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Old 12-31-2013, 02:14 PM   #21
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I don't think anyone mentioned this, but I feel the premise of your second sentence is wrong, or maybe just misstated.

I choose to think in terms of a historically 100% safe WR (though the same concept applies at 95% or whatever), and there is no 'plan' to liquidate my portfolio as I approach my lifespan. The data tells us that in a few cases, the portfolio would have ended close to zero, but those are the exceptions. In the majority of cases (admittedly, through a historic periods that may not be repeated), the portfolio is solidly intact, and often grows by leaps and bounds.


I think a few others touched on this, but I am confused by your statements about not touching principal. Surely your portfolio suffered in the recent down cycle, yet you still pulled the dividends, right? So didn't your principal drop, esp considering inflation?

One retiree might spend divs of a higher div yield portfolio (which I'm assuming, maybe wrongly, would likely be a somewhat lower growth portfolio), and another retiree might spend the lower divs and some of the growth of a more broadly market-based index portfolio. Is one preserving principal while the other is not? I guess this goes back to that other recent thread, I just fail to see any important distinction twixt the two.

But to answer your question - at the end of 2008 I was right at my retirement starting portfolio (end of 2003, no inflation adjustment). I carried on, figuring this was just the kind of dip/peaks that one should expect. I'm up considerably now, but I realize this could easily change and we may see another bear cycle at any time.

I still really have not figured out at what point I'd say - whoah, I gotta cut back spending. I should have this defined up front, but I don't. I think my WR is pretty conservative, and I will have SS and a moderate pension. It sure looks like I'll be able to delay SS to 70. If the stuff hits the fan, I'll figure something out.

-ERD50
I think these plans are designed to be agnostic as to liquidation or preservation. It would be stupid to make a make design feature that the portfolio must be liquidated. However, members all the time mention how they wish to die just when they have no more money, or sometimes they lament the difficulty in not leaving money on the table. If this is not liquidation, what would be?

As to your other question, it is addressed in my post just above yours.


I do not think that I have a great method, and certainly not the best method. It is a method, and it does address my personality and my needs, as I assume your plans do with yours.

There are other possibly better ways to address preservation of capital, for example, the smoothed earnings of your portfolio, or better yet the smoothed free cash flow of the portfolio, or perhaps the combined net buybacks and dividends added to net debt paydowns.

Ha
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Old 12-31-2013, 02:37 PM   #22
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... However, members all the time mention how they wish to die just when they have no more money, or sometimes they lament the difficulty in not leaving money on the table. If this is not liquidation, what would be?
Yes, that would be liquidation. However, I don't think in those terms, so it is rather foreign to me. If I knew the date of my and my spouse's death, and had a solid knowledge of our expenses between then and now, I'd likely plan on some liquidation. But that's not likely. So I just can't relate to the concerns of 'leaving money on the table' - that's is our insurance policy (to a degree), and better than the alternative, IMO. An annuity is a partial solution to this, but those pros/cons have been discussed before.

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As to your other question, it is addressed in my post just above yours.
OK, thanks.

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... There are other possibly better ways to address preservation of capital, for example, the smoothed earnings of your portfolio, or better yet the smoothed free cash flow of the portfolio, or perhaps the combined net buybacks and dividends added to net debt paydowns.

Ha
I guess I'm usually doing some smoothing when I look at WR assumptions. I feel better plugging in an average of the portfolio form the past few years, rather than its current peak. And I try to be conservative in other areas, so I think it will work out, or I adjust somewhere, somehow.

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Old 12-31-2013, 02:47 PM   #23
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My basic question is this: is there anyone here who at this high point in stock and bond prices, has nevertheless seen his or her portfolio decline meaningfully since s/he retired? Any comments would also be interesting.
Since retiring in 2010 the market rises have meant that our portfolio has continued to climb even though, as planned, we are spending much more than when we were working, doing lots of travel while we are still fit enough to do so and still have have the enjoyment from it. Our withdrawal for this year is 4.77% of the original portfolio value when we retired.

I would like to think that if the markets had been down we would not have slowed our spending as we had amassed a bunch of cash in I-Bonds and CD's prior to retirement for just this purpose. The reality may well have been different if faced with successive negative returns.

