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View Poll Results: If the market drops 25%-how would this affect your retirement?
No problem, I can absorb this and maintain my expense level 86 69.92%
I can probably stay retired, but will have to cut expenses 25 20.33%
My retirement would survive but I would cut expenses &/or go back to work 10 8.13%
My retirement would be in BIG trouble 2 1.63%
Voters: 123. You may not vote on this poll

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Old 07-25-2011, 09:15 AM   #21
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This has already happened to some of us more than once ('00, '08). Life goes on and portfolios recover.
Yes.

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Old 07-25-2011, 09:16 AM   #22
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I already lived through this at the start of my retirement . I cut back a little and let my portfolio heal.
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Old 07-25-2011, 09:38 AM   #23
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If the markets tank then we'd probably put some spare cash to work... 1-2% of the portfolio.

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I voted the second option. I'd definitely feel the pinch, but hope that the market will go up by 26% the following year
Technically if a stock market worth $1 drops by 25% (to 75 cents) then it would need to gain 34% to get back above $1...
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Old 07-25-2011, 10:02 AM   #24
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We keep a 60/30/10 globalized FIRE portfolio and use a 4% annual withdrawal rate that adjusts with inflation (CPI or PPI whichever is less.

If the stock market drops 25% that means our portfolio drops 15%. At years end, we would re-balance back to 60/30/10 and continue to withdraw from cash. We would continue our withdrawals but not add in the inflation adjustment until the portfolio got back to par or more.
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Old 07-25-2011, 10:05 AM   #25
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Technically if a stock market worth $1 drops by 25% (to 75 cents) then it would need to gain 34% to get back above $1...
That's why it's important to sell fixed income and buy equities (i.e. re-balance). It's a guaranteed way to buy low and sell high.
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Old 07-25-2011, 10:40 AM   #26
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I survived 2008 with a refrig full of med's and I can do it again. Plus I have a much more conservative AA now. If a big drop occurs, I will add a tiny bit to my dividend stocks.
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Old 07-25-2011, 11:31 AM   #27
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Only very recently retired, but I took the first option. Our WR is 2.5% and our plan does not include Soc Sec, though I am sure we will receive a substantial part of the currently stated benefits. And if I have to go back to work, so what? There is no way to remove uncertainty altogether...
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Old 07-25-2011, 11:47 AM   #28
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Option 1

Belt - Less than 1/3 equities
Suspenders - WDR currently less than 2.5%
Elastic Waistband - Take SS earlier

If I live too long or the downturn lasts too long, there's always the 9mm solution.
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Old 07-25-2011, 03:16 PM   #29
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Originally Posted by bizlady View Post
If the debt mess is not settled, and the market were to drop (a conservative) 25%, how would that impact your retirement?
The same as if the debt mess was settled, and the market dropped 25%?

As others have mentioned, unless you ave a 100% equity AA, your portfolio drop won't be 25%. And if a <25% portfolio drop causes you to 'do something', I suggest you take another look at FIRECALC and the squiggly lines. It's pretty tough to avoid a 25% real drop historically, probably no way to avoid the ~ 15% drop that would come with a more balanced AA.

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Old 07-25-2011, 03:39 PM   #30
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I survived 2008 with a refrig full of med's and I can do it again. Plus I have a much more conservative AA now...
A diversified fridgeful of meds... look anything like this?
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Old 07-25-2011, 04:01 PM   #31
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I think it make a big difference if you are living 100% from your portfolio or you are getting SS or a pension...


My sister lives 100% off her pension, so if her portfolio dropped it would not affect her at all..

If I were retired, I would be living off 100% of my savings and it would... that is why I am not yet retired...
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Old 07-25-2011, 04:24 PM   #32
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I did not vote in the poll (currently disqualified), but I think it is great that the responses are so heavily weighted in favor of those who could weather a market drop without dire consequences.

I'm a little confused by what seems an overlap between options 2 and 3, both of which mention cutting expenses, which seems a reasonable reaction to a market drop. It's just normal bobbing and weaving.

#3, though, adds the action of going back to work. Doing that in response to a market drop (versus, say, wanting to continue to be productive in the "traditional way" but at your own discretion, interest/passion in a specific vocation, etc) makes me wonder if a person actually retired too early, without being completely prepared for the inevitable fluctuations?
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Old 07-25-2011, 11:19 PM   #33
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I didn't/can't vote either. Some have raised the option of taking SS earlier than planned. Isn't that one of the issues? If the ceiling isn't raised, no SS checks?

At the end of the day, we're only a little more than a year away from an election. So if our current set of representatives can't figure it out, maybe the next set will be able to.

FWIW, I'm not REd yet, but my taxable portfolio generates enough income in muni interest and dividends for us to be fine without working if we were retired, provided of course that the states don't default as well, and corporations fail or stop paying dividends. Then, we'll just have to rely on that stock of seeds and the garden. That said, if my stocks took a 25% nose dive, I would be nervous...not that I needed to be, its just in my personality and in my genes.

