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Old 07-28-2013, 10:03 AM   #21
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so far...retiring on July 2011 has worked out nice for me

for us glass half full types what was the best year to retire?

I am sure if you had the enough money, early 2009 would have been good.

I am guessing that firecalc does not know yet if 2008 was a bad year to retire.
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Old 07-28-2013, 11:01 AM   #22
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Oh I am so sorry I no longer have the link for exactly what you are asking about. It was at a website by someone who's last name was Merriman or Merrimack or something like that. I tried to Google it but can't find it.

If you Google "sequence of returns in retirement" or "sequence of returns" there are tons of links, you can read for the next 5 years!

What I wanted to find for you was a paper about this and a chart or 2 showing how a $1M 50/50 portfolio was broke in just 15 years because of the year of retirement combined with a 4% wr adjusting for inflation and the poor performance of the markets! The sequence of returns is very important in retirement because you can draw your nest egg down in just 6-8 years to a point that it can't recover at such a low dollar value even if the market recovers.

Retirement: The sequence of returns - MarketWatch check out the link in the 1st few sentences, it's a pdf so I can't link directly to it. Looks like what you'd be interested in, I did not read it.

This link has a somewhat similar chart to what I no longer have the link though it is for only $100k vs $1M. The idea is the same - sequence of events is critical! SunAmerica-What if You Retire at the Wrong Time
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Old 07-28-2013, 11:22 AM   #23
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Why am I posting this (updated) chart again? Because for equities it shows the start of that nasty period beginning with the falloff in the late 1960's (green line) and continuing with the lousy 1970's (purple line). And this chart is inflation corrected. By the mid-1980's (black line) we were on our way to a decent market but who knew that for sure? I recall that people investing in bonds in 1982 were very brave souls indeed. But real rates were very high by then and they were betting inflation was being tamed. As mentioned by NW-bound in his OP, it's scary to be alive in these markets but we have to play the game, no choices really.

The 2000's (orange line) were lousy as we know and really a standout in a decade's context. So that maybe partially explains the continuing disbelief in markets as we all remember those years.

For myself, I have a methodology which allows for adjusting AA. Yes we could have a good market, even a runaway one, followed by a miserable drop. Or we could just go sideways for a bit and then modestly up. International markets could provide more returns then just the US. Who knows but I'm kind of optimistic. Trust but verify.


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Old 07-28-2013, 11:52 AM   #24
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The big difference between 1966, versus 1967 and 1965 does seem a bit perplexing to me. With the 1973 versus 1974 and 1975 examples on the Firecalc front page, I can actually rationalize it...
The variations between 1965/1966/1967 are not as large as those of 1973/1974/1975. The market really tanked in 1975, so that explained it. The change in 1967 was milder. Sorry I did not make it clear.

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However, if you had enough money to retire in 1975, wouldn't that mean that you would still have been able to do it in 1974 or 1973? For instance, to use that Firecalc example on their front page, if you needed $35K per year, and had $750K to retire...well if you had $750K in 1975, there's a chance you might have had, say, $800K in 1974 and $1.2M in 1973. So if all you needed was $35K, you would have been able to retire. It's just that it would have been a lower withdrawal rate.
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Yes, and I think the FIREcalc intro can be misleading because of this. It depends on your POV. It is true for each of those retirees with $750K, but they really are not comparable, as they would have had far different sized portfolios leading up to retirement to all have $750K at the year they each retired.
This effect, we have often talked about. Perhaps it would be safer to base one's WR on the average of 3 consecutive years, or the lowest of the 3.

However, short-term variation was not what I intended to learn about. I was trying to understand the longer-term market conditions, particularly the effects of the low-growth 1960-1970, then the persistent high-inflation period of 1970-1980 that would ruin a 50/50 balanced portfolio.

I have played a bit more with historical simulations, and one can go 100% stock or 100% bond, but the difference was not as much as one would think. Either extreme portfolio could just barely match up with inflation. A 50/50 blend did better, I guess mainly due to the "buy low/sell high" action afforded by the portfolio rebalancing. Still, in the end, as I noted earlier, because there was no real growth, the portfolio got depleted in those years.

Note that one can more easily watch portfolio growth by setting WR to 0. When there is no growth, a 3.5% WR would of course deplete it in less than 30 years. A portfolio of CDs that barely matched the inflation would be depleted the same way, but without the angst of the stock market.

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Originally Posted by veremchuka View Post
...
What I wanted to find for you was a paper about this and a chart or 2 showing how a $1M 50/50 portfolio was broke in just 15 years because of the year of retirement combined with a 4% wr adjusting for inflation and the poor performance of the markets! The sequence of returns is very important in retirement because you can draw your nest egg down in just 6-8 years to a point that it can't recover at such a low dollar value even if the market recovers.

Retirement: The sequence of returns - MarketWatch check out the link in the 1st few sentences, it's a pdf so I can't link directly to it. Looks like what you'd be interested in, I did not read it.

This link has a somewhat similar chart to what I no longer have the link though it is for only $100k vs $1M. The idea is the same - sequence of events is critical! SunAmerica-What if You Retire at the Wrong Time
Exactly what I wanted! By playing with historical simulations, I just rediscovered the 1966 effect that the author talked about.