Over the next 10 years we have 4 more income streams due to come on line in the form of a private pension, UK SS for me, and US SS for me and DW.

Consequently I would hope to have the fortitude to maintain our current spending levels during multi-year market downturns, but who knows. In a few years time we plan on setting up a permanent residence in the UK and splitting our time between the US and UK. This also gives us access to a more predictable cost of healthcare.
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Old 12-31-2013, 03:10 PM   #24
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Retired 7 years. Portfolio up 48%(nominal, maybe 32% real) and divs up even more. So much for the dividend portfolios not growing. Trying not to be smug as things will certainly decline at some point. In 2008-2009 portfolio dropped by 50% in 6 months. Pension kicked in a couple years ago. Only spending divs and pension so far. I gotta sell some stock at some point but only 63 so long time (hopefully) to go. I think if you get over the first 5-10 years you are unlikely to run out.
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Old 12-31-2013, 03:13 PM   #25
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This seems to be the key issue.
Some want to leave a legacy, either to the next generation or to worthwhile causes. Others don't.
I have no desire to leave a legacy, other than getting my kids established and educated. But I am not opposed to the idea and somewhat resigned to the fact that I probably will. For me, I have a strong desire for safety and being sure I do not run out of money in retirement. I'm locked into a couple years of OMY probably because of that. And I'm planning on a lower than 4% SWR to make sure.

In my regular expenditure tracking, I've noticed a couple times when my expenses quickly rose more than official inflation figures would indicate they should have. Perhaps it's my unique choices of goods and services, but it makes me wary that I could experience similar incidents of personal inflation once retired and have no way to easily earn or save my way out of it. So that's another argument for a lower SWR.

By the time I'm done with my safety net and planning to prevent running out of money, I'm sure I'll end up with a portfolio that grows at least nominally, if not inflation adjusted. Which means I do expect to leave a legacy, but my motivation is safety and planning, not a drive for the sake of the legacy. I hope my kids and causes will put it to good use.
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Old 12-31-2013, 06:07 PM   #26
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The real return of the SP 500 is just about zero for the last 15 years. For those that retired around 2000, I would think it would be very difficult to be even or better even nominally. Nearly impossible in real terms.
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Old 12-31-2013, 06:35 PM   #27
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The real return of the SP 500 is just about zero for the last 15 years. For those that retired around 2000, I would think it would be very difficult to be even or better even nominally. Nearly impossible in real terms.
The S&P500 is up 11.4% in real terms since its peak in March of 2000, which is less than 14 years ago. In 2013 it finally broke even in real terms. It's up quite a bit more than that in the last 15 years. This result includes dividends. If you invest in the S&P 500, you get those dividends - they are part of the total return.

I'm someone who retired near the end of 1999, and my net worth is up over 38% since Jan 1, 2000 and up over 15% in real terms. Hint: I wasn't 100% invested in the S&P500, but had a diversified portfolio over several asset classes.
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Old 12-31-2013, 07:40 PM   #28
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The S&P500 is up 11.4% in real terms since its peak in March of 2000, which is less than 14 years ago. In 2013 it finally broke even in real terms. It's up quite a bit more than that in the last 15 years. This result includes dividends. If you invest in the S&P 500, you get those dividends - they are part of the total return. I'm someone who retired near the end of 1999, and my net worth is up over 38% since Jan 1, 2000 and up over 15% in real terms. Hint: I wasn't 100% invested in the S&P500, but had a diversified portfolio over several asset classes.
The annualized inflation adjusted return of the SP 500 including dividends from Jan1 1999 to November 2013 is 1.9 %. My assertion that it would be nearly impossible to end up with more in real terms assumed that the retiree was spending down his funds at the recommended SWR of 4%. I'm sure there are success stories like yours but in the minority. Congratulations on your returns, I hope I am as fortunate.
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Old 12-31-2013, 07:58 PM   #29
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The annualized inflation adjusted return of the SP 500 including dividends from Jan1 1999 to November 2013 is 1.9 %. My assertion that it would be nearly impossible to end up with more in real terms assumed that the retiree was spending down his funds at the recommended SWR of 4%. I'm sure there are success stories like yours but in the minority. Congratulations on your returns, I hope I am as fortunate.
Remember - that retiree was not likely to be 100% invested in the S&P500 but also had a big chunk in fixed income which had some really good years much since 2000.

