"We see two camps," Burns says. "There are the people who figured they would have to work forever, who were really frugal, they saved and live a moderate lifestyle. It turns out they can go ahead and retire. They can go ahead and accelerate things.
"Then there are the ones who just never really did any planning and they end up in scramble mode. There are a number of people out there who have been making a lot of money, but living a lifestyle (that reflects it)," Burns continues. "For the folks that haven't been squirreling away, there's not a lot we can do. It's a shame, and I hate to see it, but from an investment standpoint, there's not much we can do."
Controlled spending is only part of the picture. Just as important is ensuring a suitable income stream. Social Security and drawing down on 401k's or IRAs will be a baseline. But especially as people live longer and more productively, establishing a suitable lifetime income stream is crucial. That necessity has been among the selling points, for instance, in the current wave of annuity products promoted by firms such as Fidelity, MetLife, John Hancock, Prudential, Genworth, New York Life and Allianz.
For people escalating their retirement date, their portfolios need to protect them from running out of money.
Burns is a proponent of using individual bonds as a safe "paycheck portfolio," with careful use of equities to ensure long-term appreciation.
"Most people aren't so frugal that they can spend whatever the yield curve is," he says. "They need some exposure to equities."
Burns advocates bond laddering, dividing investment dollars evenly among bonds that mature at regular intervals. He stresses the value of individual bonds over bond funds.
"By using individual bonds to build an income portfolio, you can build a time buffer," he says. "The person who wants to retire now, they have to keep their spending in check. And they need to give themselves time to let equity markets do what they do, which is occasionally go down -- sometimes a lot -- but go up more than they go down if you are able to hold them for a long time and not make dumb decisions at the wrong time. If you are just pulling money out of your portfolio and there's no real structure to the income piece, it gets really scary, and that's when people make the wrong decision at the wrong time."
"A big advantage for an individual bond is that when interest rates start to rise you already know your worst-case scenario," he adds. "Your worst-case scenario is the yield to maturity and then you get your principal back. Whereas with a bond fund you can lose money."
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The $249 grand is a combination of me and wife paid in!!(also remember your employer matches your contribution which is part of your pay package) Have another 15 years for us to pay into SSI , so add another $150 grand to the $249 grand. You said it yourself, we probably won't live long enough to collect what we paid in. To me that is theft!!! Fact is, 40% of americans have a zero federal tax liability and we will pay $50 grand in state and federal taxes for 2010. Now what was that about the government not screwing people????? I smell a liberal!!!!!!!!!!!!!
OMG, I guess this proves it. The US really is getting more narcissistic. All many of you people do on this board is brag brag brag. Gee, things worked out well for you. I'm happy for you. The next gold medal I find sitting around my home you can bet you'll be the first to get it. But what your personal good fortune has to do with this article I have no idea.
While there are some people out there who really did work harder than others to get where they are, many were just fortunate along the way to have picked the right industries at the right time or to have gotten in with the right company that pays them well with full benefits.
Truth is many in America adhere to a set of beliefs that are out and out fabrications. Those who are in the privileged class are led to believe they are there because they are a fundamentally better person than those who make less money and/or do actual physical labor for a living. Many don't say it, but they believe anyone who would work with their hands for a living as a nurse, tradesman, custodian etc. is obviously inferior or they wouldn't be doing that work. They would be doing something more "important." The corporate types and their white-collar wannabes in administration don't see or don't want to see how the perks they get like company paid health insurance, 401K match etc. give them an advantage that others don't have.
There are two separate societies running concurrently in the US. One for the educated elite, and one for the rest of the people. The only time there is a problem is when those who consider themselves elite and entitled feel their status threatened or see their ranks thinned such as is happening now. Then suddenly all hell breaks loose and the govt. must do something to right the ship. The recession started years ago for those in manufacturing and other industries, and nobody seemed to give a rat's a**. But now it's the IT guys and middle management that are being hit...Sound the alarm!
