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OMY is the hardest
Old 06-15-2013, 10:25 AM   #1
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OMY is the hardest

Yesterday, we went to pick up DD (college freshman). I felt good about the 30K+ we spent this year, since the education fund is already under her name and off my book. UC is not cheap but we saved all our working lives for her and DS's education.

Right now, DS has one more year of HS. We are FI at the current market value but may not be if it corrects for 20%. So, for now, we are doing OMY. This will be the hardest year to get through for me.

How was your OMY?
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Old 06-15-2013, 10:32 AM   #2
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I'm 20% into mine. Going ok at 1-2 work days a week
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Old 06-15-2013, 10:42 AM   #3
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Originally Posted by fh2000 View Post
Yesterday, we went to pick up DD (college freshman). I felt good about the 30K+ we spent this year, since the education fund is already under her name and off my book. UC is not cheap but we saved all our working lives for her and DS's education.

Right now, DS has one more year of HS. We are FI at the current market value but may not be if it corrects for 20%. So, for now, we are doing OMY. This will be the hardest year to get through for me.

How was your OMY?
Congrats re your daughter.

AS to OMY, if a 20% correction means you are no longer FI, I'd give some thought to realizing that you are not in fact FI. You are FI given a lot of good luck, and you will perhaps make it but with a lot of worry, unless you are just not the type to worry.

Others will perhaps tell you otherwise, and that message may be a lot more welcome, and nobody really knows. So retiring early is a leap of faith for most of us.

Ha
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Old 06-15-2013, 12:00 PM   #4
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AS to OMY, if a 20% correction means you are no longer FI, I'd give some thought to realizing that you are not in fact FI. You are FI given a lot of good luck, and you will perhaps make it but with a lot of worry, unless you are just not the type to worry.
Ha
Well - I'm in this group also. I'm FI at current market, but a 20% correction wipes 10 years of longevity off (80 vs 90 yo). Scares the poop out of me, which is why I will probably find another job, hopefully only part time, after I retire from MegaCorp. I'll be keeping a close eye on this thread !
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Old 06-15-2013, 05:24 PM   #5
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Congrats re your daughter.

AS to OMY, if a 20% correction means you are no longer FI, I'd give some thought to realizing that you are not in fact FI. You are FI given a lot of good luck, and you will perhaps make it but with a lot of worry, unless you are just not the type to worry.

Others will perhaps tell you otherwise, and that message may be a lot more welcome, and nobody really knows. So retiring early is a leap of faith for most of us.

Ha
I am inclined to agree there is not enough margin if 20% is the difference between success and failure. Roughly one out of four years are down, and we have a dozen corrections/bear markets in the last 60 years. Plus if you have a significant bond exposure there is also the real possibility of a 20% correction in the bond market occurring in the next few years..

It worth recalling the twins paradox. If Bill and Bob are twins, with exactly the same assets, if Bill retires with $1,000,0000 and couple months latter Bob retires with $1,200,000 Bill the 4% SWR rule say can spend $48,000 and Bob $40,000. But of course common sense says they regardless of their spending levels they have equal chance of success.

Finally I think it is more important to focus on income than on assets when looking at retirement. Even if the stock and bond markets both correct 20%, that won't change your pension and social security or other income.
The dividends generally don't decrease during a correction (and often rise), since 1871 there have only been 13 decreases greater than 10% in the inflation adjusted dividend paid by the S&P 500 . The largest coming in 2010 with a 22.6% drop. Likewise the silver lining of falling bond pricing is increase income generated from bond funds.
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Old 06-15-2013, 07:22 PM   #6
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I was definitely worried about a 20% correction causing me to feel less financially secure, and I'm now working part time to cover my expenses so that I don't have to begin withdrawing my life savings. So far, I love working part time, and I'm finding that it works really well in the transition from full time to fully retired. Going from a really exhausting job to full retirement was a bit too much of a shock to my system. If part time work is an option for you, I would say check it out and give it some thought.
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Old 06-15-2013, 08:30 PM   #7
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Finally I think it is more important to focus on income than on assets when looking at retirement. Even if the stock and bond markets both correct 20%, that won't change your pension and social security or other income.
The dividends generally don't decrease during a correction (and often rise), since 1871 there have only been 13 decreases greater than 10% in the inflation adjusted dividend paid by the S&P 500 . The largest coming in 2010 with a 22.6% drop. Likewise the silver lining of falling bond pricing is increase income generated from bond funds.
Good point that US big corp's usu. do not drop dividends during market corrections. But I would be careful about blindly assuming great safety or stable income from bond funds. During current lower interest rate period, many have DEcreased their per share yield. And during periods of INcreasing interest rates, there's a rule of thumb that the decrease in bond fund's principle value too often exceeds those increasing yield payments unless you hold for the effective duration of the fund's portfolio. And even if you hold on to your personal shares, rel high-turnover &/or leveraged bond funds can still sometimes experience significant capital (trading) losses (e.g. due to changing int rates, declining bond ratings, etc.). This is why for 'fixed income' portion of one's AA, many advocate holding top quality individual bonds which pay their known interest rates... and (eventually) PV at maturity (or if called). Fortunately there are now some bond funds &/or ETFs which use this 'hold quality bonds to maturity' philosophy.

