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Old 10-08-2014, 08:45 AM   #21
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Originally Posted by BBQ-Nut View Post
....

I don't want to start FIRE with a 'bad sequencing'.
...
It might seem like semantics, but I think it useful to look at it this way -

Those bad runs in FIRECalc weren't people retiring into bad sequences, they were people retiring after a major rise in the market. IOW, if the market has risen 60% in three years (like SPY has done), are you really more prepared to retire now than you were three years ago (ignoring adds/withdraws from your portfolio and other timing effects)? You still own basically the same 'stuff', only the assigned value has changed. And generally, after we see a fast and steady rise, we see a correction (though knowing just what levels each will hit is very tough, IMO). Values tend to revert to the mean.

Although, if you have a 100% safe withdraw rate, and the future is no worse than the past, then that WR will survive the dips.


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....
If the market continues to sell off and slide - I may have to face OMY
...
If you are that close, and that freaked out by this little blip (which may or may not turn into a big blip, but we can't tell from this little blip), than OMY might be the thing to do.

Oh, market is recovering a bit this AM - is everything OK now?

-ERD50
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Old 10-08-2014, 08:57 AM   #22
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Not me. This "downturn" isn't a significant one so far. Even it turns out to be one, it won't change my mind. What keeps me doing OMY is other things like my parents potential LTC cost, secular bear market (vs corrections), etc. Ask again if market goes down another 1000 points.
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Old 10-08-2014, 09:37 AM   #23
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I am in a similar situation with my target date being 12/31/15. A couple of points that might help:

I have a couple of really poorly performing funds this year (one Int'l and one aggressive large cap that I need to hold because of cap gains exposure) that have crushed my returns but I'm still up for the year. Other than the fact that this year's curve is not great for DCA'ing, should a correction really matter if you are still up? What if we were +30% for the year and we had a 10% drop? I'd still be thrilled. Others wouldn't if they mentally locked in those gains the minute they happened. I also try to consider the last 12 months or at least the current YTD to get some perspective on how things really are.

Actually, I look at the EOY 2015 date as a close to best case scenario for those nervous about valuations. If we see a drop it gives you a chance to replenish before you go out. If the market goes up then that is more cushion. Just don't mentally "lock" those gains in as your base.

As mentioned earlier, if this drop made you nervous then you should probably take a hard look at your AA and at your planned WR/expenses. You may in fact be cutting it too close for your comfort level.

Good luck to both of us!
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Old 10-08-2014, 10:32 AM   #24
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Not watching it too closely. Earlier in the year before I FIRE'd I set aside about two years of cash and equivalents knowing that there will always be bear markets and bull markets.
Class of 2016 here, and we're gonna have 4 years of expenses in cash/short-term FI.

Need a plan to handle market dips/pullbacks. If a 5% decline causes you angst, you aren't prepared, IMO.
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Old 10-08-2014, 10:40 AM   #25
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I set my goal at a 3% WR from my portfolio high and 3.5% using 80% of the Equity portion and 90% of the fixed income portion to help me stomach market declines. Hopefully that keeps me from another OMY or TMY stint !!
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Old 10-08-2014, 12:18 PM   #26
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The softness in the market has me concerned that my wife or I might freak out. I have been doing OMY for two years, and have enough, plus a really healthy cushion. when I cut our stocks in half as a spreadsheet and firecalc exercise, we are still good to go. The main thing I've been trying to study, and educate my wife so that we keep the course. I've warned her that sometime we will likely face a significant market decline, and have to rebalance into stocks, and that having stocks is the main way we'll have to protect against inflation, so we can't put all the money in to CDs and T-Bills like her dad does. Right now we have 38% stocks; I can't convince her to buy any more. This year, since I believe I am way over due to FIRE
I have been putting every dollar into a VACATION ONLY fund, so that I make sure we take some trips regardless; it's about the only way I can get myself up to the office, and even then it's hard. We might cut back a little to feel SAFE, but it won't be on VACATIONS !

Will FIRE December 31, 2014 (44 days left in the office).
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Old 10-08-2014, 12:50 PM   #27
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The softness in the market has me concerned that my wife or I might freak out. I have been doing OMY for two years, and have enough, plus a really healthy cushion. when I cut our stocks in half as a spreadsheet and firecalc exercise, we are still good to go. The main thing I've been trying to study, and educate my wife so that we keep the course. I've warned her that sometime we will likely face a significant market decline, and have to rebalance into stocks, and that having stocks is the main way we'll have to protect against inflation, so we can't put all the money in to CDs and T-Bills like her dad does. Right now we have 38% stocks; I can't convince her to buy any more. This year, since I believe I am way over due to FIRE
I have been putting every dollar into a VACATION ONLY fund, so that I make sure we take some trips regardless; it's about the only way I can get myself up to the office, and even then it's hard. We might cut back a little to feel SAFE, but it won't be on VACATIONS !