PS: Bite me...
This article is just another redo of the same information with a different talking head. My concern is that this kind of blather (ie. living at under 3% of your portfolio) merely scares people and that's unfortunate since some people will probably take this guy as someone who knows more than anyone else.
It's been proven for years that you can start at 4% and add the amount of annual inflation and be okay. Of course it's very smart to withdraw as little as possible when the market is tanking and draw more when it's good (like what we have today). The key, as unoriginal as this article, is to diversify and move that diversification ever more to conservative as you age. Read a book like "The Elements of Investing" or something else that is close to the philosophy of Bogle (Vanguard's genius) to help guide your diversification and keep you on track.
I retired four years ago at 54 after being laid off from a management position. I know first hand that being reasonable with your spending and staying conservative (avoid financial people like, well, the guy being quoted here) and create your portfolio primarily using ETFs and mutual funds true to your diversification model and you should do well.
One tip from an early retiree: Retirement is especially wonderful on sunny days.
It was Not my choice to retire early, but being laid off by a large company just before I could
receive my full penison and benefits..
Think they were on a out sourcing and greed kick..But with No Jobs to be had, whala,! I was
New dress code, No Gray Hair..
Will be glad to see Barrys laser beam effort on jobs for Americans to happen, but not
holding my breath till it comes about..?
Well if you retire be sure you have something to occupy your time with besides taking naps. There is no way to know how to keep up with inflation thou. You can be in great shape financially but medical problems can still wipe you out.
I have been retired for a while but still think working part time would be a good thing. If you have a passion for something before you retire be sure to get ready to do it. Also if you have a mortgage in this market it probably would be better to walk away and rent a place. That way you don't have to worry about maintaining it. Being a landlord is no bargain no matter what anybody says. Real estate just isn't keeping it's value for years to come I believe. Realtors and agents really aren't your friends anymore than bankers. So walking away may be the easiest solution but get a place rented while your credit is good.
Being old in this day and age is no bargain and 60 plus is not the new 40 plus it is just bs. Yes retiring gives you lots of time after a while the work world is just a past life. We all end up no matter how healthy you are with problems eyes and hearing I think is the most common. Also this connected world is leaving everybody unconnected peoplewise and nobody young has time for the old because they are caught up in the work cycle of life.
The best thing is your life has given you many good memories and you have a long term partner in your life to enjoy your retirement with hopefully. Also definitely try to stay out of debt once you are retired. The less stress the better enjoyment of retirement.
Additionally, belt tightening, and a large enough nest egg to cover a few hundred a month in the red until Social Security kicks in allowed me to retire early. But because I've honed my skills over the years at getting the most for my money, it hasn't meant living like a hermit.
For example I treated seven of us to the International Auto Show on Sunday. Sunday was family day so the two kids got in free and I got the five other $10 tickets on Groupon for $5 each. What would normally cost $70 on Saturday cost $25 on Sunday. Restaurant.com has coupons for $100 off per table for $40, so we can try out a decent restaurant or two each month for $10 or so per person (you base the tip on the full cost). And store brands and warehouse/discount/dollar stores mean I save 1/3-1/2 on food and clothing.
For me, the secret was knowing "how much is enough!". I determined what I wanted to be able to do in retirement and then determined how much it would cost to do it. I allowed for an inflation rate of 3.5 to 5% annually and for a life span of 25 years beyond my retirement date. Finally, I allowed myself a margin or error of 15% on all of the above including accumulate investments and based on this formula, my wife and I retired in 1982. Obviously, my life span has exceeded the 25 years I allowed and 4 stock market crashes since 1982 have damaged my income projections but we have still been able to live a very comfortable life style including a new luxury auto every 5 years, 30 day cruises twice a year, and other upper middle class living advantages. What we did can be done but it is not easy and involves reasonable expectations for the future and saving and investing to achieve those expectations.
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