Author Topic: Nyt : how to retire with enough  (Read 1943 times)

Weisass

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Nyt : how to retire with enough
« on: August 27, 2021, 06:58:11 PM »
What do you all think of the advice? Most of it is pretty run of the mill, although I was not expecting the pitch for annuitizing your retirement.

https://www.nytimes.com/2021/08/27/opinion/how-to-enjoy-retirement-without-going-broke.html

Weisass

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Re: Nyt : how to retire with enough
« Reply #1 on: October 03, 2021, 06:12:52 AM »
ARTICLE TEXT:

Iíve been asking readers to suggest ideas, and I got this one last week from Jerry Moskowitz of Croton-on-Hudson, N.Y.: ďI teach a class for seniors called Keeping Current in Economics and Finance. An interesting subject may be decumulation ó how to successfully spend money in retirement.Ē

Excellent idea, Jerry. Accumulating money for retirement is hard, but decumulating it is tricky, too. Even the experts have trouble saying how to pace your spending so you can enjoy retirement without exhausting your savings before you die. You canít know for sure how long youíll live, whether youíll suffer a costly illness or how markets will perform.

ďItís really nasty. Itís the nastiest, hardest problem Iíve ever looked at,Ē William Sharpe, who won a Nobel Memorial Prize in Economic Sciences in 1990 for his work on financial economics theory, told Barry Ritholtz, a Bloomberg View columnist, in a 2017 podcast. Sharpe added, ďI canít say Iíve found some magic solution, because I havenít.Ē (His solution is posted, free, on the Stanford University website. Beware: Itís mathy.)

Decumulation isnít just a tough financial problem. It can be an emotional strain to flip a switch from saving to dissaving.


I canít do this topic justice in one newsletter, but for starters, here are three choices that everyone whoís retired or thinking about retiring has to make:

Do you keep your spending steady and allow the assets in your portfolio to fluctuate, or do you do the opposite ó keep your portfolio steady and allow your spending to fluctuate?

Both choices have drawbacks. Letís say you want to keep your spending steady to maintain a stable lifestyle but, right when you retire, the market has a few bad years in a row. The spending level that you chose, which seemed reasonable when you retired, will be too much for your shrunken portfolio to sustain. Your assets will shrink far faster than you intended, and you will run out of money.

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Or letís say you choose instead to keep your portfolio steady or shrinking at a slow and steady pace. That means that when the market goes down, youíll have to cut back how much you pull out of the portfolio to avoid draining it too quickly. That could be a problem if you need the money to pay bills.

A good choice is to come down somewhere between the two. Try to keep your lifestyle fairly stable, but bow to reality and cut back at least a bit in years when your portfolio is down.

Do you keep a big nest egg, or do you convert your savings into a stream of monthly checks?

The smart but psychologically difficult choice is to at least partly annuitize ó that is, buy a financial product that provides a monthly income. When you buy a life annuity, the seller takes on the risk that you will live to age 110. Thatís a big load off your mind. What makes it hard on your psyche is that to get a decent-size annuity, you have to turn over a big chunk of your life savings to the seller, usually an insurance company. ďThe purchaser has to write a big check to get a series of small checks, which may simply look like a bad deal to a naÔve consumer,Ē Shlomo Benartzi, Alessandro Previtero and Richard H. Thaler wrote in The Journal of Economic Perspectives in 2011.

To get over the mental threshold, think about how relieved youíll be to have income for life. Or cut the cost by buying a deferred annuity that kicks in at, say, age 80. Social Security is a fantastic annuity thatís provided by the government, and you should try to maximize how much you get from it. One smart strategy is to use up some of your nest egg to cover your costs until age 70 and start drawing Social Security checks only then. By waiting, you will get bigger monthly checks.

Research shows that people who convert their nest eggs into predictable monthly checks have lower levels of the stress hormone cortisol in their bloodstream, says Teresa Ghilarducci, an economist at the New School for Social Research. The rap on annuities is that they have high fees, but competition has benefited consumers. Quality has gone up, and costs have come down.

How much risk do you take?

Keeping your money in stocks gives you more potential but also more risk. For most people, especially younger retirees, some exposure to stocks makes sense. But grasping for high returns to compensate for years of undersaving is unwise. Do you lose sleep when the market plunges ó or, worse, sell your shares and lock in big losses? Then youíd be better off in something safer. Also, adjust your asset allocation as you age. ďAs people get older, security is much more important to them than almost anything else,Ē says Ghilarducci.