And not to be too much of a downer, but pension payments are only as solid as the payer. With recent economic downturn, certain companies have decreased the overall value of retiree pensions (pay + benefits), and some financially stressed municipalities are beginning to do the same.

IMHO Ha is right. ER is a leap of faith for most. But most with a reasonable plan generally do well, especially when allowing for mid-course corrections (e.g. adjusting spending habits, accepting part-time w#rk, etc.).
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Old 06-16-2013, 06:39 AM   #8
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Good point that US big corp's usu. do not drop dividends during market corrections. But I would be careful about blindly assuming great safety or stable income from bond funds. During current lower interest rate period, many have DEcreased their per share yield. And during periods of INcreasing interest rates, there's a rule of thumb that the decrease in bond fund's principle value too often exceeds those increasing yield payments unless you hold for the effective duration of the fund's portfolio. And even if you hold on to your personal shares, rel high-turnover &/or leveraged bond funds can still sometimes experience significant capital (trading) losses (e.g. due to changing int rates, declining bond ratings, etc.). This is why for 'fixed income' portion of one's AA, many advocate holding top quality individual bonds which pay their known interest rates... and (eventually) PV at maturity (or if called). Fortunately there are now some bond funds &/or ETFs which use this 'hold quality bonds to maturity' philosophy.

Oh I basically agree with you. I think that for all but the shortest bond funds, there is an excellent chance that sometime over the next 1-10 years (how is that for an exact prediction hehe) the drop in NAV will more that wipe out the tiny interest payments. So I was cautioning the OP that one shouldn't be just concern about 20% stock market correction, the bond market is even more ripe for a correction.. Buffett's characterization of bonds as "return free risk" is very accurate IMO. If you have a 50/50 portfolio and 20% market correction is the difference between being FI or working a few more years than a 20% drop in the bond market holds the same risk.

Because I retired so young, I don't have a withdrawal percentage. Instead I keep spending (except for 2009) below my interest and dividend income. As recently as 2007 40% of my income was from fixed income assets, it has dropped to under 10% now. Even for the large number of folks who are total return investors, I think it worth while to examine your portfolio and try break down how your portfolio will generate enough cash to fund your withdrawal So for example for a $1 million 50/50 portfolio. My fixed income assets provide $12,000 in interest, the dividends from equities provide $10,000, I expect another $12,000 from equity price appreciation, and finally I am going to draw down $4,000 in principal and that gets me to $40,000.
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Old 06-16-2013, 10:30 AM   #9
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The other thing that makes me a bit uneasy about current investing climate is that these very low interest rates are somewhat artificial (e.g. 'easy money' policies of US, Japan, Europe). Past 2 yrs the interest on US 10yr note has been at major 50yr low. No one knows quite how things will unfold as these artificially low rates normalize over time.
Just adds to uncertainty of anyone's "OMY"
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Old 06-16-2013, 10:47 AM   #10
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We are FI at the current market value but may not be if it corrects for 20%. So, for now, we are doing OMY. This will be the hardest year to get through for me.

How was your OMY?
Your situation is tough! But, I think it is smart right now to prepare for the worst, as you are doing, and then enjoy the excess if the worst doesn't happen.

Meanwhile, "so near and yet so far" is pretty tough. But, I suppose it is better than "not near at all". Congratulations on being so close to where you want to be.

As for my OMY, I had to wait two years to become eligible to carry my federal employee health insurance on into retirement, even though I was otherwise FI. I didn't like the waiting part one bit! But, the time passed more quickly than I would have thought. Having to wait gave me plenty of time to check and re-check my financial plans, and I continued to save and add more to my nestegg than I felt I needed. Now that I am retired, I sleep like a baby at night.
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