December Rate Hike Odds Rise after Fed Meeting - Strategy for Savers

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December Rate Hike Odds Rise after Fed Meeting - Strategy for Savers

There were no surprises that came from today’s FOMC meeting. The Fed decided to hold off again on a rate hike. It also announced that they “will initiate the balance sheet normalization program” in October. Both the FOMC statement and the Fed’s projections suggest a December rate hike is still likely.

Increased Odds for a December Fed Rate Hike

One reason the Fed may decide against a December rate hike is if inflation numbers are too low. Today’s statement doesn’t indicate that the Fed has any additional concerns about inflation. It did mention that the “hurricanes will likely boost inflation temporarily.” However, the Fed continues to expect inflation “to stabilize around the Committee's 2 percent objective over the medium term.”

The Fed’s projections did lower the 2017 inflation expectations slightly, but there were no changes in the 2018 expectations. So that shouldn’t change the December rate hike decision. New GDP projections were increased for 2017 and future years. New unemployment projections were slightly reduced in 2018 and 2019. These changes should help the case of a December rate hike.

The most interesting projection for savers is the “dot plot” of the federal funds rate. Out of the 16 FOMC participants, 12 anticipate a rate hike. Only four anticipate no change. That suggests that most on the Fed are ready for a December rate hike if the economy can avoid any major issues.

The odds of a December rate hike did go up today based on the Fed Fund futures as shown by the CME Group FedWatch Tool. The odds increased from 63.3% to 72.8%.

One disappointing issue is that the Fed continues to lower the projected longer run federal funds rate. The dot plot indicates a median longer run federal funds rate of 2.75%. That’s down from 3.00% that was projected in June. Fed Chair Janet Yellen mentioned this in her press conference. She noted that there’s general recognition over the last few years that the neutral interest rate has come down. This means it’s very unlikely that we’ll see interest rates close to where they were back in 2006. The federal funds rate may not exceed 3% for the next five years.

Balance Sheet Reduction and CD Rates

The Fed’s announcement that it will start the balance sheet reduction program in October was expected. This should put upward pressure on longer-term rates. The balance sheet reduction reverses the quantitative easing (QE) that took place during the zero-interest rate years. An important reason that the Fed implemented QE was to suppress longer-term interest rates. Thus, reversing QE should have the opposite effect and push up longer-term interest rates.

As I mentioned in the weekly summary, we probably won’t see any large impact on longer-term rates, including long-term CD rates. The balance sheet reduction has been expected for much of this year, and long-dated Treasury yields have actually fallen this year.

It’s possible that the balance sheet reduction will help CD rates to some extent. What happened in 2013 shows how QE changes can affect longer-term rates. That was the year that the Fed began to taper QE. When tapering was first mentioned, the markets panicked in a reaction that was known as the Taper Tantrum. The result was that long-dated Treasury yields increased significantly. For example, the day before Fed Chair Ben Bernanke mentioned tapering in May, the 10-year yield was 1.94%. Tapering was officially announced at the December 18th Fed meeting. By December 26, the 10-year yield had reached 3.00%.

The rise of Treasury yields during the Taper Tantrum of 2013 did seem to have an impact on CD rates. December 2013 was when PenFed came out with 5- and 7-year CDs with a 3.04% APY. It should be noted that PenFed’s rates were the exception. Nevertheless, 5-year CD rates overall did rise in 2013. Looking at just internet banks, the highest 5-year CD rate in May 3, 2013 was 1.85% APY. On December 20, 2013, the highest 5-year CD rate for internet banks was 2.16% APY.

Deposit Account Strategies

I think we are all waiting for the return of the 3% CDs. We’re slowly moving that way. Unfortunately, this movement has been very slow. For example, the highest 5-year CD rate that’s nationally available from a credit union is 2.60% APY. The highest from an internet bank is 2.40% APY. The top 5-year brokered CD rate last week was 2.35%. At the start of 2017, the highest 5-year credit union rate was 2.60% APY, the highest 5-year internet bank rate was 2.28% APY and the highest 5-year brokered CD rate was 2.30%. As you can see, the rise has been very small and gradual.

Based on this history, I’m hesitant to say that 3% 5-year CDs are right around the corner. The balance sheet reduction program may help a little. Also, if the economy performs as the Fed expects and we see a Fed rate hike in December and three rate hikes in 2018, it seems very likely that long-term rates will have to eventually move up. Consequently, it still seems reasonable to expect that we’ll see several 3% 5-year CDs in 2018. Thus, you may want a strategy of parking your money in top internet savings accounts like Dollar Savings Direct or in a No Penalty CD like Ally’s 11-month No Penalty CD. When we finally see those 3% 5-year CDs, you can then jump on them.

The above strategy has risks. We have been disappointed many times in the past with the hopes of rate hikes. We may not see 3% 5-year CDs in the next year or two. If you want to keep things simple, stick with a standard CD ladder with 5-year CDs maturing at regular intervals. If you’re worried about missing future hot CD deals, choose 5-year CDs with early withdrawal penalties that are no higher than six months of interest. This will allow you to break the CDs without too much cost and redeploy the funds into those higher-rate CDs. You can use our 5-year CD rate table and our CD Early Withdrawal Penalty Calculator to review these 5-year CDs.

For more strategy discussion, please see my article from January, Deposit Account Strategies for 2017.

Future FOMC Meetings

The next three FOMC meetings are scheduled for October/November 31-1, December 12-13 and January 30-31, 2018. The December meeting will include the summary of economic projections and a press conference by Fed Chair Yellen.


Comments
payitforward
payitforward   |     |   Comment #1
Much appreciation for the updates and your perspective.
irrational
irrational   |     |   Comment #9
WHEN WAS THE LAST TIME YOU HEARD A FED HEAD OR ANY OF THE USUAL TALKING HEADS ON THE BIZ NEWS CHANNELS OR BLOGS OR WHATEVER,,,,,,,MENTION THE STOCK MARKET BEING ,,,,,,,,,,IRRATIONALLY EXUBERANT,,,,,,SINCE 2010 AT LEAST,,,,,,greenspan raised rates ,,,what about bermonkey and yellenski and all the others ,,,i guess this time it's different.
ANDY JACKSON FAN
ANDY JACKSON FAN   |     |   Comment #11
I WONDER IF ANY OF THE TRUMP CLAN READS THIS DOMAIN AND THE LAME-O POSTS AND COMMENTS, which i am guilty as well,,,,I WONDER IF ANY OF THE FED OFFICIALS AND FRANKLY ANYONE OF IMPORTANCE AND POWER IN DC OR THE MSM READS SAID SAME......i haven't been LAMEING IT UP SINCE MARCH FOR THE AMUSEMENT OF BOSCO AND BOGUS, SOKATE, TIN FOIL, ET AL .......LOL Lol lol.
#28 - This comment has been removed for violating our comment policy.
#33 - This comment has been removed for violating our comment policy.
Bozo
Bozo   |     |   Comment #2
I bit the bullet and bought the MS 11 month 1.9% on exactly this strategy. Although I was ready to throw in the towel, my wife (the "boss") convinced me to take a deep breath, wait until August of 2018, then go shopping. Wise lady. We will let it ride until next year.
Jake
Jake   |     |   Comment #6
Bozo, excuse my ignorance but what is the MS 11 month 1.9% cd?
JBB
JBB   |     |   Comment #8
https://www.doctorofcredit.com/morgan-stanley-11-month-cd-offering-1-9-apy-10000-2000000/
Att
Att   |     |   Comment #12
Maybe Morgan Stanley.
Kaight
Kaight   |     |   Comment #18
Jake, you are not the ignorant one.  Far from it.  Consider:

MS oftentimes means "Microsoft". But that makes no sense here. "Multiple sclerosis" also makes no sense. Elites use ambiguous and confusing abbreviations purposefully to exclude others with the intent of making them feel inferior and stupid, to demonstrate their superiority, and to signal they are so busy being more successful than average folks that they have no time to write openly and plainly.

ETA

BTW, Jake, I do see the suggestion MS might signify "Morgan Stanley".  And Ken does list a Morgan Stanley Bank.  It is located in Salt Lake City.  I suppose that could be it, but who really knows to which bank or credit union MS refers?  It is anyone's guess at this point.
Jake
Jake   |     |   Comment #29
Kaight, I appreciate your reply but, to be clear, my question was not meant as a slight toward Bozo or anyone else. He's one of the best posters on this forum. Thanks.
Bozo
Bozo   |     |   Comment #38
Jake (re comment #29), humor is often the best way to convey a message. Kaight has a sense of humor. I hope I do as well.
thin skinned
thin skinned   |     |   Comment #88
bosco,,,,,(comment 38) your sense of humor is akin to your skin,,,,,,extremely thin.
Bozo
Bozo   |     |   Comment #37
Kaight (re comment #18), too funny. Point scored, advantage out. Of course I should have said MorganStanley, and it was pure sloth not to have done so. As I am retired, I have no excuse. I am hardly in a rush these days. That said, what does "Estimated Time of Arrival" (ETA) have to do with anything?

We all tend to insert ambiguities into our posts.

Couldn't resist.

