“Really? I don’t remember hiring you.”
I doubt that any of these companies have ever told anyone, “Don’t worry. You’ve saved enough already.” They have an interest in encouraging you to invest more.
Do you know how TIAA comes up with the $XXXX figure? I suspect that it might be by buying an annuity, which may or may not be the best course of action for you. Annuities typically do not have cost-of-living increases, which means that $XXXX may be enough in the first years of retirement, but not a decade or so later due to inflation. A good advisor should be able to explain various investment and withdrawal methods in retirement and compare them to what TIAA is offering.
I (55M) just looked. They use a financial forecasting engine from Morningstar. It assumes that I continue to save at my current rate, my wife and I both collect social security, and I retire at 62. Those are all fine assumptions, and completely under my control. I know that it’s the unpredictable things which are going to have a much bigger effect.
A crash that wipes out 20-30% isn’t going to be devastating. A crash with runaway inflation and currency devaluation that wipes out 90% will be.
I know that nobody can predict if pulling a big chunk of my money out of the market has an opportunity cost of losing another doubling in the next 7 years. What I need help with are the options of what exactly to do with my money once it is out.
Yeah it’s the Monte Carlo engine that always puts a bit of fear in me. The 15% (or whatever) of simulations that have us not having enough. Of course there are more we die with much there than there is now.
My non-expert and completely amateur advice
I’ll be interested in your experience, because I can’t recall Fidelity trying to sell me anything. I meet (via Teams) with my adviser once a year, it’s not generally too productive, but they have provided me, for free with:
-An overview of the costs and benefits of LTC insurance
-A pretty detailed dive into ways to value my wife’s stock options and suggestions on when and how to exercise them, based on age and strike price. Note these options are held through a competitor.
-Access to a tax expert when I had some questions about how to structure some things.
I really can’t complain. So please do report back.
Regarding your assets being in dollars, and that scaring you, we talked about that upthread. At this point, I think the fear of the dollar being discarded is overblown, and if it does happen it will happen slowly. The world’s systems and practices don’t change overnight, and the US is still 25% of the world’s economy. And there still isn’t a currency that looks able to take the Dollar’s role all by itself.
That said, you can buy stocks and ETFs on foreign exchanges through Fidelity (first buy the currency then buy the stock/fund) and there are US-traded funds denominated in dollars which hold foreign assets (ie, VGK, the one I like). You can move into either of these as a hedge, as I did. Traditionally these have not kept up with the S&P 500, but over the past year some have exceeded its returns.
I had my meeting, and I guess it went fine. He didn’t try to sell me anything. This was the “getting to know you” meeting, where he asked all about my retirement plans, where my finances are, my feelings on risk, and such. Somehow that all took an hour. In two weeks we’ll have a meeting where he’ll come back with a plan for me.
I said on a scale of 1 (low risk) to 10 (high risk), I’m a 4 or 5, which is my “low risk” mode. I also said I want to be 50% out of USD. That is aiming for retirement in 10 years (65), which will also coincide with my kid being done with college (if they take a traditional route).
We both agreed that political capture of the Federal Reserve or defaulting on US debt would be catastrophic, and neither remains at the near zero level of probability they used to be.
So this brings us back to a discussion about the word “risk” … vs what is usually actually meant by it - “volatility” … and under what circumstances the two actually are nearly synonymous, vs only tangentially related.
In the past I’ve opined that with a reasonably long time line (not sure ten years is long enough) short term volatility is a poor measure of risk for what outcomes will be at the end of the period. That OTOH chasing low volatility is a high risk move for not hitting reasonable goals by retirement.
Not so sure though when the time line isn’t long enough, especially factoring in how well someone can wait out a downturn, and the risk of true fundamental, near existential, changes to economic structures.
No good answers myself but curious what thoughts others have.
For myself, at 66, with plans to keep working indefinitely but who knows what can happen, I still believe that I could weather volatility long enough that it represents little risk to my outcomes of concern. I think. Confident though that an advisor would use volatility as equal to risk.
Yes, I agree, and I did discuss, and as a professional financial planner this guy understood, that risk is both markets going down and opportunity cost of being out when they go up. I know that to minimize downside risk due to volatility that I’m increasing my exposure to risk due to opportunity cost. I explained that is a tradeoff that I’m willing to accept at this point.
My retirement today is in a good place. Another doubling of assets over the next 10 years would be great, but an 80% loss of assets (due to market crash or inflation), is not something I think I’ll be able to ride out.
People really like to say “ride out the crash”, and buying the dotcom and housing crashes treated me very well, but I think people are spoiled by the quick recovery from two crashes. The market didn’t recover from 1929 until the mid 50s. Another 25 year crash is completely possible, and not something I’m going to be able to ride out.
First off, to be very clear, I have no expertise and am not disputing anything you choose to do for you. It is more just fodder for discussion and to gain understanding myself.
That said, yeah the risks include either … or both at the same time, like in the ‘70s. Then it took a bit under a decade for equities to really recover, but as I understand it bonds in real dollars took hits during that time, because of the inflation. Commodities did okay. And real estate fair.
OTOH bonds did well after the ‘29 crash.
Not sure international currencies, bonds, or equities, are safe from being brought down in a US market crash.
So what is lower risk, rather than lower volatility?
