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Old 08-30-2009, 11:14 AM   #21
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Audrey-

Thank you so much for taking the time to put together this wonderful 10 year investing summary. I have been following your comments for a long time and have been on the lookout for this promised post.

We are 62.5 and recently “nudged out” . My DH planned on 65, but life had other plans. We have saved but haven’t been quite as “lucky”. However, we are in pretty okay shape. “Living off the portfolio” was better to read about than actually being confronted with the reality. After years of the dependable paycheck and benefits….it feels like jumping over the cliff – even with a $42k pension backstop, paid house, our kids through college with no loans, and today $.9 mil in retirement savings. Our philosophy is similar to yours and Otar’s. However, it is much more comforting as we embark on this new phase of our life to read of your personal experience.

I especially agree with your “cash hordes” to help keep the powder dry and as ammunition for future opportunities. Every dollar has a job AND……………that is the “JOB” of cash. “Luck” is indeed the unknown factor in even the best of plans.

I much prefer the wisdom of those who have “walked the walk” as opposed to those who “talk the talk” or “wrote the book – but haven’t walked the walk”.

Congratulations and may your success continue. I look forward to more of your posts.

Again, my appreciation for your time that you share with us.
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Old 08-30-2009, 11:34 AM   #22
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Nicely written and organized.
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How I stayed retired over my first 2 rocky years.......
Old 08-30-2009, 11:45 AM   #23
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How I stayed retired over my first 2 rocky years.......

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Old 08-30-2009, 11:49 AM   #24
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I didn't realize you were such a child when you RE'd, Audrey--if you'd waited ten more years to retire you'd still be retiring early!
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Old 08-30-2009, 11:58 AM   #25
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thanks for sharing
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Old 08-30-2009, 01:01 PM   #26
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Originally Posted by molly View Post
We are 62.5 and recently “nudged out” . My DH planned on 65, but life had other plans. We have saved but haven’t been quite as “lucky”. However, we are in pretty okay shape. “Living off the portfolio” was better to read about than actually being confronted with the reality. After years of the dependable paycheck and benefits….it feels like jumping over the cliff – even with a $42k pension backstop, paid house, our kids through college with no loans, and today $.9 mil in retirement savings. Our philosophy is similar to yours and Otar’s. However, it is much more comforting as we embark on this new phase of our life to read of your personal experience.
You are very welcome. I'm glad it helped you. I think it really took me 2 or 3 years to get used to not having a regular paycheck. There was definitely some pervasive level of unease at first and I remember checking my investments more frequently. Of course it didn't help that we were going through the 2000-2002 downturn at the time!

But every time I checked, it seemed like the plan was operating as intended, we had plenty of cash set aside for short term needs, and I'd settle back down.

Then after about 2 or so years I just got used to it. The unease and any need to frequently "check" went away. I don't even think about it that often any more - even during the recent bear market which was WAY WORSE than what happened in 2000-2002.

I suppose that means I'm "seasoned" ?

Audrey

P.S. - No, I didn't revert to Dawg52's "meds" either !
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Old 08-30-2009, 01:13 PM   #27
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That looks like Bud...terrific!
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Old 08-30-2009, 01:31 PM   #28
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Audrey thank you very much for a very thoughtful and helpful post. I fully agree with your conclusions and indeed, luck (not only of the "financial" kind plays a very significant part.

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This was key .... saving and diversifing - pennies - will get you to FIRE by 60. To hit FIRE in your 30's or 40's you need RISK.
In my case saving and diversifiying pennies got me FIRED by 52 and I did not have the good luck of either a pension or a windfall from an IPO. I'm sure that there are many others that did it even earlier with similar approaches. Don't under estimate the power of plain LBYM and investing.

Although a windfall is nice to have, it's not a requirement to FIRE.
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Old 08-30-2009, 01:34 PM   #29
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In my case saving and diversifiying pennies got me FIRED by 52 and I did not have the good luck of either a pension or a windfall from an IPO. I'm sure that there are many others that did it even earlier with similar approaches. Don't under estimate the power of plain LBYM and investing.

