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Okay, my level of financial and retirement simplicity is not for everyone. I get it, people want details, they like to analyze, to plan and project the future. But tracking every penny spent? Hey, if that makes you happy and you feel better, go for it.
I try to cover all the bases too, I want to be prepared for the vicissitudes of life as FDR said about Social Security. For me that boils down to big picture stuff. Income streams, investments, survivor benefits and insurance of various types, including LTC, life and umbrella liability coverage.
My idea of retirement income replacement covers the big picture so I say what more do I need to deal with. Inflation perhaps? That’s what designated income focused investments are for. Do I know what inflation will be in the years ahead? Assuredly not, but nobody else does either.
Reading HD over the years, I wonder if some level of analysis and planning can be too much. More stress, perhaps inaction – analysis paralysis if you will.
Clearly we need to think about the future and try our best to plan, but there is just so much we can control regardless. Do we delay decisions until everything seems perfect and perhaps deny ourselves something we may enjoy?
I see several major questions:
What kind of lifestyle do I want in retirement?
Am I willing to compromise and how?
Do I foresee any major changes like relocation?
How much income can I reasonably expect to generate and from where, and how much provides a secure income stream?
Retirement can be a long time, with many unknowns and uncontrollable events. I say stick with the big picture and stop playing with the assumptions in your planning tool. It doesn’t know any more than you do.
“It’s not in the stars to hold our destiny but ourselves. “Better three hours too soon than a minute too late.” W. Shakespeare
I struggled through the accumulation phase with complexity vs simplicity. Complexity took the most effort and promised the most reward. Simplicity took the least effort but was usually suboptimal. I chose the middle path by adding some complexity, but not too much. Yes, I had spreadsheets to give me current status and future projections. However, I justified it by allowing me to view the big picture.
But, as I get deeper into retirement, it is painfully obvious, that optimization is no longer the goal. Although my interest has not waned, I must consider my wife and family when I am no longer around. Do I want to leave a complex financial web for my wife and my estate to figure out? How quickly will the current financial picture devolve if it doesn’t get constant attention with insider knowledge of its workings? For those reasons, simplify is my mantra now. Suboptimal, yes, but simply superior overall.
None at all, simple is KEY in my estimation. I am all in for the S&P and QQQ and cash to tide over the tough times. The older we get I think the simpler it should be.
I agree it is important to keep the big picture in mind. I like simplicity, personally. But as Einstein reputedly said “Make things as simple as possible, but more so”. And flexibility too. And, always reserve the right to tweak or modify the plan, when desirable, as you move through retirement.
If I’ve learned anything in my 64 years is that the best laid plans can be often succumb to the vicissitudes of life. I use to marvel at friends telling me of very specific plans they made, with the help of their financial advisors, for things 20-30 years out. I’m not talking about retirement or education costs for their kids, but things like second homes and such. I have experienced so many unexpected circumstances over the last 20 year alone, both good and bad, that would have made any specific plans untenable. Not knowing how much I’d need for retirement or college expenses, or life, my approach over the years was to simply DCA into IRAs to the max, always in stock mutual funds to maximize long term returns, DCA as much as possible into my 4 kids Coverdell ESAs and 529s, save even more money in stocks for other uses like paying off my home early, etc. I would say to myself that I need to save as much as reasonably possible, at the highest rate possible, for as long as possible. This simple strategy has worked for me in part because, let’s face it, the stock market has provided one hell of a tailwind since the early ’80s. That’s called luck. I’m now in a position where I’m considering some larger financial decisions and have some optionality. Throughout that journey had I planned much more specifically, I believe I would have experienced many disappointments resulting from unmet expectations or desires. My advice, over time, is to stack as many cards in your favor as possible and you’ll have the optionality to deal with many of life’s curveballs–because they are coming.
Dick – why do you still hold life insurance? Tax reasons?
It’s group life from my former employer and I pay next to nothing, plus we have two small paid up policies. Added income for Connie if needed or tax free payment for our children
The best investment to keep up with inflation is equities, not designated income focused investments, though TIPS would also be a good choice.
Is that true for people well into retirement and not wanting to face the risk of down markets, but focused on preserving their assets and income?
Maybe not, but those who have been invested in equities for a long time have a good chance of having enough so a down market won’t hurt much. Others can use TIPS.
But you give the impression that you’ve always been obsessed by income – did you have a higher portfolio mix of equities at retirement (bearing in mind your pension and SS are bond equivalent anyway)?
