The Market 2021

[Zeno]

I can retire with full benefits at 55 1/2, but my current plan is to wait until my 57th birthday, it doesn't increase my pension by a lot (just $250 a month) but it lets me contribute to both my 401K and Roth for an additional year and allows me to stash more cash away and accumulate more leave to sell back. I know a lot can happen between now and then so I have created 2 separate retirement plans based on those 2 dates.

Either way this is my last decade of working full time and that is pretty cool to say.

 

[Folster]

I rent not own so I have that decision to make but at least for now our thinking is retirement may involve moving to another country she wants Philippines I prefer NZ so we have to make that decision before we decide. The advantage is we can do both we can stay rent free in the Philippines at her parents house if wanted so we could rent or buy in NZ and split time if we want.

My intention is to retire at 56.5. She'll be 54 then. So I'm 3 years away from being able to withdraw from IRA's without penalty, just income tax. So the first 3 years would be living off money market and CD's and interest earned on stocks. Then at 59.5 I can start withdrawing from my IRA. When I retire my investment person strongly suggests rolling the IRA's into ROTH IRA's because my income will drop so I'll be in a lower tax bracket, so you take an immediate tax hit, but then no more taxes after. I have a ROTH 401K at my current employer so I would probably convert that to an IRA, my understanding is it can be done tax free since it's a ROTH 401K so then I'd also be able to dip into that when I'm 59.5.

Right now my plan is when Lucy turns 62 she files for Social Security. I'll be 64.5 then so if I file I will get a higher amount then by not filing at 62.

So the real key in our plan is that 3 year period after retirement before I can withdraw penalty free. One thing is she may be allowed to WFH, if she is, she may delay her retirement a year or two to give us income and health insurance during that time. But right now the plan is retire at the same time not her continue working.

You might want to research and talk to your tax advisor about the Rule of 55 and SEPP Exemption. Both are options that can allow you to take distributions prior to 59.5 and avoid the early withdrawal penalties. They have particular rules you have to follow, but could help.

https://www.thebalance.com/what-is-the-rule-of-55-2894280

How the Rule of 55 Works
If you are between ages 55 and 59 1/2 and get laid off, fired, or quit your job, the IRS Rule of 55 lets you pull money out of your 401(k) or 403(b) plan without penalty.2 This applies to workers who leave their jobs anytime during or after the year of their 55th birthdays.


There is a slight catch. The Rule of 55 only applies to assets in your current 401(k) or 403(b). That's the one you invested in while you were at the job you leave at age 55 or older.3

Money in a former 401(k) or 403(b), is not covered. You would have to wait until age 59 1/2 to begin withdrawing funds from those accounts without paying the 10% penalty.


There is a a strategy to use if you know you will be leaving the job. You can get penalty-free access to plans from former employers if you roll them into your current 401(k) or 403(b). Once done, you can leave your current job before age 59 1/2 and withdraw the money using the Rule of 55.

https://www.investopedia.com/terms/s/sepp.asp

What Is Substantially Equal Periodic Payment (SEPP)?
Substantially Equal Periodic Payment, or SEPP, is a method of distributing funds from an IRA or other qualified retirement plans prior to the age of 59½ that avoids incurring IRS penalties for the withdrawals. Typically, an individual who removes assets from a plan prior to that age will pay an early withdrawal penalty of 10% of the distributed amount.


With a SEPP plan, funds are withdrawn penalty-free through specified annual distributions for a period of five years or until the account-holder turns 59½, whichever comes later. Income tax must still be paid on the withdrawals.

 

[Folster]

Yeah, the lack of education on finances, investing, etc is a terrible thing. I hadn't even heard of an IRA until I was in my 30's, I barely knew anything about stocks and bonds--and any talk of ETFs or mutual funds might as well have been a foreign language. I had to really self-educate, fortunately there are a ton of resources out there now for free that you can learn from on the internet but you have to go looking for it. It's no wonder you see articles out there all the time about the high percentage of Americans with little or no retirement savings.