Will FIRE December 31, 2014 (44 days left in the office).
You should expect one or more 10% corrections in any given year. A 20 to 30% correction should be expected every 2 or 3 years. Fortunately, the nominal 50% drop in 2008/2009 usually only happens every 30 or 40 years. Up until now, the market has always come back in a reasonable period of time.

If you FIRE in January you get health insurance with the employer subsidy for a month. No big deal but....

I'm planning to pull the plug 5 Jan 2015 with one goal to take vacation over Christmas and New Years weeks. I also want to avoid any question on some company contributions to my SERP account that vests on 12/31/14. It's not a fortune but it's mine. Where's Scrooge McDuck when you need him!

The company has given people 2 weeks notice even when they are terminated for cause. If for cause, they get cash. Any RIFs have to come in for the money so who gets the better deal? In return we are asked to give 2 weeks notice when terminating. I'll do that and I will stay a bit longer if asked to smooth out any transition for my last project. This company has been very good to me when I needed the opportunity.
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Old 10-08-2014, 02:00 PM   #28
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I'm not too concerned. I'm fortunate the market only affects one of my retirement "legs". We have planned our savings so that withdrawals to supplement my pension do not need to come from our market investment principal until we hit 63 (in 7 years), when we are currently targeting to start taking SS if needed.
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Old 10-08-2014, 02:05 PM   #29
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Not watching the market at all. With a conservative 2.5% WR and a 40/60 AA, I'm not thinking about Mr. Market's short term moves. I've calculated what my short term losses would look like if stocks tanked 50%, and I'm still comfortable. FIDO, Firecalc, Financial Engines have me dying with altogether too much money left over. Even ESPlanner, in its most conservative mode, shows a standard of living that's consistent even in worst case market conditions.

As noted above, Kitces recent work on SOR demonstrated it's roughly the first decade of retirement SOR versus the first 1-2 years that's most important. If you're worried about SOR, remain flexible with your WR, consider going back to work PT in a worst case scenario, or even consider an annuity at 70, 75, or 80 should the PF start looking shaky then. IIRC, this is Dirk Cotten's basic advice. And I believe it's Otar who provides warning signal methods for various stages of PF life health (before, during, and after retirement) when one should take alternative action should the situation warrant.

The key, as in all things, is flexibility, alertness, and agility.
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Old 10-08-2014, 02:25 PM   #30
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You should expect one or more 10% corrections in any given year. A 20 to 30% correction should be expected every 2 or 3 years. Fortunately, the nominal 50% drop in 2008/2009 usually only happens every 30 or 40 years. Up until now, the market has always come back in a reasonable period of time.

If you FIRE in January you get health insurance with the employer subsidy for a month. No big deal but....

I'm planning to pull the plug 5 Jan 2015 with one goal to take vacation over Christmas and New Years weeks. I also want to avoid any question on some company contributions to my SERP account that vests on 12/31/14. It's not a fortune but it's mine. Where's Scrooge McDuck when you need him!

The company has given people 2 weeks notice even when they are terminated for cause. If for cause, they get cash. Any RIFs have to come in for the money so who gets the better deal? In return we are asked to give 2 weeks notice when terminating. I'll do that and I will stay a bit longer if asked to smooth out any transition for my last project. This company has been very good to me when I needed the opportunity.
Thanks for reminding me that we are unlikely to see a 50% drop in stocks next year ! I'm going to use the total portfolio return approach, and keep balancing back to 38% to 40% stocks, with the rest in bonds/cash. If we have a bad sequence of returns, that will mean we will be living on bonds we sell, and cash, until stocks recover. Fortunately we have well over 10 years living expenses in bonds/cash, and pensions/social security will be coming in 6 to 10 years as reinforcements, depending on what social security timing strategies we wind up with.

I need to fess up a little - technically I'm FIRE 2015. I'm giving three notice the middle of December, so I can call myself a December 31, 2014 FIRE. Plenty of notice. Yes, they've been good to me, and so has the oil business lately. However, like you, I'm waiting until January 9th for the exit interview. There won't be any W*RKING days for me in 2015 other than that exit interview. I'm going to pick up the five days of monthly and annual flex time and floating holidays in January, be paid for staying home.

And of course get another month of COBRA, plus get my wife enrolled in some benefits she isn't enrolled in at the present. COBRA still looks like it could wind up being cheaper than the health insurance now available with the ACA if our income is too high for subsidies.

Plus I get paid for 6 weeks vacation for 2015 by staying until December 31st. It's amazing all the little treats you can pick up if you dig through the HR site, and their policies.

