Comments on: Looking at Retirement Income Needs http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Sat, 21 Nov 2009 13:00:57 -0800 http://wordpress.org/?v=abc hourly 1 By: Four Pillars http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/comment-page-1/#comment-292707 Four Pillars Tue, 22 Apr 2008 12:25:19 +0000 http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/#comment-292707 I agree with Don - using present day values is much better. I did a post on this a while back. Mike I agree with Don – using present day values is much better. I did a post on this a while back.

Mike

]]> By: Turn One Pound Into One Million http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/comment-page-1/#comment-292440 Turn One Pound Into One Million Tue, 22 Apr 2008 10:38:14 +0000 http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/#comment-292440 I am afraid to say that I will be 35 soon and have no retirement plan. I aim to pay off my mortgage and then use my extra income to fund investments which should provide me with enough passive income to keep me going through my retirement and give me something to hand on to my children. I am sure many think this is a foolish idea but I hate the thought of paying into a pension and then having nothing to pass on to the children. I am afraid to say that I will be 35 soon and have no retirement plan. I aim to pay off my mortgage and then use my extra income to fund investments which should provide me with enough passive income to keep me going through my retirement and give me something to hand on to my children. I am sure many think this is a foolish idea but I hate the thought of paying into a pension and then having nothing to pass on to the children.

]]> By: Don http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/comment-page-1/#comment-291944 Don Tue, 22 Apr 2008 03:00:15 +0000 http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/#comment-291944 Why not do everything in present value, i.e. in today's money? Let's say I expect when I retire to no longer be paying my mortgage (which will be gone) and not be contributing to my IRA or 403(b). I really could live on perhaps 80% of my income. My income will be larger then, because it will have grown, but money will also be worth less. Say 20% of my income comes from social security, and 20% comes from my pension. I have to account for 40% of my income out of retirement assets. I don't know what the income will be, but why not assume that whatever it will be that it has a present value the same as my current income (or 1.5 times my current income if you like to think I'll have raises that exceed inflation--use the multiplier that makes you happy). Nice round number example: If my present income is $50000, then I'll need to provide for 40% of that, or $20000 from retirement assets. Let's say, I apply a standard 4% withdrawal rate. Then I'll need savings amounting to $20000/0.04 = $500000. That's $500000 in today's dollars, i.e. present value, not $500000 when I actually retire--it will actually be more then because of the inflation process. I have to decide how much my investments will return, but how about 6% <b>after inflation</b> (choose lower returns to be more conservative). If I intend to retire in 16 years, but I already have $70000 saved, then I need annual savings P so that the remaining $430000 = P(1-1.06^17)/(-.06) or P = $15241 in today's money. I should save about $15000 this year to be on track. They joy of working in present value, is that you already know the present value of your assets, and the present value of your current income and you need to know the present value of your savings rate, i.e. what you need to save this year. Next year when there's been a bit of inflation the numbers will be different, but you'll still know the new present values and be able to repeat the process exactly the same way. Why not do everything in present value, i.e. in today’s money? Let’s say I expect when I retire to no longer be paying my mortgage (which will be gone) and not be contributing to my IRA or 403(b).

I really could live on perhaps 80% of my income. My income will be larger then, because it will have grown, but money will also be worth less. Say 20% of my income comes from social security, and 20% comes from my pension.

I have to account for 40% of my income out of retirement assets. I don’t know what the income will be, but why not assume that whatever it will be that it has a present value the same as my current income (or 1.5 times my current income if you like to think I’ll have raises that exceed inflation–use the multiplier that makes you happy).

Nice round number example: If my present income is $50000, then I’ll need to provide for 40% of that, or $20000 from retirement assets. Let’s say, I apply a standard 4% withdrawal rate. Then I’ll need savings amounting to $20000/0.04 = $500000. That’s $500000 in today’s dollars, i.e. present value, not $500000 when I actually retire–it will actually be more then because of the inflation process.

I have to decide how much my investments will return, but how about 6% after inflation (choose lower returns to be more conservative).

If I intend to retire in 16 years, but I already have $70000 saved, then I need annual savings P so that the remaining $430000 = P(1-1.06^17)/(-.06) or P = $15241 in today’s money. I should save about $15000 this year to be on track.

They joy of working in present value, is that you already know the present value of your assets, and the present value of your current income and you need to know the present value of your savings rate, i.e. what you need to save this year. Next year when there’s been a bit of inflation the numbers will be different, but you’ll still know the new present values and be able to repeat the process exactly the same way.