1.9% per year real return for S&P500 is not horrible. I think it was 4.68% per year nominal.
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Old 12-31-2013, 08:08 PM   #30
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Remember - that retiree was not likely to be 100% invested in the S&P500 but also had a big chunk in fixed income which did much better since 2000. 1.9% per year real return for S&P500 is not horrible. I think it comes out to something like 4.8% per year nominal.
That's true. A retiree more broadly diversified in equities and a significant bond allocation would have done much better.
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Old 12-31-2013, 08:23 PM   #31
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... assumed that the retiree was spending down his funds at the recommended SWR of 4%. ...
A 4% WR is not 'recommended' (well, I suppose you can find people who would recommend anything), it is just a number, and one that would have failed 5% of the time historically. edit/add - I see it as a refernce point, not a recommendation.

I am not basing my planning on 4%, knowing that it has failed in the past, and the future could certainly be worse than the past (records were made to be broken, for better or for worse).

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Old 12-31-2013, 08:42 PM   #32
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A 4% WR is not 'recommended' (well, I suppose you can find people who would recommend anything), it is just a number, and one that would have failed 5% of the time historically. edit/add - I see it as a refernce point, not a recommendation. I am not basing my planning on 4%, knowing that it has failed in the past, and the future could certainly be worse than the past (records were made to be broken, for better or for worse). -ERD50
I understand that the 4% SWR has been criticized but I think it's pretty good for 30 year horizons. The question of the OP was if balances have decreased in time. My assertion was that it would have been difficult for a retiree to withdraw inflation adjusted 4% or even 3% of his portfolio for the past 15 years and have his initial balance in tact. Nearly impossible to have an inflation adjusted balance in tact. I don't know of many portfolios that returned 4% real for that time period.
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Old 12-31-2013, 09:14 PM   #33
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Right now, I am living off most of the dividend income generated from the non-IRA part of my portfolio. This is how I planned it out when I was putting together my ER plan back in 2007-08. Excess bond fund(s) dividends are reinvested as are all cap gain distributions. There is a stock component of this part of my portfolio whose dividends are reinvested. The IRA has a stock and bond component, too (more stock in here proportionately than in the non-IRA part), and all earnings get reinvested.

In my original ER plan, I split it up into two time frames. The first is living off only the non-IRA part through age ~60. I did predict that in my late 50s I would have to dip into principal a little bit because my dividend income would not be able to rise as fast as inflation but that was okay as long as it was not a huge dip. Once I turned ~60, I would begin to have access to my "reinforcements" which included unfettered access to the IRA, my frozen company pension, and SS. These three items would supplement the dividend income and ease, if not stop, the drain on principal in my late 50s. Indeed, according to Fido's RIP program, my financial situation starting in my 60s vastly improves once the reinforcements begin to arrive.

This plan did not take into account any reduced medical costs from the ACA versus having to buy a far costlier individual policy outside the ACA.

Despite not having added any "new" money to my non-IRA portfolio other than putting back any excess dividends and the more erratic cap gain distributions, the bond-heavy non-IRA portfolio has grown by more than 50% while the IRA portion has nearly doubled in 5 years.

One more thing - the dividend income I receive is not a function of the NAV of each fund generating it but instead how many shares I own. So, it doesn't matter if the 49,000 shares of one bond fund are worth $9 or $9.50. What matters is how many cents per share I get every month from it.
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Old 01-01-2014, 02:26 PM   #34
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That's true. A retiree more broadly diversified in equities and a significant bond allocation would have done much better.
Quite true. Further diversification slightly into REIT's and int'l since 2000 demonstrated much less volatility and greater return than 100% US stock allocation (which admittedly, not many have).

