How I Stayed Retired for 10 Years after Retiring in 1999

[audreyh1]

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 !

 

[Budman]

That looks like Bud...terrific!

 

[ejman]

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.

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.

 

[audreyh1]

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

 

[Alan]

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.

 

[audreyh1]

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

 

[Independent]

Thanks for the long explanation, I've wondered how you did it with a 1999 retirement. LOTS of good stuff, but I noticed this:

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 ....

 

[Free To Canoe]

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.

Free to canoe

 

[audreyh1]

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.

 

[REWahoo]

* 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...

 

[Alan]

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.

 

[molly]

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.

 

[audreyh1]

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

 

[REWahoo]

How have you accounted for your RV(s)?

I really didn't do anything fancy - took the entire hit up front. Yep, ouch...

 

[audreyh1]

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

 

[REWahoo]

I paid cash up front too. But I just 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

I did exactly as you did. I saw it as a one-off, not as a part of our expenses. Can't do that too often though.

 

[Gone4Good]

Thanks for the great post, Audrey!

I'm curious how dividend and interest payments factor into your cash management. It sounds like you occasionally sell assets to replenish cash, and then draw down the cash over time for living expenses. But with a sub 3% withdrawal rate, I'd think that portfolio income could easily meet, or even exceed, your cash needs without ever having to sell assets.

I guess the company stock probably doesn't pay a dividend, which could mean the income from the balance of the portfolio isn't sufficient to meet your needs. But I'd still think the percentage of your annual expenses not covered by portfolio income would be fairly small.

I'm curious because I kind of think (or hope?) my portfolio income will keep my cash balances "evergreen".

 

[Gone4Good]

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

I did exactly as you did. I saw it as a one-off, not as a part of our expenses. Can't do that too often though.

To the extent that the RV needs to be (or will be) replaced at some point in the future, I think the annual depreciation should be included as part of one's expenses . . . just like other durable goods. However, if the RV is truly a one-off that will be used-up and not replaced, then just taking the hit up front is the right way to go.

 

[REWahoo]

Barring participation by my insurance company, it will not be replaced once we've had our fun with it.

 

[WhoDaresWins]

Thanks, Audrey. Enjoyed the post and your candor. It provided me much food for thought.

 

[Independent]

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.

That helps. I think you kind of morphed into a bucket strategy where you use the short term bucket to avoid selling in a down market. That's an approach that I've seen a number of people mention (IMO, it's different from the Ray Lucia style of buckets).

I agree with your early spending rationale. We had the same idea but weren't able to implement it because of health issues.

 

[Rich_by_the_Bay]

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.

Call it cash reserves, bucket 1 or whatever - the wisdom of having lots of cash on hand seems sound to me.

I'll still have 50% in stocks but for the rest (i.e. 25% of my total) it will be half in cash or short term bonds. Just not worth it to me to try and sneak an extra 1% out of longer bonds only to find them down when you really need them. Your mentor Frank Armstrong calls for 10 years of living expenses in cash-equivalents and short term bonds, ideally.

 

[audreyh1]

Thanks for the great post, Audrey!

I'm curious how dividend and interest payments factor into your cash management. It sounds like you occasionally sell assets to replenish cash, and then draw down the cash over time for living expenses. But with a sub 3% withdrawal rate, I'd think that portfolio income could easily meet, or even exceed, your cash needs without ever having to sell assets.

I guess the company stock probably doesn't pay a dividend, which could mean the income from the balance of the portfolio isn't sufficient to meet your needs. But I'd still think the percentage of your annual expenses not covered by portfolio income would be fairly small.

I'm curious because I kind of think (or hope?) my portfolio income will keep my cash balances "evergreen".

No, dividend and interest payments did not factor into my cash management at all. I remember looking at dividend investing in the late 1990s, and dividend payouts from stocks seemed ridiculously low at the time, and I wasn't willing to create a large bond allocation just for the income. So I went with the "total return" approach which I still like. I have no problem selling some assets to achieve the desired withdrawal rate.

It looks like last year the portfolio generated enough income after taxes to cover our the living expenses. What the portfolio generates in distributions is highly variable, so I don't count on anything in particular.

Interestingly enough, the company stock did start paying a dividend in the mid-2000's right after the tax laws were changed to give qualified dividends beneficial tax treatment. That was a nice little surprise bonus! Puny at first, the stock now yields about 1.8% - partly due to lower stock price, but it also increasing the dividend for several years.

Audrey

 

[Bikerdude]

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.

I retired in March of 2000 and this is exactly what I did with my 401K when I rolled it into my IRA. Having cash at that time is a big reason I'm still standing. Great story!

 

[Gone4Good]

I remember looking at dividend investing in the late 1990s, and dividend payouts from stocks seemed ridiculously low at the time . . .

Interestingly enough, the company stock did start paying a dividend in the mid-2000's right after the tax laws were changed to give qualified dividends beneficial tax treatment.

That's right. I forgot how skimpy dividend yields were 10 years ago. But things did improve after the tax law change, as you mentioned.