]]> By: Wilson http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/comment-page-1/#comment-291886 Wilson Tue, 22 Apr 2008 00:39:47 +0000 http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/#comment-291886 Assuming inflation only in the formula is unwise. I personally can never buy into this propaganda by the financial industry. With lot of lenders bankrupt or to be bankrupt, liquidity is eliminated. Consequently, deflation is no longer a distant probability. Listed below are 222 failed lenders since late 2006: 1st Choice Mortgage ACT Mortgage AMC Lending Aapex Mortgage (Apex Financial Group) Accredited Home Lenders, Home Funds Direct Acoustic Home Loans Aegis Alera Financial (Wholesale) All Fund Mortgage Alliance Bancorp Alliance Mortgage Banking Corp (AMBC) Allied Lending Corp. (Wholesale) Allstate Home Loans / Allstate Funding Alterna Mortgage Alternative Financing Corp (AFC) Wholesale Altivus Financial American Freedom Mortgage, Inc. American Home Mortgage / American Brokers Conduit Ameriquest, ACC Wholesale Ameritrust Mortgage Company (Subprime Wholesale) Amstar Mortgage Corp Axis Mortgage & Investments BF Saul Wholesale Lending BNC Mortgage (Lehman) BSM Financial Bank of America (Wholesale) BayRock Mortgage Bridge Capital Corporation BrooksAmerica Mortgage Corp. Bryco (Wholesale) C & G Financial CFIC Home Mortgage CIT Home Lending Calusa Investments Capital Six Funding Castle Point Mortgage Charter One (Wholesale) Chevy Chase Bank Correspondent Choice Capital Funding Citigroup - FCS Warehouse Citimortgage Correspondent (2nds) Clear Choice Financial/Bay Capital Coast Financial Holdings/Coast Bank Coastal Capital Columbia Home Loans, LLC ComUnity Lending Community Resource Mortgage Concord Mortgage Wholesale Concorde Acceptance CoreStar Financial Group Countrywide Financial Corp. Countrywide Specialty Lending Dana Capital Group Decision One (HSBC) DeepGreen Financial Delta Financial Corp Deutsche Bank Correspondent Lending Group (CLG) Diablo Funding Group Inc. Dollar Mortgage Corporation DomesticBank (Wholesale Lending Division) E*Trade Wholesale Lending ECC Capital/Encore Credit Eagle First Mortgage Edgewater Lending Group Empire Bancorp Entrust Mortgage EquiBanc EquiFirst Equity Funding Group Exchange Financial (Wholesale) Expanded Mortgage Credit Wholesale Express Capital Lending FMF Capital LLC Family First Mortgage Corp. Fieldstone Mortgage Company First American Bank (Wholesale) First Consolidated (Subprime Wholesale) First Fidelity Financial First Horizon Subprime, Equity Lending First Indiana Wholesale First Madison Mortgage First Magnus First Mariner Wholesale First NLC Financial Services First National Bank of Arizona First Source Funding Group (FSFG) First Street Financial FirstBank Mortgage FlexPoint Funding (Wholesale & Retail) Flick Mortgage/Mortgage Simple Foxtons, Inc. Freestand Financial Fremont General Corporation FundingAmerica GEM Loans / Pacific American Mortgage (PAMCO) GreenPoint Mortgage - Capital One Wholesale Group One Lending H&R Block Mortgage HSBC Mortgage Services (correspondent div.) Harbourton Mortgage Investment Corporation Heartland