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Old 03-05-2013, 02:33 PM   #41
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Originally Posted by ziggy29
Well, if you're not 59 1/2 this "penalty" (unless you use Rule 72t) is applicable to any kind of distribution from a conventional IRA; it matters not whether it's in stocks, bonds or cash.
Yes, which is why it seems to make sense to keep the safe money to weather market downturns in a taxable account. YMMV.
Edited to add: Opps--cross-posted with Animorph
From a tax efficiency standpoint, the cash/CD's other "safe" money could be in an IRA or other tax deferred account (since their gains are taxed at the (high) regular income rate). The stocks can be kept in a regular after-tax account. Then, if the market dives and you need the money for living expenses for a few years, sell enough shares to meet the living expenses (maybe logging some nice losses to reduce taxes). Then, use the "safe" money in the tIRA to buy very similar (but not "substantially identical") shares like the ones you just sold (or roll the dice and wait 30 days and buy the exact same stocks/ETFs/MFs you sold). Your allocation stays the same and you've saved money on taxes vs keeping the cash in an after-tax account.
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Old 03-05-2013, 02:40 PM   #42
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Edited to add: Opps--cross-posted with Animorph
From a tax efficiency standpoint, the cash/CD's other "safe" money could be in an IRA or other tax deferred account (since their gains are taxed at the (high) regular income rate). The stocks can be kept in a regular after-tax account. Then, if the market dives and you need the money for living expenses for a few years, sell enough shares to meet the living expenses (maybe logging some nice losses to reduce taxes). Then, use the "safe" money in the tIRA to buy very similar (but not "substantially identical") shares like the ones you just sold (or roll the dice and wait 30 days and buy the exact same stocks/ETFs/MFs you sold). Your allocation stays the same and you've saved money on taxes vs keeping the cash in an after-tax account.
+1
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Old 03-05-2013, 03:18 PM   #43
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Edited to add: Opps--cross-posted with Animorph
From a tax efficiency standpoint, the cash/CD's other "safe" money could be in an IRA or other tax deferred account (since their gains are taxed at the (high) regular income rate). The stocks can be kept in a regular after-tax account. Then, if the market dives and you need the money for living expenses for a few years, sell enough shares to meet the living expenses (maybe logging some nice losses to reduce taxes). Then, use the "safe" money in the tIRA to buy very similar (but not "substantially identical") shares like the ones you just sold (or roll the dice and wait 30 days and buy the exact same stocks/ETFs/MFs you sold). Your allocation stays the same and you've saved money on taxes vs keeping the cash in an after-tax account.

Agree with this....

Plus... I think there is a difference between accumulation and spending phases...

IOW, I am accumulating... I will stick to the higher income investments in IRAs... but when I RE, I will do what is necessary to have cash in the taxable accounts... like what is suggested above... hoping to minimize taxes along the way...
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Old 03-05-2013, 03:18 PM   #44
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I'm sure I'm being overcautious, but to deal with the heady market my simple strategy has been:

1. Plan what our retirement expenses will be (this month in fact is another "test run" of living on them).

2. Since I am fortunate enough to have a pension, I subtract that from our projected expenses and keep the difference in cash.

3. invest the rest into a stock/bond mix and continue to dollar cost average into them, with an emphasis on dividend-producing stock/bond investments (but not exclusively).

I just figure that should the market go down, I can avoid withdrawing from it for long enough to recoup. I look at "what would happen if my investments dropped 20% (which is what it did in 2008)", and I can live with that total and be patient.

Not a brilliant strategy, but one that lets me sleep easily at night. I'm not swinging for the fences, I'm happy with stringing together a few singles.

I do expect a correction. After all, just last year stocks had a run up early in the year, pulled back by June and was negative for the year, and then gained for the balance of the year after that. I expect something similar this year and will just stay the course.
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Old 03-05-2013, 06:27 PM   #45
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Buffett was on CNBC Monday. He felt that on a relative basis stocks were a good value right now, compared to bonds, farmland, REIT and most other assets.

