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Define "good"
Old 12-07-2015, 05:06 PM   #1
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Define "good"

Not a philosophical question, although interesting!
I have always read that of the market does "well" in the first few years of your retirement, you are much better off. But I am not sure what "well" means: 10%, 15%, keeping your bottom line stable rather than going down? And what is meant by a "few" years--2, 5?
I have a couple of part-time jobs and am pondering how long I will keep each. Adored Spouse has the same situation.
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Old 12-07-2015, 05:13 PM   #2
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Rather than years, one might use fraction of retirement; five years of "good" means a lot more to a 68 year old retiree (first 20% of retirement in the good range) than it would to a 48 year old retiree (first 10% of retirement in the good range).

I think the idea is that if you have a rough patch right after retiring, you're need to eat into your nest egg too harshly, and so no as much to compound upon.

As to the "good" question, I always thought it was more along the lines of "not bad". In other words, keeping up with inflation or better would be "good".
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Old 12-07-2015, 05:31 PM   #3
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Quote:
Originally Posted by palomalou View Post
Not a philosophical question, although interesting!
I have always read that of the market does "well" in the first few years of your retirement, you are much better off. But I am not sure what "well" means: 10%, 15%, keeping your bottom line stable rather than going down? And what is meant by a "few" years--2, 5?
I have a couple of part-time jobs and am pondering how long I will keep each. Adored Spouse has the same situation.
This may help.

Below is a chart from the front page of FIRECalc giving examples of a 750,000 starting portfolio withdrawing $35k per year. "Good"(green - retired in 75), "OK" (blue - retired in 74) and "Lousy"(red - retired in 73). You can check out how the market performed in the first few years following each retirement to see what "good" looks like.
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File Type: jpg FIRECalc.JPG (30.3 KB, 48 views)
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Old 12-07-2015, 05:31 PM   #4
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As to the "good" question, I always thought it was more along the lines of "not bad". In other words, keeping up with inflation or better would be "good".
I agree. As long as you are not getting a negative return in the first 2-3 years, you should be 'good'.
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Old 12-07-2015, 06:17 PM   #5
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I agree. As long as you are not getting a negative return in the first 2-3 years, you should be 'good'.
+1

I'm no expert but those are my thoughts as well. The better the return, the better it is. I guess higher returns would go beyond 'good' to 'terrific' or 'spectacular'.
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Old 12-07-2015, 06:25 PM   #6
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I agree. As long as you are not getting a negative return in the first 2-3 years, you should be 'good'.
Uh oh. 2015 is our first year and a 600 point drop right now would put us in the negative return area. I think we are only up 2% YTD right now which is a negative real return.
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Old 12-07-2015, 08:46 PM   #7
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Quote:
Originally Posted by palomalou View Post
Not a philosophical question, although interesting!
I have always read that of the market does "well" in the first few years of your retirement, you are much better off. But I am not sure what "well" means: 10%, 15%, keeping your bottom line stable rather than going down? And what is meant by a "few" years--2, 5?
I have a couple of part-time jobs and am pondering how long I will keep each. Adored Spouse has the same situation.
I think that as long as your stash stays constant despite your withdrawal, you are in good shape. If that is true after inflation is accounted for, all the better.

And if it even goes up after your expenses, hallelujah!
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Old 12-07-2015, 09:34 PM   #8
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I think that as long as your stash stays constant despite your withdrawal, you are in good shape. If that is true after inflation is accounted for, all the better.

And if it even goes up after your expenses, hallelujah!

Yep--the above method is what we are using to determine a good/bad year.

We are down about $5k for the year. But considering-- 1 kidney stone surgically removed, 1 yearly colonoscopy, 2 sets of glasses, 1 set of contacts, a healthy dental bill and a small vacation-- we still call it a good year.
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Old 12-07-2015, 09:44 PM   #9
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Originally Posted by palomalou View Post
Not a philosophical question, although interesting!
I have always read that of the market does "well" in the first few years of your retirement, you are much better off. But I am not sure what "well" means: 10%, 15%, keeping your bottom line stable rather than going down? And what is meant by a "few" years--2, 5?
I have a couple of part-time jobs and am pondering how long I will keep each. Adored Spouse has the same situation.
Of course these are fuzzy words. Any answer requires some arbitrary cut-off.

I used cfiresim with the default assumptions - $1 million portfolio, $40k CPI adjusted withdrawals, 75/25 stocks/bonds, 30 year horizon, 115 historical starting points.

I compared CPI-adjusted ending portfolios for the first 5 years to the lowest CPI-adjusted portfolios over the 30 year period.

There were 5 failures - ending portfolio below $0. Looking at the lowest of the first 5 years for each of these scenarios, those lowest numbers varied between $755k and $900k. i.e. If the worst ending year in the first 5 was better than $900k, then the portfolio survived the 30 years.

Being a little more general, let:
Low5 = lowest ending value in first 5 years
Low30 = lowest ending value in any of the 30 years.

There were 56 cases where Low5 was below $900k.
In those 56 cases, 21 would have Low30 below $400k,
and of those 21, 5 would have Low30 below $0.

