Firecalc says my portfolio reaching critical stage

[cashflo2u2]

After running firecalc for several years using a cushion of a substantial amount for a terminal value and still showing 100% success rate, my portfolio just reached a value that firecalc says is the minimum amount (with no cushion terminal value) to achieve 100% success rate. Bogle was on CNN the other day and stated that IF one cannot afford to lose another nickel they MUST sell out even at these depressed market levels. Because of my age I cannot replace this stash. I am thinking of throwing in the towel and go either all fixed (mostly ginnemae) or 100% VWIN? Or should I grow a backbone and rebalance taking a lot out of fixed and into equities? Comments welcome.

 

[BunsGettingFirm]

I visited your profile page but didn't see your age anywhere, so what makes you say that you absolutely cannot replace the stash? Can you get a part time job? Even a job that pays $20k a year will replace quite a bit of your portfolio.

 

[cashflo2u2]

I forgot what I said on my profile, but I retired somewhat early but am now collecting collecting SS and a small pension. In other words, I will never see 65 again. I could work PT yes, and am considering that, but no way would that add to the portfolio balance. Only reduce the pay out, as I am in a distribution mode.

 

[al_bundy]

same thing as the other thread, please sell now to make my buy in prices in the next 5-10 days that much cheaper. maybe even by wednesday. volume seems to be dying down pretty fast. as soon as the energy/commodity stocks finish being sold off this thing is over

 

[Gone4Good]

If you could tell FIRECalc to run the analysis for all periods where stocks already dropped 40%, I think you'd find you still have plenty of cushion.

If you look at the year-by-year data FIRECalc spits out for a safe withdrawal scheme in a stress period like the 1970's, you'll find years where the annual withdrawal rate is well above what would be considered safe for a starting portfolio. That is because those periods are preceded by sub-par financial performance. Because of mean reversion, that sub-par performance has always been followed by above average performance . . . eventually.

Remember, if the plan really did have a 100% survival rate last year, it still has the same chance today.

 

[haha]

same thing as the other thread, please sell now to make my buy in prices in the next 5-10 days that much cheaper.

This is really impolite. This man is suffering.

You are starting to resemble your TV avatar.

Ha

 

[al_bundy]

if he sells now then next month he'll probably wishing he hadn't

don't know about next year, but this part of the bear is almost over at least for the next few months. tech is on it's last leg down and the only thing holding the SP500 up above the 2002 lows is that energy, commodities and healthcare haven't capitulated yet. once they do, it's off to the races again

everything i read said that next year will be lower, but i see tech stocks starting to head up and tech always leads the way in a new bull which makes me think there is a strong possibility that the next few days will be the absolutely lowest we'll go for the next few decades

indexes will most like go below the October 10th lows and maybe just below the 2002 lows, but that's probably it unless we get some catastrophic event like a nucular attack or another 9/11, even in the 1929-1932 bear there was a powerful rally in 1930 or 1931 that regained most of the losses and stopped out one of the greatest traders of all time out of his shorts. so even if the SP500 goes to 600 this year there is a very good chance it will be higher next year giving us a chance to sell at higher prices than today

 

[W2R]

everything i read said that next year will be lower, but i see tech stocks starting to head up and tech always leads the way in a new bull which makes me think there is a strong possibility that the next few days will be the absolutely lowest we'll go for the next few decades

Well I HOPE you are right, but can you guarantee it? I don't think that even most avid market timer could make that claim.

So, I would suggest perhaps a compromise could be considered? Half the money could be taken out, and half could be left in, rebalanced, and so on.

Bogle was right, if you need every cent just to survive. Sadly, it takes money to make money. But perhaps you can compromise in this way, and economize, and still perhaps earn some with the half that is still in the market.

 

[Rich_by_the_Bay]

Bogle was on CNN the other day and stated that IF one cannot afford to lose another nickel they MUST sell out even at these depressed market levels. Because of my age I cannot replace this stash. I am thinking of throwing in the towel and go either all fixed (mostly ginnemae) or 100% VWIN? Or should I grow a backbone and rebalance taking a lot out of fixed and into equities? Comments welcome.

Sorry things are so tight after all those years of hard saving. Little comfort that you have ample company.

If you MUST sell low to meet expenses, take out as little as you can. That part time job may not seem like much but it can make a big difference, if it's plausible for you.

You have expressed what everyone seems to be calling capitulation (" I am thinking of throwing in the towel and go either all fixed (mostly ginnemae) or 100% VWIN?"). Ironically, pundits often take that as a sign that a bottom is near.

Hang in if you can.

