This is a topic near and dear to my heart. My investments are in the high growth phase and working very hard for me. However, I want to start taking money out in the next 5 - 10 years so I need to start some risk management planning against a stock market downturn right at that point.
I'm not a market expert so I'll leave that end of the discussion to someone else.
As retirees have no (or minimal) future income from their labour, income replacement (from retirement savings and/or the public pension) may have to last as long as 25 years, possibly more, particularly in the case of a couple.
Reading this part of the report I noted that for myself and I suspect a lot of folks reading this board neither of these two statements are true.
1. My retirement will be well over 40yrs
2. Earning additional money is easy
The first difference means the principal has to last longer - ideally be untouched when I die. The second means I can top up my retirement to the tune of $30K - $40K without much trouble in say the first 15yrs-20yrs. At some point I won't want to work, but initially I expect to do some work.
Phased Retirement
- I'm currently working 40hrs/wk M-F w/ 5 weeks holiday/yr
- I'm planning on going to a 4 day work week next year and taking any raises as extra holiday once I've adjust my income for inflation
- when my investments have reach a sufficient size I plan to move to working 6 months or less a year 4 days a week earning as much as my planned SWR income
- if my investments go nuts I can skip this phase or drop down to an advisory role where I work 25% of the year on an as needed basis [I suspect I'll stay in this role for several decades even with great investment income just because it's fun.
- if my investments tank I can work 6 months of the year 4 days a week for 10-15yrs and feel awesome about my life while my investments sort themselves out
High SWR Income Plan
- I'm planning on getting $40K
- I can be comfortable on $30K
- I can live alone just fine on $20K
- I assume I'll retire alone, but I have a partner who is also planning to make $40K/yr in retirement
- so if we stay together or I am with someone else similar our planned combined income adjusted for inflation is $80K/yr!!!
- at 60 I'll get $8.4K/yr from gov't pension and at 67 I'll get a combined $15K from the gov't with my partner that will be something like $23K/yr combined and it's indexed
Smart Investing
- I'm not a uber investor, but I am learning fast
- as you progress through your retirement plan you need to adjust your investments accordingly
- 100% high growth equities the last year before you pull the plug is not smart
- adjusting your portfolio over time is smart
- I don't know if I'll ever buy any annuities or get into rental houses or something unrelated to stocks and bonds, but I may as my risk tolerance and desire for diversification increase
Eat Up That Principal
- I'd like to maintain my principal and setup some sort of trust for scholarships or something like that
- however, if I have to I can die penniless as I have no kids.
- being able to churn through $500K - $1M at say $20K/yr = 25 - 50yrs of income even if my investments only match inflation
- not ideal, but it's an option
Home Equity
- I don't include my home in my retirement planning calcs
- I can be happy living in an apartment
- I live in an expensive market and can drop home prices by 50% by moving not too far away
- I love travelling and can live in a van quite happily for at least a decade after retirement
- so I can sell my house and harvest that equity to fund my retirement if I need to give my investments time to rebound
Retirement Cost of Living Options
- I love to ride mountain bikes and surf [costs very little when you are at the destination]
- if I had very little income available from my investments say $10K/yr instead of $40K/yr I can load up my clown car and head to Baja or Costa Rica and live happily on the beach for months at a time for the cost of food.
- travelling for a decade in my truck would not be anything, but total awesome
- my $40K/yr plan is living alone high on the hog I can drop that value without suffering
Health & Skills
- I am healthy and fit probably 15yrs younger in practice than average in Canada
- my parents are in their 90's and healthy
- I spent 10yrs in the army as an officer
- I'm now a professional engineer and project manager
- I can ride a bicycle with a week's worth of groceries 100kms in the mountains without feeling abused
- I can fix bicycles
- I can fish
- I'm smart and communicate well
- as long as I don't die or get seriously injured in a freak accident I can adapt to every thing from a stock market crash to peak oil to a killer virus to a zombie apocalypse.
The End Game
- I'm not a doomer, but I do think it's worth considering the absolute worst case scenarios just to demonstrate how freaking robust your retirement plan is
- if the shit really hits the fan.....cannibals, nuclear war, etc.. I believe in living each day to its fullest and I have very little attachment to the future
- if my life ends tomorrow I am totally okay with that....I've had an amazing life and I have no regrets other than investing my $$ better when I was in my 20's ;)!!!
- my GF is a nurse we have a plan to keep insulin and needles in the house if things start to get grim
- two lawn chairs on the roof at sunset with the insulin is the plan
- I never expect that to happen, but knowing what to do is comforting
Bottom line retirement planning isn't about just the stock market and the SWR is just one element. You need to plan and 4% isn't crazy. You also need to give some thought to what you'll do if various events happen. The great thing about retiring younger than the traditional age is that you have more time to be flexible and adjust your plan. If you planned to retire at 37 and you have to work until 44 that's not awful. Or if you planned to keep your serious golf habit in retirement and have to skip it for 3 years when your investments are down that's not awful.
Anyways this is what I am thinking. I'd love to hear other people's thoughts on SWR and how you plan to deal with variations in your investments.
-- Vik