There were 59 cases where Low5 was above $900k.
In those 59 cases, 3 would have Low30 below $400k,
and none of those 3 would have Low30 below $0.

I didn't look at what it took in terms of yields to get an ending value below $900k in the first 5 years. It seems like a constant real return of 2.2% would be right on the border. But, there are obviously many patterns of variable returns that would do it.
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Old 12-07-2015, 10:25 PM   #10
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IIRC, Jim Otar, in his book "Unveiling the Retirement Myth" said that if your portfolio was lower than the original value four years into retirement, you had a very high failure rate. (I can't remember if it was in nominal or real terms)

otar retirement calculator

I can't find my copy of the pdf any more to verify what I remember.
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Old 12-07-2015, 10:34 PM   #11
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IIRC, Jim Otar, in his book "Unveiling the Retirement Myth" said that if your portfolio was lower than the original value four years into retirement, you had a very high failure rate.
Wow. At the 4 year point (mid 2009) I was down about 25%.
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Old 12-07-2015, 10:41 PM   #12
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Wow. At the 4 year point (mid 2009) I was down about 25%.
Please check against the book before you lose any sleep based on my, often faulty, memory.
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Old 12-07-2015, 10:50 PM   #13
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If your portfolio stays the same after 4 years, then your WR is also the same. Of course you will be OK, because while you are drawing for a 26-year retirement, a newbie who starts retirement now still has 30 years ahead of him and he is drawing the same amount as you do. So, this cannot be a requirement.

If your stash is to be depleted linearly with time, then 4 years into a 30-year retirement it would be down about 4/30 = 13%.

That is roughly about the same as what Independent observes earlier, that the breakpoint is about 10% down at the 5-year mark.
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Old 12-07-2015, 11:04 PM   #14
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Quote:
Originally Posted by walkinwood View Post
IIRC, Jim Otar, in his book "Unveiling the Retirement Myth" said that if your portfolio was lower than the original value four years into retirement, you had a very high failure rate. (I can't remember if it was in nominal or real terms)

otar retirement calculator

I can't find my copy of the pdf any more to verify what I remember.


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Please check against the book before you lose any sleep based on my, often faulty, memory.

I managed to find mine. His exact quote was:

"Among the three components of the luck factor, the sequence of returns is by far the most important. Two negative years or four flat years at the beginning of retirement can cut the portfolio life by half. There is little one can do to mitigate a bad sequence of returns with buy–and–hold portfolios."
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Old 12-07-2015, 11:16 PM   #15
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I would not base anything on any rules or quotes from someone. Run the numbers for yourself. If you do not have to withdraw as much during down years (lowering your budget, selling other assets like a house, taking SS early, taking a lump sum for a pension, etc) then the sequence of returns is not a killer.
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Old 12-07-2015, 11:36 PM   #16
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If your portfolio stays the same after 4 years, then your WR is also the same. Of course you will be OK, because while you are drawing for a 26-year retirement, a newbie who starts retirement now still has 30 years ahead of him and he is drawing the same amount as you do. So, this cannot be a requirement.
Your withdrawals would be higher than the newbie because you've adjusted them for inflation every year. In today's low inflation world that may be a non-issue.
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Old 12-08-2015, 06:48 AM   #17
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Isn't this where a "healthy" bucket of cash comes in handy?

If the first few years post-retirement result in negative returns:

-- Reduce the withdrawal rate and supplement from cash accounts.

-- Maintain the same withdrawal rate but do not adjust for inflation
again supplementing from cash accounts if needed.

For time periods such as end 2008......suspend withdrawals and take from cash accounts if possible. Of course this requires a large balance in cash/short term investment accounts.
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Old 12-08-2015, 07:58 AM   #18
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Please check against the book before you lose any sleep based on my, often faulty, memory.
He just said it was a warning signal.
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Old 12-08-2015, 08:09 AM   #19
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Quote:
Originally Posted by walkinwood View Post
IIRC, Jim Otar, in his book "Unveiling the Retirement Myth" said that if your portfolio was lower than the original value four years into retirement, you had a very high failure rate. (I can't remember if it was in nominal or real terms)

otar retirement calculator

I can't find my copy of the pdf any more to verify what I remember.
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Wow. At the 4 year point (mid 2009) I was down about 25%.
These discussions focus on the math of portfolio declines. What matters just as much (or perhaps even more) is not the decline but how one acts afterwards. No one embraces a market shock (except perhaps Warren B) but these early declines are a more of a risk to those that don't have the discipline to rebalance.

REWahoo's graph and thread show that the impact of early declines can be offset and plan integrity maintained by staying diversified and rebalancing after equity prices have fallen.
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Old 12-08-2015, 08:15 AM   #20
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I agree that the models that are typically run don't adjust spending for down markets. This is a good model for people who's budget include zero discretionary spending, but that's not most of us here. When markets are down / there is an economic slow down, everyone, not just the retired, pull back, so it's not as hard to cut back on discretionary.

The way the models usually work is you plan once, at the beginning of retirement, then blindly do what it says until the end (not realistic). The reality is that we run the model every year, if not more often, and if changes are called-for to stretch it out a bit, those changes can be made.
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