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Why am I posting this (updated) chart again?
Yes, I have been thinking more about decade-long effects, and what one can do about it. In the case of the general malaise of the 1960-1980 period, it seems like there was little one could do.
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Old 07-28-2013, 11:59 AM   #25
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One thing I observed with historical simulations is that they all use annualized data, with portfolio rebalancing on Jan 1st. While that may be fine for an understanding of longer-term market conditions, the yearly sampling rate is just too coarse, and a real portfolio performance may differ significantly from the model.

For example, we all know how the market crashed hard in Mar 2009, then rebounded strongly by Dec 2009. If we only take sample points at Jan 2009, then Jan 2010, we would not know about that severe dip. Yet, in real life, many people, myself included, did some buy/sell or rebalancing throughout the year. One could end up very well, or be left holding the bag depending on his execution. I am very sure the managers of Wellesley or Wellington do not rebalance only once a year on Jan 1st.
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Old 07-28-2013, 12:11 PM   #26
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One thing I observed with historical simulations is that they all use annualized data, with portfolio rebalancing on Jan 1st. While that may be fine for an understanding of longer-term market conditions, the yearly sampling rate is just too coarse, and a real portfolio performance may differ significantly from the model.

For example, we all know how the market crashed hard in Mar 2009, then rebounded strongly by Dec 2009. If we only take sample points at Jan 2009, then Jan 2010, we would not know about that severe dip. Yet, in real life, many people, myself included, did some buy/sell or rebalancing throughout the year. One could end up very well, or left holding the bag depending on his execution. I am very sure the managers of Wellesley or Wellington do not rebalance only once a year on Jan 1st.
I have also wondered this... especially the "Sell in May, go away" phenomenon. There is monthly historical data out there. I'll have to work on that...
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Old 07-28-2013, 12:40 PM   #27
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For example, we all know how the market crashed hard in Mar 2009, then rebounded strongly by Dec 2009. If we only take sample points at Jan 2009, then Jan 2010, we would not know about that severe dip. Yet, in real life, many people, myself included, did some buy/sell or rebalancing throughout the year.
Yep, same here. If you just look at year-end totals, I think I lost about 41% from 12/31/07 to 12/31/08. But going peak to trough, which for me was 10/31/07 to around Thanksgiving of 2008, I was probably down more like 50-55%. But, I had cut back on investing back in 2007 as things took off. I don't think I sold off anything at the market peak, but as the market tanked, I started ramping up investing again. And at those troughs around Thanksgiving of '08, and 3/9/09, I put a lot more in.
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Old 07-28-2013, 12:56 PM   #28
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Oh I am so sorry I no longer have the link for exactly what you are asking about. It was at a website by someone who's last name was Merriman or Merrimack or something like that. I tried to Google it but can't find it.

If you Google "sequence of returns in retirement" or "sequence of returns" there are tons of links, you can read for the next 5 years!

What I wanted to find for you was a paper about this and a chart or 2 showing how a $1M 50/50 portfolio was broke in just 15 years because of the year of retirement combined with a 4% wr adjusting for inflation and the poor performance of the markets! The sequence of returns is very important in retirement because you can draw your nest egg down in just 6-8 years to a point that it can't recover at such a low dollar value even if the market recovers.

Retirement: The sequence of returns - MarketWatch check out the link in the 1st few sentences, it's a pdf so I can't link directly to it. Looks like what you'd be interested in, I did not read it.

This link has a somewhat similar chart to what I no longer have the link though it is for only $100k vs $1M. The idea is the same - sequence of events is critical! SunAmerica-What if You Retire at the Wrong Time
Is this the paper you were looking for?

http://www.ifid.ca/pdf_newsletters/P...sequencing.pdf
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Old 07-28-2013, 01:00 PM   #29
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...The 2000's (orange line) were lousy as we know and really a standout in a decade's context. So that maybe partially explains the continuing disbelief in markets as we all remember those years...
Looking at your chart, it's no wonder that they call the 2000-2010 the "lost decade". Yet, I doubled my portfolio in that decade, and also bought a 2nd home.

I was working part-time on and off during that time, and my expenses were high due to having two children in college. My wife also retired with no pension in 2007. I think our erratic income just barely covered expenses in that decade.

The problem was that I did not keep good accounting of income and expenses to see how much my investing efforts contributed to wealth building. Still, it could be all due to luck, and one should not push his luck as they always say.
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Old 07-28-2013, 01:26 PM   #30
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Looking at your chart, it's no wonder that they call the 2000-2010 the "lost decade". Yet, I doubled my portfolio in that decade, and also bought a 2nd home.

I was working part-time on and off during that time, and my expenses were high due to having two children in college. My wife also retired with no pension in 2007. I think our erratic income just barely covered expenses in that decade.

The problem was that I did not keep good accounting of income and expenses to see how much my investing efforts contributed to wealth building. Still, it could be all due to luck, and one should not push his luck as they always say.
It could be luck, true. However, sometimes we have to pull some levers for that luck to show up. Sometimes we have to take a stand for ourselves. Our methods do not have to work for anyone but us.

