Re: Generation-X' Journal
Posted: Fri Feb 01, 2019 8:57 pm
--- The deepest and most resilient rabbit hole of FIRE plus a lot more!
Smart man, glad to hear. Ha, and I'm sure your nose will leads you to the right path come spring. Really like your RV idea.Mister Imperceptible wrote: ↑Fri Feb 01, 2019 9:12 pmI’ve been indoors since November. The last several days have seen below zero F wind chill.
When I went to storage to warm up the Winnebago engine, I found mouse terds. I wonder if my housesitting friend is alive. I hope that if he froze to death, he chose to do so elsewhere. I would imagine a thawing mouse carcass does not make for a fresh spring scent.
Here's another way to evaluate.
For pension, the risk is not receiving payment while alive due to some unforeseen event.
The problem - do you take the pension or lump sum?
To help evaluate, we look to the stock market.
Many say the average compound annual return of the US stock market from 1926 to 2017 was about 10 percent including inflation (if 4% inflation, then 6% real return).
so 10% seems like the magic number. If you already know your monthly pension income amount after retirement, then annualize it (monthly pension income x 12) then divide that number by your total pension contribution.
Monthly pension income after retirement - $3000 / mo.
Monthly pension income after retirement annualized - $36,000 / yr
Your total pension contribution - $200,000
pension after retirement (annualized) / Total pension contribution = 36,000 / 200,000 = 0.18 or 18%
18% is greater than historical stock market return of 10% so the pension may be the way to go. You are getting 18% return on your investment. Break-even is (1/.18)= 5.555 years. After 5.555 years you've made even money.
The follow up question is, what is the chance of total loss on the investment? If total loss occurs, can you take that loss?
What is the percentage of the pension contribution to your total net worth?
If total loss occurs immediately after retirement, and say if you have 1 million in net worth, then $200,000 total pension contribution equals 20% loss. We look to the drawdown table:
According to the table, 25% gain is needed to recover 20% loss, which will take about 2.341 years if the market returns more than 10% in 3 consecutive years. Maybe doable.
On the otherhand, if you have 500k net worth, then 200k total pension contribution equals 50% loss. The drawdown table says 100% gain is needed to recover 50% loss, which will take about 7.273 years if market returns more than 10% in 8 consecutive years. Probably not likely.
Here's a histogram of market returns from 1926 - 2017.
While 10% average return it maybe, consecutive 10% return is probably hard to come by. So the years it will take to recoup that 50% loss will be longer, depending on short term market fluctuations (which could add more loss).
But if total loss occurs 1 year after retirement, then the total loss is (200k-36k)/500k or 32.8% loss. If total loss occurs after 2 years, then the total loss is (200k-36k-36k)/500k or 25.6% loss.
So the question is, what's the chance of total loss before the break-even period of 5.555 years?
And the next obvious question is, will you be alive to care? Because after 5.555 years, there is no risk.
Mister Imperceptible wrote: ↑Sat Feb 09, 2019 8:14 amI need to start trading volatility like you.
I did well last year by holding cash, selling all my pre- and post-tax retirement account stock funds in August and moving into GDXJ and SGDM, and steadily buying precious metals from July-December. Maybe it was just luck but I think I might have a good “feel.”
But I know someone who claims to have done better by buying NFLX and TSLA puts.
Is trading options from a post-tax non-retirement account so bad? I think future tax rates are going to be very high. I would rather pay taxes now. Plus, the leverage I lose by not making pre-tax retirement account contributions can be regained later with directly held real estate. The NFLX/TSLA put guy recommended LEAPs if I went with a post-tax account.
Doesn’t the short fall in pensions concern you? The short falls in Social Security? I see the same problems there as with the government deficits. Both problems are intertwined.
I would be inclined to take the lump sum.
Great observation, Jason.