Perils of retirement

[California]

I don't own an LS tractor so I hadn't noticed this thread. But I glanced in this evening and I see there's a lot of wisdom here. Too much to quote the best, there's too much that's excellent.

For the guys looking to future retirement, my advice: As soon as you reach an income that allows a decent life, start saving ALL of your increase in income as you work your way up into better jobs. Look at Warren Buffet, he's still in the modest suburban home he started with 50 years ago. He gets it.

Before kids we lived simple and started with a duplex. Not too inconvenient to have a tenant, and the rental paid 100% of our housing cost - utilities, everything. So we started putting the maximum allowed into IRA's plus savings, a full 25% of gross wage income for a few years during buying a better duplex, bought another rental, then finally with a real house and kids we rolled savings back to 20% of earned income. Some of it put in kids future education tax-deferred accounts. Still living modestly, not at what we could have afforded if we weren't saving like mad. Never bought anything on credit aside from real estate. Paid cash for new cars, appliance replacement, etc. Wife was able to work half time starting from our first kid, clear up to her retirement.

One element that was partly planning and partly luck - that some could duplicate today - was our rentals increased in value as real estate prices in general trended upward. Cashing the first one out paid for me to go back to school for an MBA. Studying finance, I learned that selling the other rentals and carrying the financing myself would earn me the same or better monthly income compared to continuing to put up with tenants and the continual building maintenance. That worked out well, that mortgage income made the payment on the decent home we bought. By this time our savings were doing well. Cut forward 20 years, more savings. I retired at 54 and now near 20 years later our savings are still equal to what we retired with. Things have worked out as I planned, those many years ago. Still living modestly but if I need a tool or toy I just buy it.

I could go on but the most important point is, in formal terms, Time Value of Money. Investments compound over many years, dividends and interest go into the pot and start earning their own income, that's compounding. A dollar invested today will compound to a surprisingly large total over many years before your target retirement date. But you have to put the money away now for this to work!

There are available pc programs that you can use for a formal analysis of retirement savings growth given different assumptions. The calculations are the same thing a paid retirement planner will do for you. An occasional paid consultation with a pro is worthwhile or better yet, Fidelity and some others can look at your portfolio and give advice. Don't contract to give a portion of your income annually to an advisor!!! That kills the compounding effect.

And one last comment: 85% of individual investors don't do as well as simply buying a S&P 500 Index mutual fund and holding it through the various business cycles. You can choose to be in that top 15%. Just do it. I prefer Fidelity's S&P fund for their superior phone support. Vanguard has a slight edge on higher returns due to less customer support - no 24 hour phone etc. Toss a coin. I think Schwab's reputation for service and investment return is as good. Ignore all the hot trends of the day. My own theory (unsubstantiated) is the firms comprising the S&P are so powerful they steer the economy to their benefit so it is useless to bet against them.

Ok, off my soapbox. I'm enjoying my retirement playing 'gentleman farmer'.

 

[check]

I don't own an LS tractor so I hadn't noticed this thread. But I glanced in this evening and I see there's a lot of wisdom here. Too much to quote the best, there's too much that's excellent. For the guys looking to future retirement, my advice: As soon as you reach an income that allows a decent life, start saving ALL of your increase in income as you work your way up into better jobs. Look at Warren Buffet, he's still in the modest suburban home he started with 50 years ago. He gets it. Before kids we lived simple and started with a duplex. Not too inconvenient to have a tenant, and the rental paid 100% of our housing cost - utilities, everything. So we started putting the maximum allowed into IRA's plus savings, a full 25% of gross wage income for a few years during buying a better duplex, bought another rental, then finally with a real house and kids we rolled savings back to 20% of earned income. Some of it put in kids future education tax-deferred accounts. Still living modestly, not at what we could have afforded if we weren't saving like mad. Never bought anything on credit aside from real estate. Paid cash for new cars, appliance replacement, etc. Wife was able to work half time starting from our first kid, clear up to her retirement. One element that was partly planning and partly luck - that some could duplicate today - was our rentals increased in value as real estate prices in general trended upward. Cashing the first one out paid for me to go back to school for an MBA. Studying finance, I learned that selling the other rentals and carrying the financing myself would earn me the same or better monthly income compared to continuing to put up with tenants and the continual building maintenance. That worked out well, that mortgage income made the payment on the decent home we bought. By this time our savings were doing well. Cut forward 20 years, more savings. I retired at 54 and now near 20 years later our savings are still equal to what we retired with. Things have worked out as I planned, those many years ago. Still living modestly but if I need a tool or toy I just buy it. I could go on but the most important point is, in formal terms, Time Value of Money. Investments compound over many years, dividends and interest go into the pot and start earning their own income, that's compounding. A dollar invested today will compound to a surprisingly large total over many years before your target retirement date. But you have to put the money away now for this to work! There are available pc programs that you can use for a formal analysis of retirement savings growth given different assumptions. The calculations are the same thing a paid retirement planner will do for you. An occasional paid consultation with a pro is worthwhile or better yet, Fidelity and some others can look at your portfolio and give advice. Don't contract to give a portion of your income annually to an advisor!!! That kills the compounding effect. And one last comment: 85% of individual investors don't do as well as simply buying a S&P 500 Index mutual fund and holding it through the various business cycles. You can choose to be in that top 15%. Just do it. I prefer Fidelity's S&P fund for their superior phone support. Vanguard has a slight edge on higher returns due to less customer support - no 24 hour phone etc. Toss a coin. I think Schwab's reputation for service and investment return is as good. Ignore all the hot trends of the day. My own theory (unsubstantiated) is the firms comprising the S&P are so powerful they steer the economy to their benefit so it is useless to bet against them. Ok, off my soapbox. I'm enjoying my retirement playing 'gentleman farmer'.