Average retirement savings of American households in 2019: $65,000

https://www.fool.com/research/average-retirement-savings/

Age............Average 401(k) balance...........Median 401(k) balance
Under 25.....$5,419.......................................$1,817
25 to 34.......$26,839....................................$10,402
35 to 44.......$72,578....................................$26,188
45 to 54.......$135,777..................................$46,363
55 to 64.......$197,322..................................$69,097
65 and up.....$216,720..................................$64,548

https://www.businessinsider.com/personal-finance/average-401k-balance



I don't know how someone in the 55-64 age range can even think of retiring with around $200K in a 401K unless they have money stashed elsewhere. I invest for tomorrow much more than today and admittedly I am lucky that I will have a pension, a Roth IRA and a 401K when I retire. I do have a taxable brokerage acct to play with but I only put money in there if I can afford it after my 401K and Roth are maxed out.

I didn't see this post, but I have seen similar articles. The median is what is scary as is it shows higher balance retirement accounts are skewing the average upward when the majority of investors are well below the average. It does make me feel good about my personal situation and confident we are on track to hit our goals.

 

[BigRedRage]

I should add everyone should have some idea what their estimated social security is. My experience is most people vastly overestimate how much money they will get, and how far it will go. Most people think I'm retiring at 62 and I'm getting 4K a month, and it's really for most people 2K or under at that age unless you were a REALLY high wage earner. The people who need it the most are the ones who need to know.

There is a max amount you pay into social security annually so even stupid high wage earners do not see a lot different SS check.

 

[Russ Smith]

You might want to research and talk to your tax advisor about the Rule of 55 and SEPP Exemption. Both are options that can allow you to take distributions prior to 59.5 and avoid the early withdrawal penalties. They have particular rules you have to follow, but could help.

https://www.thebalance.com/what-is-the-rule-of-55-2894280



https://www.investopedia.com/terms/s/sepp.asp

Thanks I knew about SEPP but the rule of 55 is new to me I didn't know you could roll old 401K's in to take advantage. unfortunately all my old 401K's have been rolled into IRA's and are now managed so I think that's gone.

I do have an employer sponsored 401K, the Roth one I mentioned so Rule of 55 would likely apply to that but it's not going to be enough to last us 3 years still would need to dip into savings. I'm not overly concerned about dipping into savings that's why it's there to bridge that gap but obviously you want to conserve what you can .

So I have 2 multi periods to get through, 56.5 to 59.5 for penalty free withdrawal, and then 59.5 to 64.5 when I intend to file for social security. Of course I'm quite open to adjusting and filing earlier for SS. Until the last year my plan had always been file at 62 take less but get it earlier. Because of good success in the markets I've been thinking I might be able to wait until 64.5.

 

[Russ Smith]

There is a max amount you pay into social security annually so even stupid high wage earners do not see a lot different SS check.

Yes it's like 142K max salary and about 9K paid in you're right. Google says the max is 3895 at 70 right now so you are correct nobody is going to get 4K.

 

[BigRedRage]

I didn't see this post, but I have seen similar articles. The median is what is scary as is it shows higher balance retirement accounts are skewing the average upward when the majority of investors are well below the average. It does make me feel good about my personal situation and confident we are on track to hit our goals.

no kidding. 35-44 only at 26k? holy crap. I thought I was the one that was behind!

 

[Folster]

Question for you guys who are closer to retirement and SS age. Does retiring early and having little to no income in the years prior to reaching SS age decrease your potential benefits, or do they just grab your highest income years? A cursory reading says they take your highest 35 income years. Any other relevant details?

 

[Zeno]

I didn't see this post, but I have seen similar articles. The median is what is scary as is it shows higher balance retirement accounts are skewing the average upward when the majority of investors are well below the average. It does make me feel good about my personal situation and confident we are on track to hit our goals.

Yeah, it does make me feel good about my personal situation too. I do feel bad for those who won't be prepared and count on SS to carry them in old age--this is why there needs to be better financial education, starting in High School for sure. Too many live for the now and don't even consider the magic of time with compounding interest.

 

[Zeno]

Question for you guys who are closer to retirement and SS age. Does retiring early and having little to no income in the years prior to reaching SS age decrease your potential benefits, or do they just grab your highest income years? A cursory reading says they take your highest 35 income years. Any other relevant details?

From what I have researched, when you see your SS statement it considers you working at your last reported salary until you claim benefits, since most peoples most current salary is more than previous years it knocks off lower earning years off the other end. If you stop earning at a certain age it throws that calculation off and some predicted "higher earning years" will not have knocked off some lower earning years.

For instance with me if I retire at at 57, the current calculation will be off because my statement considers me working until 62 or 67 thereby knocking off earnings from my early-mid 20's when I didn't make much at all.