In tennis parlance, it's now "love score". Your serve.
john
john   |     |   Comment #3
all seniors who saved for their retirement based on the norm 5 % rate have been destroyed
EatPlantsSave$$$
EatPlantsSave$$$   |     |   Comment #4
Downsize, and eat vegan.
Zemo999
Zemo999   |     |   Comment #10
Downsize, and eat your dog.
Happy Times
Happy Times   |     |   Comment #13
All seniors who based retirement on 5% interest were foolish. Interest should never make or break a retirement. Let's review some of the "demands" made in today's world.
Free college education
Forgiveness of college loans
Free phone service
Free health care
Tax subsidies and credits for child care, elder care, solar, windmill, insulation, refrigerator, air conditioners, etc. etc.
Farm subsidies (don't plant here's some cash for you)
Corn subsidies via crappy gasoline requirements
Free education for illegal aliens (legal definition)
Free healthcare for illegals
Free housing
Free food
And the list goes on.
What's missing is a demand for FREEdom from the tyranny of government.

Someone has to pay for all the free stuff and, in today's world, that requires wealth confiscation and transfer from the productive class to the unproductive class. It's that simple. Social programs are designed to maintain enough order so those with pitchforks stay at home, in front of the tube.

No one was owed a 5% CD in retirement. To believe otherwise is nonsense.
Kaight
Kaight   |     |   Comment #19
Happy:

Thanks. Your post is spot on. I would also observe you obviously do not live in California SSR. If I'm wrong, get out now while you are able.
deplorable 1
deplorable 1   |     |   Comment #20
@Happy Times: I agree with everything you have there except for your premise that planning on 5% interest was foolish. 5% interest was the normal average rate of return in ALL years pre Obama. Yes they do fluctuate I have earned from 3-10% APY over the years but averaged 5%. When the government/FED/Obama intentionally keep interest rates low for a decade shafting all of us responsible planners, savers, workers and homeowners I don't get how you can blame US for bad planning. I still have some 5% savings accounts that are capped even now and with monthly paying dividend stocks and 2-3% CD's I am still averaging 5% overall. Now how is that bad planning? It is the GOVERNMENT that has a debt and planning problem! Creating programs they can't afford like Obamacare, medicare/medicaid, Social Security, Welfare, bridge cards, free cell phones with free monthly minutes and the endless parade goes on and on while we are 20 trillion in the hole(the real reason for low interest rates). Those of us who plan for our own future are not foolish and I don't think any of us could have forecast 0% interest rates for a decade............at least my crystal ball didn't see that one coming.
deplorable 1
deplorable 1   |     |   Comment #22
In regards to planning for retirement: Depending on your income you can only plan ahead and save so much. Say for example you earn $50,000/yr. it may be possible with a 5% APY in the bank, some good investments and a little luck to get to a million. Now a million @5% = $50,000 a year in retirement income which replaces 100% of former salary plus Social security and/or pension. Not bad. Now drop that rate to 1%(like what just happened) and that same million only earns $10,000 a year. Now you will be broke and poor trying to live off of that income even though you are technically a millionaire unless you want to be dipping into your nest egg to survive. Now please tell me how this person in this example was supposed to have planned to save 5 million on $50,000/yr.? You see my point right? This guy didn't do anything wrong yet is getting the shaft just because the government couldn't stay out of the mortgage and debt business. So now this guy is working forever to supplement his income in retirement even though he did everything right by planning and saving. Or he could spend down his million and outlive his savings and need to be rescued by the government in his old age. No amount of planning would have avoided this scenario. There are many many people in this boat and all because of low interest rates. This guy wasn't looking for a handout just a reasonable return on his income.
Bill
Bill   |     |   Comment #24
Great post, deplorable 1, you absolutely nailed it!
Happy Times
Happy Times   |     |   Comment #26
#22
Not quite. Try the Vanguard retirement calculator with a million bucks for 30 years. You can generate about 30K/year with inflation adjustments. I've done similar calculations for years and it's surprising how a properly managed 1M can perform...in retirement. Oh, and they're aren't many with a million in the bank to begin with. Your assumptions, calculations and conclusions are mostly erroneous.
???
???   |     |   Comment #27
2016 Interest only income I had from 1 million in CDs gave me 44,500$
No I will not show my taxes .
deplorable 1
deplorable 1   |     |   Comment #31
Well that's a nice trick earning 4.5% while CD rates were 2% max.
???
???   |     |   Comment #40
deplorable #31 I would certainly take your 10k on a bet. and I was being slightly modest. folks act like they're oh so high heeled. #31
deplorable 1
deplorable 1   |     |   Comment #32
@Happy Times: Well I was able to save a million with a small income and compound interest working for me. It's even worse if you had less! Retirement calculators make assumptions like your investments will generate a certain percentage return. like 2008? How did your investments do that year? How many years did it take just to get back to even? I used these calculators decades ago using what was a very conservative 5% return at the time. According to those calculations I should have had over 2 million by now. Hey they were only off by a million. You used to be able to count on a 5% return in a FDIC insured bank account. Using the rule of 72/5 you would have been able to double your money every 14.4 years. Now @ 1% it would take you 72 years to double your money. Even @ 2% it takes 36 years. That really puts low interest rates in the proper perspective when trying to save for retirement. If you are just starting out now with low wages, high taxes, low interest rates, high mandatory healthcare costs all I can say is good luck as you are going to need it.
Bozo
Bozo   |     |   Comment #39
Deplorable 1, I don't think saving for retirement means plopping all your eggs in one basket. Folks in their early years should probably tilt to equities, with a modest amount in bond funds. Folks in their 50's might consider building a CD ladder (as we did). Dial back on equities. Folks in their 60's, keep a modicum of equities, but think "age in bonds" (CDs count). It's all about what helps you sleep well at night (SWAN). Folks of any age should invest, invest, invest (preferably in tax-deferred accounts). Heck, my wife is still working at age 70, and has a catch-up 401K contrib of $2K/mo. Please, no snide comments about my wife still working while I am retired. She loves her job, they love her, and she can work from her dining room or while baby-sitting the grandkids. Not a bad gig.

Retirement calculators are basically garbage. They will produce whatever you plug in ("garbage in, garbage out"). If you want to assume an average yield on a portfolio of 8%, the garbage calculator will produce an overly-enthusiastic yearly sustainable withdrawal as far as the eye can see. If you plug in 2%, and an inflation rate of the same, well, you get my drift.
Bozo
Bozo   |     |   Comment #41
Further to my comment #39, I suspect many folks are overly pessimistic these days since interest rates are currently in the tank. Point being, CD rates are not the only game in town. You should be diversified. Even at age 70, I have a substantial position in Vanguard's International index fund (VTIAX), which is up well over 20% this year. Vanguard's VTSAX is up into the double digits. My PenFed 7-year CD just renewed at (drumroll) 2.15%. That said, my PenFed IRA CDs (among other IRA and after-tax CDs) are the bedrock of my retirement. The trick is to be diversified. Rates have tanked since 2009, but the stock market has, what, tripled?

When the market once again tanks (not if, but when), folks with healthy positions in fixed-income will do well. Were I to hazard a guess, I would suspect folks who lop off some gains in the next month or so (and rotate into fixed income) might be prudent. Yes, it's market-timing. But a wise stock trader once told me "never let green fade to red". Stated another way, "your wife will never rag on you for taking profits too early".
Bozo
Bozo   |     |   Comment #42
PS: If you lop off profits with no intention of buying back into the market, you avoid the "being right twice" conundrum. You just lop off profits, buy a CD or plop it in savings, and let Mr. Market do what it's gonna do. I have done this over, and over, and over again.

Stated another way, there is nothing that mandates that harvested gains must (at some time) be plowed back into the market.
Bozo
Bozo   |     |   Comment #44
Further to my comment #42, a CD ladder can easily be built on harvested gains. A little here, a little there, not a huge issue. When the market turns south (as it always does), you will be pleased.
Bozo
Bozo   |     |   Comment #43
Folks who hate the concept of "market-timing" will call it "re-balancing". I have to chuckle at the distinction. Yes, friends and neighbors, it's market timing. You have to be right twice. Assuming you intend to buy back in. I don't. When I take it off the table, it's gone.

My Vanguard IRA account is like the proverbial rain forest. It grows and grows, then some person comes along to chop it down. While the person might be criticized by some, he loads all the branches and trees in a truck to sustain the populace. Over time, the forest grows back. The cycle continues.
deplorable 1
deplorable 1   |     |   Comment #54
@Bozo: I like your strategy of taking profits off the table before the next downturn but I just can't lock up money in a 5 year or longer CD unless I'm getting 3% or better. There is just too much opportunity cost. With bank bonuses and interest rate hikes I'm keeping my CD's @ 3 years or less right now.
Bozo
Bozo   |     |   Comment #56
Deplorable 1, even with rates as pathetic as they are, a 3-year CD is better than watching your gains (your green) fade to red. I'm hardly suggesting a major rotation from equities to fixed-income. Far from it. Just suggesting one might consider harvesting gains. The "melt-up" this year in equities, well, I've seen it before, and it never ends well. It is ever so much easier to sell equities on their way "up". As I noted, few folks complain about taking profits too early. Many grouse after those gains disappear.

