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Hi, New & wanting to retire early
Old 10-31-2013, 05:17 PM   #1
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Hi, New & wanting to retire early

Hi Everyone, looking forward to the information available on this site. About me, 57, no debt, rent, invested in cash or cash equivalents, conservative but would like some return. Just see a lot of bubble markets now - stocks, housing. And, risk of deflation rather than inflation, where cash is then the best place to be; a lot of bargains with value of dollar to go up making everything less expensive. In sum, could take cash have now and minimal amount of social security starting at 62, estimate living to 90. With no gains in assets would have $60k per year, minimal taxes. I made most contributions to 401k after tax. Any comments, etc., welcome. Healthcare is of course a concern.

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Old 10-31-2013, 06:44 PM   #2
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Can other's post here, it's a new thread?
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Old 10-31-2013, 06:46 PM   #3
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Can other's post here, it's a new thread?
Yes, they can. Welcome aboard Wave3.
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Old 10-31-2013, 06:52 PM   #4
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..........invested in cash or cash equivalents, conservative but would like some return. ..........
Welcome. Asset allocation has been discussed here frequently, but it seems that to hedge the risk of future inflation, you just about have to invest in equities.
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Old 10-31-2013, 07:19 PM   #5
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Originally Posted by WAVE3 View Post
... invested in cash or cash equivalents, conservative but would like some return. Just see a lot of bubble markets now - stocks, housing. And, risk of deflation rather than inflation, where cash is then the best place to be; a lot of bargains with value of dollar to go up making everything less expensive. In sum, could take cash have now and minimal amount of social security starting at 62, estimate living to 90. With no gains in assets would have $60k per year, minimal taxes.

... Any comments, etc., welcome.
I suspect one reason you haven't gotten any response is due to your take on our financial future and your all cash position.

You are either right about what the future holds and correctly positioned for it or wrong and have painted yourself into a corner regarding inflation. Either way, there isn't much advise to be offered.
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Old 10-31-2013, 07:21 PM   #6
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Welcome. Glad you found us. I'm wondering why you are so concentrated with cash and cash equivalents. Aren't you worried that these investments won't grow enough to support your retirement?
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Old 10-31-2013, 07:34 PM   #7
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Yes, I did FIRE Calc basic and see the ribbon range from 1871 to date (I believe) projects with current portfolio should grow to between 5-13. My fear actually, is I lose principle and have to come out of retirement. So my forecasts aside, I just say I have this much, divide by life expectancy and say I will get no more growth and will live on that amount per year. Having trouble switching from savings to investing. Although have used Rydex to time markets, lost money every time.
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Old 10-31-2013, 07:42 PM   #8
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Just to add: My degree is in Int'l Fin. (although work in Int'l Bus.) in 1995 I switched from fundamental analysis to technical analysis. So read reams on technical indicators and market history and how individual investors - seems the majority lose money, but then there are many I believe who do quite well. Maybe, some type lump some fixed annuity with payouts until I checkout?
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Old 10-31-2013, 07:45 PM   #9
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Yes, I did FIRE Calc basic and see the ribbon range from 1871 to date (I believe) projects with current portfolio should grow to between 5-13. My fear actually, is I lose principle and have to come out of retirement. So my forecasts aside, I just say I have this much, divide by life expectancy and say I will get no more growth and will live on that amount per year. Having trouble switching from savings to investing. Although have used Rydex to time markets, lost money every time.
Most people that post here don't feel that trying to time markets works out in the long run as you no doubt found out.

On the other hand, the problem with cash equivalents is that the value of the money you are spending will be eroded by inflation. Let's say that 25 years ago you could have lived on $60k a year. In 2012, you would need $119359.60 to get the equivalent value.

The Inflation Calculator

So, the way I see it is that if I was spending $60k a year now and I was keeping my money in cash, then in 25 years that $60k a year would be more like $30k a year. Now, if I can live on $25k a year then no problem. But, if I need to spend $50k for my chosen lifestyle then I might have a problem.

I know you are dividing by your life expectancy. But - what happens if you live longer than your life expectancy. I know a number of people who have far exceeded the life expectancy they had at age 60.
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Old 11-01-2013, 12:38 AM   #10
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So you've tried market timing (unsuccessfully) and Rydex (unsuccessfully) and technical analysis (unsuccessfully). Are you ready to try some long term investing methods that you can be successful with? Holding cash-mostly is not going to be that. You might want to read bogleheads.org wiki or recommended books. Many people here have been successful in different styles of investing, but a reasonable asset allocation with periodic re-balancing is a very common way to be successful at investing over a long term.
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Old 11-01-2013, 07:30 AM   #11
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..... I just say I have this much, divide by life expectancy and say I will get no more growth and will live on that amount per year.............
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Just to add: My degree is in Int'l Fin. (although work in Int'l Bus.)........
I have a hard time reconciling these two thoughts. Don't they teach you in international fiance classes about inflation and the long term affect? You can't simply divide your portfolio size by your life expectancy to get a safe withdrawal rate.
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Old 04-04-2014, 05:48 AM   #12
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Sorry for delay responding. Yes, they teach it. What they don't teach is deflation, which has occurred numerous times in US since year 1800. So people end up always taking the up-side to beat inflation. With deflation, financial and other assets get smashed. Dollar is worth more because there are less (retirement / default on debt). Looking at now and years past don't see inflation with 0% interest rates, like Japan 20+ years.

Just an add: our colleges & U's (at least when I went in 80's) white-washed technical analysis and deflation. It's the Markowitz theory (10 assumptions, I believe you must disregard yet do exist in the real world. So we have been riding the efficient portfolio and diversification since to 40's. Not to say it didn't work in the past. It was only after I got out of college did I start researching tech & deflation, cycles, long-term trends, etc.