And of course it matters if we are still buying in during the drops, whatever the duration, vs needing to use the funds, or in between, just waiting it out.
In a collapsing world, collapsing less than the other guys is a win. Or at least is the most winful thing on offer anywhere.
During the downward phase of the great US crash of 2008, foreigners were buying our equities like mad. Why? Because as badly as we were doing, they were quite confident their own country was going to do worse. By and large they were correct.
Now, with the current criminal regime / clown show in charge here? Whole different ballgame IMO.
I would have no expectation of profitably “riding out” a US currency or stock market crash even invested entirely in non-US-based non-USD-denominated assets. Those too will take a hit.
But at the same time I have no doubt you’d be a lot better off fully invested elsewhere than fully invested here.
The dilemma is whether & when there will be that crash. And who will be in charge when it comes.
My own plan is to have identified some things to invest in and plan to jump late, accepting some losses in the early stages of a significant US market or USD decline. Not now. Not yet. But ready.
Add in “and where” as it may not originate in the US. And even if it originates in the US the US might recover faster. Did during the global financial crisis, for example. We are not trying to predict in this exercise; we are trying to determine how to be protected from what is unpredictable. That unpredictability is why it is the scary risk.
Mine, for the little it is worth, is mostly staying my asset allocation course, having modified a little to a less just S&P equity balance - more in a value style, and a medium cap growth funds, but otherwise continuing with my same bonds and gold allocations, having a chunk tied up as business equity, and some family real estate investments. Also holding off on SS in the mindset of considering it as a safe-ish inflation adjusted annuity. And having an income due to no interest in retirement so far is a bonus buffer for weathering any storms. A small bit of cash. And spending this year upgrading kitchen and baths before the markets crash
I’ve been waiting for equity to crash and figure then rebalance from gold to equities at lower prices. It just never happens. Yet.
I’m similarly invested and similarly on guard. Taking my survivor’s SS now and letting mine grow until 70. Not working now nor able to work at much above low wage jobs, so my asset pile needs to sustain me to the end.
The good news is I can withstand a pretty heavy hit should that come and still stay safely housed and fed. My hope is to adroitly dodge most of that hit at the time it develops, but if not … c’est la guerre.
Yeah I don’t have much hope of my doing that; if anything I have confidence that any attempt I make to adroitly dodge is more likely to cause me more harms than good! Being in the variety of asset classes with rebalancing, and psychologically ready for a huge drop at anytime… or not … is all I got.
I remain curious though as to what the planner will propose as “low risk” … likely low volatility. Not an analysis of the sorts of disasters that might occur and how each balance of classes would have done in each.
I am sure someone has done that though? Some Monte Carlo engine should be able to run different allocation mixes through each of the worst periods of time (and best periods) of the past century and see how the mixes, rebalancing along the way, would have faired. Of course there is also sequential risk to have to factor. Not a one size straight forward thing.
Lotta reasons US history even back to e.g. 1850 is not likely to be applicable to any real crisis. Such that Monte Carlo analyses based on that dataset is likely to be falsely reassuring. For a few reasons, and not all related reasons.
The financialization of everything and the derivatives based on derivatives based on derivatives have greatly increased the cross correlation between asset classes. e.g. Bonds and stocks now move somewhat in tandem, not in opposition.
The other big reason is the last 175 years (1850-present) hasn’t included an existential risk to the currency or government stability. A Monte Carlo analysis of e.g. German, French, Italian, or Greek equities over that same period would look very different than e.g. the US or UK which have enjoyed continuity of government and currency over the entire interval.
One. Stagflation was pretty correlated bad for both stocks and bonds, as were some more recent shorter dips. The correlation of those classes will show up using historical data sets.
Two. Many of the Monte Carlo engines use fictive futures as well as historical sets. But of course predicting the future is a hard thing.
Three. Problem with these engines related to your comments about how now is different - gold is a very different thing now than it was during gold standard times. Even more so with the consumer easy availability of gold ETFs to easily adjust exposure. I’m not aware of ones that let you dial in gold ETFs and real estate as classes.
Still my strong suspicion is that 60 to 80% equity with bonds, real estate, and gold in the other portion, rebalanced annually, probably has less risk of running out in 30 years than higher low volatility bonds.
It would be interesting though to run the simulators based on other economies!
I’ve had a first-hand example of a money-obsessed person trying to adroitly dodge during the 2008 financial crisis. They adroitly dodged into big, big losses that pushed back their retirement.
Now to be fair they were IMHO only half-bright and maybe many did manage to adroitly dodge. But it is always a bit of a crap-shoot as to which way to zig or zag at the right moment in a crisis.
To pick your brain for discussion … given that, which of course includes increased correlation across international equity bond and currency markets, what is the novel disaster you feel is of risk, and if your major concern was preservation of inflation adjusted capital, or perhaps more of inflation adjusted income produced inclusive of equity appreciation, and you have no confidence in predicting the storm just before it breaks, then what allocation mix would you recommend?
Or should I understand it to be answered as “similarly invested” to me?
As is the saying goes: those who do not study history are condemned to repeat it.
But it does seem that there are unprecedented risks at present.
On the other hand… there have always been ‘unknown unknowns’?
Prediction is difficult, especially about the future. Was that Neils Bohr or Yogi Berra?