He said stocks will be higher in the future, although as always he said he had no idea if they will be higher or lower in the next year or so.

To be honest if I was retiring right now I be far more afraid of the record low interest rates for bonds than the stock market which maybe 20% overvalued or so.
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Old 03-05-2013, 06:38 PM   #46
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Buffett was on CNBC Monday. He felt that on a relative basis stocks were a good value right now, compared to bonds, farmland, REIT and most other assets.

He said stocks will be higher in the future, although as always he said he had no idea if they will be higher or lower in the next year or so.

To be honest if I was retiring right now I be far more afraid of the record low interest rates for bonds than the stock market which maybe 20% overvalued or so.
Don't get me wrong, I think Buffett is a rare genius, with an investing record to prove it. But has he ever been less bullish on equities vs any other asset class? I'd never get out of equities altogether (OK, maybe at age 90) thanks in part to people like Buffett.
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Old 03-05-2013, 07:08 PM   #47
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He cashed out his original investing partnership in the late 60's because he felt that equities were wildly overvalued.

He piled up an awful lot of treasuries in the late 90's as well, because he had trouble finding value in the equity market. He actually bought a big pile of silver around that time, which turned out pretty well.

I remember reading an article in the late 90s by him explaining why stocks were likely to underperform the expectations people had for them at the time.

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Don't get me wrong, I think Buffett is a rare genius, with an investing record to prove it. But has he ever been less bullish on equities vs any other asset class? I'd never get out of equities altogether (OK, maybe at age 90) thanks in part to people like Buffett.
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Old 03-05-2013, 07:26 PM   #48
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Don't get me wrong, I think Buffett is a rare genius, with an investing record to prove it. But has he ever been less bullish on equities vs any other asset class? I'd never get out of equities altogether (OK, maybe at age 90) thanks in part to people like Buffett.
Yup in July 1999, in a speech to a bunch of movers and shakers in Sun Valley. He told them that stocks were badly overvalued.

At the time he predicted that next 17 years we would see equities return 6% at the time the average investor felt stocks would return 13-22% a year. FYI the S&P hit 1400 that month. A 4% return (after subtracting out 2% for dividends) means it needs to get to 2800 by July 2016.

If you haven't read his biography Snowball is long but worthwhile read. Or you can read this long excerpt of the meeting here. So yes Buffet is not a perma bull.
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Old 03-05-2013, 08:44 PM   #49
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Then this morning on Squawk Box, the panel was making all sorts of noise about how we need to reduce SS benefits. More lack of sleep ahead.
Interesting. I heard an interview with Simpson of Bowles/Simpson. He claims SS can be fixed by raising the retirement age by 1 year over the next 40 and then 1 more year over another 25 years.

Sounds simple to me.
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Old 03-05-2013, 08:53 PM   #50
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Edited to add: Opps--cross-posted with Animorph
From a tax efficiency standpoint, the cash/CD's other "safe" money could be in an IRA or other tax deferred account (since their gains are taxed at the (high) regular income rate). The stocks can be kept in a regular after-tax account. Then, if the market dives and you need the money for living expenses for a few years, sell enough shares to meet the living expenses (maybe logging some nice losses to reduce taxes). Then, use the "safe" money in the tIRA to buy very similar (but not "substantially identical") shares like the ones you just sold (or roll the dice and wait 30 days and buy the exact same stocks/ETFs/MFs you sold). Your allocation stays the same and you've saved money on taxes vs keeping the cash in an after-tax account.
But you're limited to low annual contribution limits for IRAs ....
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Old 03-05-2013, 09:12 PM   #51
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And right or wrong, many of us (self included) weren't/aren't comfortable pulling the retirement trigger until our success rate appears to be 100%, 150% or even as much as 200% (nest egg 2X the 100% success rate).