RE: Today more Bulls than Bears so the foregoing worked since 2009. Not so well 2007-2009. If you would have invested in S&P Index in 2000 you would be breaking even now. Most people buy stocks or funds and do much worse. Weiss, Dent, Prechter, Stack all very cautious right now. Sure there are many bullish as well. Just consider funds are borrowing money to buy stocks (not good) and cash balances are all time low in funds not borrowing. Every one is 'in' now, so whose is left to buy or sell to?
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Old 04-04-2014, 08:43 AM   #13
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... You can't simply divide your portfolio size by your life expectancy to get a safe withdrawal rate.
Why not?

That is a simple, yet worthwhile calculation, IMO. What it tells you is, you could take an inflation adjusted withdraw, assuming your investment does as well as inflation. So a 30 year portfolio calculates to a 3.33% WR, a 40 year a 2.5% WR.

It's also ignoring 'sequence of returns' effect, but an investment that only keeps up with inflation probably won't be too volatile.

I would not hang my hat on that number, but it's a reasonable data point to consider in light of other calculations.

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Old 04-04-2014, 09:09 AM   #14
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Hi ERD50, you lost me... What does "IMO" mean? And, what do you mean by 'sequence of returns' - sounds interesting. Fyi, basically did same, as a test. Money I have, excluded SS, divided it by various retirement dates and life expectancies (85 & 90) and then averaged the numbers. Let's say the average was $55K. Also, calculated no gains in current net worth (conservative, don't want to run out of $). Also, Fire Calc looks real good. Anything advice. I'm 58.
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Hi, New & wanting to retire early
Old 04-04-2014, 09:11 AM   #15
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Hi, New & wanting to retire early

Wave

You're trying to guess what will happen rather than set up a portfolio to weather all possibilities. Your money, but it seems you should have already learned you lesson about market timing and trying to predict the future. You seem resistant to other peoples' opinions on the matter - so good luck with your chosen AA and hope your crystal ball works better this time.

Addendum - we cross posted and your last post seem more accepting of advice. Perhaps I read you wrong.
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Old 04-04-2014, 09:11 AM   #16
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IMO - in my opinion
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Old 04-04-2014, 09:20 AM   #17
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Thanks for IMO. You wrote "You seem resistant to other peoples' opinions on the matter - so good luck with your chosen AA and hope your crystal ball works better this time." I am open to other ideas, but 58, single, have to take care of myself. Worried about losing 20-30% or more; then back to work at 70? P.S. I'm relying on other investment advisors advise: Prechter, Weiss, Stack, Shiller. I'm just not that savy.
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Old 04-04-2014, 09:22 AM   #18
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ERDs percentages for withdrawal also assume a 60/40 or better stock/bond AA - returns which an all cash portfolio will not provide. We all keep several years of living expenses in cash, in case of extremely bad phases. But with an all cash portfolio and taking even withdrawals based on life expectancy will see your buying power diminished each year by inflation until you haven't enough buying power left to meet necessary living expenses. Then what? I haven't seen that you've shared such figures such as portfolio size, expected SS payout, and anticipated total expenses in retirement, so it's difficult to advise further.
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Old 04-04-2014, 09:34 AM   #19
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Hi, New & wanting to retire early

Your advisors are essentially sales people, selling a product that will make them money. The products are supposed to meet your needs, but the advisors have no fiduciary responsibility to act in your best interests. Their fees detour irate your earnings. I can't imagine any competent investment advisor advising you to maintain a 100% cash portfolio.

Using a 60/40 asset allocation, for example: the stocks provide returns designed to make up for inflation. The bonds add a stable base of income which help counteract the times the stock market is low. In retirement, you want three assets to pull from: stocks (when the stock market is high), bonds ( for when the stock market is low and the bond market is doing well), and cash for the years both bonds and stocks are doing poorly - such as in a recession.

Deflation may occur, but won't last forever - if it does we're all screwed anyway. Three years of cash - or more if it makes you comfortable - to carry you through, then restock the cash from the sales of stocks or bonds when those times are good. If you have extra cash when markets are low, that's called a buying opportunity.

Rebalancing permits you to sell assets when they are high, to buy the opposite assets when they are low. Buy low, sell high.

This is quick and dirty, but unless you can live entirely on SS, I hope you can reconsider the wisdom of an all cash portfolio.

Morningstar.com has a free learning center on stocks, bonds and portfolios that is outstanding and is essentially a college course cut down into small easy bytes, but with your college degree I didn't know if you covered all that material or not
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Old 04-04-2014, 09:35 AM   #20
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ERDs percentages for withdrawal also assume a 60/40 or better stock/bond AA - returns which an all cash portfolio will not provide.
No, not at all.

In this thread, I just said if you divide your portfolio by expected years of retirement, that you get a number that will support an inflation adjusted WR as long as the portfolio keeps up with inflation. I said nothing at all about what that portfolio would be comprised of - that would be a follow up discussion.

edit/add: And an all cash portfolio is not going to keep up with inflation. I sure would not bet on deflation over my entire retirement.

An alternative view would be you could take a non-inflation adjusted withdraw, and your portfolio would not need gains at all. It is nothing more than the simple arithmetic of (portfolio)/(years).

To the question about 'sequence of returns' - this just means that portfolios are volatile, and there is an effect when a portfolio drops several years in a row. A fixed or inflation adjusted initial WR keeps taking a bigger % from that dwindling portfolio. FIRECalc does a good job of reporting this, as it uses historical dips/peaks. A simple arithmetic approach does not account for this.


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We all keep several years of living expenses in cash, in case of extremely bad phases.
No we don't. That would be ~6-8% cash, or 9-12% if 'several' means 'more than two'. I typically keep about 4 months cash, so less than 2%.


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