No way would I use an investment advisor, nor buy any kind of funds looking to get a good return. I have no time for retirement savings plans. I make money in one thing and one thing only. Real estate. And it has done far better than anything I could've done through other investments.

 

[Old Red]

I never knew teaching paid so well. Is that normal for these days or is that an older plan that actually took care of people?

It is an older plan. Kentucky retirement pension fund is on the news all the time. It is in trouble. Basically mom and dad made just as much retired as they did working. I believe your pension was based on 26 years and it would pay you the average of your top 3 earning years.

 

[Old Red]

I don't own an LS tractor so I hadn't noticed this thread. But I glanced in this evening and I see there's a lot of wisdom here. Too much to quote the best, there's too much that's excellent.

For the guys looking to future retirement, my advice: As soon as you reach an income that allows a decent life, start saving ALL of your increase in income as you work your way up into better jobs. Look at Warren Buffet, he's still in the modest suburban home he started with 50 years ago. He gets it.

Before kids we lived simple and started with a duplex. Not too inconvenient to have a tenant, and the rental paid 100% of our housing cost - utilities, everything. So we started putting the maximum allowed into IRA's plus savings, a full 25% of gross wage income for a few years during buying a better duplex, bought another rental, then finally with a real house and kids we rolled savings back to 20% of earned income. Some of it put in kids future education tax-deferred accounts. Still living modestly, not at what we could have afforded if we weren't saving like mad. Never bought anything on credit aside from real estate. Paid cash for new cars, appliance replacement, etc. Wife was able to work half time starting from our first kid, clear up to her retirement.

One element that was partly planning and partly luck - that some could duplicate today - was our rentals increased in value as real estate prices in general trended upward. Cashing the first one out paid for me to go back to school for an MBA. Studying finance, I learned that selling the other rentals and carrying the financing myself would earn me the same or better monthly income compared to continuing to put up with tenants and the continual building maintenance. That worked out well, that mortgage income made the payment on the decent home we bought. By this time our savings were doing well. Cut forward 20 years, more savings. I retired at 54 and now near 20 years later our savings are still equal to what we retired with. Things have worked out as I planned, those many years ago. Still living modestly but if I need a tool or toy I just buy it.

I could go on but the most important point is, in formal terms, Time Value of Money. Investments compound over many years, dividends and interest go into the pot and start earning their own income, that's compounding. A dollar invested today will compound to a surprisingly large total over many years before your target retirement date. But you have to put the money away now for this to work!

There are available pc programs that you can use for a formal analysis of retirement savings growth given different assumptions. The calculations are the same thing a paid retirement planner will do for you. An occasional paid consultation with a pro is worthwhile or better yet, Fidelity and some others can look at your portfolio and give advice. Don't contract to give a portion of your income annually to an advisor!!! That kills the compounding effect.

And one last comment: 85% of individual investors don't do as well as simply buying a S&P 500 Index mutual fund and holding it through the various business cycles. You can choose to be in that top 15%. Just do it. I prefer Fidelity's S&P fund for their superior phone support. Vanguard has a slight edge on higher returns due to less customer support - no 24 hour phone etc. Toss a coin. I think Schwab's reputation for service and investment return is as good. Ignore all the hot trends of the day. My own theory (unsubstantiated) is the firms comprising the S&P are so powerful they steer the economy to their benefit so it is useless to bet against them.

Ok, off my soapbox. I'm enjoying my retirement playing 'gentleman farmer'.

This is good stuff. I have several younger professional employees and I love to ask my employees or anyone this one simple question. When you talk to your older peers, grandparents, parents, or anyone older than you, those closest to you will give you advice on mistakes they have made throughout life and I guarantee you will never hear this out of any person older than you.....I wish I hadn't saved money. You will never hear that. You will hear all sorts of regrets but never one about saving.

We put 20 percent back and I just built a brand new triplex....my first dabble in real estate. I also have a 100+ acres of land. My house is expensive and we will never get our money back out of it here in the country so really don't even use it in the equation.

