• Investment Planning: Reader Tips Tricks, and Links

    This is the final post in a series on investment planning. Here’s a list of the other posts:

    1. Investment Planning: The Series
    2. Household Budgeting the Easy Way
    3. Budget Tracking and Projections (with Quicken Tricks)
    4. Willingness, Ability, and Need
    5. Estimating a Retirement Budget
    6. Need for Risk: The Details
    7. Multi-Period Planning and Asset Allocation
    8. Investment Planning: Reader Tips, Tricks, and Links [this post]

    As promised in the first post in the series, in this concluding post I respond to comments received during this series and list tips, tricks, and links suggested by readers. Actually, I’ve received comments from only one individual so far. But they are good ones and worth discussing.

    “traneeinvestor” raised two points in his comment to the sixth post of the series. His first point pertains to accounting for taxes in one’s retirement budget. Though he didn’t explicitly point to a weakness in my plan with respect to taxes, in thinking about his comment I found one. Here is my reply:

    Invest in tax-advantaged accounts. Be mindful of taxes and seek the return that achieves your goals in light of them. I implicitly dodged the tax issue by basing one’s retirement income on one’s current income after taxes. Taxes are not explicitly included in the budgeting methodology I suggested in post 2 and post 5. Instead, I suggested including one’s income net of taxes. A safer approach is to put taxes back into the budget and to save enough to pay for those as well. What makes this tricky is that some of one’s retirement income will be tax free (that coming from a Roth, perhaps one’s Social Security income, depending on total income). Also, of course one doesn’t know one’s retirement tax rate well in advance so that requires an assumption. A reasonable conservative approach is to assume one will pay taxes on one’s entire retirement income at a rate at least equal to one’s current rate.

    traneeinvestor’s second point was about the safety of the selected safe withdrawal rate (SWR), discussed in post 6. Here is my response.

    One ought to regularly monitor the status of one’s pre- and post-retirement portfolio. If adjustment in SWR is required in light of performance then that is what must be done. However, the Trinity study on SWRs to which I referred in post 6 was based on back testing that included up and down years. 3% was found to be safe over a 30 year period in a wide variety of asset allocations, with the exception of 100% bonds. Not safe enough? Reduce it to 2.5% or 2%.

    To the extent I thought it necessary, I’ve gone back and edited the posts in the series to reference these issues. If there are other comments made on the series I’ll update this post to include them, at least for a little while. At some point I’ll consider the series done and stop updating the content.

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