2008 and all's..... Well?

[Bikerdude]

Well here we are closing in on 2008 and the markets, S&P and NASDAQ are still off their 2000 highs and the Dow is marginally better, inflation adjusted.

My question is for people who retired near or at year 2000 and relied upon their market investments to have a successful retirement. How have you weathered the storm? I see 4 possible scenarios:

1. Your portfolio kicked off enough in interest and dividends that you did not have to sell.

2. You exited the market near the high and escaped the losses.

3. You reduced your living standard to make ends meet.

4. You went back to work.

Due do several factors I fell into scenario #2 and have done well. If I had been a "buy and hold" person I would have had a tough time and probably would have returned to work. Unless we have a big market up tick we could be closing in on a 10 yr. flat period for the markets, inflation adjusted.

Something to think about prior to pulling the plug .

 

[REWahoo]

Since I retired in 2005, I don't meet your criteria. However, I do have a close friend who retired at the end of 1999 when he was 52. He fell into category 4 and returned to work in 2001 after seeing his portfolio, under the management of a financial advisor, shrink by 60%.

He's still working. I'm not sure he will re-retire until he can get full SS benefits in 2013.

 

[Dawg52]

Since I retired in 2005, I don't meet your criteria. However, I do have a close friend who retired at the end of 1999 when he was 52. He fell into category 4 and returned to work in 2001 after seeing his portfolio, under the management of a financial advisor, shrink by 60%.

He's still working. I'm not sure he will re-retire until he can get full SS benefits in 2013.

How depressing. The crash did require me to work 2 years longer than planned but getting out at the age 53(actually 3 months shy of 53) still is not too bad. At least I'm not complaining.

 

[twaddle]

Market timing saved my butt. Went from 100% stocks to 10% in late 1999.

Now I'm about 50/50 which lets me participate in the upside of bulls without putting me at risk of going back to work during a nasty bear.

If we see real fear in the markets again (something that we haven't seen in 25 years), I'll be willing to crank stocks up to 80/20 or so. Until then, I'm Super Chicken.

 

[FinanceDude]

Since I retired in 2005, I don't meet your criteria. However, I do have a close friend who retired at the end of 1999 when he was 52. He fell into category 4 and returned to work in 2001 after seeing his portfolio, under the management of a financial advisor, shrink by 60%.

Baed on that story, I must be a crappy advisor, none of my clients lost 60, 50,or even 40%. I think the worst I had was about 25%.

Maybe using stop limits and not buying companies with a PE over 100 helped.............

 

[REWahoo]

Baed on that story, I must be a crappy advisor, none of my clients lost 60, 50,or even 40%. I think the worst I had was about 25%.

Maybe using stop limits and not buying companies with a PE over 100 helped.............

Remember, it isn't personal. Really, it isn't.

 

[twaddle]

I think the ones who went back to work were generally the same guys who retired from their nasdaq gains.

I was getting certified for some sailing thing in 2001, and my instructor had just come out of retirement due to his naz losses....

 

[FinanceDude]

Remember, it isn't personal. Really, it isn't.

I know of two local advisors that got shut down by the feds. One was promising promissory notes that guaranteed 12% returns, but was a Ponzi scheme, the other was a guy whose dad was the head of a local union, and he got all those union workers to invest in a "private" partnership............both ended badly for all involved.

A lot of those wronged were pretty savvy folks........I guess human greed overcomes logic at times........

 

[TromboneAl]

If you hadn't exited the market, you would have been in deep due do.

 

[audreyh1]

I retired in late 1999, and so went through that whole market "trial".

But, I didn't suffer too much because:

1. I was investing a lump sum into the market and decided to average it in over a 2 year period, so I was in a high % of cash during the early part of the bear market. As the market kept going down I kept extending my average in period - was finally done in Oct of 2002. Any losses I experienced were almost completely recovered in 2003.

2. I had set aside a very large "travel fund" for a couple of years of serious travel right after retirement, and so we had extra padding of cash for at least two years, and could spend it without worrying what the market was doing.

3. The company stock I still owned did not suffer during the market crash - it didn't have a giant run up through 1999 either.