 

[Sevo]

I can only add that you should not feel alone at this point. Frankly I think that everyone is confused presently.
My gut feeling is to try to ride this out for several reasons. One there is an ungodly number of US dollars sloshing around in the system right now and as time goes on there are going to be more and more cheap dollars pumped out by the fed to try to avoid a financing/ credit disaster. That cheap money is going to be looking for a place to go at some point, especially when the inflation genie gets out of the bottle..My guess is that you do not want to be in fixed dollar denominated assets when that happens. Stocks may not be a great place to be but I think better than a lot of other places. A sudden radical move now may take you out of the frying pan and into the fire
Again I think most of us are a little panicky right now. Ultimately I think that it is not best to react when emotion is running high. Take a few days away from the computer and the idiot talking heads on television. I think that you will feel a little better.

 

[DblDoc]

My statistics are very rusty so hopefully one of the Firecalc gurus will chime in soon but I don't think you are supposed to run Firecalc every year after retiring. When you ran it the year you retired it factored in all the possible outcomes based on its historical database. It would have included really bad bear markets such as this one you are in when it calculated your success rate. Just like you can't rerun it after a really good year and bump up your withdrawal amount you don't rerun it after the market has tanked and now withdraw a lower "SWR" - or decide your plan is now doomed.

DD

 

[REWahoo]

DblDoc is correct*. The gun went off on FIRECalc with your portfolio balance plus future SS, etc. at the point you retired. Further runs of FIRECalc with shrunken portfolio numbers may be a better scare than anything you'll experience on Halloween, but serve no other purpose.

As others have mentioned, a lot of us are in the same boat. We will get through this. Hang in there.




*Actually, you can run FIRECalc after a really good year and use those numbers. Just be sure to reduce the length of time the money needs to last due to the decrease in your expected lifespan.

 

[dex]

Comments welcome.

With a small pension, SS and interest/dividends what percentage of your investment portfolio do you need to meet your expense budget?

 

[harley]

It seems to me if you sell now you will be locking in the very loss you say you can't afford. Despite Nostrodamus Bundy's surety, nobody knows where Mr. Market is going in the short term. My personal feeling/opinion is that we're pretty near a bottom. It may be a long bottom, going on for months, but I doubt the market will go to much lower.

I've been saying for years that the market was over valued, but we're already below where I thought it should be. There's still money out there that can recognise a bargain, combined with the fact that most who would tend to bail have already done so. If you can hold on you might find that while things aren't going to get much better any time soon, they aren't going to get too much worse either. I hope.

 

[Running_Man]

After running firecalc for several years using a cushion of a substantial amount for a terminal value and still showing 100% success rate, my portfolio just reached a value that firecalc says is the minimum amount (with no cushion terminal value) to achieve 100% success rate. Bogle was on CNN the other day and stated that IF one cannot afford to lose another nickel they MUST sell out even at these depressed market levels. Because of my age I cannot replace this stash. I am thinking of throwing in the towel and go either all fixed (mostly ginnemae) or 100% VWIN? Or should I grow a backbone and rebalance taking a lot out of fixed and into equities? Comments welcome.

First off, I have been and continue to be very negative on the market. Having said that I am not a proponent of selling at this point nor rebalancing because it would be an emotional decision based on recent market action. You do not give your percentages of fixed and equity along with your age.

From here it is impossible to tell what the market will do, however panicking in either a rush to rebalance to get more equity on a potential rebound or selling to protect your "stash" are against your better judgement from the tenor of your post. From your post I take you had faith that Firecalc would protect you in a worst cast scenario, worst case scenarios are very scary.

The market has just had the worst first year of a bear market in the history of the US stock market. I would advise sticking with your original plan and if the market fall is making you uncomfortable with your equity investments stay away from rebalancing until the market takes you down to reach a percentage you are comfortable with or takes off to recover and ease your pain, a better option to be sure. From that point you will know it will most likely never be as bad again as this in your life and more sure of how much loss you can sustain and make a prudent unemotional decision on your equity allocation.

 

[al_bundy]

Well I HOPE you are right, but can you guarantee it? I don't think that even most avid market timer could make that claim.

So, I would suggest perhaps a compromise could be considered? Half the money could be taken out, and half could be left in, rebalanced, and so on.

Bogle was right, if you need every cent just to survive. Sadly, it takes money to make money. But perhaps you can compromise in this way, and economize, and still perhaps earn some with the half that is still in the market.

at the very least we are due for a rally of 20% to 25% even if the markets are going into the gutter next year. happened in every major bear market.

bob prechter is still predicting we go lower, but he's been wrong before and reading him makes it seem like he wants the martkets to go lower for some reason

 

[W2R]

at the very least we are due for a rally of 20% to 25% even if the markets are going into the gutter next year. happened in every major bear market.

If you are right, you have made my wildest dreams come true!! I swear that if that happens, I'll be dancing in the streets (right after I rebalance).

I am still of a wary nature but I promise I will believe it when I see it.

 

[shotgunner]

DblDoc is correct*. The gun went off on FIRECalc with your portfolio balance plus future SS, etc. at the point you retired. Further runs of FIRECalc with shrunken portfolio numbers may be a better scare than anything you'll experience on Halloween, but serve no other purpose.

