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Old 10-15-2008, 05:58 PM   #121
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Living on 4% covers a lot of ground. If you need 4% to have basic food, clothing (from thrift store), medical (medicaid?) and living expenses you have a problem due to no flexibility. My plan is that these can be covered by about a 1.5 to 2% but the quality of life is the other money that is hopefully available with a higher withdrawl rate.

I'm down this year about 25%. I'm about where I was in 2002 or 2003 and maybe all the way back in 1998. I don't know for sure because I didn't incorporate my 401k into my Quicken accounts until 2002. If I lost my j*b tomorrow (a real possibility), I can maintain my current lifestyle indefinitely. I could even have a reasonable travel budget. This is all assuming the market doesn't fall another 40%. Then I'd move closer to the minimalist existence noted above.

I think it's safe to say that if the cumulative stock market fall was 80% it's very likely any stinkin' annuities wouldn't be worth much either. My several hundred rounds of ammunition would be worth more than the rest of my portfolio.
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Old 10-16-2008, 09:55 AM   #122
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Art, have you ever looked into dividends?
The idea behind the process is that you find good, solid companies with long records of dividend growth.
The rate of the dividend growth outpaces inflation, typically by quite a bit.
And thanks to diversification, it doesn't fall apart if one of your dividend payers cuts their dividend (unless you lump it all with one company).
The norm is that people keep a short term cash fund (CDs, MM accounts, etc) that will last them for a time so they don't have to sell into a down market. With dividends on top of the cash fund, it is extremely rare for this to happen. Sure, it can happen, and you can get hit on the head by a falling rock.
Buying power actually increases and the portfolio does as well along with the rest of the stock market.
And yes, this works better the less a percentage you need each year. If you have a smaller portfolio or need to live more lavishly this won't work so well. All systems have their sweet spots.

Again, I would beg to differ with you. I can pretty much assure you that I speak on a regular basis with more investors than you, so allow me to offer a different scenario.
First off, long before VA's began offering living benefits, I put my very own mother into a collection of quality preferreds, REITS, and bonds, and mutual funds. You see, she needed some growth, but mostly a need for income and unfortunately 4% wouldn't do the trick. Now, her account had been doing quite well for many years. REITS had performed well and the preferreds had held steady, and her mutual funds also had grown. However, in the last year or so, her acct. has tanked. Selling would just mean replacing her investments with riskier ones as she still needs the income. So to answer your question, yes, I'm quite familiar with dividends.
Now, as to your quality companies, you mean like GM, GE, C and F?
The bottom line is this, your scenario was based on the common ebbs and flows of the market place. My concerns are with the overall preservation of wealth and income for life.
At this moment, your strategy is failing miserably. Mine hasn't yet, but just may. I can't afford the luxury of telling people to sit tight and things just may work out alright. Good luck to us all.
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Old 10-16-2008, 09:56 AM   #123
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I think it's safe to say that if the cumulative stock market fall was 80% it's very likely any stinkin' annuities wouldn't be worth much either. My several hundred rounds of ammunition would be worth more than the rest of my portfolio.

Gotta' agree with that. Kind'a scary.
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Old 10-16-2008, 10:20 AM   #124
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Again, I would beg to differ with you. I can pretty much assure you that I speak on a regular basis with more investors than you, so allow me to offer a different scenario.
First off, long before VA's began offering living benefits, I put my very own mother into a collection of quality preferreds, REITS, and bonds, and mutual funds. You see, she needed some growth, but mostly a need for income and unfortunately 4% wouldn't do the trick. Now, her account had been doing quite well for many years. REITS had performed well and the preferreds had held steady, and her mutual funds also had grown. However, in the last year or so, her acct. has tanked. Selling would just mean replacing her investments with riskier ones as she still needs the income. So to answer your question, yes, I'm quite familiar with dividends.
Now, as to your quality companies, you mean like GM, GE, C and F?
The bottom line is this, your scenario was based on the common ebbs and flows of the market place. My concerns are with the overall preservation of wealth and income for life.
At this moment, your strategy is failing miserably. Mine hasn't yet, but just may. I can't afford the luxury of telling people to sit tight and things just may work out alright. Good luck to us all.


If you buy ETF's or funds that produce dividend income you will be sheltered from the fall in the market much more than growth stocks. Dividend paying stocks historically do much better than growth stocks during recessions and during the Great Depression were most likely to survive. Your argument doesn't hold water.

Additionally, you should get some tax preference off the dividends. If you could survive on the dividend stream at the start of a recession you should be comfortable throughout.

Recessionary pressure actually reduces prices so the CPI should remain stagnant or decrease so inflation wonít be a killer.

Good quality stocks that pay dividends form streams of income are much less likely to fold than stocks that are priced based on future growth. Which stocks do you think will get hit the hardest?

Cherry picking companies for comparison like GM does not water down the fact that dividend stocks produce in recessions. Historically, they hold up better and rebound faster. Your facts are wrong.

The key is to hold a broad based fund of dividend paying stocks and keep to your desired asset allocation based on your risk tolerance.