I think the trick is to harvest the gains and then put them in a "lock box". Don't even think about timing the market. That 3-year CD? It's perfect. Next year, if you have gains, lop them off as well, and buy another 3-year CD with the proceeds. If your equities have no gain, you can pat yourself on the back for having "lopped while the lopping was good". Fancy-pants call this re-balancing. I just call it common sense.
Bozo
Bozo   |     |   Comment #57
With regard to re-balancing, it is an excellent concept. Just don't use your CD lock-box to do it. Use bond funds. In point of fact, those CDs in which you park your gains act as a baffle. The EWPs (and the paperwork) operate as impediments to market-timing. That's a good thing, actually. If you really, truly, want to re-balance into a correcting (or bear) market, limit your animal spirits to the extent of your bond funds. After all, re-balancing is all about risk, not return.
deplorable 1
deplorable 1   |     |   Comment #50
@Bozo: I was just using that as a example of the wealth theft that low interest rates have caused and needlessly I might add. Of course you wouldn't want to keep all of your money in the bank or in the stock market. I'm diversified all over the place now but back when I was earning 6-7% in a MMA I didn't even have a mutual fund or a brokerage account yet as I didn't feel they were cost effective at that time. You are old enough to remember the pre internet days where mutual funds had high fees and brokerage accounts were very expensive to maintain if you didn't have tons of money to invest. Everyone loves to say how the stock market has tripled since Obama but if you look at where the DOW topped out during Bush 14,000 it hasn't even doubled since then. Sure it has tripled off the lows in 2008 but if you were fully invested like I was before that and you didn't panic sell you just got back to even or slightly above now depending on what you were invested in(I was heavy in energy/oil back then) I have since diversified into bond funds and REIT's. I love how everyone likes to tout how well they are doing in the stock market at one point in time. It reminds me of the folks who frequent the casinos who only tell you when they win and never when they lose. Bottom line is if I could get 6-7% in the bank again I would sell all my stocks in a heartbeat and sleep very well at night not having to worry.
spraytanprez
spraytanprez   |     |   Comment #77
Great point deplor.
People love bragging about their stk mkt gains as if they invested a lump sum of cash in March 2009.
Most rode the market all the way down and only by the luck of the Fed (and nothing else )rode it back up. Question now, will they be suckers and ride in down again .
And next time, maybe the market doesn't come roaring back in 5 short years.
And your right about relatives too - they suck..
Bozo
Bozo   |     |   Comment #80
Spraytanprez (re comment #77), I grew up in Kansas, and the farmers used to have a saying "don't brag about the crop, brag about the harvest". Gains are just pixels on a screen until you harvest them. An argument can be made to harvest gains (or at least some of them) and roll them into a nice, safe CD. As risk tolerance usually declines as age increases, this methodology often fits nicely into ever-more-conservative asset allocations.
CBOE GUY
CBOE GUY   |     |   Comment #78
that's why there was a secular bear market from about 1966 thru 1982,,,,it's also why god created options and the CBOE,,,,,the market sucks air when people get good bank returns without risk,,,,also revisit JIM SQUEALING CRAMER'S CLASSIC YOUTUBE RANT TO ERIN BURNETT IN MARCH OF 08,,,''THEY KNOW NOTHING'',,,,,,,,
deplorable 1
deplorable 1   |     |   Comment #51
@Bozo: My wife is still working as well because she wants to not because she has to. So I get it. I get people telling me all the time that I wouldn't have been able to retire early if she wasn't working. That really ticks me off because I was retired before we even got married and we are living in the house I bought and furnished. Even my own ignorant relatives seem to think I'm living off of her income. They have no clue how much I have saved and I'm not telling them either. Not to mention when you are married it is OUR income anyway not hers and mine. I learned a long time ago to never tell anyone what you have because:
1. They will think your bragging.(even though you would just be defending yourself against their false assumptions)
2. They will try to borrow money.(never loan money to friends or relatives as they won't want to pay you back)(had to learn that lesson the hard way)
3. They will treat you differently.(people get all weird about money particularly those who can't save any)
So I just let them assume whatever they want as I know the truth. It does get really irritating at times though particularly around the holidays when I'm stuck with them.
Bozo
Bozo   |     |   Comment #58
Deplorable 1, there is a certain cultural bias about men who don't "work", while their wives do. It's generally balderdash. I suspect much of the bias stems from jealousy. They are probably thinking "how can he afford to NOT work?". The trick is to do what I did, ignore the arched eyebrows.

The funniest part, at the holidays, is when my wife's in-laws keep pestering me about "well, what do you do all day?" My standard response is "as little as I can get away with".
deplorable 1
deplorable 1   |     |   Comment #63
That's exactly what I say Bozo. It seems we have much more in common than I thought. The funny thing is that If I knew someone who retired early instead of making snide comments to them I would be trying to learn how they did it. But that's just me I guess.
Bozo
Bozo   |     |   Comment #67
Deplorable 1, re comment #63, a perfectly acceptable question might be: "Wow, so you were able to retire early. Care to share your secrets?" People generally love to talk about themselves, so it's a classic ice-breaker.
Happy Times
Happy Times   |     |   Comment #45
The Vanguard calculator is actually pretty good.
Also, $1M in a 401K isn't worth $1M. Uncle Sammy wants his share!
And...a $1M account, even with rates at 1%, can generate $30K/year (pre-tax) with a 3% increase each year thereafter for about 25 years.
Bozo
Bozo   |     |   Comment #46
Happy (re comment #45), you make an excellent point about tax-deferred versus after-tax. Many retirement calculators miss the distinction. Whether it be through Roth IRAs or a plain-vanilla after-tax stash (my preference), once you have paid the tax, it's yours. Purists will note that Roth IRAs are a smidge better, since the interest is not taxed. Dinosaur that I am, I could never quite figure out Roth IRAs. But folks who understand them seem to like them.

Point being, as you note, when you whack off your RMD, and need to withhold federal and state tax (unless you live in a state with no state income tax), the concept of "tax deferral" becomes crystal clear. The ultimate irony: all those "capital gains" in your tax-deferred accounts are taxed as ordinary income.

For me at least, the math is often daunting. My wife says she needs $4000/mo (net) from my IRAs to cover the budget. So, I say to myself, how much do I need to take out to generate that? I need to guesstimate our tax bracket(s) (state and federal), figure out how much to withhold, then back-calculate, several times, until I close in on her number. Then I need to compare that to the RMD the table requires, irrespective of my wife's "number". I have to tote up all my IRAs (value as of the end of last year) and multiply times .0364, as this is my first year taking RMDs. Then calculate the tax burden, and see what happens. Mind you, math was never my strong suit.

Then, I have to figure out from which account, or accounts, to take the funds. The IRS allows you to satisfy your RMD from any or all, but some financial institutions impose roadblocks (my prior posts refer).

As I noted previously, saving for retirement is a cakewalk, relatively speaking. Managing your funds in retirement, especially when you're dealing with RMDs, can be problematic.
Happy Times
Happy Times   |     |   Comment #59
Always take RMD's from the weakest account(s). RMD's are mandatory so just compute an IRA balance; then compute RMD. Need more, take more. Need less, invest the remainder. Always do the math in advance of any transaction(s) to avoid costly errors. In general, if the RMD (after taxes) will generate your $48K need you're done with your IRA withdrawals. If not, take what you need on top of the RMD.

If possible, consolidate those IRAs at one brokerage. It makes RMD calculations almost effortless. Also, try to come up with a combined tax rate (fed, state, local) on RMD money so you can ballpark estimates. For example: Tax rate = 34% and wife wants $48,000 from IRA's. To net $48,000 at 34% tax you need to withdraw $72,727 from your IRA accounts ($48,000/.66) Taxes=$24,727, Net to wife=$48,000. I know it's tricky to compute a tax rate to apply strictly to RMD's when RMD income moves you across brackets. I use a tax program to run a few scenarios to see what effect RMD has on taxation. Just make sure everyone gets their slice!
Bozo
Bozo   |     |   Comment #69
Happy (re comment #59), it's not always so easy. As I've noted in other threads, most financial institutions impose EWP roadblocks on IRA CD withdrawals. You can withdraw that percentage applicable to your age (say, .0364 in the first year) times your IRA CD therein, with no EWP. But, that's it. As for consolidating in a brokerage, don't even get me started. Taking a Required Minimum Distribution from a brokered IRA CD means selling on the secondary market. Seriously?

Old hands know the trick: StateFarmBank, PenFed, maybe NWFCU.

That said, if you want to lop off your RMD from a non-IRA CD account, sure, it's effortless. But you're probably not harvesting the low-hanging fruit. The low-hanging fruit these days, regrettably, are IRA CDs.
paul
paul   |     |   Comment #76
How can you take a RMD from a non-ira cd?
Bozo
Bozo   |     |   Comment #79
Paul (re comment #76), "non-IRA CD account" was a tad ambiguous. What I meant was an IRA account not in IRA CDs (e.g., stocks and bonds in an IRA at Vanguard).
deplorable 1
deplorable 1   |     |   Comment #53
@Happy Times: I don't do the 401k thing as I retired very young and need 100% access to my cash. Yeah I know tax deferred compounding bla bla bla heard it all before. I have qualified dividends in my portfolio which are tax free for me and still allow me to access said cash penalty free any time I wish. Please explain how a million can generate $30,000 a year with a 1% savings rate. $1,000,000 x.01= $10,000/yr. Sure in the stock market but it could also drop 30% overnight. Not something your average retiree can afford to risk.
Happy Times
Happy Times   |     |   Comment #55
#53
Apparently, your goal is to amass a million bucks, retire and never touch the principal. That approach could be problematic if you need more income than $10,000 (1%) per year. Most, expect to retire and eventually die at some future date, say a period of 25-30 years. A million dollars spread over 30 years at 0% interest will pay you $33,333/year with no inflation adjustment. After 30 years you're broke and, hopefully, deader than a door nail. Consider earning 1-2% interest per year on the decreasing balance along with annual increases based on inflation ( I assume 3%) and that $1M can last for 25-30 years depending, of course, on inflation and interest rates. The math is simple and the spreadsheet is not complex, though it does require insight. And, it's a bit different for taxable versus non-taxable accounts (RMD's, taxes paid on withdrawals or just interest). If you're trying to protect your $1M principal then, yes, 1% will only generate $10,000. We are 66 and doing exactly that with predictions that I/we won't need to touch a continuously growing principal until age 90. Retirement, for most, is about draining the reservoir, not filling it. If you need more than $10,000 on your $1M/1% you're going to have to earn more, spend less or lower the water line!
deplorable 1
deplorable 1   |     |   Comment #61
@HappyTimes: Yes my goal is to live off of the income from my savings and leave the rest to my kid for an inheritance. I retired young enough so that I will spend the million 3-4 times over by spending the interest @5%. I don't ever plan on spending it down because I don't want to outlive my savings. I might dip into the principle from time to time for a purchase but trying to spend it all before you die is a fools errand to me.
Bozo
Bozo   |     |   Comment #64
Deplorable 1 (re comment #61), been there, done that, as an only child with a Mom who vowed never to invade principal. She didn't, but I wish she had. As parents age, they need assistance with activities of daily living. Unless a parent is covered by Medicaid (my Mom sure wasn't), that assistance is purchased from the private sector. I tried, without success, to get my Mom to spring for a few more hours of help each day, but she wouldn't listen. The results were predictable: two falls (one reaching for the mail, one reaching for ice cubes) and two trips to the hospital, one resulting in a 90-day stay in a nursing home.