As others have mentioned, a lot of us are in the same boat. We will get through this. Hang in there.




*Actually, you can run FIRECalc after a really good year and use those numbers. Just be sure to reduce the length of time the money needs to last due to the decrease in your expected lifespan.

I have the same question and I am not sure it has been answered. I started a semi-retirement in April of this year. In six months my desired withdrawal is the same, my span of time a mere 6 months shorter so you could say it is the same, BUT my portfolio has decreased by 20%. Does FIRECALC really consider this? If in April 2008 I started a witdrawal based on my balance and it was 100% and by October of the same year I have to reduce the withdrawal amount to maintain 100% which is correct?

If the results in April are what I go with then I can have a larger withdrawal rate simply because I retired before the crap hit the fan? If so I can't get my head around that.

 

[tryan]

I am puzzeled by the need for a 100% FIRECALC survival rate. Odds are greater that "something else" (health crisis, divorce ...) will derail retirement. So why not settle with something lower (~90%).

 

[shotgunner]

I am puzzeled by the need for a 100% FIRECALC survival rate. Odds are greater that "something else" (health crisis, divorce ...) will derail retirement. So why not settle with something lower (~90%).

What is puzzling about wanting to see 100% projected success? Speaking for myself I want to have a sense of that kind of security. I have protected myself as best I can from a health crisis through insurance. Divorce, I got that out of the way much earlier before I even thought ER was possible.

I think that many people who are LBYM by nature are conservative and want to see as much security projected as possible.

 

[donheff]

Just to reiterate what others have said, starting with a 100% Firecalc success estimate is great but expecting it to stay at 100% when you recalculate in changed circumstances makes no sense. All Firecalc told you was that you can take a certain withdrawal rate for X years (30?) and you will be OK unless we enter an unprecedented downturn. If you go to all fixed at this point you will destroy any predictive value your original Firecalc estimate had. In effect, you will be starting over with a smaller, all fixed portfolio. Then you will need to recalculate and you will have a much smaller SWR.

 

[REWahoo]

If the results in April are what I go with then I can have a larger withdrawal rate simply because I retired before the crap hit the fan? If so I can't get my head around that.

You should be able to go with the April withdrawal rate - provided the market downturn we are currently undergoing (or the following one ) isn't worse than anything we've seen since 1871.

It only makes sense if you understand how FIRECalc comes up with the numbers. Take a look at this explanation: How FIRECalc Works.

"FIRECalc factors in the historical volatility in the market, so you can see whether your financial plan is robust enough to stand up to the worst we've seen in the history of the stock market.

FIRECalc scores "100% safe" a financial plan that would have survived the Great Depression, and every other financial calamity we've encountered"

So, even if you had retired in April of 1929, just prior to the market crash in October of that year:

"If you get a "100% success rate" with what you have and what you plan to spend, this means that you would have been able to maintain your standard of living and not run out of money, despite the worst that we've ever seen, including the Great Depression."

Hope that helps.

 

[tryan]

What is puzzling about wanting to see 100% projected success? Speaking for myself I want to have a sense of that kind of security.

My point is, there is very little value in lowering one risk area if you cannot lower all risk areas. Only a false sense of hope/security.

Uninsured losses (flood, theft, terrorism, war ... ) is another risk area ... insuring against "everything" is not possible. We need to live with some risks.

 

[Rustic23]

Selling out of the market is not the same as 'Take all your money and go to Vegas'. I think Bogle is right. If you can't afford to loose another nickle, get out. To me this only makes since. Move your money from the stock market to a bond ladder, cd ladder or other fixed income investment. That does not mean you have to stay there.

While you may loose something on the upside, you should be able to sleep at night. If you are comfortable with the risk, stick with it, however, if you are over 65 and see a soup line in your future, if your portfolio goes down, then get out and sleep at night. I also agree with what others say about FireCalc. But, if it's wrong, none of them are going to send you any cash. They will be in the soup line with you.

As others have said, pose the questions:
Market stays the same - I'm good
Market goes up - I'm good
Market goes down - I like soup?

I am reminded of sage advice I have never been able to implement. It is not knowing when to buy that makes you rich, but knowing when to sell!

 

[donheff]

For those of you who are young and building a portfolio this is a good time to study your risk profile. The OP ran Firecalc and was satisfied with a 100% likelihood of success (based on history). Now in a serious downturn, he is afraid he misjudged and may get out of the equities at a serious loss which will blow his approach and probably demand a significant reduction in SWR. If you think a period like this would make you panic if you were ERed and holding a substantial portion of equities, you need to move to a much more conservative portfolio (and consequent lower SWR) well before you ER. It is hard to predict how periods like this will make you feel. But look at the reactions many of the old-timers here are having to this market. It is probably a good bet to take a more conservative approach sooner than you might otherwise expect unless you are convinced you have a spine of steel or have your bases covered with a pension or SPIA.