Wholesale Funding Heartwell Mortgage Heritage Plaza Mortgage Home 123 Mortgage Home Capital, Inc. Home Equity of America Home Loan Specialists (HLS) HomeBanc Mortgage Corporation Homefield Financial Homefront Mortgage Inc. Homeland Capital Group Honor State Bank Horizon Bank Wholesale Lending Group Impac Lending Group (Wholesale) Innovative Mortgage Capital Investaid Corp. Ivanhoe Mortgage/Central Pacific Mortgage Kellner Mortgage Investments Kirkwood Financial Corporation Lancaster Mortgage Bank (LMB) Lehman/Aurora Loan Services Lender's Direct Capital Corporation (wholesale division) Lexington Lending Liberty American Mortgage LoanCity Long Beach (WaMu Warehouse/Correspondent) LowerMyPayment.com LownHome Financial MILA MLN MLSG Madison Equity Loans Mandalay Mortgage Maribella Mortgage Marlin Mortgage Company Master Financial Maverick Residential Mortgage Mercantile Mortgage Merit Financial Meritage Mortgage Millenium Bankshares (Mortgage Subsidiaries) Millenium Funding Group Mortgage Investors Group (MIG) - Wholesale Mortgage Tree Lending MortgageIT-DB (Retail) Mylor Financial Nation One Mortgage National City Corp. (Wholesale) Nations Home Lending Nationstar Mortgage NetBank Funding, Market Street Mortgage New Century Financial Corp. New State Mortgage Company No Red Tape Mortgage NovaStar, Homeview Lending Oak Street Mortgage Opteum (Wholesale, Conduit) Optima Funding Option One - H&R Block Origen Wholesale Lending OwnIt Mortgage PNC Bank H.E. Paragon Home Lending Paul Financial, LLC People's Choice Financial Corp. People's Mortgage Platinum Capital Group (Wholesale) Popular Financial Holdings Popular Warehouse Lending Preferred Advantage Premier Mortgage Funding Premium Funding Corp Priority Funding Mortgage Bankers Pro 30 Funding Quality Home Loans Quick Loan Funding ResMAE Mortgage Corp. Residential Mortgage Capital Right-Away Mortgage Rose Mortgage SCME Mortage Bankers (Wholesale) Sea Breeze Financial Services Sebring Capital Partners Secured Bankers Mortgage Company (SBMC) SecuredFunding Silver State Mortgage Solutions Funding Soma Financial SouthStar Funding Southern Star Mortgage Sovereign Bancorp (Wholesale Ops) Spectrum Financial Group Starpointe Mortgage Steward Financial Stone Creek Funding Summit Mortgage Summit Mortgage Company Sunset Direct Lending Sunset Mortgage The Lending Connection The Lending Group (TLG) The Mortgage Store Financial The Mortgage Warehouse TransLand Financial Transnational Finance Wholesale Tribeca Lending Corp. (Wholesale) Trojan Lending (Wholesale) Trump Mortgage UBS Home Finance Unlimited Loan Resources (ULR) Valley Vista Mortgage WAMU Comm. Correspondent WMC WaMu (Subprime) Wachovia Mortgage (Correspondent div.) Warehouse USA Webster Bank (Wholesale) Wells Fargo (various Correspondent and Non-prime divisions) Wells Fargo - Home Equity Wescom Credit Union Winstar Mortgage Zone Funding Assuming inflation only in the formula is unwise. I personally can never buy into this propaganda by the financial industry. With lot of lenders bankrupt or to be bankrupt, liquidity is eliminated. Consequently, deflation is no longer a distant probability.