As Sharpe said, these arenít easy decisions. Annamaria Lusardi, an expert on personal finance at George Washington University School of Business, says that in her research, ďI kept being surprised by how little people know.Ē For many people, she says, finance is a foreign language. ďWe have shifted so much of the decision making onto individuals,Ē she told me. ďIn finance, ignorance is not bliss.Ē

former player

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Re: Nyt : how to retire with enough
« Reply #2 on: October 03, 2021, 07:08:37 AM »
I think annuities (or pensions) make more and more sense the older (or sicker) you get, when capacity for dealing with business and with risk reduces.

The thing about old age (lets say late 80s through to 100s, although obviously everyone is different) is that even those people in relatively good health and sound of mind are likely to have reduced capacity for dealing with business, including business regarding large amounts of money.  Chances are either your sight or hearing are getting more limited, your capacity for dealing with complicated information is more limited, you are physically more frail.  And not just your ability but also your willingness to spend your limited time and energy wading through the bullshit of optimally managing your own finances is likely to be limited.  The chances of getting on the wrong side of a financially important decision, or not being able to see off someone who wants to take advantage, go up.  Having an annuity, with an assured monthly income that covers expenses without having to manage a large amount of capital, can be a priceless form of security and remove a lot of effort and worry.

I think the same concerns arise about owning property, particularly single family homes, into a great old age.  Fine if you are well integrated into the community and have a network of trusted people who can do all the work necessary to maintain a property and the means to pay them.  Even then, the chances are that in old age  you won't want to be bothered with renovations and the property will become outdated according to whatever the current standard is (eg on insulation standards), or not be able to be properly adapted to the needs of old age.  It's very obvious if you look at properties for sale which of those properties have belonged to people who in old age have been unable to keep it in good order. 

maizefolk

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Re: Nyt : how to retire with enough
« Reply #3 on: October 03, 2021, 07:33:54 AM »
What do you all think of the advice? Most of it is pretty run of the mill, although I was not expecting the pitch for annuitizing your retirement.

I think is this a case where advice for conventional retirement and early retirement really doing translate well.

FIRE generally involves saving up enough money so that, on average, you aren't spending down principal just living off a fraction of the earnings. Most of the failure states in FIRE simulations using historical data result from a big crash and/or stagflation right after retirement when your savings haven't had a chance to further compound.

Conventional retirement lasts much less time. For a NYT reader who did all the conventional right things deferred social security and retires at 70 only has an estimated 15 years left to live, so their retirement spending each year is enabled in large part by spending down principal. They're probably mostly invested in bonds so a big stock market crash early in their retirement isn't as big a deal for them as it would be for a FIREee. But what they DO have to worry about is "longevity risk" and that, while the statistics estimate they'll be dead in 15 years, there is about a 25% chance they'll live another 30 years and run out of money (other than social security, which will still be a fair bit since they worked for 35+ years and deferred claiming it until 70).

So an annuity might make more sense for them than it does for us.

Weisass

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Re: Nyt : how to retire with enough
« Reply #4 on: October 16, 2021, 05:50:18 AM »
Quote
So an annuity might make more sense for them than it does for us.

Iím just imagining the ďtypical nyt readerĒ now, spending down their principalÖ thanks @maizefolk , for the amusing visual!

deborah

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Re: Nyt : how to retire with enough
« Reply #5 on: October 16, 2021, 12:50:14 PM »
Iíd never thought about it before, but assuming we die between 70 and 90, and start working at 20, I suppose thatís a big difference between the FIREes who retire at 30 and those who retire at 54. Theyíre both retiring early, but the 30 year olds have 40 - 60 years of retirement (4 - 6 times as long as theyíve worked), while the 54 year olds have 16 - 36 years of retirement (between about the amount of time theyíve worked and half that). This means the 30 year old really has a lot fewer concerns about the stash lasting long enough - their major concern is whether they have enough stash to retire. Whereas, the 54 year old probably has enough to retire, but their major concern is the longevity of the stash.

RFAAOATB

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Re: Nyt : how to retire with enough
« Reply #6 on: October 16, 2021, 04:10:22 PM »
Do these people hate their kids?  Never spend the principal and plan to leave a big inheritance.  Likewise the adult children should be helping out with home repairs and administrative paperwork when the elders donít have the time or mind for it.

ixtap

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Re: Nyt : how to retire with enough
« Reply #7 on: October 16, 2021, 04:27:30 PM »
Do these people hate their kids?  Never spend the principal and plan to leave a big inheritance.  Likewise the adult children should be helping out with home repairs and administrative paperwork when the elders donít have the time or mind for it.

