Eight Brutal Truths About Retirement

Note: With the problems Word Press had this week I am publishing this post in its entirety here. Normal blog process will resume with the next post.

Today’s post comes about from two articles read over the weekend; Barron’s Guide To A Healthier, Wealthier and Wiser Retirement and 20 Brutal Truths About Life No One Wants To Admit from Inc.com.

The Barron’s piece was a roundtable with a little too much insurance talk/salesmanship for my liking but still some good points were raised including how important it is for not only spouses to communicate about financial/retirement matters but this conversation needs to occur between generations too.

The Brutal Truths article was a list of things like 3) Your Material Wealth Won’t Make You A Better or Happier Person, 5) Donating Money Does Less Than Donating Time and 20) Time Is Your Most Valuable Asset. While the article could have probably conveyed the ideas of having the right priorities, volunteerism and live in the moment in fewer than 20 truths, these are still important ideas.

You have no control over market returns

Over the last 15 years the S&P 500 has averaged about 3% per year. Over the last ten years it has averaged closer to 7% per year and the longer term numbers are a little more favorable. You have some period of time that is relevant to you and there is no way to know how long that time frame will be or what the average return will be over that time. It is beyond your control. There is nothing to be gained by worrying about things beyond your control. The point here is to understand you can’t expect to be up 10% per year if the market only gets 3% per year for the next five years or 15 years or whatever time frame. If the market does average 10% gains, then you might be pretty close. This can be thought of as a matter of luck as discussed below.


You can have control over savings rates, spending habits and can learn to overcome your biases

While the average annual result you will get is unknowable, investors who maintain an adequate savings rate, reasonable spending habits and the introspection to learn about their own biases and then overcome those biases have a very good chance of having enough when they need it. I think the spending aspect may actually be the hardest thing to overcome. An advisor can be a huge help for not succumbing to emotional biases even if not overcoming them.

Firsthand experience tells me that a lot of people have blind spots where their spending is concerned, serious blind spots. One of my favorite lines from one of my favorite shows, Deadwood, is when Hearst says to Bullock; I am having a conversation you cannot hear. This is how it can be with conversations about spending. What one person views and lavish extravagances, someone else might view as a staple that is essential to regular living. Again, this is about introspection.

Sequence of returns matters

This might as well be luck matters, which it does. You’ve got $800,000 in a 60/40 allocation in year one of retirement, you take your $32,000 and you get a 5% return so at the start of year two you have $808,000. In that second year the stock market goes down 30%, you take that same $32,000 out and the account is now down to $630,000. The third year the market is flat, are you going to take the same $32,000? There is a school of thought that in your first few years of retirement you should have a very conservative asset allocation because of this type of scenario which of course happened (with different numbers) to people who retired in 2000 and then again for those who retired in 2007/2008. Folks who retired in year two or three of a now 7 ½ year bull market were luckier.


All that matters (investment wise) is how much you end up with

You’re 60 years old and maybe you want to retire or maybe your hand is forced one way or another, how much do you have in relation to how much you think you need? The task here becomes building a withdrawal strategy based on what you have right now. Whether you outperformed, lagged, whatever, performance wise means very little, I would argue it means nothing. Whatever lead you to have $800,000, $925,000, some other number has already happened. Your number right now, regardless of where it came from is your only reality.

A $10,000 part time job is like another $250,000 in your retirement portfolio

This one was in the Barron’s article. The numbers are obviously a play on the 4% rule. I’ve referred to this idea in the past as relieving some of the burden from your portfolio. How much are you planning to take from your portfolio? What percentage does $10,000 earned reduce the needed withdrawal by? With some thought and planning this can be something very fun connected to your interests like monetizing a hobby.