Although a windfall is nice to have, it's not a requirement to FIRE.
OK - We're looking for your essay next!

Seriously!

Audrey
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Old 08-30-2009, 01:49 PM   #30
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Part 4: Surviving the decade since 1999

During the first bear market - 2000 to 2002, I was averaging into the market during that time. As a consequence, I was averaging in to a declining market (sweet!) I didn't experience any loss to the portfolio until 2002. Still that was a nerve-wracking time. The bear market lasted way longer than any bear markets from the past several decades and things were looking bleak. I stretched out my averaging period to 2.5 years. I well remember Oct of 2002, when I did my "last" DCA. It was hard, but I did it! And 2003 was a sweet reward for having finished my DCA in late 2002, all losses recovered and by the end of 2004, it looks like we had a 5-year after-tax ROI of 28% on the retirement portfolio, or an average annual return 2000-2004 of 5.1% per year.
I think this is a key point. Most folks when they RE don't have the means to be still adding to their portfolio and 3 straight years of losses immediately they start their withdrawals can be devastating.

I've just updated my workbook for the month and see that our savings are the highest they have ever been, despite a loss of over 16% last year. This is because we are at our peak earning years and haven't stopped pouring money in as fast as we can even when our funds are losing value every month.
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Old 08-30-2009, 02:00 PM   #31
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I think this is a key point. Most folks when they RE don't have the means to be still adding to their portfolio and 3 straight years of losses immediately they start their withdrawals can be devastating.
Actually that is not correct, I wasn't still adding to the portfolio during this time. I had put my lump sum from selling company stock in 1999 and 2000 into CASH within the portfolio, and I was then averaging from this cash into my planned asset allocation over this time period.

Anyone who retires with a lump-sum payout could have done exactly the same thing. For folks who already have their money invested in their target allocation by the time they retire - well that is indeed a different story.

And another point. If instead of encountering an almost immediate bear market, equity markets had continued to go up over this same time period, I would have been behind the investor who was already at their target asset allocation at the end of 1999. Again, this was the luck of the draw.

Making that decision - do I go all in at once or do I DCA and over how long a period? - that is a really, really tough call on the cusp of retiring.

Audrey
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Old 08-30-2009, 02:01 PM   #32
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Thanks for the long explanation, I've wondered how you did it with a 1999 retirement. LOTS of good stuff, but I noticed this:

Quote:
My initial goal was to divest enough company stock to create a retirement "nest egg" - a well-diversified, conservative "core" retirement portfolio that could support a 4% withdrawal rate based on my estimated retirement living expenses, with plenty of padding built in. But then I also hoped, over the first 10 years, to not have to draw from it much, but instead whenever possible draw from the remaining company stock we owned. However, if for some reason the "riskier" company stock shrank drastically or disappeared altogether, we could switch to regular withdrawals from the retirement portfolio and be fine. ...

During 1999, I also sold other investments and assets that we had accumulated over the years (not counting our IRAs) - a bunch of tech stocks we had bought on speculation in 1997, and some land that DH had owned for way too long. These goodies were converted to our "travel fund" - a healthy cash stash that we planned to use for the initial 2 to 3 years of retirement so that we could go wild with all our travel fantasies without worrying what our retirement portfolios was doing in the near term.
It seems to me that you used a system I call "horizontal asset allocation". You funded your "core" (or "basic") spending with a conservative portfolio, then put your more aggressive assets on top because you can accept more downside risk on your "fun" spending. You even allowed for having more "fun" in the early years.

I think this makes a lot of sense, but I haven't noticed other people say that they use it. One of these days I'll do a poll ....
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Old 08-30-2009, 02:04 PM   #33
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Audrey,

I think your post is great!
I have been ERed for 2 years now. I have read many retirement books but have yet to see an example as clear and well written as yours.
"Not doing anything stupid" sums up volumes into one phase.

