Response to Morningstar about "Your Retirement Plans"

This is an expanded version of a recent response to a Morningstar article. 


I just finished an 18 day working marathon, so I missed the opportunity to give my two cents; better late than never, they say. I'm 66 and in "phased retirement," whatever that means! Perhaps it means I'm "out of phase" with the rest of America??

I'm pragmatic and cynical. I have been for decades and I have no intent of changing. I suggest people should avoid "buying into" the populist stuff out there and consider that their ability to reach savings and retirement targets is a correlate to their ability to reach annual savings, spending, and return targets last year, the year before, and so on. 


In other words, if you couldn't do it in 2011, or 2010, etc. then what makes you think you'll get the job done in 2012? 

How does that look in reality? Back in 2006 when the popular view was 8% market returns, I was basing my retirement projections on 4% annual returns. Don't misunderstand me, I wasn't and I don't, use a conservative approach which at that time would "project" 4% returns. I was and continue to be "defensive." I don't pay too much attention to "anticipated" returns. If you want to see what I mean, you will notice that most of the services have turned down their returns on current portfolios. That means, the experts have cranked in what we know about the current economy and decided that "8%" from nowhere isn't possible. Of course, it wasn't in 2006, either. But it wasn't popular to project 4-5% returns, so the pros didn't. 

I continue to use a mental partitioning in which "my" investment plans look at risk tolerance, and company profiles, etc. and attempt to get the best return on my investment. That means comparing commercial real estate to residential to bonds to stocks to funds to my own business returns, and then distributing my eggs to avoid the pigs. 

However, when I assess my future financial health I am very conservative and use lower than popular returns. Why is that? Well, perhaps you can predict the future. However, the indicators are that isn't possible. I did predict the 2008 melt down and I did position myself to prosper when it happened and I did invest in the down turn. However, that wasn't "prediction;" that was reaction to short term events, and some discipline. I did not buy into the populist junk out there. And I don't now. And I never, and I mean NEVER believe anything a politician says. 


So I don't buy into the populist BS that our President puts out there each and every day, nor do I invest based upon his or "Michelle's" optimistic appraisals of the situation. Enough said on that!

My retirement philosophy is: Save more than you need, spend less, have a plan with a horizon that extends to my age 100, plan for difficult times (surprise, they arrived!) and remain well diversified. Live within my means and avoid "discretionary spending creep". 

So if one is 45 then they had better have and be able to discuss a 55 year plan (100-45 = 55). If one is 25, then a 75 year plan is a necessity. 

As for retiring "early," or choosing to work in retirement, as my doctor is fond of saying "When you stop you drop." I have no intention of dropping, and after 49 years of working, I have to say, it isn't as bad as so many make it out to be. Besides, I don't think I'd fit in with the "Occupy" crowd. 

At present, my spouse and I attempt to take a few vacations a year, and set firm boundaries. The latter is for our mental health and well being. 

As for investments and income in retirement, I am keeping about 25% liquid and safe. So I have more cash, and am less concerned about the latest stock market gyration. I'm using a modified bucket approach and will not be selling stock so as to buy food to eat. 

As for the economy and the health of the market, well, as far as I am concerned, we are a nation of gamblers, and as with the lottery, there are millions of losers and very, very few winners. If you think the odds are great at Las Vegas, then by all means, go there and gamble your IRA away. But don't come to my door looking for dinner. 

I will attempt to keep well below 3% annual withdrawal rates after income from work drops to zero. I intend to only spend a part of government mandated "minimum distributions" from my IRAs, unless I choose otherwise. That is the important part; have the flexibility to spend or to save the excess from those RMDs.