The statement literally says "At your current earnings rate, if you continue to work until..." Then it goes on to give your benefit at ages 67, 70 and 62.

 

[Zeno]

Here is an article that explains it better than me....

https://www.kitces.com/blog/calcula...efits-statement-reduced-for-early-retirement/

For those who intend to retire early, the end result is that the Social Security Administration’s projected benefits calculation may turn out to be substantially higher than what someone will actually receive if they retire early, and never actually work as many years as anticipated. The lower someone’s lifetime earnings overall, and the earlier he/she retires, the more dramatic the impact can be, commonly reducing benefits by 5% to 10% when retiring early, and potentially far more for “extreme” early retirement. Although the impact is also substantially affected by whether recent earnings were higher or lower than their long-term average… and whether they’ve already paid into the Social Security system for at least 35 working years (or not).

Ultimately, the reality is that Social Security benefits aren’t actually reduced for those who retire early – they simply stop accruing additional benefits when they stop working. But given that Social Security projects the assumption of work until full retirement age, it’s crucial to recognize that actual benefits may be lower for those who retire early – even if they wait until full retirement age to actually receive those benefits.

 

[BigRedRage]

just reading "35 working years" is painful.

 

[Folster]

From what I have researched, when you see your SS statement it considers you working at your last reported salary until you claim benefits, since most peoples most current salary is more than previous years it knocks off lower earning years off the other end. If you stop earning at a certain age it throws that calculation off and some predicted "higher earning years" will not have knocked off some lower earning years.

For instance with me if I retire at at 57, the current calculation will be off because my statement considers me working until 62 or 67 thereby knocking off earnings from my early-mid 20's when I didn't make much at all.

The statement literally says "At your current earnings rate, if you continue to work until..." Then it goes on to give your benefit at ages 67, 70 and 62.

More reason just to completely remove it as a factor in my retirement.

 

[Zeno]

SSA.Gov has a calculator, I just tested it out with my stuff. Retiring at 57 and claiming at 62 would reduce my benefit by around $75 a month....it doesn't give estimates for claiming at different ages on that calculator.

https://www.ssa.gov/benefits/retirement/planner/AnypiaApplet.html

 

[BigRedRage]

So, I decided to look up retirement calculators because of you guys. Just punching in random stuff and estimates, it says for me to have 50k annually in retirement income and retiring at 63 years old, I would run out by 83 years old. Now, I only factored 401k because my personal investments are meant to buy some property as my permanent residence and I did not include social security at all. This is all assuming I keep making the same wage and putting the same amount into retirement annually the whole time so I guess I have some work to do.

In the big picture, I am trying to get 3-5 acres in the valley as a permanent place for me to live and plenty land for my kids to build homes on and pay a fraction of what buying a home randomly would cost them (100k vs 500k) so it is more of a help them retire plan but once I get this property, then I can truly focus on what I need to do to have it paid off before retirement and make sure 50k annually is more than enough money to get by

 

[Zeno]

Speaking of retirement calculators, does anyone have one they prefer over others?

AARP has one of the better ones that I have found.

https://www.aarp.org/work/retirement-planning/retirement_calculator.html

I use conservative returns on my investments (6%) until retirement and around 4% after retirement and it says I am "over budget"--which beats the alternative.

Has anyone found any better calculators?

 

[dscher]

Speaking of retirement calculators, does anyone have one they prefer over others?

AARP has one of the better ones that I have found.

https://www.aarp.org/work/retirement-planning/retirement_calculator.html

I use conservative returns on my investments (6%) until retirement and around 4% after retirement and it says I am "over budget"--which beats the alternative.

Has anyone found any better calculators?

https://www.bankrate.com/retirement/calculators/retirement-calculator/

I used this one a while back and it was the best I found at the time. Haven't done much research for anything new since....but this one does a good job laying out a timeline schedule, which is why I originally liked it.

 

[Folster]

I opened a new position in Intel (INTC) yesterday.

Some high level reasons.

• P/E ratio 12.6 (TTM). The current P/E Ratio of the S&P 500 is over 45
• 2.48% Dividend yield. The current dividend yield of the S&P 500 is only 1.37%
• Increasing revenue, net income, and cash flows year over year for the last 5 years, despite the public perception that it is dying.
• Strong balance sheet
• Increased chip demand with a populous and potential government push to buy and build in the USA.
• Capital investment in chip manufacturing including two new chip plants in AZ
• Consistent annual share buy backs

According to my discounted cash flow model, factoring in a desired return of 10% a year, INTC's fair value is $75-$85 per share while it's currently trading at $56 right now. It was down below $45 in November last year.

