Quote:
Originally Posted by Rain Man
Inflation is a bad deal and a negative stock market year is a bad deal, and both of them in combination really stinks.
I announced earlier this year that I was cutting to part-time with a plan to retire fully in probably 2 or 3 years. At the time, the market was rolling and I was in really good shape to do that. Pretty much the day I made the announcement, the market started falling and inflation started spiking, and I've now lost five years of retirement funding based on my financial model. (The odds are that we'll still okay, but the current situation has things getting dicey for me in my 90s.)
More specific to your question, I've built some assumptions into my financial model that drive a lot. I used a long-term average of 3.29 percent for inflation, which if I remember right was the 40-year average when I built the model. I also assumed a conservative-but-invested 3.5 percent return on non-IRA savings as my short and intermediate term funding, and a 5.5 percent return on my IRAs, which I'm hoping to avoid tapping for another 20+ years so I'll be a little more aggressive there.
My financial model is really sensitive to those three numbers. Minor changes in any of those things changes my projected financial solvency date up or back by years. So from that standpoint it's kind of scary to think about retirement at all. Those things are pretty much outside my control, and they can either ruin me or make me rich.
I think, though, that I'm comfortable with the assumptions in the long term. The 3.29 inflation is an average, so some years will be higher than that. And I think the 3.5 percent and 5.5 percent estimates on returns are conservative enough that they'll be reasonable to hit as a long-term average. And I'll never be able to eliminate the risks of those things outside my control, so at some point I either stomach the risk or I work until I die, and I don't want to work until I die.
The only thing that stinks about the current situation is that I read an article a while back that talked about how important the first couple of years are after retirement. If your money gets drawn down faster those first couple of years due to a bad market, it makes a big difference on your long-term finances. You have less money to grow long-term. But I guess on a positive note, it's happening early enough that I can keep working part-time a little longer while I still have momentum in my career.
The bottom line for me is that I'll assume that the high inflation is just a walk on the high side of the average and will level back out. It's just occurring at a bad time.
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Thanks for the thoughtful response.
While I haven't made a model or even done any math on what my retirement would look like, I know what those numbers would do to wreck a projected budget. Especially over the course of 30 years. That's why I would be terrified if I was wanting to retire in the midst of this inflation.
My Dad was saying this whole time that this was going to be like the 70s. I called bullshit because the fed lived through the 70s and learned from it. But as much inflation as there was I am surprised that they haven't been more aggressive. Now, I've been all the way wrong on a bunch of Fed policy so I'll certainly admit to being a dumbass. Nonetheless, there is risk of a protracted inflation/recession cycle.
I would urge anyone contemplating retirement to factor in a LOT of "in case shit" money and extra inflation to conserve capital in your retirement plan before you let go of your full time gig, especially if it is a good one.
I still see myself as a young dude, but I'm starting to believe I've lived through a lot of shit.
I was paying attention, not in the professional workforce, but I was paying attention through the .com bubble, was trying to find a job after the 08 crash, I've managed people through the COVID environment and subsequent sellers market in labor. And that's 20 years. If you're going to need to save for 30 years of retirement, the only thing I can guarantee is change.
As far as a risk assessment, a recession and subsequent retraction of the labor market would be the worst possible thing for a recent retiree. Today, a retiree could probably get about any job they want, but if a recession happens and we enter a labor market like 08, it would then be harder for them to re-enter the labor market.
So my advice to anyone considering retirement is to make sure you have shit locked the hell down because uncertainty can make life hard.
Just my $.02
[/unsolicited advice from an admitted moron]