I still have a portfolio mostly in equities. My IRA is all equity mutual funds.
I actually love your points of view, as they are somewhat divergent from mine. Your statements give me pause to examine my own confirmation biases. Reading your thoughts/musings allows me to revisit my own assumptions. So, thank you for showing us another side of the coin.
A ray of sunshine on a stormy day. Thank you.
My ideas work for me and are time tested-for me. But that doesn’t mean they are for anyone else, although they might be better than no strategy.
I would be happy if someone read what I write and said, “what a nut, I’m glad I did it my way, now I know I’m on the right track” Or perhaps, “there’s something I didn’t think of.”
I didn’t say don’t plan, I said don’t overdue it to the extreme because you can’t plan for every possible future event in any case. In other words, don’t plan so much that it puts you into a box or you miss opportunities in life.
Nothing wrong with it if you’re happy to accept sub-optimal outcomes for the sake of an easy life.
Although I note that you do more ex post tracking and monitoring of everything from investments to spend than many people who have a more planning orientated approach to life. So I’m not sure your life is as “simple” as you project.
But for the nth time try not to frame what would work for everyone in the light of your life experience. Quite a lot of people are likely to need to plan their resources and potential outcomes very carefully because they won’t have the same surplus of resources that you have. Almost any financial advisor would be horrified by your concentration of stockholding in your former employer for instance and it would be extremely poor risk management for anyone else. Employer has a major problem – you not only lose your job but also your equity portfolio is heavily hit.
I still think the best advice for anyone is to plan as early in life as possible and to get motivated and educated by the act of planning. Then you are aware of the issues and how law change, market change, life change, earnings change might affect you and adapt the plan.
Because once you have a well tested plan a lot of the stress of all the uncertainty goes away – and the less vulnerable you are to all the sharks in the personal finance arena.
So true – I’ve found that planning and analysis help me understand and navigate (and, in some cases, mitigate ahead of time) the issues I’ve encountered in retirement.
Can we have an example or two for the discussion?
It’s like you didn’t read the first paragraph.
I’m not projecting what I do on others and never have. As always, accept or reject ideas and points of view.
Sometimes when I get, shall we say, negative feedback I get the impression Queen Gertrude is about. “Thou protests too much.”
Could my positions trigger thoughts of why didn’t I think of that or I wish I had. Even yikes, I wish I had an annuity.
Nah, that’s me just giving me too much credit. I’ll just accept the criticism and red arrows.
Trust me, my financial life is as simple as I imply. There is no reason for me to monitor as I do and when I do, I simply go to one site and take a look. Although I do it every day, at least.
It’s a bit of a game actually and it drives Connie crazy. I fear I may be cursed with Type A/Growth personality type. I have a need to progress.
Sup-optimal outcomes? I don’t deny it, but when by standard financial measures you are well into the 90th percentile for your age, I say be satisfied with those less than stellar outcomes.
Why are you looking everyday?? That would stress me out…I look once a month maybe, or if a really up day just for grins, never on a really down day (in the market). I also never balance my checkbook, at least since my banker dad made me do it all the time. And I’ve never ever bounced a check. He would come back from the grave and spank me. Cheers!
“There is no reason for me to monitor as I do and when I do, I simply go to one site and take a look. Although I do it every day, at least.”
Sounds like an addiction.
I also found those two phrases incongruent. I don’t know how often my parents *think* about their assets, but they only really look at them about once a year when doing taxes so I would think that is much simpler than every day. I’m not clear as to why anyone would check that often. Are you making changes? Checking to see if your account was emptied by a scammer? Checking the balance? None of that seems simple to me ..
I suppose if it is a fun brain routine to watch the money then it is fine, but I would think most people have a simpler plan.
Yup, pretty much, like going to HD several times a day.
It’s like when you say
You don’t realise that that totally comes across as a manifesto, or recommendation for others.
If you don’t intend it to be for the benefit of others why do you keep repeating the same core biases every week – you just like proclaiming how you’ve made it “your way”?
Don’t worry everyone who reads this site by now knows you believe in income above all, never planning and never admitting your own self imposed rules are a budget. And that you think all of that is “simple”.