Just an observation.
Bozo
Bozo   |     |   Comment #62
Happy (re comment #55): "We are 66 and doing exactly that with predictions that I/we won't need to touch a continuously growing principal until age 90."

As I said to my Mom when she was 95 "what are you saving it for?" She died at 98 1/2, still growing her principal every year. My wife and I met with our bank's financial planner a few weeks back. He glanced at our financial statement. His main observation: "Fly first-class; if you don't, your heirs most assuredly will."
Bozo
Bozo   |     |   Comment #60
Deplorable 1 (re comment #53), I suspect Happy is referring to the concept of SWR, or sustainable withdrawal rate. Going back to the Trinity Study, academics suggested a "balanced" portfolio of stocks and bond funds could, theoretically, based on historical data, be drawn down at 4%/annum, inflation-adjusted, and have a 90% probability of lasting 25 years. A 3.5% drawdown would last longer. A 3% drawdown even longer, perhaps forever.

The trick is to have that balanced portfolio.
deplorable 1
deplorable 1   |     |   Comment #65
@Bozo: Well I'm only in my 40's so I don't really think about spending it down or dying for that matter. I feel like I still need to keep growing it just in case these low interest rates last forever. I had planned on having quite a bit more by this time and if interest rates would have stayed high and I didn't lose my manufacturing job to cheap Chinese labor I would be there by now. Now I feel like I need to plan for 1% survival just in case. So I'm guessing that the 3% would be a combination of 1% interest plus a 2% withdrawal rate. I keep forgetting that some people want to spend all their savings before the die. I feel like by just spending the interest + dividends/profits every year it will be just like spending the principle 3-4 times over during my lifetime while still leaving a decent inheritance for my kid.
Bozo
Bozo   |     |   Comment #66
Deplorable 1, as sustainable withdrawal rates go, 3% actual is just about bullet-proof. You can play with the math on sites such as Moneychimp. It gets a tad more complicated when factoring in inflation. That's where the concept of a balanced portfolio comes into play.

Mind you, the Trinity Study is woefully dated, and perhaps irrelevant. But the concept of the Trinity Study is still valid. If you invest in a balanced portfolio (stocks and bond funds), you should be able to harvest roughly 4%/annum (inflation adjusted) over your retirement. This was casually referred to as the "4% rule". Of course, it was never a rule. It was also based on outdated longevity tables. And decreasing bond rates, starting in 1980. If you bring the Trinity Study into the modern era, many academics would shave the "4" to a "3.5", or even a "3". So, we now have the 3 - 3.5% SWR. Got it?

Of course, all these studies ignore the SWR for early retirees. They are basically aimed at the generic 65-year old, with roughly 25 years left before death, on the up-side.
deplorable 1
deplorable 1   |     |   Comment #68
@Bozo: Yes I remember the 4% rule but I quickly dismissed it as it was drawing down funds rather than straight up earning 4%. I always planned to retire young so the idea of trying to figure out how long I would live to draw down funds didn't seem very wise to me as I needed to make sure I wouldn't outlive my savings. So I planned on a 5% earning rate since this was the average interest rate over a 30 year time frame(back then). Then I figured with investments I could easily beat that 5% as well. What I didn't figure on was was losing my job early and 0% interest rates at the FED during my early retirement years! This was a double whammy to my projections. So now I feel like I need to earn as much as possible to make up for some bad luck. I should feel lucky though because at least I have savings to draw down on and most people seem to be working forever and can't even afford to retire. When I tell people I'm retired even now I get those deer in the headlights looks from people because I still look pretty young I guess.
Bozo
Bozo   |     |   Comment #70
Deplorable 1 (re comment #68), as I noted "early retirement" SWRs are few and far between. For many early retirees (whether voluntary or involuntary), it's a dartboard. But, here's a starter. Folks here at DA know, absolutely, positively, they can make roughly 2.3%+ on an FDIC/NCUA-insured product. That's a floor. Assuming those rates don't tank, you should be able to safely amortize 0.7 - 1.0% of principal each year, for a SWR of roughly 3%. If in a balanced portfolio, probably more. But, as noted, the younger you retire, the closer you get to the floor. Were I to hazard a guess, I'd say your SWR was 3%.
Bozo
Bozo   |     |   Comment #71
Further to my comment #70, the Moneychimp site is illustrative. Go there and click on "annuities". Plug in a starting amount of $1,000,000 and a yield of 2.3%, Then plug in 50 years. The annual payout equals something just north of $33,000/year, or 3.3%. It's a pretty cool site.

Mind you, the $33,000+/year number is fixed, and does not adjust for inflation. The calculator just determines how long a set amount, at a set rate, at a set period of years, will throw off a set amount. Obviously, fifty years from now, the payout ($33,000/ year) would be worth much less, in inflation adjusted dollars.
Bozo
Bozo   |     |   Comment #72
Deplorable 1, re comment # 65, see my post below. Your SWR is actually more a combination of achievable, bullet-proof, interest, and amortization of principal. More on a ratio of 2:1 than 1:2. As the Moneychimp site details, a person with 50 years ahead of him or her, with a bullet-proof yield of 2.3%+ (FDIC/NCUA-insured), the SWR is close to 3.3%. Not adjusted to inflation, however.
YELLEN&NEG RATES
YELLEN&NEG RATES   |     |   Comment #73
JANET YELLEN AND LARRY SUMMERS AND OTHER KEYNES NOTABLES ARE JUST FINE WITH NEG RATES,,,,and THE MARKET WILL CRASH YUUUGE on TRUMPS WATCH,,,,now comes a neg rate scenario, and it won't be for a year…ref Japan abenomics,,,,,,you will end up shagging carts for walmart like alot of people in their 60's and 70's,,,,retired in your forties and not a millionaire or living in central nebraska with your mil,,,,,??? NO WONDER YOU ARE BORDERLINE NERVOUS BREAKDOWN AT THE MENTION OF A NEG RATES DEFINITE POSSIBILITY,,,,,but you can relocate to rural middle of nowhere america where you can live safe and sound in a house that retails for 80k built in the 60;s, 1200 sqft. grow you own food,,,,a mid 1800's lifestyle.
beware of the nye pig
beware of the nye pig   |     |   Comment #74
AS A PUBLIC SERVICE: please goggle up "CNBC'S JIM CRAMER; MAKE MONEY, DON'T MORALIZE',,,an article written for the HUFF POST on dec 18th 2014, byTimothy J. Barnett (i don't know who this guy is,,,but the article is sadly brilliant and spot on) IMO,,,,,,,jim cramer has always reminded me of a squealing pig,,,his looks and sounds,,,,res ipsa loquitur!
ashley
ashley   |     |   Comment #75
Wait a second, you are only in your 40's and not looking for another job.
What gives?
deplorable 1
deplorable 1   |     |   Comment #81
@Ashley: Am I living off of your dime? Or the government/tax dollars? No! Not that I owe you or anyone else an explanation but here is what happened. My good paying manufacturing job got shipped to China when I was 30. I tried to find another job and was successful for a couple of years but then all the jobs cut their pay. I wasn't about to go from $30/hr. $45 for O.T. and $60 for double time down to $10 so I called it a career since I already had a million saved. I just don't feel like working my butt off anymore only to have most of my paycheck going to taxes like SS/Medicaid/Medicare etc. This is why I saved my money in order to be able to retire early. I also had a daughter and I'm a full time dad/investor/homeowner all that is a full time job as well. You sound like my nosy neighbor who keeps asking me if I have a job yet. If I told him how much money I have he would drop dead of a heart attack but then I suppose that would be bragging.
deplorable 1
deplorable 1   |     |   Comment #82
@Ashley: Also retiring early was part of my tax strategy since my wife still works. I am able to keep us at the top of the married filing jointly 15% tax bracket. This means that my qualified dividends are tax free as well. Most people don't realize that when you have a 2 income household the second income gets hit with the higher tax bracket. Then add in other work related expenses like car/gas/car maint./daycare/childcare/lunches/work clothes and guess what that second income all but disappears and you are basically working for nothing after taxes. So unless you are making a very large second income it really isn't worth it. I have been doing my own taxes for over 30 years and I'm the son of a CPA with a masters in taxation who taught me.
Kaight
Kaight   |     |   Comment #83
Here is some unsolicited advice:

If you're on the short side of 50, have the responsibilities you mentioned, and have retired with only one million dollars in the kitty, you sir are in serious trouble. My personal guesstimate of what you need, and I speak from experience: three million absolute minimum. For a person in your situation, a million bucks is peanuts.
deplorable 1
deplorable 1   |     |   Comment #84
@Kaight: Thanks but I'm fine. I have been retired since I was in my early 30's and my wife still works. I get full medical through her job. I have enough credits to collect SS and my wife will be getting a teachers pension plus SS. I own a house and 4 cars outright. I have never had any debt that wasn't @0% except for a mortgage which is now gone. I continue to save and invest I'm not drawing down my savings. I'll probably have 3 million one day and I won't have to work to get there. I keep my expenses very low I could live on half my cash without my wife's income and I did for 7 years before we got married. Just because I'm not ultra rich doesn't mean I'm not smart or prepared.
deplorable 1
deplorable 1   |     |   Comment #85
@Kaight: I don't know anyone who even has a million let alone 3 million unless it was inherited. I think I'm doing pretty good since I actually earned it. Seems like when you retire early everyone wants to belittle you and rain on your parade. Also many people look at THEIR expenses and somehow think that everyone spends as much as they do. I could live off of just the income I can make from 0% no fee balance transfers(I have a million in available credit), bank bonuses, credit card bonuses, credit card rewards and shopping networks. That's not even counting my actual savings. You can do that when you don't have many bills and you are not trying to keep up with the Joneses.
deplorable 1
deplorable 1   |     |   Comment #86
@Kaight: Also when I retired I was making 6% in the bank so $60,000 a year was almost as much as I made working. Like I said before had interest rates stayed high I would have had 2 million by now easily just with compound interest alone. This is why I'm so ticked off about these low interest rates. Anyway I'm not about to go back to work at some crappy paying job that will be taxed @ 25% while work related expenses, SS and medicaid eat up the rest. Not to mention making all my dividends taxable to boot! Sorry not going to happen. It's amazing to me how so many people don't understand the tax ramifications of a second job. Liberals hate me because I'm not contributing to their welfare/disability fund as much.
Kaight
Kaight   |     |   Comment #87
I intended no disrespect. And you will most likely be OK for the next twenty years or so. The problem, though, is that either you or your wife might turn out to live a long life. And if both of you happen to be long lived, God help you.

You have to look at the larger picture, outside your local situation. America has only $20T in current arrears but is looking at well over $100T in unfunded future obligations. You will be a primary target to fund those during the out years. There are a great many, and I'm not gonna write a book here. So let me offer just a single example from among the multitude:

Have you ever heard of the wealth tax?
deplorable 1
deplorable 1   |     |   Comment #89
@Kaight: Oh I understand that I'm a target alright. I always planned on retiring @ 40. What I didn't plan on was free trade agreements that would steal my good paying manufacturing job away from me before then. I also didn't plan on 0% interest rates for a decade afterwards due to government intervention in the mortgage industry. I'm all for taking personal responsibility but the government has grown too large and has it's hands in our pockets way too much. When people lost their jobs during the financial and housing crisis they were given 2 years of extended unemployment, lower interest rates and mortgage write downs. When I lost my manufacturing job the government told me to go back to college on my own dime and that I was a moron for working in the manufacturing industry in the first place.(I live near Detroit and I used to build the assembly lines for all the major automotive manufacturers) With enough overtime I could hit 3 figures in some years. My job was non-union btw. Oh and $0 college debt to boot yeah I know dumb right? I never used to pay all that much attention to politics as it never really mattered to me. Sure I voted but I never really felt it made any real difference who the president was as I was working and saving and didn't have time for it. Now I pay close attention to what these jerks in Washington are doing so that I'm not caught off guard. I'm really tired of being taxed for all these liberal handout programs for people who never worked and don't pay taxes. Then there are people on here telling me to go back to work yet they don't seem to have a problem with the welfare/disability/bridgecard crowd who never worked a day in their lives collecting off of our tax dollars. Oh and lets give them all free healthcare/cellphone/cable and internet too! To quote a line from a movie "I'm mad as hell and I'm not going to take it anymore".
KICK THE BUCKET
KICK THE BUCKET   |     |   Comment #90
I JUST GOOGLED,,,,IS GARY COHN A HAWK,,,,,landed on 3 ZERO HEDGE THREADS THAT ARE BRUTALLY HONEST AND ACCURATE AND NOT FOR THE SNOWFLAKES,,,,,,,,,i don't ask anyone to take my word on anything, i refer to notable people that i think are brilliant and some nobodies that WRITE BRILLIANTLY DEAD ON ARTICLES that make too much sense and connect all the dots that they cannot be dismissed as TIN FOIL CRANKS. I GOTTA TELL YA, the morons on youtube have more insight than the long winded writers hereabouts and ZERO HEDGE,,,they just split the arrow over and over. BY THE GODS PEOPLE,,,,learn how to effectively and concisely make a point before you kick the bucket.
Kaight
Kaight   |     |   Comment #91
Understood, deplorable 1. You and I have much in common, but with a critical, remarkably important, difference: I did it many tens of years ago. I could not have lived my life had I been born when you were born. America is too socialist today. I would not have made it. Even with my blessedly early start, I always was concerned about the "out" years. And truthfully, I still have some level of concern, though far less than once was the case. However, things are not becoming better; quite the contrary. The Trump election was a reprieve, but it is only temporary. The "takers" will be back in power, and they will return with great political impetus, their exaggerated senses of entitlement and deprivation propelling even more forceful efforts to destroy the traditional America you will need to be OK when you become older. While I wish you only happy outcomes, I well recognize your significant jeopardy in the "out" years. I hope I'm wrong and hope that, somehow, you make it. But if you live I do not believe you will.  You simply do not have enough money saved.
deplorable 1
deplorable 1   |     |   Comment #93
@Kaight: You have just stated my biggest fears in your last post. Believe me the thought has crossed my mind. I am hoping that eventually more and more people will wake up from their liberal stupor and realize what is happening here. This entitlement mentality is very scary to me and is threatening our very way of life as we know it. I wish Trump was a little more like Reagan with his speeches but his heart is in the right place. This is why I'm not complacent in my savings and continue to save/invest/rate, bonus and deal chase etc. to boost my savings as much as possible. The folks I feel sorry for are the lower middle class who don't qualify for any government assistance yet are being taxes to death to pay for assistance to others to the point where they will never be able to save enough for their own retirement. As with ALL Socialist/Communist/Progressive plans though eventually you run out of other peoples money to steal. Then the whole thing collapses under a mountain of debt.
Kaight
Kaight   |     |   Comment #96
Couple of concepts for early retirees;

First, critical mass. Critical mass is the amount of money you require to be able to live the rest of your life as you wish without need to be employed. If you have critical mass and work anyway, you are doing so voluntarily, because you enjoy working. Ken, the founder of this website, most likely now has critical mass.

Second, cushion. Cushion is an amount of money you have over and above critical mass in case the sh** hits the fan in the out years. It is incredibly difficult correctly to perceive critical mass thirty or forty years in advance. And if you are quite old before you realize you have miscalculated, it is too late to earn the real dough needed to grow your egg. Nobody pays elderly people big bucks. You cannot significantly add to your nest egg working as a greeter at WalMart.

A million 2017 inflato-dollars sounds superficially like a lot of money. It is not. It does not even provide critical mass for a younger person. And it certainly offers no cushion whatsoever. In the words of highly esteemed Admiral Ackbar:

https://www.youtube.com/watch?v=4F4qzPbcFiA
Bozo
Bozo   |     |   Comment #99
Deplorable 1, re comment #85, if you choose to amortize the $1 million over 50 years or so, you should be able to harvest $33,000+/year per Moneychimp. That, plus your cash balance money managing, your wife's pension, and social security, with little to no debt, I'd be the last to opine on your prospects. Some folks fall into the "projection" trap. They apply their situation to yours (projection) and opine. I'm sure Kaight is well-meaning, but he projects his experience onto your situation. Your situation might be wholly dissimilar from his.

Example: A person retires at age 45, whether voluntarily or involuntarily. The person has $1 million in the bank, after-tax. The person has a side hustle with (perfectly legal) cash balance transfers, aka arbitrage. Wife is working as a school teacher, and expects a pension, and either or both are eligible for Social Security down the road. Basically no debts. They live in a low-COLA area, aside from state and local taxes, which are problematic, according to which way the wind is blowing. Question: is this plan sound?
deplorable 1
deplorable 1   |     |   Comment #100
@Bozo: That was exactly my point. Everyone's situation is unique and what may apply to one person may not apply to another. He does make some good points though and maybe I don't have enough yet but like I said I'm still working on it. I'm still saving, investing and growing it. If interest rates rise my long term prospects look much better. I'm going to go over to Moneychimp and check it out with a conservative rate of return and see what I come up with. I'm not sure what to plug in for inflation though as I earn 2-7% cash back on my purchases and another 5-10% off with shopping networks. Plus the going rate on the 0% money I borrow from the banks. This should pretty much render the inflation rate at 0-1%. You are right inflation is where it gets really complicated. I also just found a place to park liquid cash @ 5% apy possibly uncapped but I don't want to post it here and start a fatwallet effect. It also may be a computer glitch so I have to wait until the interest posts to confirm that I'm actually getting that rate. If I can get 5% again I'm golden.
Bozo
Bozo   |     |   Comment #102
Deplorable 1, the Moneychimp site/calculator is no help with regards to inflation. There, you have to use a different calculator for "present discounted value", and it's totally garbage in/garbage out. You need to assume a rate of inflation for as far as the eye can see, then apply it to a current value. Too complicated for this Bozo.

