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NY --> AZ or BUST!
Old 08-09-2012, 12:03 PM   #1
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NY --> AZ or BUST!

Hi Folks,

DW "retired" late '11, 2 yrs earlier than planned (her employer declared bankruptcy; she got out w/ lump sum just days before they froze the pension plan). Prior to that, we had essentially been following Brinker since '98 (rode out '08/'09).

Recently hired a CFP whose analysis is that we should be able to make it (FIRECalc agrees 96%), but my gut (apprehension?) tells me we're just borderline. A lot depends on assumptions about future returns. CFP proselytizes PE10, and told us to dump all equity funds in favor of bond funds, especially in early years of retirement. We've reallocated about half to split the CG liability between this yr. & next.

Recently found this site and Bogleheads. Been reading, and will continue, about estimated taxes, reallocation, distribution planning & draw-down plans (2-1/2 to 4%?).

Looking to relocate from NY to AZ (perhaps a 55+ retirement community if we can find one without golf -- no offense) within 2 yrs. No kids, no liabilities, free & clear. Hope to pay cash for new house, but willing to consider mtg in current environment.

Tyro
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Old 08-09-2012, 12:26 PM   #2
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Hi Folks,

DW "retired" late '11, 2 yrs earlier than planned (her employer declared bankruptcy; she got out w/ lump sum just days before they froze the pension plan). Prior to that, we had essentially been following Brinker since '98 (rode out '08/'09).

Recently hired a CFP whose analysis is that we should be able to make it (FIRECalc agrees 96%), but my gut (apprehension?) tells me we're just borderline. A lot depends on assumptions about future returns. CFP proselytizes PE10, and told us to dump all equity funds in favor of bond funds, especially in early years of retirement. We've reallocated about half to split the CG liability between this yr. & next.

Recently found this site and Bogleheads. Been reading, and will continue, about estimated taxes, reallocation, distribution planning & draw-down plans (2-1/2 to 4%?).

Looking to relocate from NY to AZ (perhaps a 55+ retirement community if we can find one without golf -- no offense) within 2 yrs. No kids, no liabilities, free & clear. Hope to pay cash for new house, but willing to consider mtg in current environment.

Tyro
Everything you disclose is interesting. I hope you enjoy Arizona, and welcome to the board.

Is there a question?

Ha
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Old 08-09-2012, 12:52 PM   #3
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I'm all for being conservative in the first few years of retirement, but moving to all bonds is a radical move, not conservative at all.

By all means make sure you have a few years of living expenses in cash or bonds so that you can ride out the market if necessary. And it looks to be a bumpy ride. But the return on bonds looks worse than equities due to low current interest rates (not much current return) and eventual rising interest rates (falling bond values). The opposite of what bonds have been experiencing for the last many years.

I'd keep at least 40% equities unless your FA can show you how your bonds will fund your retirement using something other than historical returns. FIRECalc will also be optomistic with an all bond portfolio, if that's what you (hopefully) entered.

Take all this with a grain of salt because I'm nominally 100% equities.
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Old 08-09-2012, 01:04 PM   #4
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I'm all for being conservative in the first few years of retirement, but moving to all bonds is a radical move, not conservative at all.

By all means make sure you have a few years of living expenses in cash or bonds so that you can ride out the market if necessary. And it looks to be a bumpy ride. But the return on bonds looks worse than equities due to low current interest rates (not much current return) and eventual rising interest rates (falling bond values). The opposite of what bonds have been experiencing for the last many years.

I'd keep at least 40% equities unless your FA can show you how your bonds will fund your retirement using something other than historical returns. FIRECalc will also be optomistic with an all bond portfolio, if that's what you (hopefully) entered.

Take all this with a grain of salt because I'm nominally 100% equities.
+1

I'm not (definitely not) 100% equities but I agree with the above.
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Old 08-09-2012, 05:40 PM   #5
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Thanks for the input!

To clarify, the move to bond funds isn't intended to be permanent; it's to weather the 'bumpy ride'. Even Brinker is predicting only a ~7% potential upside to the S&P over the next year (or sooner). The CFP's outlook is less rosy, calling for a repeat of '08 or worse.

I think it's important to note that both of the people we've been paying for advice are essentially market timers. I'm a tyro -- I don't know squat. I'd like nothing better than to find an AA that would allow us to ride things out and live off the dividends, but that's where we may be borderline and have to actively manage things for some time to come. That's why I'm here to learn more, yadda, yadda....

We're still 40% equities (my previous estimate was off) until (tentatively) January, then re-evaluate, unless something happens sooner. We're conservatively on the sidelines until there's a clear buying opportunity. With talk about the Fed lowering long term interest rates, I don't expect an upturn before then.

Either way, we can switch back in with a phone call.

Tyro
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Old 08-09-2012, 05:42 PM   #6
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I think it's important to note that both of the people we've been paying for advice are essentially market timers.
Run...
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Old 08-09-2012, 05:47 PM   #7
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I would third the bond warning unless they were really short term because if interest rates double, your portfolio won't.
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Old 08-09-2012, 06:59 PM   #8
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...I think it's important to note that both of the people we've been paying for advice are essentially market timers...