It's currently 2.5% of my stock portfolio which is admittedly a very small portion of my total investable assets. I plan to increase it to 5% if the price decreases.

 

[Russ Smith]

So, I decided to look up retirement calculators because of you guys. Just punching in random stuff and estimates, it says for me to have 50k annually in retirement income and retiring at 63 years old, I would run out by 83 years old. Now, I only factored 401k because my personal investments are meant to buy some property as my permanent residence and I did not include social security at all. This is all assuming I keep making the same wage and putting the same amount into retirement annually the whole time so I guess I have some work to do.

In the big picture, I am trying to get 3-5 acres in the valley as a permanent place for me to live and plenty land for my kids to build homes on and pay a fraction of what buying a home randomly would cost them (100k vs 500k) so it is more of a help them retire plan but once I get this property, then I can truly focus on what I need to do to have it paid off before retirement and make sure 50k annually is more than enough money to get by

I'll respond in the new retirement thread but how much you need is completely dependent on where and how much you spend.

 

[Russ Smith]

Anybody else surprised Robinhood is moving forward with their IPO? They must have enough interest but with the recent huge fines and all the negative attention from the Reddit user stuff I'm actually surprised they don't wait longer for people to forget. I guess part of the Reddit issue they said was lack of money so maybe they see the IPO as a way to solve that?

 

[BigRedRage]

Robinhood is still going really strong so I imagine it should be no issue.

 

[Finito]

Anybody else surprised Robinhood is moving forward with their IPO? They must have enough interest but with the recent huge fines and all the negative attention from the Reddit user stuff I'm actually surprised they don't wait longer for people to forget. I guess part of the Reddit issue they said was lack of money so maybe they see the IPO as a way to solve that?

how anyone still uses Robinhood is beyond me. I would never trust that snake.

70 million dollar fine and the feds seizing cell phones and what not. No thanks

 

[Folster]

I thought this was an interesting chart that illustrates the current market valuation compared to historical numbers. You can see we have surpassed dot com valuations but are still well below highs from the great recession. Interestingly, it looks like P/E spiked after the initial market dropped during the 2008 financial crisis as earnings collapsed faster than prices.

S&P 500 P/E Ratio

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For those who aren't aware P/E ratio is a stock's price divided by the earnings per share or the company's market cap divided by its total earnings. A stock with a P/E of 20 means you are paying $20 for every $1 in earnings. Typically investors are willing to pay a higher P/E for a faster growing company hoping that their earnings will increase rapidly and justify the higher valuation.

There are no perfect valuation models especially overly simplistic ratios, but P/E is a quick and highly available one that you can look at to get a very high level idea about a company's valuation.

A lot of value investors like to target companies with a P/E below $20. The S&P 500 is currently over 45!

 

[BigRedRage]

I thought this was an interesting chart that illustrates the current market valuation compared to historical numbers. You can see we have surpassed dot com valuations but are still well below highs from the great recession. Interestingly, it looks like P/E spiked after the initial market dropped during the 2008 financial crisis as earnings collapsed faster than prices.

S&P 500 P/E Ratio

You must be registered for see images attach

For those who aren't aware P/E ratio is a stock's price divided by the earnings per share or the company's market cap divided by its total earnings. A stock with a P/E of 20 means you are paying $20 for every $1 in earnings. Typically investors are willing to pay a higher P/E for a faster growing company hoping that their earnings will increase rapidly and justify the higher valuation.

Their are no perfect valuation models especially overly simplistic ratios, but P/E is a quick and highly available one that you can look at to get a very high level idea about a company's valuation.

A lot of value investors like to target companies with a P/E below $20. The S&P 500 is currently over 45!

I read about p/e a lot while skimming but didn't fully grasp it. Great post!

 

[Zeno]

Honest question for some of the more seasoned investors. What do you consider a "diversified" portfolio? Is it just a mix of Equity and Fixed Income, is it a mix of multiple sectors (tech, financials, consumer staples etc) or is it a mix of different growth & income? If it is multiple sectors how many different sectors do you like to be spread out amongst?

I am mostly loaded with ETF's in my taxable brokerage account and depend on them for diversification myself but I do like thematic ETFs too. Is there such a thing as being too diverse?