Solution: just keep your eye on the ball, so to speak. If inflation spikes, so, theoretically, might interest rates on your five-year CD ladder. That ladder is the basis of your Moneychimp amortization calculation*. Feel free to PM me if any questions.

Good luck,

Bozo

*Example, let's say you go back to Moneychimp once every five years, and plug in the current effective rate on your CD ladder. As inflation creeps up, so might the rate on your ladder. Plug in that rate, and the current term for your "annuity" (i.e., your projected life span), and you'll get an updated annual payout. It's ever so much easier than trying to forecast well into the future.
deplorable 1
deplorable 1   |     |   Comment #109
Bankrate has some good retirement calculators. The problem is that none of these calculators take into account early retirement and saving during retirement. I'm better off using a combination of investment calculators with a 1-2% inflation rate. Like Kaight pointed out early retirement is very different that retirement @ 65 there are many more variables involved. I'm not going to stress out and over think it. Bottom line is that so far I always have from $30,000-$50,000 more additional savings/investments year over year. With my low bills I'm doing great. The only thing I'm worried about is my wife's teacher pension getting taken away. This is where I part ways with the Republican anti-teacher crowd. As if she doesn't deserve her pay or benefits 8 years of college and contributing to them out of her paycheck and working for 30 years! See neither party represents me. We need a party based on the founding principles of this great country not based on votes for handouts. Meanwhile Republicans can't even get rid of Obamacare after complaining about it for 8 flipping years. Then we have overpaid athletes who feel it is their right to disrespect the country and it's veterans by taking a knee to the national anthem just because cops are doing their job by busting thugs and shooting criminals. We certainly live in interesting times.
Bozo
Bozo   |     |   Comment #101
Further to my comment #99, suggesting that $3 million is somehow a floor for a successful and stress-free retirement is somewhat disingenuous. Few have that much, or even near it. Yet folks all over the country retire with much less, and (remarkably) live their retirements quite stress-free.
deplorable 1
deplorable 1   |     |   Comment #103
@Bozo: Yeah i'm starting to feel a bit stressed out now. Well it's almost the end of the month when interest posts and my stocks are up too. All in all this has been a pretty good month. Good luck to all you retirement planners out there!
Bozo
Bozo   |     |   Comment #104
Deplorable 1, take a deep breath, have a gin and tonic, maybe two, and remember to disregard equity NAVs in late September. It's dividend season.

The standing joke was "stocks went up today, but my index fund went down". The inside joke was dividends.
Kaight
Kaight   |     |   Comment #106
Obviously Bozo and I differ in our opinions regarding extremely early retirement. I have done it. He has not. Just to be clear, my suggestion of three million is the amount I think you will need to retire today, at an early age, and still be fine forty years from now.

To state the obvious, if you had three million today and were my age, you would be in the tall alfalfa. But you are not close to my age, and that is a pivotal difference and the reason for my number. Extremely early retirement is so different from conventional retirement. Actions taken today will be, in effect, a legacy you leave for a deplorable 1 and his family thirty or more years hence. And if you mess up today, there will be no way for that much older version of deplorable 1 to recover. He will be too old. Such concepts as this are best appreciated by persons who have walked the walk, and not so much by kibitzers.

Finally, I do not endorse the idea of alcohol use, not even so-called "social" use. It's another legacy issue, a gift you give future you. Alcohol very slowly, nearly imperceptibly, erodes mental capacity you will desperately need as you age. I watched this with my sister, a very light "wine only" drinker. She was pretty much OK until age 85. Now in her nineties she is so far gone mentally it makes me cry. This typifies many decisions you must make now, to wit:

Do you want to play the long game, or not? Less so all the time, but America still possesses some attributes of being a free country. So the decision is entirely up to you.  Whatever you decide, I wish you well.
deplorable 1
deplorable 1   |     |   Comment #108
@Kaight: I agree 100%. Early retirement involves a great deal of alternative planning and thinking outside the box. May I ask at what age did you retire? In my case for example I did not get a 401k matching contribution so I decided to invest in a taxable discount brokerage account instead. This way if I ever need to liquidate some of my holdings I'm not subject to a 10% EWP. Then since I'm only in the 15% tax bracket my qualified dividends are taxed @0% instead of 15% or more. So not only are they tax free I can withdraw them at any time penalty free or use them to buy additional shares of stock or to spend or bank. Most people don't know that if you are in the 10-15% tax brackets your qualified dividends are tax free. So unlike a traditional 401k I don't have to worry about getting slammed with taxes when I withdraw money. The most tax I pay on any investment or interest is 15% tops unless I do something stupid like sell too much stock in one year. Now you on the other hand are probably paying twice the taxes that I do on your investments assuming you are in the 28% or higher tax bracket. Now if interest rates rise I will most likely be forced into a higher tax bracket as well but that's ok as I will be able to afford it at that point. We also have a ROTH IRA and a small 403b. As far as alcohol goes I feel it clouds the mind although I do have a drink once in a while It's not a every day thing for me. I have relatives that have drug and drinking problems and I'm painfully aware of how bad addictions can be. I'm more into staying active running, weight lifting, kayaking, hiking, biking, skimboarding etc. I still feel 20 because I'm not standing on my feet for 14-18 hrs. a day anymore. I was willing to live with less in order to retire while I'm still young enough to enjoy it. I used to feel like I was 80 when I was 30...........that's what hard work does to you. I have 0 regrets and I wouldn't give up my early retirement or spending time with my girl for any amount of money. I didn't know what true freedom was until I retired. It's too bad most people will have to work forever and will never get to experience true freedom. For some people though their job is their identity and they can't seem to get along without it. It took me a while to separate myself from from the job identity mentality. You also have to have a thick skin as so many people will try to put you down or insult you. You just have to keep in mind that this is the result of jealousy because you did something that is different from the norm that most people can't do or wrap their small minded heads around.
Kaight
Kaight   |     |   Comment #110
I'm not really comfortable about giving you my age at retirement. Suffice it to say you have me beat, but only by a few years . . . fewer than ten years. Also, remember I would not be able to retire today as you have done. So you are my better in that regard as well . . . with the exception that you are retiring with insufficient funding. But circumstances are far tougher now than when I retired. Socialism does not mitigate in favor of extremely early retirement. Freedom was relatively rampant back when I retired; not now.  Socialism in America is no longer merely incipient; it is upon us, it is growing, and this consideration projected into the future is a key component of my three million dollar call.  

Anyway, another aspect of successful extremely early retirement is expense control. I'm thinking in terms of taxes. I live in the same home I did twenty-five years ago. Just for giggles, and because I have all the records, I did an expense check regarding my local taxes. This includes taxes for local schools along with everything else of a local nature, but not state or federal taxes.  Local taxes where I live depend on the value of one's real property.  Expressed in constant 2017 inflatodollars, my local taxes have fallen 9.7% since 1992. Something of this sort is a help to successful early retirement. Where you choose to live is important and matters a lot over the long haul when your retirement might turn out to occupy more than half your entire lifetime, and certainly more than half of your adult lifetime. Later retirees have a different calculus, because they are unlikely to be retired so long prior to death as we will be. Choose carefully.
Bozo
Bozo   |     |   Comment #114
Kaight (re comment #110), Prop 13 has been a blessing to us here in California. Our property taxes are capped. The folks next door bought their house several years back. They pay (according to Zillow) four times in property tax compared to what we do. Having to sell one's home because property taxes become unaffordable is just another form of elder abuse, by the government (yes, I'm a Libertarian).
deplorable 1
deplorable 1   |     |   Comment #123
@Bozo: When you say your property taxes are "capped" you mean the percentage of increase is capped correct? Like it is pegged to inflation or capped at a certain percentage per year. We did that in Michigan quite a few years ago but had to agree to increase the sales tax 2%. Kind of a catch 22 as I'm not sure if we really saved anything there.
deplorable 1
deplorable 1   |     |   Comment #119
@Kaight: I can't even give a exact retirement age myself as I had a few jobs in my 30's as I was attempting to work until 40 but not for peanuts. If I'm going to punch a clock @ 6:00 AM I don't get out of bed for less than $30/hr. Great points about taxes as well. It took me forever to find my house because I was looking at property taxes as well as initial cost. I only pay $2,000 a year in property taxes yet the norm in this area is $5,000 to 10,000 depending on county. There seems to be no rhyme or reason to it as I live in a area with one of the best school districts. The housing crisis caused the property values to tank which lowered my property taxes in turn. Every cloud has a silver lining i guess. You keep saying I don't have sufficient funds but I don't have extravagant expenses either and I'm very good at slashing my monthly expenses as I think outside the box. For example did you know there is a credit card that will pay you 3% cash back on your utilities? The Huntington voice card has 3% cashback categories that you choose so I set it to utilities. It works for phone/cell phone/internet/gas/electricity. Instant 3% off monthly expenses right there. I could write a book on keeping expenses low.
Kaight
Kaight   |     |   Comment #129
deplorable 1

Please bear in mind, when I say you lack sufficient funds, that I am speaking of the very long term. With a million bucks to the good, I suspect you will be fine for the next twenty years! It is the ten or twenty years after that which are of concern and cause me to react as I do. You are different. But many people are not sure how they will be doing in the next month or year. You surely can be forgiven for not focusing on stuff that will not be happening until circa 2040 and beyond!! Trouble is, if you actually want to retire now, focus on 2040 and beyond is a must. You cannot relax merely because you'll be surrounded by tall alfalfa for the next twenty years. That is not good enough, and especially not given the direction in which America itself today is headed. A fish cannot factor just his internal personal health. A fish must also factor the quality and survivability of the water through which the fish is swimming.

