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Old 02-14-2009, 12:03 PM   #61
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So Ziggy, you are saying "Yes emotion is real?" Or are you sayng that the people who came out of the 30s scared, and who therefore missed the collosal post war bull market were right?
Wow, I have no idea what led you to that conclusion. It's not a matter of whether they are (or will be) "right", but simply an emotional reaction.
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Old 02-14-2009, 12:10 PM   #62
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Maybe so, but I also think this market is making the rubber hit the road with respect to evaluating risk tolerance.

It's one thing to say you can stand a 40% market decline when you are talking about hypothetical money in some risk tolerance evaluation. It's quite another to actually lose that much in real money. As a result I do think some risk tolerances will be reevaluated and lot of people will realize they don't have as much of it as they thought.

We certainly do have "recency bias" in our thoughts about being invested, but many of those who lived through the 1930s saw that experience shape money and lifestyle decisions for the rest of their lives. Many of them became very frugal and extremely risk-averse for life. I suspect that to *some* degree, many people who lost a considerable amount of money in this market will be wondering, maybe after the market recovers somewhat, whether they can stomach these gut-wrenching losses again.
Nothing like being scared to death, to lower one's risk tolerance.

However, looking on the other side of that coin - - I am already concerned that my present asset allocation may be too conservative, if in fact there is a huge jump upwards after the recession is over, along with a lot of inflation. I know, I know. I just have to be different.

Oh well. Life is an adventure, and I am not *that* worried about it.
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Old 02-14-2009, 03:40 PM   #63
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Can someone give me a reference point for how much a retiree would start out with in these buckets? For example, for the default FireCalc conditions, 30 year, 4% SWR, 95% success rate. I guess I'd just like to understand what AA the starting point would be.

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It has nothing to do with % but more to do your withdrawal rate,
bucket 1: 7 years of withdrawals
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Old 02-14-2009, 04:00 PM   #64
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It has nothing to do with % but more to do your withdrawal rate,
bucket 1: 7 years of withdrawals
bucket 2: 8 years of withdrawals, adjusted for inflation
bucket 3: whatever is leftover
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But that starts you off at an AA, and that's what I was trying to get some perspective on. So, very roughly 50-50, as RIT mentioned.

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Old 02-14-2009, 04:01 PM   #65
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Target Retirement 2015, waaay down but full auto gives SEC yield = 3.72% plus the Norwegian widow is putting on weight cause she doesn't even have to walk to the mailbox anymore.

And you know even though this thread is about Ray - :

Psst Wellesley = 5.5% SEC yield.

Sooo being down to ballpark 4%(counting the widow stocks) and a warm handgrenade, I am spared the emotional aspects of rebalancing as those Vanguard computers and auto deduct to Prime MM takes care of that.

heh heh heh - But watching Mr Market still ain't fun lately even though my defense is holding.
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Old 02-14-2009, 04:32 PM   #66
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But that starts you off at an AA, and that's what I was trying to get some perspective on. So, very roughly 50-50, as RIT mentioned.
It's a sliding scale, though. If you set the SWR higher, return assumptions high, etc. the calculations and allocations change (it's really a set of future value calculations designed to make each bucket last the designated amount of time).

The 50:50: or time horizon mentioned by TeeJay are just examples using average assumptions.
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Old 02-14-2009, 11:40 PM   #67
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Best idea we've come up with was to continue reinvesting dividends as long as our asset's share prices are below their long-term moving averages. When they rise above their MAs then we'll start taking dividends in cash and putting them in money markets or long-term CDs. At some point some of that cash may be permanently set aside, but I suspect that it'll go back to work when the share prices drop below their long-term MAs. I suppose part of the discipline of the strategy would be waiting for rock bottom or waiting for a CD to mature before dumping it into an underpriced asset. But instead I think we'd just keep trickling cash into whatever asset drops below 18%.
Would it make sense to put all dividends/distributions into a MM fund regardless of how the market is doing, then at year end use it for next year's living expenses--if there is extra, buy whatever asset class needs to be increased most in your allocation target. If more rebalancing is needed, sell whatever is above the target % and buy whatever is too low.
Doing this just once a year helps keep the emotion out of it for me. Also, it doesn't encourage me to check my balances often, which I think is a good thing. Finally, I'm a little lazy about these things, so it fits my personality.
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Old 02-15-2009, 12:30 AM   #68
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Samclem,

I discovered that Nords and I are doing just that. This past year I started taking money out of the MM fund to buy a 5-year CD to start a CD ladder. Normally I rebalance from the MM fund, but everything seems to have gone down about the same so have not rebalanced this year.