If my parents asked me to do menial tasks just so that they could leave a bigger inheritance, I would be pissed.

Malcat

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Re: Nyt : how to retire with enough
« Reply #8 on: October 16, 2021, 07:11:50 PM »
Do these people hate their kids?  Never spend the principal and plan to leave a big inheritance.  Likewise the adult children should be helping out with home repairs and administrative paperwork when the elders donít have the time or mind for it.

If my parents asked me to do menial tasks just so that they could leave a bigger inheritance, I would be pissed.

I hope my parents spend everything on themselves and leave us kids nothing. I sure as shit don't want to be mowing their lawns and doing their taxes if they could just pay someone else to do it.

I'll do whatever is needed to help them, but no, I don't want to do menial labour for them just so that the kids can inherit more.

MudPuppy

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Re: Nyt : how to retire with enough
« Reply #9 on: October 16, 2021, 07:23:01 PM »
I canít say that Iíve ever considered leaving an inheritance of any amount as having any correlation with love for children or success as a parent.

Weisass

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Re: Nyt : how to retire with enough
« Reply #10 on: October 16, 2021, 07:34:14 PM »
Do these people hate their kids?  Never spend the principal and plan to leave a big inheritance.  Likewise the adult children should be helping out with home repairs and administrative paperwork when the elders donít have the time or mind for it.

If my parents asked me to do menial tasks just so that they could leave a bigger inheritance, I would be pissed.


I hope my parents spend everything on themselves and leave us kids nothing. I sure as shit don't want to be mowing their lawns and doing their taxes if they could just pay someone else to do it.

I'll do whatever is needed to help them, but no, I don't want to do menial labour for them just so that the kids can inherit more.

Couldnít agree more. I want to see them enjoy their money!
« Last Edit: October 16, 2021, 07:37:10 PM by Weisass »

Malcat

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Re: Nyt : how to retire with enough
« Reply #11 on: October 16, 2021, 07:35:28 PM »
I canít say that Iíve ever considered leaving an inheritance of any amount as having any correlation with love for children or success as a parent.

Yeah, I find this concept super strange, unless there's a need for it, like a special needs child or grandchild. But otherwise, couldn't loving your kids also mean preparing them to be independent?

My parents could leave everything to a dog rescue and I wouldn't feel any less loved.

RFAAOATB

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Re: Nyt : how to retire with enough
« Reply #12 on: October 17, 2021, 06:55:12 AM »
Thereís also the likelihood that by the time parents pass in their 80s or later the kids will have more money than them in their 50s or 60s.  The grandkids might need some financial help to put a boost on their young adult lives.  The income stream an inheritance provides can take a big bite out of student loans, mortgages, and child care.  With everyone talking about wages not matching inflation, taking care of your family financially is a responsibility you should not abandon.

So by the time the elderly pass, their kids wonít need the money for themselves, but they will need the money to make sure the grandkids are taken care of.  So why donít we give the money directly to the grandkids?  Because the adult children are more likely have the benefit of experience and maturity to make wise decisions with the money.

maizefolk

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Re: Nyt : how to retire with enough
« Reply #13 on: October 17, 2021, 07:20:12 AM »
Thereís also the likelihood that by the time parents pass in their 80s or later the kids will have more money than them in their 50s or 60s.  The grandkids might need some financial help to put a boost on their young adult lives.  The income stream an inheritance provides can take a big bite out of student loans, mortgages, and child care.  With everyone talking about wages not matching inflation, taking care of your family financially is a responsibility you should not abandon.

I would not want my parents or remaining grandparent to feel that they have any responsibility to take care of me financially in adulthood.

Malcat

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Re: Nyt : how to retire with enough
« Reply #14 on: October 17, 2021, 07:50:35 AM »
Thereís also the likelihood that by the time parents pass in their 80s or later the kids will have more money than them in their 50s or 60s.  The grandkids might need some financial help to put a boost on their young adult lives.  The income stream an inheritance provides can take a big bite out of student loans, mortgages, and child care.  With everyone talking about wages not matching inflation, taking care of your family financially is a responsibility you should not abandon.

So by the time the elderly pass, their kids wonít need the money for themselves, but they will need the money to make sure the grandkids are taken care of.  So why donít we give the money directly to the grandkids?  Because the adult children are more likely have the benefit of experience and maturity to make wise decisions with the money.

This is culturally modulated belief system that is more common in the US because young people and seniors are more financially dependent on family there, so it's more normalized and expected.