Extremely early retirement was a daunting consideration even back when I decided to go that route.  Today it is far more difficult.  I had things easy by comparison with circumstances now.  Let me offer you a single example:

I always carried health insurance which I paid for myself.  "Back in the day" I could afford to do so.  Today in the same situation the Obamacare tax would be bleeding me dry without mercy.  I realize your wife's plan covers you today.  But there are any number of reasons she might lose that coverage.  This would leave you staring the Obamacare tax square in the eye.  That, and any number of other such "black swan" events, must be taken into consideration when planning an extremely early retirement.
deplorable 1
deplorable 1   |     |   Comment #130
@Kaight: Having to pay out of pocket for health insurance would kill me for sure but I'm covered even after my wife retires as is my kid. I may have to buy some supplemental insurance down the road at some point. The Obamacare tax still effects me though as my wife's paychecks have shrunk considerably since she now is forced to pay for more of her healthcare out of her paycheck. We call it the incredible shrinking paycheck as it gets smaller and smaller each year(the take home part). I think We could just buy our own for almost what they take out of her pay so it's not really "free" healthcare for us. But we are at least covered after the $2,500 deductible which I think is high but people tell me it's good. I used to get covered at my job with a $0 deductible and no copay before Obozocare came along and "fixed" everything. If I was still working like I said in a earlier post almost my whole paycheck would end up getting taxed away. I did the math with expenses and it's just not worth it unless I could earn $100,000/yr. With no college degree and manufacturing jobs not paying what they are worth anymore that's just not going to happen. So I find alternative ways to earn additional income. I even found a place to earn 5% APY FDIC insured again. I can't post it here though because if too many people jump in on it they will change the terms and lower the rate and cap it for sure. This is my ace in the hole. I'll be fine I always find a way to survive. I got laid off 2 weeks after I put 21% down on my house and I survived. Half the homes on my street had for sale signs during the housing crisis but I didn't lose mine. I love that line from the Rocky movie "It's not how many times you get knocked down that count, it's how many times you get back up." a very true metaphor for life.
#113 - This comment has been removed for violating our comment policy.
Sad Times
Sad Times   |     |   Comment #112
I got it now!!! You retired in early 30's, live off your wife's income and health benefit coverage and complain on the internet about your interest-rate plight. Got it.
Bozo
Bozo   |     |   Comment #115
Sad Times (re comment #112), I think it unfair to characterize one spouse living "off" the other spouse's income.
deplorable 1
deplorable 1   |     |   Comment #117
@Bozo: Sad Times is the perfect example of the small minded jealousy crowd I was referring to in my earlier post. These type of people remind me of the playground bullies that used to torment me at school and my ignorant relatives. Bullies will try to pick on anyone who is different from the norm. I have to laugh though because I had a million, a furnished house and 2 cars 7 years before I got married and my wife had $50,000 in a savings account and $20,000 in college debt(which I paid off for her) when we got married. Yet I'm living off of her! lmao
Happy Times
Happy Times   |     |   Comment #14
Anyone who planned on 5% in retirement was foolish. Interest on savings should be gravy, not meat.
deplorable 1
deplorable 1   |     |   Comment #23
Mr. Happy Times blames you for not being rich enough to live off of 1%. How dare you have less than 5 million laying around. You must be some kind of lazy bum or something.
AL WALL STREETS PAL
AL WALL STREETS PAL   |     |   Comment #25
al greenspan began to ACCOMODATE THE MARKET BEGINNING IN JAN 01,,,,just ask him,,,, geo w.the bushees love low rates,,,,read kevin phillips,,,BUSH DYNASTY and his other bush books........THE COMMIES LOVE WALL STREET AND THE FED IS THE WALL STREET ****....what has happened since jan 01 is not a free market accident IT IS A RIGGED MARKET TO KILL OFF THE HUMBLE MIDDLE CLASS NEST EGGS JUST AS WALL STREET CASHED OUT OUR INDUSTRIAL AND MANUFACTURING FOUNDATION AND BASE DURING SENILE WALL STREET STOOGE REAGAN'S SLEEP WALK PRESIDENCY. the commies cashed out GREAT BRITAINS INDUSTRIAL AND MANUFACTURING BASE IN THE 1950'S which gave rise to the zombie generation in england.
IT'S ALL ABOUT THE FED
IT'S ALL ABOUT THE FED   |     |   Comment #52
EVERYBODY ON THE NET HAS AN EXPERT OPINION ON EVERYTHING,,,,i've read many articles and quips by NOBODIES,,,,,THAT TRUMP LIKES LOW RATES,,,very bad,,,the worst,,,,AND THAT GARY COHN WOULD RAISE RATES QUICKLY,,,IMAGINE THAT,,,who knew???....but these sages are nobodies,,,ALSO IT'S SAID THAT STAN FISCHER IS A HAWK of sorts, WHO ARGUED AGAINST QE AND FREE MONEY, also said by nobodies.....if that be, SHALOM AND PAX VOBISCUM TO STAN FISCHER,,,,PRESIENT TRUMP can change the world with 4 seats open on the FED,,,NOT COUNTING YELLEN'S!!!!....NORTH KOREA, HEALTHCARE, THE WALL, THE MIDDLE EAST LOSERS,,,,,,,,,ALL DISTRACTIONS AND SMALL POTATOES,,,COMPARED TO RESHAPING THE FED, THE COUNTRY AND THE WESTERN WORLD BY HIS FED APPOINTMENTS IN THE NEXT 6 MONTHS.....it's all about the FED,,,,everything else is conversation.
!!!
!!!   |     |   Comment #34
Not really. Just lowered our expectations and tightened our belts a little.
RJM
RJM   |     |   Comment #5
I bought a few aftermarket CDs via Fidelity yesterday. A couple in my IRA and a couple in my regular account.
I got a somewhat better effective yield than their new issues even after their $1 per $1000 fee.
But, they are not as good as some of the deals available if I were inclined to continue rate chasing like I used to. There is some benefit to me to having fewer accounts. Easier at tax time too.

And I'm over the limit at Ally which Id like to get down to the FDIC limit.

LMCU and Penfed are not really competitive anymore but I still have CDs with them. I will probably be pulling monies from both unless they get competitive soon. As the CDs expire.

Still have a 5% one at Penfed which looks pretty smart right now.

Although, I still think I have way too much dry powder for my age.

Need to put more to work in the market but finding things to buy is difficult.
I added to SO in recent months at favorable prices. And I bought an Emerging Markets Index Fund for the first time. FPMAX. I plan to add to it monthly.

I'm well positioned with lots of dry powder if we have a big US market correction.
Bozo
Bozo   |     |   Comment #15
RJM, the problem with market-timing (your last sentence in comment #5) is you have to be right "twice". First, when you decide to sit on cash (or sell existing positions), and, second, when you decide to buy back in. It is ever so much easier to just let the market do what it's gonna do, then re-balance when you hit a band. Keep enough in bond funds to do so. It is ever so hard to re-balance from CDs. For folks familiar with Vanguard funds, you need only two holdings to re-balance: VTSAX and VBTLX. Both are extremely low-cost
Bozo
Bozo   |     |   Comment #17
Further to my comment # 15, fixed-income investing is not an "either/or" proposition. While I am not a huge fan of bond funds in a rising-rate environment, they do have a function in a re-balancing situation. When you hit a "band" (say 5% from your preferred asset allocation) and want to shift money from fixed-income to equities, bond funds are a quick and simple way to do so. CDs are not. So, if stocks correct, and you want to take advantage of a "buying opportunity", the best way to do so would probably be with a bond fund. But, obviously, you need money in the bond fund to do so, and in an adequate amount.

Folks who are planning for a repeat of 2008 - 2009 would probably want a minimum of 20% of their non-CD portfolio in a bond fund. Conservative investors, perhaps 40%. Retirees, perhaps 60%. The trick is to have enough "dry powder" (as you say) to take advantage of market opportunities, while not draining the well.
THIMK
THIMK   |     |   Comment #7
LET'S NOT OVER THIMK IT, BOYS AND GIRLS,,,,,,,,,,gas prices dip at holidays,,,,and the FED HAS PRODUCED 2 RATE HIKES IN DECEMBER,,,spend the good fortune.
!!!
!!!   |     |   Comment #35
No, save for the future if you want a comfortable retirement.
Mario
Mario   |     |   Comment #16
Here is an interesting chart, from which we may approximate how rates will play out:

https://fred.stlouisfed.org/graph/?g=f9EZ

It is a plot of the fed funds rate, 2 year, 5 year, and 10 year rate over time. Notice the similarity of how rates are developing compared to the last tightening cycle (2004-2006); except that they are lower this time around. At the beginning of the tightening cycle, these rates had a large spread and then all converged together (a flat yield curve), which historically has happened in the months or year or so before the next recession.

