How to Enjoy Retirement Without Going Broke

[SleighRide]

New York Times columnist Peter Coy just published an interesting article entitled "How to Enjoy Retirement Without Going Broke." The sub-title is "the problem of decumulation is a tricky one, even for Nobel Prize-winning economists." It may be of particular interest interest for anybody planning how to spend money in retirement (link listed below...but it might be behind the NYT paywall).

Some of the topics covered in this piece include the following:

Do you keep your spending steady and allow the assets in your portfolio to fluctuate, or do you do the opposite — keep your portfolio steady and allow your spending to fluctuate?

Do you keep a big nest egg, or do you convert your savings into a stream of monthly checks?

How much risk do you take?

Much of this article was based upon a 600 page document developed by William Sharpe, who won a Nobel Memorial Prize in Economic Sciences in 1990. He has posted the entire thesis for free on the Stanford University website. There is also a link to a related podcast by the same author.

I found it useful and closely aligned with the advice that I have received from my financial planner.

https://www.nytimes.com/2021/08/27/opin ... Position=2

https://web.stanford.edu/~wfsharpe/RISM ... bfddc4d8a7

https://podcasts.apple.com/es/podcast/m ... 0386103377

[captainspoke]

Had a quick glance at the second link (pdf), and I'll get back to it for a closer look over the coming days. It looks interesting, and seems very readable--both language and layout/formatting.

Thanks!

[SleighRide]

My pleasure.

While these resources are definitely written from the perspective of an American, most of the advice can be adapted to retiring in Japan.

[Tokyo]

Do you keep a big nest egg, or do you convert your savings into a stream of monthly checks?

This is an important question as I do not read much about annuities, one of the article’s recommendations, in this forum. While some dismiss annuities as providing insufficient return, they provide all-important security and peace of mind. People spend a lifetime striving to build up the resources to retire. Upon retirement, you have the job of defending your nest egg. Annuities in effect delegate some of these responsibilities, leaving retirees to enjoy life instead. Who wants to worry about investment income when you are 80 and staving off dementia?

My wife and I are enjoying the steady income provided by annuities. While it’s only a modest income, it is yet another income stream and the more of those, the merrier. Also, it is nice to see regular income continuing. Our kyosai and kokumin nenkin are paid every even-numbered month. We opted to have our annuity paid every odd-numbered month to provide regular income every month. We have peace of mind and it feels like we are being paid - for not working. That’s a great feeling.

[AreTheyTheLemmings?]

My wife and I are enjoying the steady income provided by annuities.

Could you provide some more information about the kinds of annuities you invested in? I'm sure we'd all be interested to know about some of the options available - or at least use your experience as a place to start further research.

[SleighRide]

See chapter 10 - "Fixed Annuities" in the Stanford University on-line book for some general information.

https://web.stanford.edu/~wfsharpe/RISMAT/RISMAT-10.pdf

[Established]

See chapter 10 - "Fixed Annuities" in the Stanford University on-line book for some general information.

https://web.stanford.edu/~wfsharpe/RISMAT/RISMAT-10.pdf

I think the poster understands what annuities are and how they function.

The world of annuities is rich with scams and high fees, I think they were asking for specifics on your arrangements.

1. Total return
2. Load fees and signup fees
3. Term limit
4. Provider
5. Tax advantages

etc Etc

[RetireJapan]

I had a brief look at annuities in Japan a couple of years ago, but didn't really find anything attractive.

Any good options?

[Tokyo]

Our annuity is with one of the US annuity giants, Prudential, run by PGF 生命 in Japan. The plan is called 米国ドル健年金支払型特養老保険.

The system is simple:
- pay US$700 per month plus about $12 insurance for 10 years (since we started at age 56)
- receive US$500 monthly for 20 years from your 65th birthday.

Your pension can also be paid in yen, and payments can be flexibly paid as a (reduced) lump sum, or spread out as desired for up to 20 years. I am confident I could have made more than what they are offering by investing the lump sum in ETFs but I much prefer the peace of mind from having regular income with zero thought or oversight.

My wife also bought in so we have a steady $12,000 of extra annual income to enjoy until we turn 85. We regard it as our retirement travel budget since we assume our more expensive foreign travel costs will be lessening by then. That is, assuming Covid ends sometime in the next 20 years…

[RetireJapan]

Our annuity is with one of the US annuity giants, Prudential, run by PGF 生命 in Japan. The plan is called 米国ドル健年金支払型特養老保険.

The system is simple:
- pay US$700 per month plus about $12 insurance for 10 years (since we started at age 56)
- receive US$500 monthly for 20 years from your 65th birthday.

Your pension can also be paid in yen, and payments can be flexibly paid as a (reduced) lump sum, or spread out as desired for up to 20 years. I am confident I could have made more than what they are offering by investing the lump sum in ETFs but I much prefer the peace of mind from having regular income with zero thought or oversight.

My wife also bought in so we have a steady $12,000 of extra annual income to enjoy until we turn 85. We regard it as our retirement travel budget since we assume our more expensive foreign travel costs will be lessening by then. That is, assuming Covid ends sometime in the next 20 years…

That's really interesting. Do you get any tax breaks/incentives on it?

So you pay them $84,000 over ten years, then they pay you $500 a month for 20 years.

As a form of diversification, it seems quite attractive if you already have a decent investment portfolio.

Also makes sense for Prudential, because (barring sequence of returns disasters, which presumably they offset by having lot of clients) it should be fairly easy for them to both make the payments and keep most of the principal.

Might be a fun spreadsheet to model out