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By Dale Roberts, Cutthecrap investing
Special to the Financial Independence Hub
It’s just a coincidence perhaps. But much of my blog and reads for the week research landed on that retirement theme. Everyone’s thinking of retiring or writing about retirement. And why not? That is a big end goal for most of us; some form of financial freedom. This Sunday Reads post offers a nice slice of retirement thinking, from the emotional to the money side of things. And of course, there’s some non-retirement ‘stuff’ in here as well.
This is a very good topic and post on My Own Advisor – the emotional side of retirement. In fact on this site I wrote an article that offered that waiting for your spouse was the hardest part of retirement.
Mark offers up on that period after the retirement honeymoon stage (after year one) …
At this point in retirement, the honeymoon is over and potentially it isn’t as enjoyable for some as they may thought.
Maybe some folks go back to work – as part of FIWOOT [Financial Independence: Work on own Terms]. There are only so many rounds of golf you can play …
I’ve read feelings of disenchantment can set in for some. Even depression. That’s certainly something I wish to avoid. By maintaining some form of work into my routine (may or may not be daily), it is my hope that I can stay active (socially, physically, cognitively) to support my health in early retirement and far beyond.
We certainly have to take greater care when we design our life in retirement. We need to be busy and we have to have purpose – from my life experience and from many studies. Having the money to retire in some form is just the half of it, or less.
The waiting is the hardest part
In my post link above, I touched on my first taste of semi-retirement experienced alone. My wife still works and will likely work for a a few more years. I also took off down east to be with my daughter as I launched this blog …
That said, I got a good taste of that ‘waiting’. And as Tom Petty (RIP) sang ‘The Waiting Is The Hardest Part’. While I have a very generous amount of loner in me I was surprised at how uncomfortable a feeling that was – that working alone and being alone for many hours on end. I couldn’t wait for my daughter to finish work and head up to the cottage for dinner and a walk along the beach.
I may have got a taste of what if feels like to make that transition.
The Boomers Retire
On the retirement front Jonathan Chevreau takes a look at a new edition of The Boomers Retire. The book is co-authored by Alexandra Macqueen, a Certified Financial Planner who co-authored Pensionize Your Nest Egg with famed finance professor Moshe Milvesky. David Field is an investment advisor and financial planner and co-creator of the CPP Calculator.
From Jonathan’s post on MoneySense …
“That’s just responding to the reality of retirement income planning for the growing numbers of the ‘pensionless’,” Macqueen says. “If you don’t have lifetime income, you’ll need to create it or take your chances. Whatever you decide, here’s a collection of the relevant facts, principles and issues you’ll need to take into consideration when you’re making your plan.”
While the book is written for advisors and planners, it is also a good read for the rest of us offers Jon.
Of course Alexandra is no stranger to this site. A retirement and pension expert Alexandra penned one of the most read (and most important) posts on this site.
Must read: Defined benefit pension planning. Bad advice could cost you your retirement.
And the Maple Money Podcast is on point this week as well with how to design your retirement lifestyle, with Mike Drak. Mr. Drak is a co-author of retirement heaven or hell, which will you choose?
Retirement income? You don’t stand a chance
Yes you might want to throw out most of those retirement studies and projections such as that 4% retirement funding rule and other rules of thumb. Those thumbs are made to be broken, perhaps.
Retirement funding might take a hit because TINA is stupid, writes John Mauldin.
TINA – there is no alternative to stocks and bonds, takes a hit in that post. And the reason is that valuation matters as we’ve offered in this space, so many times. From that post …
Well, not so fast. My friend Ed Easterling at Crestmont Research says it makes a great deal of difference when you start your retirement. If you start at a time of high valuations (like now) the chance your money will run out before 30 years is also quite high. In fact, in the chart below, if you start at the top 25% of valuation quartiles you would run out of money in an average of 21.8 years. Your money only lasts 30 years 47% of the time. Not exactly good odds. Starting at low valuations? Well, the force is with you.
And the table that might set the retirement funding table for the next decade or so.
You need real earnings to fund retirement
While the Crestmont study uses a more aggressive 5% SWR (safe withdrawal rate), compared to that 4.1% normally used in that 4% rule stuff, the table is telling. Valuation sets the stage for our potential success rate. The top P/E ranges – the highest price to earnings ratios deliver much higher failure rates for the portfolio. A high P/E ratio means that you’re not buying a whole lot of current earnings with your stocks. Your stocks are expensive.
For US stocks we are near the worst level within that top 25% quartile. That is for U.S. stocks. Canada is in fair valuation territory. And generous Canadian dividend income might help the cause.
You might consider layering in some annuities or the Purpose Longevity Pension Fund.
Keep valuations in mind as you create your portfolio and plan your retirement spending. You might ‘be careful’ with respect to your allocation to U.S. stock markets or expensive U.S. stocks. I am trimming a few of our U.S. high flyers. And that said, you might be cautious with your overall weighting to stocks.
We might have to be prepared to lower our spend rate (percentage or portfolio assets) should the markets offer a severe and extended correction.
But don’t cheat your retirement. The markets might continue to deliver incredible gains. In retirement we might take what the markets are offering (accept that gift) but be ready for tougher times ahead. We might then adjust our spending accordingly.
Think of if as a dynamic retirement spending strategy.
Can’t wait to not be a homeowner.
On Million Dollar Journey, and on the homeownership dilemma, Kyle can’t wait to NOT become a homeowner. That is a very good post.
As I put in my my recent MoneySense weekly post, you don’t have to own real estate to build incredible wealth. In that post I offered this table to $1,000,000.
You can invest your way ‘there’ …
Our Toronto home is our accidental investment. Downsizing in retirement and creating additional income from the sale proceeds was always part of the retirement funding puzzle. We just had no idea that (so far) the home value would increase by ridiculous levels.
One can get to financial freedom sans home. I get that.
Dale Roberts is the Chief Disruptor at cutthecrapinvesting.com. A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site on July 11, 2021 and is republished on the Hub with his permission.
