Inflation, investing, and retirement

[CompulsiveGardener]

As DH and I near the possible years of retirement (we span the mid-50s), the idea of actually retiring - given the upheavals in the market a few years ago (and always possibly happening again at any time), poor performance by less risky investments e.g. bond index funds, and crazy inflation (in what we see, such as 50% increase in home utility costs and 30% increase in groceries, not what the Fed reports) - makes me more and more nervous.

I'd appreciate any stories and/or wisdom that you can share about things like...
Trusting the 4% rule (or 3%, or whatever) for a horizon longer than 30 years
Changing investment strategies as you near retirement -- what strategies worked best?
Planning for uncertain payments from Social Security
Planning for increasing healthcare costs
etc... everything just seems so uncertain.

[iris lilies]

As DH and I near the possible years of retirement (we span the mid-50s), the idea of actually retiring - given the upheavals in the market a few years ago (and always possibly happening again at any time), poor performance by less risky investments e.g. bond index funds, and crazy inflation (in what we see, such as 50% increase in home utility costs and 30% increase in groceries, not what the Fed reports) - makes me more and more nervous.

I'd appreciate any stories and/or wisdom that you can share about things like...
Trusting the 4% rule (or 3%, or whatever) for a horizon longer than 30 years
Changing investment strategies as you near retirement -- what strategies worked best?
Planning for uncertain payments from Social Security
Planning for increasing healthcare costs
etc... everything just seems so uncertain.

the old-fashioned idea of retirement was you had three prongs of retirement income:


1. Pension


2. Social Security

3. Retirement savings

So many do not have number one anymore.

Our personal story is we retired at age 60 on $30,000 a year, a pension. So that’s a really sweet pension.
we lived for several years on that and on drawing down our savings before Social Security income kicked in. We took Social Security at age 66.

because the stock market has been so good in recent years the money we took out of our stas, didn’t make a dent. We now have a higher networth today than we did 10 years ago. In that time we did get a sizable inheritance from my father-in-law‘s estate, but that makes up less than 10% of our assets.

I see strategies for surviving in retirement as belt tightening when necessary. It may not be necessary tho! . Getting a part-time job which in today’s world is super Duper easy. Anyone who wants to work part time can get a job, anyone. Downsize your abode if you haven’t already.

I can’t speak to changing investment strategies because I don’t have any philosophy about that. I did just take a significant chunk of money out of a CD and put it back in the market. I was Sitting on that CD chunk simply because it helps me sleep at night, and it’s only part of our assets. If you’re interested in financial growth and do not do this, ha ha.

You’re not gonna have certainty of any kind so make the jump into retirement assuming you have decent assets. If you do not, it might be wise to work more years.

[happystuff]

I'm looking to retire in less than a year now - yay!! Dh is a year older than I am and is still working - not sure when he will choose to retire as he FINALLY found the job he is really suited for.

I'm trying to get our Medicare/Medical options in a row ahead of time. I'm skimming, but will soon start seriously looking to down-size. It's hard to make the decisions because what I want to do is be near family, but down-sizing economically means moving a little bit further away than we are now..

Kids are now adults and we are finding that our incomes are better than they have been in a long, long time, so - since we have had to live on so little for so long - we are still doing that and dropping as much as possible into savings. My hope is to buy a prefab home on a little piece of land and actually pay cash; then the sale of our current house will go back into savings.

This is all just basic ideas at this point - not sure how the exact details will work out.

Lots of decisions to make and, in all honesty, I didn't think it would be this hard to prep for retirement!!!! Live and learn. LOL

[pinkytoe]

Part of our strategy was to sell the house, move to a state with much lower property taxes and pay cash for the new house. We don't have any debt so my pension along with our SS payments and investments etc is more than enough to get by. Our annual expenses thus far have been about $25K so any other income goes to savings or investments. I am reading a book now called Die with Zero which is beginning to change my mind about amassing savings for our old age as we are advised to do. Might be better to spend down and enjoy our last years. Frugality is getting old at this stage.

[Rogar]

I retired at 56 with a very small pension from my employer. I was especially inspired by "Your Money or Your Life". Before retiring I tracked expenses and projected a retirement budget based on a best case 4% draw and also worst case and figured with a frugal lifestyle could get by the worst. In the end it hasn't mattered so much but was a good exercise to get a handle on finances. I'm getting SS now and could probably live fairly comfortably without debt on that alone, but some money from retirement savings definitely makes life easier. I used a FIRE retirement calculator for some estimates. My pension doesn't adjust for inflation and is not a major source of income. Some day it might buy an hour of parking in downtown Aspen.

I've generally stuck to an investment strategy of 100-age equals the percent of equities in my investment portfolio. Mostly index funds, buy and hold. Rebalance yearly or so. I bought I-bonds for a few years when I first retired and they've been an excellent investment. I think some inflation protection is important to a portfolio, but have owned a diversity of fixed income investments.
I'm not worried about SS being there, but would not be surprised if at sometime in the new future the SS minimum age for full retirement is extended by a year or two.