One thing I want to miss is the performance review cycle in February / March ! Why would I want to go through that for a raise I won't be able to use? I'll miss the April bonus too, but I'm ready to FIRE.
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Old 10-08-2014, 02:34 PM   #31
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Hopefully it's true that we won't see another ~50% drop anytime soon! FWIW, depending on how you want to look at it, I've already seen two drops of ~50%, going from peak to trough. The first was from a peak in 2000 to a trough sometime in late 2002. It was long and drawn out, and somewhat masked by the fact that I kept investing throughout that period. So while my return was around -50%, my asset total was only down around 31% (~69K to ~48K). Also, since I didn't have much invested back in those days, it didn't take much of an additional investment to sway things.

The second time was from October 2007 to November 2008, when I saw about a 50.5% loss (~422K to ~210K).

But, if I want to put a more optimistic spin on it, there has never been a single calendar year (12/31 to 12/31) that I saw a 50% drop. Even 2008 was only about a 37.5% drop (ended 2007 with around 415K and by the end of 2008 it was around 260K). When you consider that I was still investing that whole time, the loss was actually greater, but I didn't invest enough that year to make it a 50% loss.
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Old 10-08-2014, 02:37 PM   #32
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I'm hoping the market tanks about 20% or more, so I can buy some good deals.
Sure I'm FIRE'd , but like some others I only used a portion of savings in the retirement calculators (75%) and we were good !
This allows me to sleep easy knowing we could easily take a 25% drop in the market.

We also have a number of years of cash available.
Yesterday I bought a little VTV , just in case the market went back up for a few years.
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Old 10-08-2014, 02:42 PM   #33
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...
Plus I get paid for 6 weeks vacation for 2015 by staying until December 31st. It's amazing all the little treats you can pick up if you dig through the HR site, and their policies.
...
Perhaps you can sign up for a massive FSA, and spend it, while only making a month or two contribution, although I think if you take COBRA maybe you have to make the FSA payments (really unsure).
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Old 10-08-2014, 03:55 PM   #34
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Class of 2016 here, and we're gonna have 4 years of expenses in cash/short-term FI.

Need a plan to handle market dips/pullbacks. If a 5% decline causes you angst, you aren't prepared, IMO.


X2 Mike
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Old 10-08-2014, 04:08 PM   #35
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Oh, market is recovering a bit this AM - is everything OK now?

-ERD50
Made my 2014 IRA contribution at yesterdays close…wahoo! Market goes down and up. Stay the course.
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Old 10-08-2014, 06:24 PM   #36
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I take a look frequently but don't really look at month over month changes more than, well, monthly. We lost $50k in September which represents 1.5 years of living expenses. Oh well.

If the portfolio loses another few hundred thousand dollars then I might be more concerned and consider backup Plan A (temporary reduce or defer expenses, consider small additional side income).

Otherwise I'm liking the drop in prices. I'm sitting on $40k+ in cash and I'm thinking about making IRA and solo 401k contributions with about half that money to offset DW's continuing income and to shelter my small side hustle income so we can pay zero tax (actually get a huge refund in the form of a refundable additional child tax credit x3).
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Old 10-08-2014, 06:33 PM   #37
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I am retired but if I was still working I would see this as a buying opportunity. As it is, I am not too worried, because I expect to underspend my projected expenses for 2014, my car loan ends in July 2015, which will help cash flow, and I can take 2015 income from my cash buffer. I can also defer making major travel plans (e.g. Australia) in favor of less costly vacations. In fact, I'm glad that I took some of my gains in 2014.
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Old 10-09-2014, 08:23 AM   #38
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Retired in May and I'm trying to stay calm. Our investments are still up about $100K over what we put in this year. We withdrew only $20K this year and that should last us for a few months. I've got over $40K in cash still in the brokerage accounts and can use it either for future withdrawals or buying opportunities.

I've seen my portfolio recover from past dips; the difference now, of course, is that I'm not constantly funneling in new money from payroll deductions. If we have a 2008-style drop, I may decide to take out a mortgage when we downsize rather than pay cash for the new home, or even start SS early to minimize selling equity investments when markets are down. We could also cut discretionary spending; the biggest item there is travel. DH and I can be downright cheap when we have to be.

One day at a time.
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Old 10-09-2014, 08:40 AM   #39
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The Vanguard Total Stock Market Admiral Shares (VTSAX) is up 6.69% YTD. I realize that small cap is flat YTD and the Total Internation Stock Index is down 1.19%. We aren't talking a crisis here or even a bad year. If you are feeling angst now, you need to revisit your expectations of being in the equities market.
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Old 10-09-2014, 08:42 AM   #40
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BBQ-Nut,

If the possibility of a downturn is freaking you out, I suspect your OMY comment may turn into OMY*X, with X>1
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