In this context I have talked many times about what I have done over the years as a volunteer firefighter which has branched out into being a Logistics Section Chief Trainee and EMT. I had a chance to go out last week as an EMT with a private company for about $500/day. Those are long days but two full assignments in a fire season would be $14,000 which would go a long way to relieving the burden on the portfolio, as discussed in the next section of this post, if for some reason we ever needed it. Not every assignment lasts the full 14 days and there is a scenario where an assignment can extend to 21 days. There is also a tie in here to another point below about keeping fit. Fireline EMTs don’t need to be able to hike as fast as hotshots but do need to be able to get there.


The best withdrawal strategy will probably include depleting accounts

If you have some combination of taxable accounts (like a trust), traditional IRAs and Roth IRA’s and you are concerned about tax efficiency, then you need a strategy for where you pull money from first. One track to pursue is taking from your trust account first as this type of withdrawal is not taxable (how you raise the cash to meet the withdrawal of course could trigger a net capital gain). Taking money from the traditional IRA is taxable but the money grows tax deferred so many people find it best to wait as long as possible before tapping that account (they go to this one when the trust runs out or the RMD kicks in). Continuing the thought, the Roth is taken from last because it grows tax deferred with no RMD. There are countless variables and other valid approaches, consult with an advisor if you are not sure what is best for you.

In the $800,000 example above, if $150,000 is in a taxable account and the rest in an IRA, from a tax perspective, the best thing might be to take that $32,000 all from the taxable account and repeat until that account is depleted all the while the IRA hopefully continues to grow (tax deferred). Depleting an account will be very uncomfortable, maybe so much so that you can’t do it but from a numbers perspective you should be open to the idea. Now tie in the idea of $10,000 of income from a monetized hobby the $150,000 taxable account might last 8-9 years instead of 5-6 years.

Staying fit will save you a fortune

We have all been influenced by things that people have said to us or that we’ve otherwise read. A couple that resonate with me related to health are that we are all genetically programmed to have a certain body shape and we are likely to have better luck with our health if we don’t deviate from that shape. The other one is that in our late 20’s we begin to naturally lose muscle mass which can lead to a lot of problems later. I lift weights very regularly with the simple goal of staying ahead of that deflation.

Anything can happen to anyone at any time of course but for most people, making time to exercise is within their control. Aside from feeling better and being able to do more things later in life, if a fitness routine can stave off increased medical spending for some number of years then obviously you’re in better financial shape to weather other things like maybe a particularly rough bear market for equities or dealing with an unfortunate circumstance of needing to rewire your house and replace the roof at the same time.

Asset allocation

Having the right asset allocation is arguably also more important than whether or not you outperform the market. There are a couple of reasons for this. The first one has to do with riding out bouts of normal stock market volatility. Having every dollar exposed to equity market volatility is too much for most people. An allocation to fixed income and alternatives helps to address this.

Beyond that is the fact that in any given year some asset class will be the best performer and some asset class will be the worst performer and figuring which will be which is difficult to do (like with the bond market for the last few years). By owning the various asset classes, you have at least some exposure to whatever performs best in a given year which can help smooth out the ride. In 2016 gold is up about 25% versus up 5% for the S&P 500 after a stretch where gold lagged badly. This also pertains to how you allocate within asset classes.

While that seems basic, staying in touch with the basics is pretty important.

For many years I have been saying that retirement has evolved into something much different than it used to be, at least for most people. With the time horizon that more and more people will have at 60 or 65, retirement can really be thought of as the start of something not the end of something. As such there is a lot of work to do as far as how to spend your time, assessing your finances (even if you have an advisor), becoming your own health and fitness advocate and there’s probably more and all of them are multi-faceted in their scope.

While I hope that no one wishes away their life to get to retirement, once you get there it is an opportunity for many things if you have the right perspective.


  1. Nice written Roger !

  2. Depleting your IRA first may not be the best strategy over time. “Never let a lower tax bracket go unused.” The idea of tax bracket includes the excess premiums you pay for Medicare when your AGI reaches certain thresholds. We take enough out of our IRA each year to bring us just below the excess-premium threshold. If your AGI goes one dollar over 170,000 for a couple, your premiums go up almost $1500 a year for two people.


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