It would be wrong not to consider health care costs, plus any expectations for long term care in old age. Once you're on some form of Medicare plus a choice of a supplemental policy, insurance picks up a lot of common medical expenses and most policies have a yearly out of pocket cap for major illnesses. Navigating through the quagmire of Medicare is a challenge. There are actually some very good uTube tutorials I've seen that help project expenses for both supplemental policies and possible projected expenses for certain medical conditions. It's worth some study, but I think each person has to decide how to handle insurance. It gets complicated.

[bae]

I "retired", following the concepts in YMOYL, in 1999, at the age of 36. At the time I had a 1 year old child, and was married.

When building my retirement model, I assumed long-term inflation of 3.1%, aimed at a 8% pre-tax yield for my investment portfolio, and planned on a 4% draw per year.

In "retiring", I moved from an expensive area of the county (Silicon Valley) to an at-the-time cheaper area (the San Juan Islands in WA state).

I found some of my projections were incorrect - in retirement, my expenditures were lower than I had planned. I suspect a lot of that was due to me simply buying fewer expensive items/services, as my lifestyle here doesn't require such things.

During market downturns, I have engaged in periods of forced austerity, cutting back expenses further, as I do not want to dip into my working capital. I generally keep one year's expenses in a cash-equivalent account, so short market variations I simply ignore.

My basic investment scheme has been a 4-legged triad of:

- boring stock investments
- local bonds for hospitals and such
- local commercial real estate
- private mortgage loans

As I've aged, I've eliminated the real estate and mortgage loans from my portfolio, they required too much of my time to administer, and I value my time over most things.

My plan has survived raising my child through the college years (I had to pay full-freight at an Ivy League school for her tuition, as we did not qualify for financial aid due to my working capital. If those funds had been better structured, she would have gotten a full financial aid package, like one of her roommates whose parents had a vacation home in the Hamptons. If planning long term, think years ahead of the college years about how to properly structure your assets.)

I did *not* plan for the partition of assets that would occur in a divorce, but I seem to have recovered from that event.

My male relatives seem to live to their mid-to-late '90s, so I need to keep this system functioning for another 30+ years. My current financial model produces still a post-inflation growing balance over the years, so I have not yet really thought through when/if I might shift towards a spend-to-zero model.

I will probably elect to begin receiving my social security next year when I first qualify for it.

[CompulsiveGardener]

Thanks, everyone. I think I am getting the almost-FI jitters.

YMOYL was also pivotal for me, and really changed how I thought about money. Before reading it, I was saving the max in my 401K, but after I just saved as much as I could... in general, continued living like a grad student.

My plan at this time is to keep my job until my daughter has her own health insurance, which will be no more than 5 years out. Neither DH nor I will be eligible for Medicare/Soc Sec for some years after that time horizon (less than 10 years for both of us to Medicare, and I expect that we won't draw on Soc Sec until 70).

One of my projects for this winter will be to update my estimate of our actual spending and to take a close look at investments... the latter, I'll do earlier if time permits, as I have some nervousness about heading into this particular election cycle with so much in stock index funds.

I will have a tiny pension - it will probably pay my electric/gas bill most months of the year, unless we get a severe cold snap or we have another extreme inflationary event. Other than that, it's IRAs/401Ks.

[pony mom]

pinkytoe, I'm also reading Die with Zero right now, and it's making me think. My mom's cousin died during Covid and left my sister and I as his beneficiaries, mostly in investments. I've added my own money to those, as well as some money gifted from my parents (taking advantage of the IRS gift limit). My mother recently passed away so it's just my dad and I now but I've been taking care of their financial things for about a year or so. Seeing how much my cousin and my parents had/have, they were quite comfortably well-off, but didn't live like it. My mom, who took care of all the bills and running the household, was very careful with the small income my dad brought home. Yet she has amassed more than anyone would think.

So since I have the first inheritance plus most of anything left after my dad passes, I hope to quit working full time and actually enjoy this money they worked so hard for but didn't really get to enjoy. Perhaps use some of my RMDs that I have to withdraw in the next six years, holding SS off for a few years. I don't want to live extravagantly of course, just make the most of the time I have left, which they did not. BTW, I'm 58 years old, but I feel like time is just rushing by and I don't seem to have time to do what I want after a full day of work, taking care of my dad and our condo, food shopping, etc...

[nswef]

Pony Mom, WE retired at 52 and never looked back. It has been wonderful. Now on year 23 of retirement and we are so glad to have done it.

[pony mom]

When my dad passes, which may not be too long from now, I'll set up a meeting with my financial advisor and see what he thinks. Right now I have five CDs earning between 4.5-5.25%, as an alternative to the investments that were losing money. Now that they're picking up a bit, maybe I'll move some CDs at maturity.

nswef, I hope you've done everything you planned by retiring early. Were you financially prepared so your lifestyle didn't change much?

My big worry is healthcare coverage. My current job has some sort of pseudo "insurance" that doesn't seem to cover much. I can still be eligible for it if I work 30 hrs/week instead of 37.5 hrs., so that is something I'm considering if I can afford to lose a day's pay each week. An extra day away from work will give me time to relax and enjoy life a bit.

[nswef]

Pony mom, our lifestyle did not change and in fact we saved money due to less commute time, less clothing. We are not spenders, so that was not an issue. We are lucky to have insurance still through the our retirement system and with medicare and luckily good health that hasn't been a problem yet.

Working only 30 hours sounds like a plan if you need your insurance.