Audrey

 

[haha]

Market timing saved my butt. Went from 100% stocks to 10% in late 1999.

I imagine this is a common story. I have son who woke up one morning in August 1999, decided that his luck had been good, but he had better not push it. He sold everything he could and saved some very tasty bacon. I was already light on run of the mill stocks, but pretty well invested in REITs, and specialty situations which worked out fine.

Although we mostly profess to believe in buy and hold, it would not surprise me if more than a bit of our being retired is due to market timing.

Ha

 

[twaddle]

Although we mostly profess to believe in buy and hold, it would not surprise me if more than a bit of our being retired is due to market timing.

I also sold a good chunk of real estate in May 2006. Remind me to mention that again in about 5 years.

 

[haha]

I also sold a good chunk of real estate in May 2006. Remind me to mention that again in about 5 years.

I think you have it in your Outlook to be sure to mention it to us.

Ha

 

[dex]

1. I was investing a lump sum into the market and decided to average it in over a 2 year period, so I was in a high % of cash during the early part of the bear market. As the market kept going down I kept extending my average in period - was finally done in Oct of 2002. Any losses I experienced were almost completely recovered in 2003.

2. I had set aside a very large "travel fund" for a couple of years of serious travel right after retirement, and so we had extra padding of cash for at least two years, and could spend it without worrying what the market was doing.

Audrey

I'm doing the averaging into the market now and am flat on the the amount I have invested in equities. I'm averaging in the remaining amount over the next 11 months. I'm expecting a bit of a down to flat market next year.

I will still have several years of living expenses in conservative investments to ride out the markets.

 

[pentang.fog]

I also sold a good chunk of real estate in May 2006. Remind me to mention that again in about 5 years.

It's a joke, but the market HAS really changed. A buddy of mine was planning on selling his re and retiring in mid-2007...well, you can imagine how that went. At the moment I think he's holding and waiting for stabilization, which appears to be happening in some areas. I never had the head for real estate investment, with the market fluctuations...it seems like mostly luck to me, or are there ways of predicting changes?

 

[haha]

Question about cash

My ordinary income in my main taxable account is just short of being all I need for my customary annual expenses. I also have some extra taxable income from I-bonds and CDs that have good terms, but I would not want to tap them for living expenses because they cannot be replaced under current conditions. So I consider this income unavailable except in a big emergency.

I keep enough money in cash in my main taxable account that when used to add to my income should easily support me for years, and sometime over the next few years I will begin SS which should end all tightness.

But if I had a big expense that couldn't be spread out over time, I possibly don't have enough cash. I could sell traded (and thus marked to market) fixed income securities in my IRA and make a withdrawal, but so far at least that has seemed like a bad idea due to tax considerations.

I am thinking that I maybe should up my cash reserve to $50,000 or so, readily accessible in my taxable account. With low interest rates I would be sacrificing income, but maybe it is better strategically anyway.

Any comments or sharing of how others look at or deal with this?

 

[twaddle]

So you're saying all your FI is in your IRA? If I need to tap the FI in my IRA before I withdraw, my plan is to sell equity in my taxable, FI in my IRA, and buy the equivalent equity in my IRA. Assuming I want to maintain my allocation and not play any timing games.

 

[haha]

So you're saying all your FI is in your IRA?

Yes, that is basically my situation. I have $100,000 or so FI in taxable accounts, but only maybe $40,000 is cash or instruments that mature within 3 months. The rest is I-bonds, CDs, etc, with good terms that are no longer available. An I-Bond at 3.25 real is worth more than its face value, so I would not like to sell it.

I mistakenly said I have "ordinary income" sufficient or almost sufficient for my needs. What I have is recurring cash payments, not all of which or even most of which is ordinary income under the tax code, but none of which is capital gain either long or short term. Some of my cash inflow might be dividends, some tax favored MLP distributions, etc

I'll study your methodology tomorrow- I am too damn tired to think tonight. Another long session under the weight vest today.