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Old 02-15-2009, 06:07 AM   #69
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according to the research done in jason zweigs book "your money your brain" we as humans hate loosing money more then we like making money.... many financial decisions were made by groups of people using brain scans and all had similiar reactions.

its human nature to panic on the drops.... funny thing the tests showed was once we expierenced the drop we were okay with it again and looking forward to the rise back..... but our fear of loosing still paralyzes most of us more
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Old 02-15-2009, 08:40 AM   #70
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Would it make sense to put all dividends/distributions into a MM fund regardless of how the market is doing, then at year end use it for next year's living expenses
One could probably create a mechanical model to do this, but if I still had ten years of safer investments to draw from, I'd hate to not reinvest dividends at today's stock prices.

On the other hand, if I had less than five years left in my safer buckets, it might be something I'd reluctantly do instead of actively selling depressed stock positions.
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Old 02-15-2009, 08:52 AM   #71
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Would it make sense to put all dividends/distributions into a MM fund regardless of how the market is doing, then at year end use it for next year's living expenses...
Another variation is, use those dividends for expenses throughout the year. Then, rebalance as needed (at the end of the year, or when AA exceeds target by X%).

I haven't done the math, but between divs and draw down of the fixed as a normal process of re-balance, I would have many years before I would need to sell much of the equities. Buckets, or AA/re-balance - I'm thinking the differences are not really that significant.

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Old 02-15-2009, 10:20 AM   #72
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Another variation is, use those dividends for expenses throughout the year. Then, rebalance as needed (at the end of the year, or when AA exceeds target by X%).

I haven't done the math, but between divs and draw down of the fixed as a normal process of re-balance, I would have many years before I would need to sell much of the equities. Buckets, or AA/re-balance - I'm thinking the differences are not really that significant.

-ERD50
That would work.

My plan is to put my dividends and LTCG in money market, and leave them there until the first week in January. Then, I'll withdraw my 4% (or less if required in order to have 4% in my savings account earmarked for that year's living expenses). After withdrawing I'll rebalance my portfolio (not counting the bank account). I also rebalance during the year if my AA gets more than X% off.

Each month I will move 1/12th of my living expenses from savings to checking, to simulate getting a steady paycheck each month so that I won't feel nervous about lack of same. I really like this idea!! It is SO consistent with my psychology that it "fits" me like a glove.

To make this slightly more relevant to Buckets of Money - - part of my asset allocation is my small Roth IRA, which is my "play money" account and invested pretty aggressively. I consider that to be a bucket of money with a 25 year time horizon so I won't get into it or even use it for rebalancing until that time. It is just going to sit there for 25 years and (hopefully) grow to be huge, producing lots of $$ to add to the other money I have for end of life expenses and for my heirs after I am gone. Meanwhile I can rebalance by juggling things in my other accounts.
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Old 02-15-2009, 11:55 AM   #73
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My plan is to put my dividends and LTCG in money market, and leave them there until the first week in January. Then, I'll withdraw my 4% (or less if required in order to have 4% in my savings account earmarked for that year's living expenses). After withdrawing I'll rebalance my portfolio (not counting the bank account). I also rebalance during the year if my AA gets more than X% off.
How were you planning on handling taxes, or is your total tax liability being handled by your pension? I take the monthly dividends and capital gains payouts and hold them in a MMA as you indicate, then withdraw in December having my tax liability deducted from the withdrawal. I rebalance in December just to put the entire portfolio in perspective.


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Each month I will move 1/12th of my living expenses from savings to checking, to simulate getting a steady paycheck each month so that I won't feel nervous about lack of same.
Your bank won't do this for you? Or can you set up an automatic transfer using you're bank's online application? I have an automatic transfer going from my savings to my checking twice a month (similates my old paycheck plan) to cover my average expected expenses.

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Old 02-15-2009, 12:13 PM   #74
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My plan is to put my dividends and LTCG in money market, and leave them there until the first week in January. Then, I'll withdraw my 4% (or less if required in order to have 4% in my savings account earmarked for that year's living expenses).