...We're conservatively on the sidelines until there's a clear buying opportunity. With talk about the Fed lowering long term interest rates, I don't expect an upturn before then...

Tyro
Tyro; market timing is best left to...Well, no one actually.

As Peter Lynch said:

"I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."
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Old 08-09-2012, 07:14 PM   #9
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Been living in Arizona since 1998, lived in the Phoenix Metro area. Retired in 2006 to the remote SE corner of AZ. Further south, but higher elevation keeps it a little cooler.
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Old 08-09-2012, 10:20 PM   #10
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Thanks for the input!

To clarify, the move to bond funds isn't intended to be permanent; it's to weather the 'bumpy ride'. Even Brinker is predicting only a ~7% potential upside to the S&P over the next year (or sooner). The CFP's outlook is less rosy, calling for a repeat of '08 or worse.

I think it's important to note that both of the people we've been paying for advice are essentially market timers. I'm a tyro -- I don't know squat. I'd like nothing better than to find an AA that would allow us to ride things out and live off the dividends, but that's where we may be borderline and have to actively manage things for some time to come. That's why I'm here to learn more, yadda, yadda....

We're still 40% equities (my previous estimate was off) until (tentatively) January, then re-evaluate, unless something happens sooner. We're conservatively on the sidelines until there's a clear buying opportunity. With talk about the Fed lowering long term interest rates, I don't expect an upturn before then.

Either way, we can switch back in with a phone call.

Tyro
I was about 30% cash and another 10% bear market funds/gold when I retired in 2007. The rest was equities. I reinvested excess cash right down to the bottom of the market. The portfolio was fully recovered in 2010. I sold some equity during the market peak after that, when it exceeded the expected market price for my future portfolio withdrawals. Currently I'm about 14% cash/bonds 86% equities.

In 2008/2009 I invested an equal part of my cash each time the market decreased by another 5%. No attempt to guess a market bottom. Any unspent cash would have been used within a few years for retirement expenses.

Make sure your FA has a plan for getting back into equities in a market dip, and also if it doesn't dip. Something that is not "when the market stabilizes/recovers" that ends up being higer prices than we have now. And make sure you're OK with buying equities while the market is dropping and showing no hint of going up any time soon. What if the market went on sale and you were too scared to buy?
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Old 08-12-2012, 08:05 AM   #11
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+1

Ask your adviser for a history of their personal equity transactions during the last 5 years and see if those transactions demonstrate that s/he accurately foretold the various corrections we've experienced since 2007. The answer will be "no," and that should clue you in about the advise s/he is giving you now.
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Old 08-12-2012, 04:42 PM   #12
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Welcome, Tyro!

I think you found the right group.

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Old 08-12-2012, 07:58 PM   #13
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There are probably a few non golf over 55 communities in the Phoenix area, but not many. We spent 2 Winters in that area, 2010 and 2012. One was in a non retirement gated community and the other was an over 55 one. Both rental homes. Both were nice. But be very, very careful about HOAs. They are expensive and very intrusive. We received a warning for having 3 small weeds in our yard - about 50 sq ft. Plus lots of retired busy bodies who like to tell you how to live. We would still like to move to Phoenix, but will only do so if we can buy on a regular street not in an HOA. We may end up staying in the East. Prices are great in Phoenix, but moving slowly up. But that's up from a 50% decline.
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Old 08-12-2012, 08:11 PM   #14
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Tyro, IMHO you are about to learn a very tough lesson about market timing.
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Old 08-13-2012, 12:39 AM   #15
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This is madness. Making a sweeping move into (or out of) an entire class of investments to go 100% bonds, or 100% equities, is not conservative or risk avoidance. It is gambling. Market timing gambling. Besides, bonds are at an all time high with virtually no room for reduced interest rates (and corresponding capital gains) short of deflation - which would be terrible for governments with debt. You've chosen about the most risky possible time to be 100% bonds.

Your adviser seems to have no idea how to manage investments. Impulsive actions based on feelings might occasionally be successful, but usually you can expect bad results. Luckily for your adviser, all that means is a need to recruit new clients. Portfolio losses don't mean real losses for the adviser, just for you.
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Old 08-17-2012, 03:03 PM   #16
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I am a little surprised by some of these responses (and frankly, feeling a little like the new kid at the playground being beat up by the bullies for coming from a different place). Yes, the advised plan was to move out of equities entirely (for the short term), but I was pretty clear that we did not do that -- only about half. The advice we were given is actually in line with opinions posted on this site previously by others, and makes sense once the rationale is known and the numbers are run. These quotes can be found in:

Post #1034164
Quote:
So, can you 'tough out' losing half the portfolio in the first 5 years when you want it to last 40-50 years? Not so easy.
and

Post #1034224
Quote:
Clearly if you lose 50%+ of your portfolio in the first few years you are in a tough spot. It all just reinforces our discussions that you need to be able to shelter your portfolio from large withdrawals in the event of a crash (particularly in the early years).
That's all this plan is intended to do. The CFP ran and showed us the Monte Carlo simulations of our current nest egg preserved vs. losing a sizable chunk in the first few years of early retirement (which is the concern and reason for moving out of equities at this time), and the simulations indicated preserving our assets during these early years made a big difference in the success of lasting the 35 years we'll need to, and that's still borderline. Our thoughts were (initially) that we have the timeframe to recover, as we did following '08-'09, however the simulations suggest otherwise if there's a sizeable correction in the short term.

