Continuing the discussion from How Much Do You think You Need to Retire? What Age Will You/Spouse Retire? General Retirement Issues (Part 2) - #10050 by deb922.
Previous discussions:
Where is everyone? 
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Iām here. I hope folks understand that this is the continuation of the other thread!
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It seems to clearly state that at the top.
It said system generated. Wasnāt sure it was real. Iāll respond later.
I agree. But some folks may have seen the lock on the other thread and gone no further. Heckā¦I had to look twice at the system thing! I think that is because this automatically happened.
@moderators or @CC_Sorin perhaps someone can place a moderators note on the first thread explaining this? You know something with that yellow backgroundā¦to explain that the discussion is NOT lockedā¦it just has now gotten a new continuation threadā¦.because it exceeded 10,000 posts.
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Continuing the discussion from How Much Do You think You Need to Retire? What Age Will You/Spouse Retire? General Retirement Issues (Part 2):
The 53 year old was retired military and his pension from the military was quite high. He did save I believe a million dollars outside of that too. He was pretty well set.
I personally have been heavily saving within a 401k but recently gotten access to what will end up being a small pension. I have cut back some on other savings because I have saved well and now that pension will give me a bit more security and dependability. It will be a known quantity that will also adjust for inflation.
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One thing I think is nice about pensions if you have one. They can serve a similar role as a bond allocation. They are generally stable and dependable. They shouldnāt fluctuate like stocks could. If someone has access they can potentially be more aggressive in their other funds while knowing the pension money is guaranteed (hopefully).
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Exactly how we treat the pension.
We also told the FA that we already have 2 annuities and have no need for more. That one was annoying because I know he makes a lot of money from selling annuities
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@thumper1, I added a note in the first post of each of the previous 2 threads.
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Yesā¦but itās from āsystemā not one of you recognizable folks.
I cannot change the poster unfortunately.
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Not sure how I answered b4 but Iām about income and not net worth
If you have $10 million in Amazon or Tesla stock, youāve got $0 income. So unless you sell something, you have nothing.
If you have $10 mil in the S&P 500, at todayās prices youād make $111k taxable or so.
Of course if you started with the same initial investment, your Tesla or Amazon will have grown faster.
My point - itās not about net worth in my conservative mind but income.
If I had to state a number, Iād say $3 mil in net worth. I can buy a federally tax free muni bond at 4% and make $120k a year. You might pay state income tax but in TN I donāt.
That would cover my spending needs plus give me some to reinvest to make more next year to counter inflation.
Speaking of pensions, I was just offered a buy out from my previous employer and after running #s and comparing with others also offered the buyout, I took it. I was 9 years from taking the full amount. If I grow it 5% a year, itād take me 15 years to break even if after 9 years when I could have taken it, it stopped earning - but it wonāt. It would keep growing it at hopefully 5%.
I am actually getting 5.7%. I bought federal agency bonds with it - Federal Home Loan Bank and Federal Farm Credit Bureau.
These are taxable but they are in an Ira (where I rolled the buyout into) - they only have one year call protection so they could be (hopefully not) called in a year at which time Iād need to redo it.
Iām ok with having a high IRA / 401k vs a Roth because as I buy tax free munis my tax bracket will be low ( even though my income high). So all the advice to do Roth conversions is bs in my simple mind.
The question is really dependent upon the person - their spending habits, needs, desires. I donāt desire a boat or Ritz Carlton each vacation. Others do.
Good luck to all.
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One of my bffs, a former coworker, got a pension buyout offer a couple of months ago. I didnāt this time. I think hers is a much lower value and the company just wanted it off the books, but she declined the buyout.
I have to admit that her getting an offer makes me a little nervous, like is there something wrong with the funding. In 2019, everyone got an offer, but this year sheās the only one in our FB group of current/former employees. I look at the financials they are required to send annually, and the funds grow every year so I think the fund is sound, but a part of me always thinks the money may not be there.
Itās not a make-or-break amount, but itās definitely part of our retirement plan. Dh and I even have talked about my taking it early, just to avoid dipping into our retirement account. We are the classic couple who are having trouble changing from a saver to a spender mindset.
Itās interesting. Came after I got a health scare so I first thought bird in hand.
They showed the āvalueā and it was 99%. Others like full pension or options with 100% spousal survival, or 50 or 75% were 97%. Not sure while all werenāt 100%.
I could have started drawing in 9 years. The lump was 116 times what I would have collected per month starting then in a full life annuity. Interestingly, the offer went up 3.5% when the fed first cut (I think September) but did not go up again when they cut in November.
In the end, I think having a monthly amount come in is important for some. Some need it but if you have enough to survive without it, then a buy out could make sense. I believe Iām in that camp.
For someone who relies on that payment to make ends meet - they need that comfort - staying in might make more sense.
I talked to 4 or 5 and all took the lump. But each offer is likely different too - company by company any so your friendās buyout may not have made sense.
Yes they want us off the books.
My old and current employer now have defined contribution plans. That they can tolerate as they know the expense.
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Someone in our FB group started getting their pension this month and had questions, which sparked another round of conversation. One guy said that he didnāt realize that he got a pension, and we are all assuring him that he was there long enough to be vested (10 years). But later I started thinking ā¦ He joined the company in '96. They may have quit pensions by then. Most of us in the group started work there in the '70s or '80s and so are in the sweet spot of having a pension AND getting in on the ground floor of the 401k. I feel really fortunate.
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A cautionary note.
Callable bonds are one of the riskiest and worst understood investments for income dependent investors. These bonds are redeemable (called) at the sole discretion of the issuer. They are typically called when interest rates go lower and the outstanding bonds can be reissued at more favorable terms (lower interest rates).
That means income driven investors will be forced to redeploy those funds in a lower interest rate environment. Consequently the investor will face a choice of lower income or greater risk to maintain the same income level.
Sophisticated investors and traders use an option adjusted spread model (OAS) to ensure they are being properly compensated for this dynamic. Conversely, retail investors typical do not buy āround lotsā ($1mm+) of these securities and as such the pricing tends to be very opaque, illiquid and expensive.
Caveat emptor.
This is from FINRAā¦
āIf youāre counting on the steady stream of income from the coupon payments, you might find that stream has dried up, and you might not be able to find a suitable replacement investment for that cash.ā
For those unfamiliar with FINRA it stands for Financial Industry Regulatory Authority, and itās a not-for-profit organization that regulates the securities industry in the United States. In order to offer financial advice on behalf of a broker dealer you need a FINRA license.
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A steady income stream is obviously essential. Iād put full home ownership, paid off completely, right behind that.
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What is your 3 million answer - what you need to retire?
And does that include you, or you and significant other?
Does net worth include house you live in or not?
No judgement, just curious.
I agree it is TOTALLY dependent on the person/couple, and what the related expenses are. (Meaning expenses are as important or more important than income/net worth).
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Fixed rate mortgages and mortgage backed securities are typical examples that may be useful in explaining the concept. As the borrower of a mortgage, you may be inclined to refinance if interest rates fall below the mortgage rate. The same applies to the issuer or borrower of any callable bond.
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