Market high: scary time to retire?

[gcgang]

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.

 

[Live And Learn]

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 !).

 

[REWahoo]

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".

 

[pb4uski]

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.

 

[samclem]

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.

 

[ShortInSeattle]

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.

 

[Tyro]

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).

 

[Tyro]

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.

 

[SJ1_]

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.

 

[Live And Learn]

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)

 

[REWahoo]

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"

I sent you a PM including my rates for daily, weekly and monthly black paint removal services...

 

[jclarksnakes]

Not safe to retire in a down market! Not safe to retire in an up market! Life and retirement are not without risks. If any degree of risk is unacceptable then perhaps you need to work forever. That should make it easier for me to get a weekday tee time.........if I ever take up golf.

 

[gerrym51]

this thread is almost as bad as the whether to take ss early or not.

then i realised i was worrying about how much i would have at 95.

so i took at 62 and was done with it.

 

[obgyn65]

I will know when it is time to retire. I guess you know when it is the right time. And I know that time is very close, in my case.

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.
.

 

[Accidental Retiree]

I will know when it is time to retire. I guess you know when it is the right time. And I know that time is very close, in my case.

That is great. You can keep the parts of medicine that satisfy you the most and let go of the aspects that do not. The people to whom you donate your time, skills, and energy will be fortunate.

 

[lark_L]

I think 'harvesting' cash out of your equities the last few years before you retire, if the market is good is a great means to secure some gains and sleep better at night. One of my take-aways from Otar's book was how much better it could be to retire when the market wasn't doing well. Of course, to retire then, you'd really have to be in good shape and you'd be well suited for the - hopefully - soon to come equities rebound.

 

[LOL!]

I think this is kinda the third time the market has been around these levels: 2000, 2007, and now 2013. If the market tanks in 2013, then history (2000, 2007) says it will recover. The retirees of 2000 didn't have the history we are able to look back upon today.

So not a scary time to retire at all. Very easy to sleep well at night.

 

[foxfirev5]

I think 'harvesting' cash out of your equities the last few years before you retire, if the market is good is a great means to secure some gains and sleep better at night. One of my take-aways from Otar's book was how much better it could be to retire when the market wasn't doing well. Of course, to retire then, you'd really have to be in good shape and you'd be well suited for the - hopefully - soon to come equities rebound.

The one problem I have with the retire in a downturn vs a peak is that it's fairly obvious. If you have enough in a downturn you probably had much more prior to that point. Picking a point in time is all relative.

 

[Htown Harry]

I will know when it is time to retire. I guess you know when it is the right time. And I know that time is very close, in my case.

If you have enough in a downturn you probably had much more prior to that point.

Seeing these two posts in the same thread got me to thinking. They put obgyn's investing strategy in a new light. Or at least I think it may.

CD rates: some history lessons has list of reasons why long term cd's were a bad investment at the end of 2010. (None of these factors have changed substantially.)

1. CD rates really are as low as they seem.
2. There is no spread over inflation. [We're actually negative now]
3. Inflation isn't usually this kind.
4. There is usually a greater reward for going long.

I'd add one more:

5. Recent Fed policy statements have all but guaranteed that interest rates on CD's will remain historically low for a year or more into the future.

I can't think of other potential headwinds for cd's, but if there are any they are probably present in 2013. We are in the depths of a horrible bear market by most any measure of obgyn's investment world.

So obgyn, if you haven't underestimated expenses, have accounted for interest being taxed at earned income rates, and your calculations of a "safe" 3.5% withdrawal rate are based on these "new normal" market conditions persisting for several years of ER before returning to historical averages (roughly a 2% real return on cd's), it may be a further sign you are financially ready to ER.

Just be double sure you haven't mixed up nominal and real interest rates, returns and cash flows in your spreadsheets....

http://www.afcpe.org/assets/pdf/vol1117.pdf

 

[obgyn65]

agreed. I guess I am just waiting for a bad day to quit. Although I would like to go on a high note, it is not likely to happen.

So obgyn, if you haven't underestimated expenses, have accounted for interest being taxed at earned income rates, and your calculations of a "safe" 3.5% withdrawal rate are based on these "new normal" market conditions persisting for several years of ER before returning to historical averages (roughly a 2% real return on cd's), it may be a further sign you are financially ready to ER.

Just be double sure you haven't mixed up nominal and real interest rates, returns and cash flows in your spreadsheets....

http://www.afcpe.org/assets/pdf/vol1117.pdf

 

[JoeWras]

The one problem I have with the retire in a downturn vs a peak is that it's fairly obvious. If you have enough in a downturn you probably had much more prior to that point. Picking a point in time is all relative.

So I'm liking the idea of discounting the networth 20 or 25% and running those numbers through firecalc.

Should be good to go. I hear doomsdayers talking 50% down for the market, but I'm going to assume proper AA will keep the overall networth at a max risk of 25% or so.

My only concern about this strategy is it runs the risk of being way too conservative leading to more OMY.

 

[Live And Learn]

So I'm liking the idea of discounting the networth 20 or 25% and running those numbers through firecalc. <snip>
My only concern about this strategy is it runs the risk of being way too conservative leading to more OMY.

I use 10% but I have 5 years of cash/short term bonds in my portfolio. I'd love to use 20% but that would definitely lead to OMY - or 2. W*rk was so bad this past week that I'm lowering my contingencies (aka: making them more reasonable) and am getting ready to officially join the class of 2013. The only thing that is holding back that decision is HI (see tread: http://www.early-retirement.org/forums/f28/expense-analysis-65511.html)

 

[photoguy]

My only concern about this strategy is it runs the risk of being way too conservative leading to more OMY.

I think it makes sense to discount equities (or lower future return projections) especially if the valuations are too high. But I agree that it could lead to being way to conservative especially with all of the other safety factors one might include (e.g., lowered withdrawal rate, fixed bucket for one-time emergencies, discounting SS, etc.)

 

[ikubak]

Ok, the market is hitting new highs....highs not seen since 2007. So for the last 4 or 5 years, the market has done almost nothing. I would say just pick your allocation and stick with it. Give yourself 2-3 years of cushion with cash or short term bonds.....and hope a big asteroid doesn't hit us.

 

[Live And Learn]

Ok, the market is hitting new highs....highs not seen since 2007. So for the last 4 or 5 years, the market has done almost nothing. I would say just pick your allocation and stick with it. Give yourself 2-3 years of cushion with cash or short term bonds.....and hope a big asteroid doesn't hit us.

We can look on the bright side --- for the market to return "average returns" the bull market will need to last a few more years. That would make 2013 a great year to retire !