The PE10 outlook reflects (essentially) what's expressed in the article, "Is the Stock Market Cheap?" by Doug Short if anyone cares to peruse it.

If, as previously mentioned, the S&P has another ~7% potential upside over the next 12 months, and we can get the same equiv. yield in mixed term muni bond funds during that same period, we'd be taking stock market risk for a potential return of 0%. Granted, the bond market is also subject to risk, but we do not believe the potential downside risk is as great (or potentially precipitous) as that in equities between now and ~the end of the year (YMMV) and we'll be watching this carefully. If the stock market corrects heavily within the short term as the PE10 folks believe may happen, we should be more protected than we would in a repeat (or worse) of '08-'09. Either way, we will not be able to move entirely out of equities (without incurring substantial tax liability) for another couple of years anyway, and haven't decided how much of that advice we will follow. ("Well, Dude, we just don't know." -- Brandt, The Big Lebowski) Some of this also depends on whether current CG treatment (the fiscal cliff?) remains the same.

Lastly, our plan is just that -- a plan; it is not carved in stone, will take some considerable time to implement fully, and also has considerable flexibilty (as we believe any plan should). Looking back at my OP, I see that I did not make that clear. Mea culpa and apologies.

This seems to be a touchy subject around here, so I think it would be best for me to drop it. Kinda sorry I brought it up, but I'll take the responsibility for that. I don't always express myself as clearly or well as I could/should.

Tyro
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Old 08-17-2012, 03:17 PM   #17
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I don't want to come across as a bully - it's your money and you certainly have the right to invest it as you wish. The issue I and many others see with attempting to avoid "...losing a sizable chunk in the first few years of early retirement (which is the concern and reason for moving out of equities at this time)..." is the old market timing conundrum of once you get out, when do you get back in? Not so easy to figure that one out.

Is your perception of being bullied nothing more than a reflection of your "everyone is out of step but me" thinking?

Whatever the reality, I wish you all the best with your strategy.
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Old 08-17-2012, 05:15 PM   #18
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I think the main reason simulated portfolios (for the common X% inflation adjusted strategy) have it easier after the first few years is that on average they have grown so that the WR is a smaller percentage of the portfolio. In many cases, the first withdrawal may be the highest in terms of portfolio percentage. Contrast that with a bad market case where the market goes down and the WR goes up as a percentage of the portfolio. We know that's not good.

On the other hand, if you were just taking X% of the portfolio each year the timing of portfolio performance would have no long-term effect on withdrawals once the market dipped and recovered. This type of withdrawal would not care if the market dip happened early or late in retirement.

While I'd pay attention to early portfolio performance if you plan on taking out X% + inflation and if you think there's a big market drop coming, I'd be leary of missing too much of the early upside as well. And if my WR was something below 3% or so, I probably wouldn't bother taking active measures.
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Old 09-09-2012, 08:06 PM   #19
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Been living in Arizona since 1998, lived in the Phoenix Metro area. Retired in 2006 to the remote SE corner of AZ. Further south, but higher elevation keeps it a little cooler.
I second that, definitely look for some elevation....AZ is HOT....
if you have health issues and need to be near doctors, most of them are down in the hot valleys.....
Tucson is nice, Prescott, up on 'the rim', etc.
If you can afford it, have a place near the big city and a summer place up in the mountains.
Did I mention AZ is hot? We lived there since 85, retired a few years ago, now spend summers in Logan, Utah at 4500 ft. elevation. It cools off nice at night.
If you have half a million to squander, there is an old Titan missle silo for sale near Tucson.
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Old 09-09-2012, 08:11 PM   #20
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There are probably a few non golf over 55 communities in the Phoenix area, but not many. We spent 2 Winters in that area, 2010 and 2012. One was in a non retirement gated community and the other was an over 55 one. Both rental homes. Both were nice. But be very, very careful about HOAs. They are expensive and very intrusive. We received a warning for having 3 small weeds in our yard - about 50 sq ft. Plus lots of retired busy bodies who like to tell you how to live. We would still like to move to Phoenix, but will only do so if we can buy on a regular street not in an HOA. We may end up staying in the East. Prices are great in Phoenix, but moving slowly up. But that's up from a 50% decline.
very true....our place in Peoria does not have an HOA, has a RV size lot (meaning there is room to park a boat or RV in your side yard, behind a fence/gate) and some of our neighbors have small pools. 90x100 ft. lot size is considered large.....
Our son's place has about 5 ft on either side, no room in the back for much at all, their HOA provides very little service but does seem to be less intrusive than most. If you have a boat, it must fit in your garage. Good luck with that.... Attached homes, aka duplexes, are becoming common. And driveways are short.....
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