Traditional Retirement Planning Has Failed…
I simply can NOT square this circle, no matter how hard I try.
In my latest Youtube series, I’ve been using TSP G Fund and TSP C Fund to try and concoct a way to maximize one’s spending in retirement. Naturally, for anyone engaging in this sort of backtesting, you need to see if your portfolio can survive after the devastation of the first decade of this century.
Remember, 2000, 2001, 2002 the SP 500 was down 9, 12, and 22% respectively! A few okay years followed to be met by the HAMMER FROM HELL, Oct 2007 to March 9, 2009, a 55% collapse.
Thus, if you can survive that period, you’re probably going to be in a good place as that decade was an anomaly, right?
Well, maybe not. The decade of the 30s was a disaster. The decade of the 70s too. Throw in that “lost decade” of this century and of the 8 decades before this one, 3 were painful. Nearly 40% of the time, decade over decade, you’re in a world of hurt if you weren’t minimizing your spending at the outset of your retirement. Fun, right???
Let’s go back to my own number crunching using the TSP. You can see one of the videos here.
What I’ve found was the best portfolio to deal with sequence of return risks of the first decade of this century was having 4 years in the G Fund. the rest in the C Fund and taking a 5% withdrawal rate. Yet, even that mix, while you have survived up to 2019, you would still be running out of money in the next few years!
Now, to add salt to the wound, I used a proxy for the C and G fund and started the distribution mix in 1973. In this case I used the SP 500, which is literally the C Fund, and the 10 year Treasury, which while not LITERALLY the G Fund is pretty doggone close.
And once again you got hammered. Your money is not surviving you. 1973 and 1974 gave us horrible stock returns but the entire decade also had huge inflation.
Now, it’s easy to forget how bad, and devastating, inflation can be because we haven’t had to contend with it much over the last 40 years. But man oh man, inflation is catastrophic for retirees, no two ways around it.
The issue is, of course, that if you retire in a good year your retirement plan is going to be fantastic. I did a video using the TSP C and G funds from inception, 1988. If this is your time to retire, you are living large. And this the problem with modern retirement planning. Those who retire in good years can live well beyond the traditional 4% rule, and yet, probably aren’t.
Those who retire in bad years and want, or need, to live beyond the 4% rule, can’t. If they retire into a down market and are pulling funds from a portfolio that is down, that is doomsday scenario. The portfolio will never recover, no matter who good returns are later on. There just isn’t enough money in the portfolio to compensate for the initial losses.
Now, on a side note, I don’t think many people are going to actually increase their spending with inflation each and every year. The evidence is overwhelmingly against that. But, as always, what if??? What if YOU are the person who does spend like that, for whatever reason? How can we make sure you don’t run out of money, and allow you to spend a decent amount on the front end of your retirement?
This is where the reverse mortgages kick in. I am now convinced that for those retirees and soon-to-be-retirees who do not have pensions, they need to be considering how a reverse mortgage can benefit them.
I’m working on numbers now and will present my findings shortly. Suffice it to say that Wade Pfau, Don Graves and many others have already done a lot of the heavy lifting here. In fact, one of the frequent commentators on Youtube channel, Sergio, is my go-to guy on all things reverse mortgages.
So, stay tuned as I dive deeper into this, with numbers to back up my assertions.
If you have experience with reverse mortgages, please let me know. how it went or is going
Also, what is your biggest hesitation about them. I get the fees. Everyone talks about that. But anything else?