Do you seriously think anyone seriously planning how to drawdown their 401k or IRA doesn’t at least consider the pros and cons of annuities? There are some valid concerns about how the market is not very developed in annuity offerings and many plans don’t easily offer the option and how people behaviourially aren’t well equipped to make the “big” decision now they are retiring with a big pot of fund and a risk of “what if I die and lose all that because I’m taken the annuity?”. The alternate risk is “what if I live a beyond average length life”. You’d enjoy this recent podcast:
https://www.humansvsretirement.com/podcast-1/episode/2b783b41/ep-84-solving-the-retirement-income-puzzle-with-dr-jeff-brown
Psychologically it seems there is a big difference between just getting a DB pension and having no real sight of what the capital value is and having the capital and having to make an irreversible decision.
Keeping it simple is well and good. However…
“I say stick with the big picture and stop playing with the assumptions in your planning tool. It doesn’t know any more than you do.”
This last point and simplicity are two different issues. Even with a very simple plan and portfolio, one can still revisit assumptions and stress test the plan.
Indeed not only “can” but “should”, unless assets/cash flow are so far beyond needs that there’s almost no way the plan could fail.
Absolutely. Post the US Election I ran a version of my modelling with extreme pessimism – what if Project 25 and US isolationism/move towards dictatorship severely hits world equity markets by depression type levels and then takes 20+ years to come back. Do I survive retirement, albeit at a more modest level?
Knowing the answer to that helps me sleep better and prepares me emotionally for things that do happen like April. Better than hoping that it will never happen or as blind faith that it will all work out.
Planning is not just nerds with spreadsheets it’s a way of getting emoitional resilience around dozens of what ifs.
Or endless stress🤑
After 7 years of doing taxes for 100s of retirees, my definition of simple is a widow with SS and Medicare. Or 2 sisters sharing housing and getting by on 2 SS payments and Medicare. A typical retiree would have SS, Medicare, maybe a modest pension, and a small IRA with a few $1000 in RMDs.
Imagine if a retiree walked in to an AARP VITA TaxAide site with:
1 qualified pension
1 non-qualified pension for highly compensated employees
Primary SS
Spousal SS
RMDs
$20,000 in qualified dividends form employee stock purchase and awards
$19,000 in tax-preferred muni dividends
Eleven 529 accounts
6 different bank accounts with 1099-INTs
property tax payments on a primary and 2nd beach home
LTC premiums
Life Insurance
QCDs
what else??
No experienced tax counselor would consider that a simple retirement plan.
Kind of what I was thinking.
That simplicity is precisely what a person thinks they need.
And all that without a spreadsheet? That’s not a plan, Rick, it’s the result of my life.
Work for one company for fifty years and never stop saving and investing starting at age 18. And be very fortunate along the way.
Spoken more like an engineer than tax preparer Rick. I feel like I’m being stalked. 😁.
You make it sound so complicated. I admit one glitch. Separating the out of state muni bond interest. All those premiums are just deductions and pensions, SS and RMDs all have income tax withholding.
Not even sure how the $$$$ involved are relevant. It’s still a few forms.
At tax time it all boils down to a handful of 1099s and one W-2 for group life imputed income.
My buddy TurboTax and I do the taxes in less than an hour. Standard deduction too – for now.
What are the odds that most people think their method is precisely as simple as it needs to be?
(also, someone who is 50 and someone who is 80 need completely different things to think about the future, mathematically speaking)
I wasn’t thinking about planning at 80
I was just thinking about the general spread of ages and beliefs of the people I read here
Good point.
I don’t disagree with you Dick, but you sure are a gluten for punishment.
I can barley believe that. I celiac what what you did there 😉
That’s hilarious BB. My spell check has desserted me.
Story of my life.
Oh dear. I agree with you, hope I don’t get any down votes 😬
Well mostly agree…a little detailed planning helps.
Afraid of the down votes, are we?😱
Dick, sometimes I feel bad for you when you score all those down votes. Then I remember that you were the HR guy, and no doubt used to them.😁
I regularly was beaten up by the unions, but we still got along very well.
I was honest and told it like it was, no fluff, no games and they trusted me. Every time we agreed on something beneficial to workers I helped the union take the credit when it was communicated.
As a retired labor lawyer, we would have gotten along very well. Never understood why some clients wanted to pick fights over silly stupid stuff.
I worked for a small beer distributor, there was no dedicated HR guy. The Treasurer mostly filled that role. He made some enemies, but he never lied to me and was always forthcoming with requests from the union during negotiations. He often said things I didn’t want to hear, and I always knew where I stood. No games. I trusted him.