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Old 07-25-2011, 11:36 PM   #34
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I didn't/can't vote either. Some have raised the option of taking SS earlier than planned. Isn't that one of the issues? If the ceiling isn't raised, no SS checks?
Not very likely, IMO. But in the event this should occur, my vote would not change, even though I was one who said I might claim SS earlier than planned. I just wouldn't claim it, so I wouldn't be able to take as much advantage of the "sale prices" on equity funds.
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Old 07-26-2011, 02:55 AM   #35
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W2R, I agree that it is not very likely. I think it would be political suicide to not pay SS and govt pensions. But, this is one of the outcomes our President mentions, that's why I mentioned it. I do have to say though, and regardless of our own personal political persuasion, that it is very frustration to watch the grandstanding and selfishness that is happening in our government. I think it has never been clearer that, in general our politicians' main objective is to get re-elected, as opposed to doing what is right for the country.

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Old 07-26-2011, 07:28 AM   #36
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During the recent recession when our portfolio dropped in excess of 25%, DW and I decided to continue spending and not cancel trips, vacations, purchases that were a planned part of our retirement. And this despite the fact that our retirement finances are NOT so conservatively funded that a permanent 25% portfolio reduction wouldn't threaten our portfolio survivability.

Our logic was that time is more important than money. Since we didn't make it to FIRE until age 58, taking a couple of years out to hunker down with no discretionary spending (camper, kayaks, fishing trips, vacations, home remodeling, etc.) didn't seem like a very good idea, so we continued on. Thanks to the nice recovery we experienced, it worked out.

Not sure how to answer the survey. A sudden and permanent 25% reduction to our net worth early in retirement would threaten our FIRE portfolio survivability. But we bet on a recovery and continued spending at planned levels because we thought taking 1 - 2 - 3 years off from planned activities to be too great a price to pay for the risk reduction gained from not spending those dollars.

Despite the risk, we really did some fun stuff during the depths of the recession (and decline in portfolio value) and would be kicking ourselves now had we canceled plans and just stayed home. YMMV.
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Old 07-26-2011, 07:38 AM   #37
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I think it has never been clearer that, in general our politicians' main objective is to get re-elected, as opposed to doing what is right for the country.
+1 Your opinion is shared by many.

There seems to be a ring of Chicago-style politics in some of this. For example, when our politicians have budget problems and need more revenue, their first act is to list the services that will need to be cut immediately without revenue infusions. Of course everything mentioned is critical. Police will be taken off patrol. Ambulance service will be reduced. Fire stations will be only partially staffed. Water treatment plants may be neglected. Etc. But the junket to Fiji by Aldermen and their wives to "encourage business and trade" quietly stays in place...........

Da Machine rolls on! In fact, it seems to be spreading out.
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Old 07-26-2011, 07:48 AM   #38
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I think it has never been clearer that, in general our politicians' main objective is to get re-elected, as opposed to doing what is right for the country.
+1

That's precisely why I spent a few minutes earlier today emailing my Congressional Rep and Senators explaining they MUST find a way to settle this without defaulting if they didn't want me to support their opponent in the next election...
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Old 07-26-2011, 07:48 AM   #39
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I think it make a big difference if you are living 100% from your portfolio or you are getting SS or a pension...
You're the winner of the youbet "Understatement of the Day Award." Congratulations!

You bet it makes a difference. See my post above regarding spending during a large portfolio value decrease. Our budget is financed about 50% pension/SS and 50% portfolio withdrawals. I'm not sure we would have had the guts to continue on without cutting discretionary spending if our financing was 90% or 100% portfolio withdrawals. It's a big deal and an issue frequently overlooked in our discussions here on the ER board.
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Old 07-26-2011, 08:47 AM   #40
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W2R, I agree that it is not very likely. I think it would be political suicide to not pay SS and govt pensions. But, this is one of the outcomes our President mentions, that's why I mentioned it. I do have to say though, and regardless of our own personal political persuasion, that it is very frustration to watch the grandstanding and selfishness that is happening in our government. I think it has never been clearer that, in general our politicians' main objective is to get re-elected, as opposed to doing what is right for the country.

R

I don't want to get into a political debate about this, but I remember a town hall with Rangel and some republican..... and they were doing the same thing that is happening now... back and forth on what to do about whatever it was.... when someone said 'it is easy if both of you compromise'....

Rangel said something like 'dont' trivialize the fundamental differences we have on this subject'... IOW, there ARE fundamental beliefs on both sides that they are 'right'.... and that what they want is better for the country... and trivializing that is not good...

That is why I think it is so difficult as both sides believe in what they say... not that they are planning on the next election, but that what they want is RIGHT for the country and the other person just doesn't get it...

And it seems that the American people are about the same... about 50/50....
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