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Market Correction in Retirement
Old 06-16-2014, 09:04 PM   #1
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Market Correction in Retirement

Has anyone experienced a 20% or more market correction the day after retiring? If so, what did you do to deal with the drop? What advice would you give to the retiring class of 2014?
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Old 06-16-2014, 09:07 PM   #2
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Has anyone experienced a 20% or more market correction the day after retiring?
How many times has the market corrected 20% or more in one day?
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Old 06-16-2014, 09:08 PM   #3
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How many times has the market corrected 20% or more in one day?
It happens all the time, but the gubmint hushes it up.
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Old 06-16-2014, 09:27 PM   #4
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October 19, 1987 the Dow fell 22.6% resulting in a loss of 500 billion $$, most of it mine...
I was still wo*king so I just carried on and all was well in 12 months or so.

Fast forward to today and retirement. I keep 2 years living expenses in cash equivalents in the event of a major down year or two. This really doesn't amount to much as most expenses are met by pensions. That then gives me leaway to do some beneficial tax loss selling and some bottom fishing.
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Old 06-16-2014, 09:55 PM   #5
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Originally Posted by FedExCourier
Has anyone experienced a 20% or more market correction the day after retiring?
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How many times has the market corrected 20% or more in one day?
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October 19, 1987 the Dow fell 22.6% resulting in a loss of 500 billion $$...
OK, that's one.

Anyone here who retired on 10/18/87?
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Old 06-16-2014, 10:11 PM   #6
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Perhaps Ms./Mr. FedEx Courier was speaking hyperbolically and meant "has anyone experienced a 20% drop in the value of their portfolio soon after they retired?' I would suspect that anyone who retired during Q1, Q2, or Q3 of 2008 saw such an impact to her/his portfolio.

I would think that this would be quite difficult to stomach, but this is one of the main reasons that you need to keep a considerable amount of cash so as to enable you to use that cash instead of having to sell stocks when they are at depressed levels...

David
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Old 06-16-2014, 10:22 PM   #7
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Perhaps Ms./Mr. FedEx Courier was speaking hyperbolically and meant "has anyone experienced a 20% drop in the value of their portfolio soon after they retired?'
Perhaps.

It is also entirely possible the OP is among those who may believe a sudden drop of this magnitude is not an uncommon occurrence - thus the reason for my question.
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Old 06-16-2014, 10:27 PM   #8
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Perhaps.

It is also entirely possible the OP is among those who may believe a sudden drop of this magnitude is not an uncommon occurrence - thus the reason for my question.
Fair enough....

btw, what's OP?
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Old 06-16-2014, 10:29 PM   #9
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btw, what's OP?
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Old 06-16-2014, 10:38 PM   #10
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I don't know about experiencing such a drop right on the the day after retiring but the market dropped close to 50% in the three years prior to my retiring on 12/31/2002. I had no idea at the time whether it would continue dropping like a stone or not but lady luck was kind and ER then turned out to be a great decision.
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Old 06-16-2014, 10:40 PM   #11
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-20% is when I start paying attention. Anything less is just business as usual.

I retired in late November, 2007. I had built up a large cash reserve since a pension and two SS benefits would not be online, and we had college expenses for two kids. We were going to spend way more than 4% of our portfolio. While that would have been sufficient, DW wasn't ready to pull the plug. So we ended up with just a modest draw on the portfolio and were able to reinvest a lot of the cash.
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Old 06-16-2014, 10:44 PM   #12
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I don't know about experiencing such a drop right on the the day after retiring but the market dropped close to 50% in the three years prior to my retiring on 12/31/2002. I had no idea at the time whether it would continue dropping like a stone or not but lady luck was kind and ER then turned out to be a great decision.
That is a much harder scenario IMO. I remember 3 straight losing years at that time, that last year being an IRR of -11%, and DW saying, "We are doing the right thing aren't we?"

I don't know if I could have stayed the course of a high equity allocation if we'd had a 4th bad year
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Old 06-16-2014, 10:55 PM   #13
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Old 06-16-2014, 11:43 PM   #14
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Sorry, I was using hyperbole with my question. My 401k happens to have a trust savings fund paying 2% interest as one of the choices for a cash "bucket". Other than a short term bond index or equivalent, I'm a bit reluctant to place a large amount of my safe money into bonds right now with the talk of rising interest rates...
Just trying to get your experiences with the really hard corrections and what you have learned.
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Old 06-17-2014, 12:09 AM   #15
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Sorry, I was using hyperbole with my question. My 401k happens to have a trust savings fund paying 2% interest as one of the choices for a cash "bucket". Other than a short term bond index or equivalent, I'm a bit reluctant to place a large amount of my safe money into bonds right now with the talk of rising interest rates...
Just trying to get your experiences with the really hard corrections and what you have learned.
Here is a list of S&P annual returns since 1973 -

Historical Stock Market Returns Since 1973
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Old 06-17-2014, 01:43 AM   #16
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Anyone here who retired on 10/18/87?
No. But, we started to. The week prior to Black Monday we enrolled in our 401K plan. The first contribution wasn't until the Friday after Black Monday as that was our payroll cycle. It was the first time we purchased any equities.

Less than 15 years later, we ER'ed in 2002. Well, sort of. Although it wasn't planned when we left in 2002, we took a few part time programming contracts in the subsequent years.

As noted above, retiring in 2002 was indeed an interesting time.
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Old 06-17-2014, 02:00 AM   #17
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FedEx. Not sure what you are actually interested in but a lot of us retired just before the last recession and saw major hits to our portfolios. Anecdotally, it appears most of us did not panic and recovered nicely regardless what our AA was. But that was then. Next time could be different.
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Old 06-17-2014, 06:44 AM   #18
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Here is a list of S&P annual returns since 1973 -

Historical Stock Market Returns Since 1973
It might be more telling to show the drops from high-water marks to intermediate bottoms. For example, if market goes up 10% from Jan to May, then drops 10% in May, people get very very nervous even though the market would be about even for Jan to May. Such volatility happens more frequently than once every 4 years. For example, what happened in August 2011? Yet the link shows 2011 had a +2% gain for the year.

At morningstar.com, one can chart "rolling returns" which also shows some action as well.

My bottom line: Hope for those big drops so that one can rebalance and make lots of money.
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Old 06-17-2014, 07:02 AM   #19
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FedEx. Not sure what you are actually interested in but a lot of us retired just before the last recession and saw major hits to our portfolios. Anecdotally, it appears most of us did not panic and recovered nicely regardless what our AA was.
+1

Here are a couple of recent threads on this subject:

How I did during the Great Recession
FIRECalc vs REW
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Old 06-17-2014, 07:17 AM   #20
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Sorry, I was using hyperbole with my question. My 401k happens to have a trust savings fund paying 2% interest as one of the choices for a cash "bucket". Other than a short term bond index or equivalent, I'm a bit reluctant to place a large amount of my safe money into bonds right now with the talk of rising interest rates...
Just trying to get your experiences with the really hard corrections and what you have learned.
There will always be talk about something, and it rarely leads to useful investment advice. The talk about rising rates is now in its fourth year.
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