My personal plan includes remaining flexible and responsive at all times, with back-up plans. I like the idea of "swinging from the vines" of one back-up plan to another, as was posted somewhere here. FIRE at 59 1/2 (yes, I know not "early" by standards here), remain open to PT work in first 5 years to minimize sequence of returns risk (absolute last resort, like if another 2008 style crash occurs right after FIRE). Downsize and sell hugely appreciated real estate in highly desirable area at age 65 (or earlier) by conservatively calculating deflated RE value on a scale of 2008 crash (vs. current estimated value, which is almost twice that), delay SS until 70 while only calculating 70% benefits (latest SSA estimate of cuts in year 2032 (?) if *nothing* is done to fix SS). Further, 25% of FIREbudget is discretionary so could drastically cut spending during downturns without feeling threatened.

With all of this, all calculations show a significant chance of dying with anywhere from a 6 to 7 figure estate. Since plan is to leave no legacy, may adjust spending upwards in later years. We'll see, again idea is to remain flexible regardless. Never had a problem with LYMM and budgeting since a kid, see no reason why it should be any different in retirement.
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Old 01-01-2014, 03:57 PM   #35
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The real return of the SP 500 is just about zero for the last 15 years. For those that retired around 2000, I would think it would be very difficult to be even or better even nominally. Nearly impossible in real terms.
+1

People who claim to do better might be good (or lucky) traders, whether they claim to be indexers or not.

See Hypothetical Y2K retiree update, where a 75/25 indexing retiree in 2000 has lost more than 50% by Jan 2013. In real terms after inflation, he is down to 36%. The most recent return of 2013 is not likely to save him, unless 2014 and beyond are also bullish years.

Years 2000, 2001, and 2002 were consecutive years of negative return, with $1 in S&P rendered down to $0.62 in nominal term after 3 years. A retiree facing this bad S&P sequence right of bat would have to be wheeling/dealing to stay afloat, compared to raddr's hypothetical passive indexer who rebalanced only on Jan 1st.

PS. I am up 2X since Jan 2000 in nominal dollars, but then I was fully retired only recently.
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Old 01-01-2014, 05:11 PM   #36
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However, members all the time mention how they wish to die just when they have no more money, or sometimes they lament the difficulty in not leaving money on the table. If this is not liquidation, what would be?

It could be liquidation if one's crystal ball actually worked.
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Old 01-01-2014, 05:51 PM   #37
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I understand the mathematics and historical data of the retirement calculators but do you think the next 30 years will be the same as the last 30 years. What will 99% of the population be dealing with going forward. Seems that if 7 figure portfolios create worries it's going to be a very different world.
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Old 01-01-2014, 07:16 PM   #38
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...(snip)...
My basic question is this: is there anyone here who at this high point in stock and bond prices, has nevertheless seen his or her portfolio decline meaningfully since s/he retired? Any comments would also be interesting.
...
Interesting question but we are not in that category.

I would just hate to think we are all subject to the whims of history, but I fear that is the case.
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Old 01-01-2014, 10:29 PM   #39
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We early retired 10+ years ago. Our simple 3-fund 60/40 index fund portfolio grew until the '08 downturn and then dropped precipitously. I re-balanced to the extent I could stomach (to approx. 50/50 where I have left it) and we slowed spending a bit - our normal target is roughly 3%. Since then we have ratcheted spending back up to pre-downturn levels and the portfolio has grown to be larger than where it began non-inflation adjusted. At this point I'm very pleased with the risk/performance balance.

Our approach to minimize angst during difficult times is to minimize our fixed costs. This is especially important to us given that we have no guaranteed income (this will eventually change with social security and possible annuitization). For instance, rather than owning a second home we rent which leaves us the option to skip years or choose less expensive locations if and when necessary. Not only does this allow us to cut spending during down times but also provides us with a greater sense of control which helps us not experience the negative feelings you describe, or at least minimize them. It's not that a (hopefully temporary) declining portfolio balance isn't troubling, but it helps a great deal to know that we have some ability to minimize the negative impact.
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Old 01-02-2014, 07:05 AM   #40
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I think the normal person that does not know much about investing listens to the various money managers...and they would probably tell the customers to be in bonds or other "safe" places to preserve their capital. Those "safe" places are probably not in equities so much and the earnings match the risk level.
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