You can also see from my signature that along with saving I spend.....try to balance.

 

[Bird]

Kentucky retirement pension fund is on the news all the time. It is in trouble.

That's not unusual in these times. My own pension has given me the same "raise" each year since I retired "guaranteed for life". Well, that all changed this year. I don't expect to ever get another increase; maybe just lucky that they didn't cut the pension I now get, although I won't be surprised if that happens in the future.

 

[ovrszd]

My dad is a retired educator. Was a principal for as long as I could remember. My mother was a school teacher. She passed away in 2013. Anyway, my dad gets his check and hers from the teachers retirement program. I think he brings in around $7,500 per month cash money. Plus they pay for most of his health plan. I cannot imagine how much he would have to have in a 401k to draw that kind of salary. And of course he doesn't spend a dime or owe anyone anything. We have this retirement thing all backwards. Need to retire young and work old LOL.

Very good point!!!! I have a good friend who is self employed. I have lovingly lectured him for the past 30 years about how much he needs to be investing in his retirement fund to have an enjoyable financed retirement. He is 60. In the last two years he finally got an understanding of this. Too late. He has $350K to retire on. If it returns 8% his retirement income will only be $2,333 p/month. Out of that he would have to buy health care. He's screwed. Has to work until 65 at least and then take a look at it again.

 

[check]

This is good stuff. I have several younger professional employees and I love to ask my employees or anyone this one simple question. When you talk to your older peers, grandparents, parents, or anyone older than you, those closest to you will give you advice on mistakes they have made throughout life and I guarantee you will never hear this out of any person older than you.....I wish I hadn't saved money. You will never hear that. You will hear all sorts of regrets but never one about saving.

Oh yes you will - right now. When I was young and stupid I got sucked in to contributing to an RRSP (Registered Retirement Savings Plan). It seemed like a good idea at the time, because I could deduct my contributions from my salary at that time. The problem was that my taxes back then were quite a bit lower, because my salary was low, and so was my tax rate. Now, however, even after I retire, the tax rate will be much, much higher. So I actually lost money on the deal, not to mention the fact that the savings grew so very little even after all that time. Like I said before, the best retirement savings plan is to get your hands on as much real estate as you can, and watch it grow. Then, you are only taxed on half of the capital gain.

 

[Turbys_1700]

It is an older plan. Kentucky retirement pension fund is on the news all the time. It is in trouble. Basically mom and dad made just as much retired as they did working. I believe your pension was based on 26 years and it would pay you the average of your top 3 earning years.

In NC 30 years of service will get you 55% of your highest 5 year average. With added SS you are at 80% plus of your average. NC retirement funds are currently solvent. Who knows what the future holds.

 

[Citydude]

Very good point!!!! I have a good friend who is self employed. I have lovingly lectured him for the past 30 years about how much he needs to be investing in his retirement fund to have an enjoyable financed retirement. He is 60. In the last two years he finally got an understanding of this. Too late. He has $350K to retire on. If it returns 8% his retirement income will only be $2,333 p/month. Out of that he would have to buy health care. He's screwed. Has to work until 65 at least and then take a look at it again.

And, if he is investing in a tax deferred fund, he will pay future tax rate taxes on top of that $2,333 as well. Looking back, I wished I'd have never opted for tax deferred investing. 20% off the top when I withdraw funds out if my investments hurts.

 

[California]

No way would I use an investment advisor, nor buy any kind of funds looking to get a good return. I have no time for retirement savings plans.

I make money in one thing and one thing only. Real estate. And it has done far better than anything I could've done through other investments.

I agree real estate is the way to make far better returns than securities if you know how to do it. It worked for me.

We started so poor that it took us a year to save the thousand dollars we put down on that first duplex. In three years rental income from two duplexes and another property exceeded what I had been making in wage income. So I went back to grad school and got a degree that qualified me for a job where 5 years/age 50 qualified for a pension including lifetime family medical care - the one aspect of retirement that could break you.

Selling those duplexes and a later 5-unit rental @ 29% down and carrying the balance at 10% interest converted sweat equity plus a booming market price appreciation, into 'free' money coming in for years. That's what I re-invested in securities while I worked at a job more interesting than the Carpenter employment I had left behind. Retired at 54 with future income and medical coverage pretty much guaranteed for life. Now we've hit the Required Minimum Distribution (IRA rules) age and don't need this new 'spendable income' stream, so we have started giving several thousand $ per year to the kids so each can eventually afford a house.

The limitation in continuing to work RE deals is that 'you're only as good as your last deal'. In other words you have to keep at it to maintain your income level. Flipping houses or maintaining rentals isn't passive income, it's a daily job. As I noted above building equity then financing the sale of the property myself, converted potential gains into real spendable long term passive income that needed no work at all to maintain.

So for us real estate was a bootstrap but not a lifetime career.