If you really have a good success rate 80% or higher, you are on track. Waiting to get from 90% to 100% is 100% certain way of spending more time working and eating dog food now, to avoid a 10% chance of having to work or eat dog food later.

But what do I know. I'm retiring in 3 weeks.
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Old 03-05-2013, 09:49 PM   #52
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I try and counter the fact that the markets may be overstated by only using 90% of my portfolio in my calcs. Of course I won't really be happy until I have a 20% cushion (read my sig line !).
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Old 03-05-2013, 09:51 PM   #53
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I try and counter the fact that the markets may be overstated by only using 90% of my portfolio in my calcs. Of course I won't really be happy until I have a 20% cushion (read my sig line !).
Once you reach that 20% you'll say "just one more year - and 30% would be safer".
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Old 03-05-2013, 10:02 PM   #54
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Interesting. I heard an interview with Simpson of Bowles/Simpson. He claims SS can be fixed by raising the retirement age by 1 year over the next 40 and then 1 more year over another 25 years.

Sounds simple to me.
Sounds too simple to me. Doesn't seem to jive with the remedial actions that I have seen, but perhaps I'm not understanding what he proposed correctly.
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Old 03-05-2013, 10:02 PM   #55
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But you're limited to low annual contribution limits for IRAs ....
What we discussed doesn't require making new contributions to IRAs, and it works just the same with 401Ks if that suits you.
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Old 03-05-2013, 11:22 PM   #56
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Is it possible that our memories of the "great recession" are still so fresh that we perceive all bull markets with suspicion now?

Then memories fade.... Then we get cocky......

Then it goes bust and we are surprised.....

You know, the circle of life.
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Old 03-06-2013, 09:26 AM   #57
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Originally Posted by samclem View Post
Edited to add: Opps--cross-posted with Animorph
From a tax efficiency standpoint, the cash/CD's other "safe" money could be in an IRA or other tax deferred account (since their gains are taxed at the (high) regular income rate). The stocks can be kept in a regular after-tax account. Then, if the market dives and you need the money for living expenses for a few years, sell enough shares to meet the living expenses (maybe logging some nice losses to reduce taxes). Then, use the "safe" money in the tIRA to buy very similar (but not "substantially identical") shares like the ones you just sold (or roll the dice and wait 30 days and buy the exact same stocks/ETFs/MFs you sold). Your allocation stays the same and you've saved money on taxes vs keeping the cash in an after-tax account.
I don't have any cash/safe money in tax deferred accounts -- it's all fully invested (buy & hold) to keep growing until we need to access it after 59.5.

I'l think about this, but it may take me some time to get it (I can be slow to absorb/assimilate).
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Old 03-06-2013, 09:27 AM   #58
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Agree with this....

Plus... I think there is a difference between accumulation and spending phases...
That may be part of it too; we're in spending (draw-down) phase.
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Old 03-06-2013, 09:35 AM   #59
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So w*rk is bogus, and I'm itchy. Everything says I can retire today. Then I look at my net worth and realize between savings and market return, I've had 50% appreciation in the last 4 years.

That's good. And that's scary.

I think it is leading to my OMY syndrome. If I can see 50% up in 4 years which crossed me over from non-FI into FI, who says I can't see 30% down in 4 years dropping me back to near non-FI scary-land.

This good market is playing games with my head.

I know some folks here retired in 2008, and it has worked out for them. Yet... Well... I don't know. This volatility and potential volatility is driving me insane.
It would be more scary if you assumed it would continue at this pace!

I always try to look at the worst case and go from there.
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Old 03-06-2013, 12:33 PM   #60
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Once you reach that 20% you'll say "just one more year - and 30% would be safer".
Hi REWahoo - could you do me a favor and send me a PM every day that says "Don't Worry - Be Happy! Make the jump, you've earned it and you need to stop working those calculators"

(PS: 30% WOULD be safer LOL)
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