With the current tightening cycle, it looks like all the rates are currently trending to converge at around 2% in about a year, with a flat yield curve at that time. Of course, the trend can change ... (I hope it will!).
Bozo
Bozo   |     |   Comment #48
Mario (re comment #16), the question is what will happen to interest rates as the FED unwinds its QE. Last week, the yield on the two-year spiked. Will this spill over to the longer-term Treasuries? Will it have an impact on short-term CDs and liquid deposit accounts? I've already noticed an upward creep in yields on savings accounts here at DA. Is it a coincidence, or something more? Are banks and credit unions telling us something?

I yearn for the "good old days" when banks and credit unions actually wanted our deposits. They could pay us X, and then loan it out at X+Y. Over the past decade, depositors seem to have been relegated to a cross-marketing vehicle at best (assuming one is "new money"). Years ago, if you walked into a bank with a good-sized deposit, you got a free toaster. These days, you get an eye-roll.
deplorable 1
deplorable 1   |     |   Comment #92
I'm not liking the FED's long term dot plot. Hopefully it is a fluke. I think longer term rates should rise and hopefully the yield curve will return to normal. For obvious reasons I would like to see 5% interest rates again. Only a fool with huge mortgage and auto debt and very little savings likes ultra low interest rates.
Mario
Mario   |     |   Comment #126
deplorable1 (re comment #92), let's hope they even get to the longer-run rates in their dot plot before the next recession. Usually the yield curve is steepest when the economy is recovering, but we're already well into the recovery.

Unfortunately, long term rates appear to keep slowly falling over time. There's a really interesting research article from the Fed that makes a good argument that the inflation risk premium of bonds is now negative. They are relating this to long-term changes in economic patterns, such as supply-side to demand-side economy:

https://www.federalreserve.gov/econresdata/notes/feds-notes/2016/has-the-inflation-risk-premium-fallen-is-it-now-negative-20160404.html
deplorable 1
deplorable 1   |     |   Comment #128
Exactly Mario. What are they going to do during the next recession if rates are only @ 2% when that hits? I really think what is going on here is that our FED is working with other central banks and the IMF and trying to align our rates to theirs. Shouldn't the FED be more concerned with what is happening in our country? At this stage of a recovery interest rates should be at least 5% by now if not higher. I'm starting to feel like there is a global conspiracy against savers going on. I blame this on liberalism which has led to huge debt which in turn needs to be monetized. This all has the effect of lowering interest rates. So in a very real way the national debt does effect us as well as the nation debt of other countries.
Mario
Mario   |     |   Comment #125
Bozo (re comment #48), my limited understanding is that unwinding of QE should have the opposite effect of QE; raising longer-term interest rates.

In normal times, the Fed buys and sells shorter-term treasuries for objectives such as maintaining the targeted fed funds rate; and the bond market determines longer term rates. QE was basically the Fed buying long-term treasuries to depress long-term rates.

Since bond values would have risen due to the fall of long-term rates ... I wonder how much profit the Fed made on their QE scheme. (The profit would have gone to the US Treasury.)

If banks also interpret the data as I did ... Fed rate maxing out at about 2% before the next recession ... then it would make a LOT of sense for them to not raise 5-year CDs much above 2%.
jennifer
jennifer   |     |   Comment #21
Strategy is an awfully big word! But I simply adore it.
!!!
!!!   |     |   Comment #36
Is there anything you don't "adore"?
bill
bill   |     |   Comment #49
I don't know about Jennifer but I hate target date funds.
Crooked H>
Crooked H>   |     |   Comment #47
you always remind me to go listen to the hauntingly good https://www.youtube.com/watch?v=PiQhUi6HGGk
LAME-O'S & PENGUINS
LAME-O'S & PENGUINS   |     |   Comment #30
DAVID FABER, CNBC'S BEST BRAIN,,,,,used to do LAME-O'S AND PENGUINS, with mark haynes and joe kernan,,,,,,,i would revisit that HOPELESSLY REPUGNANT, VILE STOMACH CHURNING AND HURLING CHANNEL if he got back to his former schtick. watching greasy new york money grubbers kvetch over the fed raising rates and the end of the world resultant makes me flatulate.
Sad Times
Sad Times   |     |   Comment #94
deplorable 1
Your continuing rant about retiring early with financial expectations that are not going to materialize is one of the most illustrative series of comments I've ever encountered. Every post opens another carton of selfishness rarely seen on this site.
#95 - This comment has been removed for violating our comment policy.
deplorable 1
deplorable 1   |     |   Comment #97
@Sad Times: You mean my forced early retirement don't you? I shouldn't even respond but please elaborate on how exactly i'm being selfish. By not working till death to support your free healthcare/welfare check/bridgecard etc. Go ahead and bring a dull knife to a gunfight. At least I post under one name only. I have only been saving with a modest income for early retirement since I was a kid cutting lawns. But you go ahead and tell me why I should be supporting losers who refuse to work.
Sad Times
Sad Times   |     |   Comment #111
Forced early retirement? Wow, I'm amazed someone would say such a thing. Simple answer is to get a job. Yes, it's that simple. Ranting about paying taxes is a no go from the get go. What's your age, net worth and present income stream?
Bozo
Bozo   |     |   Comment #116
Sad Times (re comment #111), why such a burr up your sphincter with respect to Deplorable? If he can afford to retire (voluntarily or involuntarily), good for him. Ranting about low interest rates on deposit accounts is fairly uniform here on DA. Ranting about taxes, likewise. I fail to see what age, net worth, or income stream has to do with anything.
deplorable 1
deplorable 1   |     |   Comment #118
Sad times sounds very angry. Most likely because he is probably like most Americans in debt up to his eyeballs with little or no savings. He knows that he will have to be working forever so he is mad and frustrated therefore he lashes out. Some people just can't wrap their tiny little brains around the concept of saving young for early retirement. They think that retirement is sitting in a rocking chair waiting to die when your 80. I expect to encounter these fools on yahoo finance but not in this forum. Apparently I was wrong.
Bozo
Bozo   |     |   Comment #121
Deplorable 1, ignore the haters. By-and-large, they are just jealous.
deplorable 1
deplorable 1   |     |   Comment #124
Yeah that's what I figure too. This is what happens when you put out any information about yourself. Some people feel the need to judge you. You have to have a thick skin to retire early and be a full time dad as many people will try and judge you and ask you stupid questions like "what do you do with yourself all day?" as if it's any of their GD business. People are also very ****ist as you never hear anyone ask a stay at home MOM what she does all day but if you are a guy people will say the rudest things to you. I had some guy telling me hey were hiring at his job as if I was some kind of bum. Yeah ok pal I'll just drop off my kid on some doorstop and go back to work. Some people are just unbelievably rude and ignorant.
Bozo
Bozo   |     |   Comment #127
Deplorable 1 (re comment #124), here on the "left coast" working wives and stay-at-home dads are common. As I mentioned, it's a cultural thing  Ironically enough, it's quite common for a (male) trust baby to be married to a (female high earner) techie.
deplorable 1
deplorable 1   |     |   Comment #98
Sad Times thinks it's selfish to want to actually keep the money you earn from your own labor rather than hand it over to a corrupt government so they can hand it out to those who have never worked a day in their lives. This my friends is the liberal/Socialist/globalist philosophy where they think the government has the right to redistribute your wealth as they see fit in the name of "fairness". I on the other hand believe in the inherent rights of the individual to decide how best to spend their own earnings. Anything else is tyranny.
let he who is without sin....
let he who is without sin....   |     |   Comment #120
i just found a riveting YOUTUBE VIDEO,,,,key in,,,CNN eliot spitzer, prosecute goldman sachs or quit,,,,,,,IF YOU WATCH ONLY ONE MORE VIDEO EVER,,,,CHECK IT OUT,,,,this is why i am crusading for Eliot Spitzer as FED CHAIR OR VICE FED CHAIR,,,,,,,,always been a fan and mainstreet has suffered a loss without him,,,,,PRESIDENT TRUMP would be following in the footsteps of ANDY JACKSON, TEDDY ROOSEVELT , FDR AND JFK and THAT would be YUUGE...God bless Eliot Spitzer!
the last crusade
the last crusade   |     |   Comment #122
in the wee small hours,,,3am,,,a man knows only the darkness and his own conscience and ghosts,,,,,did a billionaire seek the highest office in the land for his own glory or for the benefit of the people he espouses to love and honor,,,,the people of main street ?,,,,or the princelings of wall street?
FED DREAM TEAM
FED DREAM TEAM   |     |   Comment #131
imagine a FED DREAM TEAM CONSISTING OF,,,,,.,,,JIM ROGERS; DAVID STOCKMAN; RON PAUL; DR. YARON BROOK; WITH ELIOT SPITZER AS FED CHAIR AND DAVID STOCKMAN VICE CHAIR.,,,,or let all the vacant seats remain vacant and let the beast starve to death,,,,,,ANDY JACKSON WOULD LOVE IT!
Bozo
Bozo   |     |   Comment #105
Just a ditty:

"Megyn Kelly was evicted,
From her show on Fox,
Now she seems a bit conflicted,
Ratings such a pox.

Lessons learned, should one be spurned,
Might better be a stayer,
If you go, you never know,
Next gig might be a slayer.

Burma Shave

My prediction, "The Bill and Kelly Show",  on MSNBC, with Bill O'Reilly and Megyn Kelly. Salt and Pepper, as it were. Gotta keep your sense of humor.
Bill
Bill   |     |   Comment #107
Or would it be "The Kelly and Bill Show"? Never happen with those two egos. Otherwise, a very good ditty though.
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