401(k)s Will be Unthinkable in 50 Years

[Habbaku]

I would recommend looking for a fee-only CFP in your area. There will be plenty of them, most will be capable of working on an hourly-rate basis, or be able to build a financial plan for you at a flat rate. If they are an accredited CFP, then you usually have nothing to worry about, as there are severe legal regulations governing their activities.

This depends on your definition of exorbitant fees, of course. 

[Monoriu]

I seldom hear about a fee-based financial planner in Hong Kong.  The few available seem to cater to expats exclusively.  Nowadays nobody calls himself insurance agent anymore.  They all changed their name to financial planner a few years ago. 

[grumbler]

Truly a masterpiece.

He said, Xi said.

[KRonn]

The $1 million figure is thrown around a lot, but is mostly geared around a rather high standard of living in retirement. Most people making under $40,000/year before retirement definitely don't need the traditional $40,000+Social Security/year in retirement income, but significantly less. Accounting for Social Security payments as well, the number for a lot of middle-class retirees is significantly lower.

As always, "it depends".

Yeah, I don't buy into needing that much to retire, I think it's more of a figure that advisors can point to as a goal. And as you say, it depends on circumstances for people. Certainly most average working folks can't save that kind of money with kids, college loans and college payments for kids, mortgages and other daily bills. I started saving in my 20s once I got a decent job in my career field. I could never have saved a million or anything close to that but have felt reasonably good about what I did save. But being retired I worry about not having enough over the long term. When I retired I still had a small mortgage which I intended to pay off as soon as possible, mainly with savings/IRA. But I'm working part time at my former company, probably until the big projects are done, so that works out well. Then I'll get a small pension from my company when I stop working. Unfortunately, shortly after I applied for the pension I started working again, and since I was working at the same place I couldn't get the pension. If I had applied for the pension earlier I could have gotten it then gone back to work with no issues. Heh, just bad timing on my part and not realizing the rules.

[Monoriu]

The 4% rule isn't designed to produce the most efficient portfolios.  It is to make sure that the money won't run out even if the worst case scenario hits you the day after you retire (e.g. 1929 style stock market crash and great depression in subsequent years).

[DGuller]

The 4% rule isn't designed to produce the most efficient portfolios.  It is to make sure that the money won't run out even if the worst case scenario hits you the day after you retire (e.g. 1929 style stock market crash and great depression in subsequent years).

Excessive conservatism in most things is a flaw, since resources are not unlimited.

[Monoriu]

It is only a matter of time before the next financial crisis hits.  It may happen tomorrow.  I don't think making sure that the retirement portfolio is financial crisis proof counts as excessive conservatism.  After all, once you pull the plug and resign from your job, there is (usually) no going back. 

[Habbaku]

Mono, an ultra-conservative portfolio isn't necessary to ensure that one doesn't run out of money.

A podcast I listen to recently did a thought-experiment wherein the hypothetical investor started with a nest-egg of $1 mil. split into roughly 60/40 stocks and bonds, and only assuming the portfolio was invested in a broad S&P 500 index and "all bonds" index to avoid getting too gritty. He began the portfolio just before the Dot Com Bubble bursting in order to avoid biasing against unreasonable expectations with stocks.

In order to prove his point, he then followed the portfolio to the modern day, withdrawing $40,000 each year from the portfolio. He ended the experiment in today's terms with a principal of $900,000 remaining in the portfolio. Even with two of the worst shocks in US stock history (and accounting for the rough corrections in a few spots as well), the principal was essentially only reduced by 10% in a 19 year period.

The reason the strategy worked is because of proper portfolio management--IE, selling stocks after years of high stock returns, selling bonds in years of high bond returns, and always keeping a reserve of cash at a variable level of 10-15% of the portfolio (IE, 2-4 years of expenses) to ensure against the need to sell assets at depressed prices.

In short: DG is right. Excess conservatism here will end up costing you a lot, and sheltering you from very little. Unless you think the world market is going to experience something doubly as bad as the 2007-2008 meltdown, the 4% rule is foolish as long as you have a good portfolio manager caring for your assets.

[The Larch]

It really shows that this forum has become basically middle-aged that a thread about retirement investments has been so active. 

[Habbaku]

  I think I'm still one of the youngest here. I like to help the elderly.

[alfred russel]

Mono, an ultra-conservative portfolio isn't necessary to ensure that one doesn't run out of money.

A podcast I listen to recently did a thought-experiment wherein the hypothetical investor started with a nest-egg of $1 mil. split into roughly 60/40 stocks and bonds, and only assuming the portfolio was invested in a broad S&P 500 index and "all bonds" index to avoid getting too gritty. He began the portfolio just before the Dot Com Bubble bursting in order to avoid biasing against unreasonable expectations with stocks.

In order to prove his point, he then followed the portfolio to the modern day, withdrawing $40,000 each year from the portfolio. He ended the experiment in today's terms with a principal of $900,000 remaining in the portfolio. Even with two of the worst shocks in US stock history (and accounting for the rough corrections in a few spots as well), the principal was essentially only reduced by 10% in a 19 year period.

The reason the strategy worked is because of proper portfolio management--IE, selling stocks after years of high stock returns, selling bonds in years of high bond returns, and always keeping a reserve of cash at a variable level of 10-15% of the portfolio (IE, 2-4 years of expenses) to ensure against the need to sell assets at depressed prices.

In short: DG is right. Excess conservatism here will end up costing you a lot, and sheltering you from very little. Unless you think the world market is going to experience something doubly as bad as the 2007-2008 meltdown, the 4% rule is foolish as long as you have a good portfolio manager caring for your assets.

Yeah but times are fat for us. Rerun that thought experiment with the german stock market in 1930.

[Habbaku]

If you're banking on the 4% rule saving you from the effects of a German-style collapse, I've got a bridge to sell you.

Did you have a point, other than that a cataclysm would take us all down regardless of planning? Was anyone not aware of that?

[alfred russel]

If you're banking on the 4% rule saving you from the effects of a German-style collapse, I've got a bridge to sell you.

Did you have a point, other than that a cataclysm would take us all down regardless of planning?

Yep, sorry you aren't astute enough to pick up on it.

Was anyone not aware of that?

Chill out. Not every post is an attack on what you posted.

[Habbaku]

Zing. Got me. Sorry I can't match your massive intellectual achievements.

[alfred russel]

Zing. Got me. Sorry I can't match your massive intellectual achievements.

You probably can't, but that is off topic.

On this topic, a retirement portfolio split 60/40 stocks/bonds is still 100% in financial assets. It is not especially well diversified. It is subject to shocks that will sink you regardless of whether you follow a 4% rule.