Listed below are 222 failed lenders since late 2006:
1st Choice Mortgage
ACT Mortgage
AMC Lending
Aapex Mortgage (Apex Financial Group)
Accredited Home Lenders, Home Funds Direct
Acoustic Home Loans
Aegis
Alera Financial (Wholesale)
All Fund Mortgage
Alliance Bancorp
Alliance Mortgage Banking Corp (AMBC)
Allied Lending Corp. (Wholesale)
Allstate Home Loans / Allstate Funding
Alterna Mortgage
Alternative Financing Corp (AFC) Wholesale
Altivus Financial
American Freedom Mortgage, Inc.
American Home Mortgage / American Brokers Conduit
Ameriquest, ACC Wholesale
Ameritrust Mortgage Company (Subprime Wholesale)
Amstar Mortgage Corp
Axis Mortgage & Investments
BF Saul Wholesale Lending
BNC Mortgage (Lehman)
BSM Financial
Bank of America (Wholesale)
BayRock Mortgage
Bridge Capital Corporation
BrooksAmerica Mortgage Corp.
Bryco (Wholesale)
C & G Financial
CFIC Home Mortgage
CIT Home Lending
Calusa Investments
Capital Six Funding
Castle Point Mortgage
Charter One (Wholesale)
Chevy Chase Bank Correspondent
Choice Capital Funding
Citigroup – FCS Warehouse
Citimortgage Correspondent (2nds)
Clear Choice Financial/Bay Capital
Coast Financial Holdings/Coast Bank
Coastal Capital
Columbia Home Loans, LLC
ComUnity Lending
Community Resource Mortgage
Concord Mortgage Wholesale
Concorde Acceptance
CoreStar Financial Group
Countrywide Financial Corp.
Countrywide Specialty Lending
Dana Capital Group
Decision One (HSBC)
DeepGreen Financial
Delta Financial Corp
Deutsche Bank Correspondent Lending Group (CLG)
Diablo Funding Group Inc.
Dollar Mortgage Corporation
DomesticBank (Wholesale Lending Division)
E*Trade Wholesale Lending
ECC Capital/Encore Credit
Eagle First Mortgage
Edgewater Lending Group
Empire Bancorp
Entrust Mortgage
EquiBanc
EquiFirst
Equity Funding Group
Exchange Financial (Wholesale)
Expanded Mortgage Credit Wholesale
Express Capital Lending
FMF Capital LLC
Family First Mortgage Corp.
Fieldstone Mortgage Company
First American Bank (Wholesale)
First Consolidated (Subprime Wholesale)
First Fidelity Financial
First Horizon Subprime, Equity Lending
First Indiana Wholesale
First Madison Mortgage
First Magnus
First Mariner Wholesale
First NLC Financial Services
First National Bank of Arizona
First Source Funding Group (FSFG)
First Street Financial
FirstBank Mortgage
FlexPoint Funding (Wholesale & Retail)
Flick Mortgage/Mortgage Simple
Foxtons, Inc.
Freestand Financial
Fremont General Corporation
FundingAmerica
GEM Loans / Pacific American Mortgage (PAMCO)
GreenPoint Mortgage – Capital One Wholesale
Group One Lending
H&R Block Mortgage
HSBC Mortgage Services (correspondent div.)
Harbourton Mortgage Investment Corporation
Heartland Wholesale Funding
Heartwell Mortgage
Heritage Plaza Mortgage
Home 123 Mortgage
Home Capital, Inc.
Home Equity of America
Home Loan Specialists (HLS)
HomeBanc Mortgage Corporation
Homefield Financial
Homefront Mortgage Inc.
Homeland Capital Group
Honor State Bank
Horizon Bank Wholesale Lending Group
Impac Lending Group (Wholesale)
Innovative Mortgage Capital
Investaid Corp.
Ivanhoe Mortgage/Central Pacific Mortgage
Kellner Mortgage Investments
Kirkwood Financial Corporation
Lancaster Mortgage Bank (LMB)
Lehman/Aurora Loan Services
Lender’s Direct Capital Corporation (wholesale division)
Lexington Lending
Liberty American Mortgage
LoanCity
Long Beach (WaMu Warehouse/Correspondent)
LowerMyPayment.com
LownHome Financial
MILA
MLN
MLSG
Madison Equity Loans
Mandalay Mortgage
Maribella Mortgage
Marlin Mortgage Company
Master Financial
Maverick Residential Mortgage
Mercantile Mortgage
Merit Financial
Meritage Mortgage
Millenium Bankshares (Mortgage Subsidiaries)
Millenium Funding Group
Mortgage Investors Group (MIG) – Wholesale
Mortgage Tree Lending
MortgageIT-DB (Retail)
Mylor Financial
Nation One Mortgage
National City Corp. (Wholesale)
Nations Home Lending
Nationstar Mortgage
NetBank Funding, Market Street Mortgage
New Century Financial Corp.
New State Mortgage Company
No Red Tape Mortgage
NovaStar, Homeview Lending
Oak Street Mortgage
Opteum (Wholesale, Conduit)
Optima Funding
Option One – H&R Block
Origen Wholesale Lending
OwnIt Mortgage
PNC Bank H.E.
Paragon Home Lending
Paul Financial, LLC
People’s Choice Financial Corp.
People’s Mortgage
Platinum Capital Group (Wholesale)
Popular Financial Holdings
Popular Warehouse Lending
Preferred Advantage
Premier Mortgage Funding
Premium Funding Corp
Priority Funding Mortgage Bankers
Pro 30 Funding
Quality Home Loans
Quick Loan Funding
ResMAE Mortgage Corp.
Residential Mortgage Capital
Right-Away Mortgage
Rose Mortgage
SCME Mortage Bankers (Wholesale)
Sea Breeze Financial Services
Sebring Capital Partners
Secured Bankers Mortgage Company (SBMC)
SecuredFunding
Silver State Mortgage
Solutions Funding
Soma Financial
SouthStar Funding
Southern Star Mortgage
Sovereign Bancorp (Wholesale Ops)
Spectrum Financial Group
Starpointe Mortgage
Steward Financial
Stone Creek Funding
Summit Mortgage
Summit Mortgage Company
Sunset Direct Lending
Sunset Mortgage
The Lending Connection
The Lending Group (TLG)
The Mortgage Store Financial
The Mortgage Warehouse
TransLand Financial
Transnational Finance Wholesale
Tribeca Lending Corp. (Wholesale)
Trojan Lending (Wholesale)
Trump Mortgage
UBS Home Finance
Unlimited Loan Resources (ULR)
Valley Vista Mortgage
WAMU Comm. Correspondent
WMC
WaMu (Subprime)
Wachovia Mortgage (Correspondent div.)
Warehouse USA
Webster Bank (Wholesale)
Wells Fargo (various Correspondent and Non-prime divisions)
Wells Fargo – Home Equity
Wescom Credit Union
Winstar Mortgage
Zone Funding