Each month I will move 1/12th of my living expenses from savings to checking, to simulate getting a steady paycheck each month so that I won't feel nervous about lack of same. .
I also do a modified version of this plan bypassing the savings account . On Jan.1 I write down my 4% allowance then monthly I transfer a small amount from my MM to my checking . The rest stays in my MM for taxes , travel,gifts and unexpected expenses .
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Old 02-15-2009, 12:18 PM   #75
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How were you planning on handling taxes, or is your total tax liability being handled by your pension? I take the monthly dividends and capital gains payouts and hold them in a MMA as you indicate, then withdraw in December having my tax liability deducted from the withdrawal. I rebalance in December just to put the entire portfolio in perspective.
My plan was to take the money for my taxes out of the 4%, after I get it... I would put money aside for taxes, just as I do now. I won't really need 4% to live on, so I am thinking that I shouldn't have much problem saving enough for taxes between January and April. If saving enough during that period turns out to be a problem then I'll definitely have to re-think! In that case I would probably just take it out of the remainder of the 4% (in savings) and divide what is left there by the number of months left, lowering my monthly "allowance" for the rest of the year.

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Your bank won't do this for you? Or can you set up an automatic transfer using you're bank's online application? I have an automatic transfer going from my savings to my checking twice a month (similates my old paycheck plan) to cover my average expected expenses.
Sure, my bank would do it automatically if moving money by hand once a month is inconvenient. Good idea! I'll just see how it goes, I guess.
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Old 02-15-2009, 12:21 PM   #76
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according to the research done in jason zweigs book "your money your brain" we as humans hate loosing money more then we like making money.... many financial decisions were made by groups of people using brain scans and all had similiar reactions.

its human nature to panic on the drops.... funny thing the tests showed was once we expierenced the drop we were okay with it again and looking forward to the rise back..... but our fear of loosing still paralyzes most of us more
Precisely - forty years of er 'rational investing' and a prior career as a 'steely eyed rocketman' - got me to Target Retirement and full auto.

And don't even ask me how many deck chairs on the Titanic - aka Norwegian widow stocks I've shuffled last year and this to harvest tax losses and regroup into better stocks.

None.

I can just picture myself trying to follow the buckets of money approach with complete confidence.

heh heh heh - like POGO looking in the mirror - we have met the enemy and we is them. Or something .
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Old 02-15-2009, 12:26 PM   #77
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I also do a modified version of this plan bypassing the savings account . On Jan.1 I write down my 4% allowance then monthly I transfer a small amount from my MM to my checking . The rest stays in my MM for taxes , travel,gifts and unexpected expenses .
That idea is just as good or better from the standpoint of interest (since my MM yield is slightly higher interest than my bank account). In my case, I don't include my bank account in rebalancing, so I think it might make rebalancing less confusing for me during my first year. I dunno. I might try your method once I "settle in" to the distribution phase of life.
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Old 02-15-2009, 01:15 PM   #78
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That idea is just as good or better from the standpoint of interest (since my MM yield is slightly higher interest than my bank account). In my case, I don't include my bank account in rebalancing, so I think it might make rebalancing less confusing for me during my first year. I dunno. I might try your method once I "settle in" to the distribution phase of life.

The thing that seems to be missing from your plan is extra money for large unexpected items ( Such as a new air conditioner which took $6,000 of my budget last year ) or will they come out of your monthly allowance ?
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Old 02-15-2009, 02:52 PM   #79
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Would it make sense to put all dividends/distributions into a MM fund regardless of how the market is doing, then at year end use it for next year's living expenses--if there is extra, buy whatever asset class needs to be increased most in your allocation target. If more rebalancing is needed, sell whatever is above the target % and buy whatever is too low.
Doing this just once a year helps keep the emotion out of it for me. Also, it doesn't encourage me to check my balances often, which I think is a good thing. Finally, I'm a little lazy about these things, so it fits my personality.
Sure-- I think that's the essence of living off the dividends. It's a lot simpler too.

I'm still unclear on our concept of "taking some off the table", especially if refinancing has turned our cashflow positive. I'd happily reinvest dividends until we needed to sell (for whatever reason) and then pay cap-gains taxes. However that ends up making us front-row spectators for the occasional 40% meltdown. It's not that we can't handle banging our heads on a wall, it's just that it feels so good when we stop...
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Old 02-15-2009, 03:15 PM   #80
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That would work.

My plan is to put my dividends and LTCG in money market, and leave them there until the first week in January. Then, I'll withdraw my 4% (or less if required in order to have 4% in my savings account earmarked for that year's living expenses). After withdrawing I'll rebalance my portfolio (not counting the bank account). I also rebalance during the year if my AA gets more than X% off.
Will you only have 1 year of expenses in cash equivalents in Jan?
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