If you have cash, are not retired, and are not worried about losing your job, now is the time to get dividend paying stocks because they are paying great dividends.
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Old 10-16-2008, 10:44 AM   #125
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The bottom line is this, your scenario was based on the common ebbs and flows of the market place. My concerns are with the overall preservation of wealth and income for life.
At this moment, your strategy is failing miserably.
Nonsense. My scenario is based on the long term growth of a broad group of strong companies. It IGNORES the ebb and flows of the market. Couldn't care less.
Canadian Grunt spelled out the key pretty darn well so I won't just repeat what he said
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Old 10-16-2008, 11:03 AM   #126
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If you buy ETF's or funds that produce dividend income you will be sheltered from the fall in the market much more than growth stocks. Dividend paying stocks historically do much better than growth stocks during recessions and during the Great Depression were most likely to survive. Your argument doesn't hold water.

Additionally, you should get some tax preference off the dividends. If you could survive on the dividend stream at the start of a recession you should be comfortable throughout.

Recessionary pressure actually reduces prices so the CPI should remain stagnant or decrease so inflation wonít be a killer.

Good quality stocks that pay dividends form streams of income are much less likely to fold than stocks that are priced based on future growth. Which stocks do you think will get hit the hardest?

Cherry picking companies for comparison like GM does not water down the fact that dividend stocks produce in recessions. Historically, they hold up better and rebound faster. Your facts are wrong.

The key is to hold a broad based fund of dividend paying stocks and keep to your desired asset allocation based on your risk tolerance.

If you have cash, are not retired, and are not worried about losing your job, now is the time to get dividend paying stocks because they are paying great dividends.

That's just lovely, so what you're saying is if you have cash after the market tanks, you'll have money to invest. Wonderful. Now how many retirees do you think are sitting on cash that they don't need to live on? How many of those with cash feel they can risk jumping into the market even though it may eventually be a bargain because they're much more concerned about the market falling further?
I cherry picked great quality companies just a year or two ago. By cherry picking GM from my list of four, I'd say you were equally cherry picking. GE was one of only 8 AAA companies in the world! I can list dozens of other "quality companies" that have recently cut dividends.
There's a huge difference between comparing people who are still working and saving vs. those already in retirement and on fixed income, and I thought those were the ones we were discussing?
BTW, I could surely use that list of ETF's that haven't dropped and are paying good dividends. Thanks.
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Old 10-16-2008, 11:31 AM   #127
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GM and F have been foolish investments for years. However, that is my personal opinion and the reason I have never invested in either.
That does bring up an important issue though and one of the reasons investing in individual stocks isn't for everyone.
Investing in individual stocks requires more investigation into the companies. Not everyone has the time or personality to do this. And for those, I would definitely not recommend it.
If I were not fully allocated in GE already I would be buying more now. It was an excellent buy a year ago and still is today AS LONG as you don't need the cash (other than the dividends) right now.
And yes, you can hunt and find stocks that have cut their dividends. But I bet you I can find a lot more that have raised them
That is where the concept called diversification comes in. Yes, my C holdings had their dividends cut earlier this year. However, the dividend of all the other companies I hold have more than made up for that loss plus inflation.
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Old 10-16-2008, 11:39 AM   #128
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That's just lovely, so what you're saying is if you have cash after the market tanks, you'll have money to invest. Wonderful. Now how many retirees do you think are sitting on cash that they don't need to live on? How many of those with cash feel they can risk jumping into the market even though it may eventually be a bargain because they're much more concerned about the market falling further?
I cherry picked great quality companies just a year or two ago. By cherry picking GM from my list of four, I'd say you were equally cherry picking. GE was one of only 8 AAA companies in the world! I can list dozens of other "quality companies" that have recently cut dividends.
There's a huge difference between comparing people who are still working and saving vs. those already in retirement and on fixed income, and I thought those were the ones we were discussing?
BTW, I could surely use that list of ETF's that haven't dropped and are paying good dividends. Thanks.


All my dividend funds are up over growth components. Check the facts yourself.

I explained the retirement phase with dividends so I am not going to cover it again.

Reference risk. I think you have it all wrong. Your highest risk is when the stock market is high. Your lowest risk is when the stock market is low. Now, your perceived risk is high in declining markets. But real risk is low when the markets are tanking.

Risk is much higher for stocks that were priced for growth than good stocks with real earnings.

If you think the markets are going to zero (which means all the bricks and mortar in your country are worthless, your oil reserves, coal...all your companies are worthless), then...I would suggest a broad diversification in weapons, ammo, food, and water; and a membership in your local militia
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Old 10-16-2008, 12:28 PM   #129
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zathras and grunt, perhaps I'm not being clear. Yes, investing in the market seems a lot safer now than it did months ago. However, most people were ALREADY invested, and most retirees don't sit on large cash positions, they can't afford to.
As to value over growth right now, well yeah, duh.
What you are overlooking though is perceived risk. When you have a limited amount of unreplaceable funds, you tend to react contrary to logic and lean toward safety. Perhaps you can call my mother and assure her that her stocks will come back and she should just sit tight, I know I've had to reconvince her a dozen times already. It doesn't help alleviate the fear any.
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Old 10-16-2008, 12:40 PM   #130
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zathras and grunt, perhaps I'm not being clear. Yes, investing in the market seems a lot safer now than it did months ago. However, most people were ALREADY invested, and most retirees don't sit on large cash positions, they can't afford to.
As to value over growth right now, well yeah, duh.
What you are overlooking though is perceived risk. When you have a limited amount of unreplaceable funds, you tend to react contrary to logic and lean toward safety. Perhaps you can call my mother and assure her that her stocks will come back and she should just sit tight, I know I've had to reconvince her a dozen times already. It doesn't help alleviate the fear any.
Art, I understand your position much better. What you are actually talking about is asset allocation. Ideally, this should have been done years before this recession. I expect many individualís actual appetite for risk is far lower than they thought. Their tolerance is now being tested. This is the crux of your dilemma and especially hard to fix after the fact without incurring actual losses as we are in a broad based sell off.