Ha

 

[megacorp-firee]

I think I am in category 1.
With my non-COLAed pension and my fixed income instruments and my 5 year ladder of CDs I don't have to sell anything. My risk seems to be if this 'correction' (I love that term) lasts more than 5 years. The plan was that part of the equities would replenish the CD ladder each year and the rest would be left in the portfolio for growth. I can always throttle back a bit if the correction goes into year 3 and 4 to make things last a bit longer (category 3). That would mean that I would have to curtail some of my travel plans. This would not be a horrendous thing, just a temporary inconvenient nuisance. So far my traveling makes up about 25% of my expenditures.

But I must admit that it has been way too exciting these past few months. Luckily last year was (in my planning) an over-achievement year. But as my boss used to ask me when I was a w*rking stiff... what have you done for me lately?

 

[bigla]

I retired in 03' but in Jan, 2000 I listened to Bob Brinker and got out of the market. Went back in in March of 03 and have been doing nicely with a 60/40 mix and 2-3 yrs of ER. Of course the recent roller coaster rides make me nervous, but I'm hanging in there. Brinker remains bullish.
Larry

 

[ERD50]

I retired in 03' but in Jan, 2000 I listened to Bob Brinker and got out of the market. Went back in in March of 03 and have been doing nicely with a 60/40 mix and 2-3 yrs of ER. Of course the recent roller coaster rides make me nervous, but I'm hanging in there. Brinker remains bullish.
Larry

bigla, almost exactly my story, too (RE EOY 2003). Bob actually said 'lighten up' (reduce your equity portion to 35% of what it was) not 'get out' in 2000. Still a great call. I was selective of what I got out of, I'd need to go back and look at what my actual AA went to. I had some big cap gains, but it was worth it.

I expect his next call to be along the same lines - there is too much 'risk' in getting out completely. You might miss a big jump up, or get back in at the wrong time.

FireCalc is based on re-balancing each year, over 40 years, I wonder which is more effective? Unanswerable, so it is just 'wondering'.

-ERD50

 

[audreyh1]

Retiring in 1999 - it was obvious even to me, who had been scared out by other periods of high P/E ratios in the 90s and thus missed out on some investing opportunities - that things were seriously out of whack. Thus, instead of following the usual advice of averaging in over a 1 year period, I selected 2 years minimum. I was that nervous, for good reason as it turned out.

But currently the market stats are not nearly so out of whack as they were in 1999. They may be in the real estate market, and the economy might have a year or two of less than stellar growth ahead, but I don't seriously expect a repeat of the >>50% cut in the Nasdaq like we had in 2000-2002.

In fact, many folks say the market stats are currently quite reasonable.

Audrey

 

[twaddle]

In fact, many folks say the market stats are currently quite reasonable.

For some definition of "reasonable." Worst case, market values are 2X what they might be (if you average earnings over the business cycle). In 2000, the nasdaq was arguably 10X what it should have been.

Housing is probably only 1.5X what it should be, but it's a big number, and banks are more important to our economy than dot-coms were.

 

[haha]

In fact, many folks say the market stats are currently quite reasonable.
Audrey

As I remember, many folks said the same thing in January 2000, and January 1973. Many folks will always be saying this.

Ha

 

[brewer12345]

My ordinary income in my main taxable account is just short of being all I need for my customary annual expenses. I also have some extra taxable income from I-bonds and CDs that have good terms, but I would not want to tap them for living expenses because they cannot be replaced under current conditions. So I consider this income unavailable except in a big emergency.

I keep enough money in cash in my main taxable account that when used to add to my income should easily support me for years, and sometime over the next few years I will begin SS which should end all tightness.

But if I had a big expense that couldn't be spread out over time, I possibly don't have enough cash. I could sell traded (and thus marked to market) fixed income securities in my IRA and make a withdrawal, but so far at least that has seemed like a bad idea due to tax considerations.

I am thinking that I maybe should up my cash reserve to $50,000 or so, readily accessible in my taxable account. With low interest rates I would be sacrificing income, but maybe it is better strategically anyway.

Any comments or sharing of how others look at or deal with this?

Ha, Assuming you did not want to change your current investment setup, I would probably just plan to take a margin loan in the case of an large unexpected expense. They you could figure out the most tax-efficient way to pay it off at your leisure. If the big expense never comes up, then you don't sacrifice income.