]]> By: Heidi http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/comment-page-1/#comment-291858 Heidi Mon, 21 Apr 2008 22:31:37 +0000 http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/#comment-291858 Nice post. Retirement income is the new buzz word around work. All those boomer assets just waiting to be captured... We're working on a product solution that offers a blend of guaranteed lifetime annuity and lifetime funds (or make-your-own blend) in an attempt to meet retiree income needs without building an 100% "do it for me" solutions. I'd love your thoughts on that. The thing about retirement income is that it really depends when your "low years" hit. If you realize 3-4% returns (or *gasp* negative returns) the first few years of retirement, you have a lot less to live on in the future unless you realize 12% - 15% for several subsequent years (these are hypothetical numbers I'm just pulling out of the air, but you get the idea). Someday I will bother to run the actual numbers... Nice post. Retirement income is the new buzz word around work. All those boomer assets just waiting to be captured…

We’re working on a product solution that offers a blend of guaranteed lifetime annuity and lifetime funds (or make-your-own blend) in an attempt to meet retiree income needs without building an 100% “do it for me” solutions. I’d love your thoughts on that.

The thing about retirement income is that it really depends when your “low years” hit. If you realize 3-4% returns (or *gasp* negative returns) the first few years of retirement, you have a lot less to live on in the future unless you realize 12% – 15% for several subsequent years (these are hypothetical numbers I’m just pulling out of the air, but you get the idea). Someday I will bother to run the actual numbers…

]]> By: Kitty http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/comment-page-1/#comment-291856 Kitty Mon, 21 Apr 2008 22:27:08 +0000 http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/#comment-291856 You need to lower your expected rate of return during retirement years because the older you get, the higher percentage of assets you'd want to have in "safe" accounts which means lower return rate. You cannot continue to keep most of your assets in stocks when you are over 70 as if the crash happens you'll not have enough money to "survive" until the prices go back up. Don't forget that it took until the Second World War for the stock prices to get where they were pre-1929 crash. If you were 70 in 1929 keeping all the money in mutual funds wouldn't have been such a smart idea. You need to lower your expected rate of return during retirement years because the older you get, the higher percentage of assets you’d want to have in “safe” accounts which means lower return rate. You cannot continue to keep most of your assets in stocks when you are over 70 as if the crash happens you’ll not have enough money to “survive” until the prices go back up. Don’t forget that it took until the Second World War for the stock prices to get where they were pre-1929 crash. If you were 70 in 1929 keeping all the money in mutual funds wouldn’t have been such a smart idea.

]]> By: JLP http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/comment-page-1/#comment-291748 JLP Mon, 21 Apr 2008 18:11:08 +0000 http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/#comment-291748 CD, Oops. I meant to use the division sign but used the code for the multiplication sign instead (that's what I get for trying to go from memory instead of looking up the HTML code). It's fixed now. CD,

Oops. I meant to use the division sign but used the code for the multiplication sign instead (that’s what I get for trying to go from memory instead of looking up the HTML code). It’s fixed now.

]]> By: CD http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/comment-page-1/#comment-291738 CD Mon, 21 Apr 2008 17:58:13 +0000 http://allfinancialmatters.com/2008/04/21/looking-at-retirement-income-needs/#comment-291738 I think you mean FV = PV * ((1+ROR)^N). :) I think you mean FV = PV * ((1+ROR)^N). :)

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