I've found that when the markets are really bad, there is nobody who is going to make me whole. We are truly on our own. It's true one can nowadays whine on the web and in the old days one could blame one's broker. When it comes right down to it, we are responsible for our destiny (well, there is always Social Security).

So is it skill or luck? Maybe more a combo.
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Old 07-28-2013, 04:44 PM   #31
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Is this the paper you were looking for?

http://www.ifid.ca/pdf_newsletters/P...sequencing.pdf

No I saw that one but I accidentally closed the link and didn't post it. Oh if I even saw the website's front page I'd know it immediately. It's a pretty good site. Wait I may have printed stuff from it! Let me look.....

BINGO! well kinda

I found a printout from the website so now I can get to the website! Now if the website has the writeup, it was several years ago but they kept it up for years.

It is Merriman and here's the front page FundAdvice.com - Home

There are many articles to read FundAdvice.com - Articles but I can't find the one I am looking for. I am pretty sure it was at their website but to be honest I used to read so much and had so many sites bookmarked I can't be 100% certain it wasn't somewhere else but I was pretty sure this was the place.

This may be useful FundAdvice.com - Withdrawals in retirement: taking less can give you more

Hope this helps you.


eta: I think this is the article but now you have to subscribe to read it. http://www.fundadvice.com/articles/r...tirement-.html
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Old 07-28-2013, 05:31 PM   #32
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How can this period be worse than the Great Depression?
Deflation was the savior of a hypothetical balanced portfolio in the 1930s. My data set shows astonishing inflation rates of negative 8.9% in 1931 and negative 10.3% in 1932. So cash and Treasury notes did phenomenally well during the darkest days of the depression (10-year notes had a real return of almost 20% in 1932), and the massive nominal drop in stock prices was somewhat softened.

In reality, I'm guessing that retired people of that era were more affected by their children becoming unemployed, and with their former employers not being able to pay pensions.

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Old 07-28-2013, 05:59 PM   #33
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Deflation was the savior of a hypothetical balanced portfolio in the 1930s...

In reality, I'm guessing that retired people of that era were more affected by their children becoming unemployed, and with their former employers not being able to pay pensions.
Yes, I have observed that too. As you noted, in real life there were many other factors that added up to a lot of misery, while today we are only looking back at that period to see to how we could balance between stocks and bonds.

Back on the supposedly worse period of 1960-1980, nothing much stood out, but the low growth and high inflation just ground on and on. There were not even wild market gyrations like we have had recently in 2003 and 2009. With big dips in the market, the daring market timers portfolio rebalancers could still make good money. Volatility provides opportunity for the strong stomachs to make money off the weak hearted. It's a cruel world.
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Old 07-28-2013, 06:00 PM   #34
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While this is speculation, my guess is that the percentage of people in 1967 who thought 1967 was a good time to retire was higher than the percentage of people in 1980 who thought 1980 was a good time to retire (to some degree, I am assuming access to equal retirement mechanisms). The financial outlook by the average person in 1980 was horrible.

From a financial perspective, it could be that the best time to retire is when people think it is the worst time to retire.
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Old 07-28-2013, 06:26 PM   #35
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From a financial perspective, it could be that the best time to retire is when people think it is the worst time to retire.
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Old 07-28-2013, 06:29 PM   #36
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A bad stock market is nasty, but inflation kills. High inflation tends to persist across multiple years. .
And there is never a recovery from inflation. Prices go up and they stay up. There has never been a significant, lasting recovery from inflation.

Market returns, OTOH, have always eventually recovered. We're at new all time highs now despite all the crashes of the past.

I agree. Inflation kills. If you retire into significant inflation, you'll generally pay higher prices for life's necessities the rest of your life. If you retire into a market crash, your portfolio (minus whatever you spent during the crash) will undoubtedly recover.
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Old 07-28-2013, 07:08 PM   #37
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If you retire into a market crash, your portfolio (minus whatever you spent during the crash) will undoubtedly recover.
...provided you 'stay the course' and don't panic sell.
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Old 07-28-2013, 07:15 PM   #38
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...provided you 'stay the course' and don't panic sell.
Actually, there are an infinite number of things you can do to screw your portfolio. Panic selling would be one of those. Selling everything to buy expensive gifts for your young mistress would be another. And on and on.........

But old guys like us, who've seen a lot, should be able to step over most of the obvious land minds.
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Old 07-28-2013, 07:16 PM   #39
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...provided you 'stay the course' and don't panic sell.
REWahoo, someone our age would probably panic. I doubt I would have time in my life to recover. If I had money in the market and it went down everyday I would probably take it out
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Old 07-28-2013, 07:26 PM   #40
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REWahoo, someone our age would probably panic. I doubt I would have time in my life to recover. If I had money in the market and it went down everyday I would probably take it out
Yes, staying in the market is really tough to do when you see your nest egg shrink day after day. Many of us got to experience this first hand during the "market unpleasantness" of 2008/2009 - that was a real gut-check for me.

It was tempting to sell and stop the bleeding but history told me getting out would be a mistake. I held on and came out the other side in good financial shape - but bruised and battered from the ride.
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