Thanks for you well written and helpful post.

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Old 08-30-2009, 02:22 PM   #34
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Thanks for the long explanation, I've wondered how you did it with a 1999 retirement. LOTS of good stuff, but I noticed this:

It seems to me that you used a system I call "horizontal asset allocation". You funded your "core" (or "basic") spending with a conservative portfolio, then put your more aggressive assets on top because you can accept more downside risk on your "fun" spending. You even allowed for having more "fun" in the early years.

I think this makes a lot of sense, but I haven't noticed other people say that they use it. One of these days I'll do a poll ....
You could even claim I was using a bucket system! (OMG - And I had never even heard of what-was-his-name-again? at the time!)

Bucket 1: 1-3 years expenses in a cash account
Bucket 2: The core conservative AA portfolio
Bucket 3: The "remainder" company stock/aggressive assets

Except that I was drawing from Bucket 3 to replenish Bucket 1 whenever the "going was good" and later in the decade as I divested more aggressively from company stock I started adding a little more to Bucket 2.

And yes I deliberately planned funds for having more fun in the early years. This seemed logical to me at the time - I felt like we had a whole lot of catching up to do in terms of travel, etc., and I didn't want to feel constrained by needing to keep to some strict budget from day 1. We did indeed spend more in the first 5 years of retirement versus the second.*

Audrey

* Not counting the motorhome purchase of course. That thing throws a wrench in every model but you just have to amortize a really big ticket item over the long term.
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Old 08-30-2009, 02:25 PM   #35
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* Not counting the motorhome purchase of course. That thing throws a wrench in every model but you just have to amortize a really big ticket item over the long term.
If it's OK with you I may use this as my sig line...
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Old 08-30-2009, 02:26 PM   #36
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Actually that is not correct, I wasn't still adding to the portfolio during this time. I had put my lump sum from selling company stock in 1999 and 2000 into CASH within the portfolio, and I was then averaging from this cash into my planned asset allocation over this time period.

Anyone who retires with a lump-sum payout could have done exactly the same thing. For folks who already have their money invested in their target allocation by the time they retire - well that is indeed a different story.

And another point. If instead of encountering an almost immediate bear market, equity markets had continued to go up over this same time period, I would have been behind the investor who was already at their target asset allocation at the end of 1999. Again, this was the luck of the draw.

Making that decision - do I go all in at once or do I DCA and over how long a period? - that is a really, really tough call on the cusp of retiring.

Audrey
Thanks Audrey, that makes perfect sense. I really appreciate you taking the time explaining how it has worked for you this last 10 years.
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Old 08-30-2009, 02:28 PM   #37
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I agree with Audrey that having ample cash sitting on the sidelines is VERY important to avoid the downdrafts. We don't even include our large cash stash, nor our emergency fund as part of our RE funds. As we use some of our cash .... we will replace it with a small interest withdrawal next year from our RE funds. If we have the "W" that is being predicted...we will still be okay and able to DCA into the downdraft. Meantime...we will LBYM and until SS kicks in. Having pension money coming in makes me fully understand why somebody just living off their portfolio might be inclined to have an annuity floor for part of their RE. However, Audrey has done much the same thing with her cash bucket.
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Old 08-30-2009, 02:30 PM   #38
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If it's OK with you I may use this as my sig line...
Go right ahead! I'm curious whether anyone has any other way they think such a thing should be modeled/accounted for.

How have you accounted for your RV(s)?

Audrey
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Old 08-30-2009, 02:42 PM   #39
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How have you accounted for your RV(s)?
I really didn't do anything fancy - took the entire hit up front. Yep, ouch...
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Old 08-30-2009, 02:52 PM   #40
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I really didn't do anything fancy - took the entire hit up front. Yep, ouch...
I paid cash up front too. But I treated it as an overall reduction in our nest egg, not as part of the current year living expenses. Did you do otherwise?

Just curious

Audrey
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