying in the Army Reserves and earning (after 20 years of qualifying service) a military retirement. The medical benefits alone provided to military retirees (and their spouses) are potentially worth hundreds of thousands. I had a similar career path as an Army officer (12 years active duty, 26 years reserve duty) and have advised many young officers leaving active duty after a few years to stay in the reserves to secure their military retirement benefits.

      Post: A Long Journey

      Link to comment from January 17, 2024

    • For most of us, the use of a trust to avoid estate taxes is no longer valid, and (depending where one lives) forming an revocable trust during one's lifetime may not be worth the cost and complexity simply to avoid probate. However, there are some quite legitimate reasons to have a trust to handle one's assets after death (grandchildren's college education, financially irresponsible heirs, etc.). Depending upon the probate costs in the taxpayer's state of residence, a testamentary trust (where the trust is described and funded through the will, the assets going through probate) is relatively straigtforward and inexpensive, and the assets are assured a step up at the death of the owner. The trust should be designed so that all annual dividends, interest, and (if any) distributed capital gains are distributed annually to the beneficiaries to avoid being taxed at prohibitively high trust tax rates.

      Post: Broken Trust

      Link to comment from January 10, 2024

    • Interesting article. I would question whether a 3.5% withdrawal rate, adjusted for inflation, is appropriate for a couple 56 and 47 years old. The 4% rule assumed a 65 year old couple, and many financial experts feel that 4% could be too agressive based on forward looking return assumptions today. However, as a (now retired) financial planner, I have always questioned applying the 4% (or any fixed percentage) rule for a withdrawal rate. The success or failure of a fixed rate withdrawal strategy depends largely on the market conditions shortly before and after the actual retirement date (this is called sequence risk). Many of those who retired after a prolonged bull market and shortly before a significant and prolonged market decline faired poorly with a 4% withdrawal rate, while those who retired immediately after a market decline (your case) almost always did well.

      Post: A Taller Ladder

      Link to comment from December 13, 2023

    • Reference the pickup truck discussion: We live in Montana, where a lot of us drive pickups, and, even if they are not work related, we need them. I personally drive a relatively inexpensive 2016 6 cylinder Ram diesel pickup with over 150K miles on it, and will probably keep it until the wheels fall off. The reason most of us drive pickups here is for the occasional use that nothing else will do for (towing heavy loads, backcountry roads requiring high clearance and 4WD, hauling large loads). Personally, being an environmentalist very concerned with climate change (my house's electrical needs are powered entirely by solar), I feel a bit guilty about the CO2 impact of my truck, and would love to switch to an all electric pickup, but the total lack of charging infrastructure here precludes that at this time.

      Post: My Car Journey

      Link to comment from September 3, 2023

    • Very informative column Ken. I too spent a lot of time in the military, 12 active and 26 reserve, retiring the day I turned 60. Your comment about a reserve retirement based on "days" served resonated with me. I've always advised other service members that had 10 or more years active duty to finish out their (at least) 20 total years in the reserves. At 10 years active duty, they have already earned a 25% pension - to simply throw that away without considering continuing to serve as a reservist seems shortsighted.

      Post: Learned in Uniform

      Link to comment from August 24, 2023

    • Buy This Book! As a fee-only investment advisor, I read the first edition of The Four Pillars of Investing, and realized it was the best investment book ever written for the individual investor. We bought a copy for all of our clients and highly recommended that they read it. I look forward to seeing what additional pearls of wisdom are in the second edition.

      Post: Courage Required

      Link to comment from July 22, 2023

    • Different strokes for different folks. My wife and I have been very fortunate to have accumulated more than we will ever spend in retirement, so we have had to give a great deal of thought to where those "excess" assets will go when we die. After leaving a large chunk of our sizable traditional IRA's to charity, we have decided to fully fund tuition, room, and board for four years at a state university for our 9 grandchildren as the next priority, provided they maintain a satisfactory GPA and finish before age 30. Our rationale is that college has become very expensive, and our children all got a late start in life in building their own financial security. This allows our children to focus on saving for their own retirements (we will only be leaving the children a modest amount) rather than attempting to accomplish multiple excessively expensive goals with too few years to do it. However, having come from very modest means and being the first person in my family to go to college, and having the military fund all of my degrees through my doctorate, I appreciate there are multiple valid approaches to this challenge.

      Post: Making Their Own Way

      Link to comment from June 21, 2023

    • Casey, there should be no problem with your assuming a mortgage, as you are not the typical "retiree". You have a substantial, inflation adjusted military pension and (if you so choose) an opportunity to work in a very highly paid profession. Additionally, you appear to have most of your eventual true "retirement" income covered with your qualified investments (which I assume are in the Thrift Savings Plan). I carried a mortage far into retirement, as it made financial sense in my situation. Good luck with your strategy, regardless of the path you choose.

      Post: A Moving Predicament

      Link to comment from May 10, 2023

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