I believe the best way to explain it to fearful investors would be as follows:

You are experiencing paper losses at the moment. As soon as you give in to fear and cash out you will lock in actual losses that will never be recovered.

Once the market recovers close to break even for their individual portfolio they should reassess their risk tolerance and change their asset allocation accordingly.

It could be a long ride so they might want to skip the business news.
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Old 10-16-2008, 01:07 PM   #131
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Well that's a part of it, however, many of the losses aren't recoverable. There are some preferred stocks that have halted their dividends. REIT's that are merely gone. GMAC bonds valued at $28 with a very real chance they get written off. Income lost now and for the future, and no way to retrieve it.
It's not always a matter of just sitting tight. It's now as much a question of eating into principal to survive.
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Old 10-23-2008, 08:52 AM   #132
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Spoke with a woman yesterday, her husband is recently deceased. He had a variable annuity. The death benefit value was currently more than double the actual value of the funds. He had already withdrawn almost half the original value in annual withdrawals.
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Old 10-23-2008, 09:12 AM   #133
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Spoke with a woman yesterday, her husband is recently deceased. He had a variable annuity. The death benefit value was currently more than double the actual value of the funds. He had already withdrawn almost half the original value in annual withdrawals.
Who cares? That dude had to pay almost 3% a year to double his death benefit after taking 5% a year withdrawals for a number of years. What's your point?

(Just trying to beat 2B and others to it)
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Old 10-24-2008, 04:23 AM   #134
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Who cares? That dude had to pay almost 3% a year to double his death benefit after taking 5% a year withdrawals for a number of years. What's your point?

(Just trying to beat 2B and others to it)
Thanks. I can't be on top of all the comments made by people on my ignore list.

The question should be whether the death benefit was cost effective as a life insurance policy. If he'd put the same money into a term policy, would his wife be able to afford a better looking stud as her "pool boy?"

This is the time that will try an investor's soul and we have annuity sales pitches on top of that. It's sort of like the 7 plagues of Egypt.
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Old 10-24-2008, 08:33 AM   #135
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I guess ignore boy will never know that a term policy first off, must be able to pass a physical which at age 70 is a tad tricky, have a "term" which means the money can be lost forever if the person doesn't die within the right amount of time, And....the difference being put into a mutual fund would have been a loss anyway because of the current market situation.
Yes, fighting the truth is obviously the best route right now. Even in the face of evidence showing that these inexpensive insurance policies pay off, some here can't admit they're wrong.
I guess it's time to track down the Suzy Orman video where she admits the VA was the right product for an individual.
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Old 10-24-2008, 08:51 AM   #136
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I guess it's time to track down the Suzy Orman video where she admits the VA was the right product for an individual.


Art, you are a riot!
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Old 10-24-2008, 10:40 AM   #137
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I guess ignore boy will never know that a term policy first off, must be able to pass a physical which at age 70 is a tad tricky, have a "term" which means the money can be lost forever if the person doesn't die within the right amount of time, And....the difference being put into a mutual fund would have been a loss anyway because of the current market situation.
Yes, fighting the truth is obviously the best route right now. Even in the face of evidence showing that these inexpensive insurance policies pay off, some here can't admit they're wrong.
I guess it's time to track down the Suzy Orman video where she admits the VA was the right product for an individual.
Where's Art Williams when we need him: "buy term, invest the difference"........
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Old 10-24-2008, 10:57 AM   #138
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This is an academic discussion right? I mean someone in his 15th going on 16th yr of retirement shouldn't take this serious - right? .

Next year when I turn 66 - I'll be too old for ER - just be a regular retired.

40% - early SS/non cola pension 60% - 4% SWR from Target Retirement IRA.

Or 3% SEC yield until the cows come - cause I was really really cheap in early ER.

Plus I sold and ate the duplex proceeds early in ER as well as one year temp work.

Did I miss any bases? I count SS as my annuity.

heh heh heh - psst Wellesley lest I forget.
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Old 10-27-2008, 09:39 AM   #139
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Well, right from the horses mouth.....

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Old 10-27-2008, 09:52 AM   #140
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So the highly edited clip from old Suze says a VA makes sense provided 1) you die when the market is down but 2) only if you've sprung for the added cost (on top of fees on top of commissions) of the death benefit.

I'm working hard to avoid both options...
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