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Retiring Early in down market
Old 06-08-2007, 10:35 PM   #1
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Retiring Early in down market

Ok, so I did a search on folks that retired before a bad market and even though I came up with some hits, I'm still confused.

The hubby wants to retire in 2 years. At that time, he will receive a pension (noncola) that will pay a 1/3 of our bills and get a partial lump sum. We will invest that money in an IRA and live on cash and the pension until he is 59. We are conservative and our assets will remain in the 50/40/10 area. Firecal says we should do fine.

However, some people say that they wouldn't retire in a down market. But does it really matter? You could retire one year when everything is dandy and the next year it's rotten. Is there a rule of thumb....or do you just take a chance?

Any thoughts will be appreciated.
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Old 06-08-2007, 11:28 PM   #2
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This question is very much on my mind as I am looking at retiring in exactly 208 days from now and I am concerned about retiring into a recession. I posted a question along these lines on the bogleheads/diehards board
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http://diehards.org/forum/viewtopic.php?t=3133&highlight=yakers
The fellow who studies this a lot, Bob
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http://bobsfiles.home.att.net/ReturnsVsSWRs.html
and has a great site concludes that it doesn't matter unless it is a very long (as opposed to strong) decline.
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Old 06-08-2007, 11:52 PM   #3
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If you're not selling off down equities to cover living expenses in that down market, then it really doesn't matter, does it?

Granted, it would be nice to see your equities continue to grow as you retired

If you were getting a large lump-sum as part of the retirement package, investing it in the down market when P/E ratios are low sounds like a good move.
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Old 06-09-2007, 12:17 AM   #4
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For folks like me living off the interest on a lump sum, a significant down market is the worst possible scenario. But because nobody can predict when a down market will hit, it really isn't worth worrying too much... you just plan to make sure you are okay with the historically worst scenario. A down market is only a problem if you haven't planned for it.
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Old 06-09-2007, 08:50 AM   #5
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It is difficult to give a general answer to the questsion.
One plan for any RE is to have 1 year of expenses in a mm fund then 2 or 3 more years of expenses in a short term bond fund to ride out the down market.
If that plan is not being used then you need look at the withdrawl rate - see firecalc.
Then there is the planned and cutting back spending plan.
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Old 06-09-2007, 09:07 AM   #6
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My parents retired in the midst of a "down market" - RE was much more important than "waiting for the market to rebound"

They are very content today - FI, receiving pensions, snickering about being "old and on fixed incomes" (this is funny because Dad rides about 50 miles a day on his bicycle - and spends what he wants on his RAC airplanes)
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Old 06-09-2007, 09:44 AM   #7
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I only semi-retired in mid-May...and had some of the same concerns....and ANYTHING that I have put my hard earned $$$ into usually does not immediately reward my choices!

My folio was already heavily invested in divended producing stocks with a long history of always paying and continually increasing their div'ds.....I even used some of my cash reserves to buy more...only to watch the entire portfolio drop 4-5% in just a few very short weeks !

...I had the normal panic attack ....thought about selling it all and following the index crowd here....but then had the revelation that it did not matter (Ok...so not so much as a revelation BUT I DID read it here ~ somewhere!!).....as my plans are to live off of the dividends and NOT the folio's returns....so (either by the grace of God or pure luck) I was OK

Bottom line is to listen to some of the wise asses folks on this board as their info and experience have proven to be invaluable in my little world.
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Old 06-09-2007, 09:58 AM   #8
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bbbamI, it's a planning issue. Postponing retirement in a down market could result in losing a lot of good years. Or, it could go south a year or two after you retire and you have to unretire. Likely it will go down and stay there for a while at some point in your retirement.

That's why its something to plan for, not worry about. Not that I have the perfect answer, but my defense is to keep 7 years expenses (inflation adjusted and self-annuitized) in near cash, and another 7 years in bonds and conservative blends. If necessary, I could wait 14 years before selling a penny of stocks (which are 50-55% of my total holdings).

If your whole strategy is vulnerable to a down market, you might want to rethink it. Armstrong and Lucia have both described ways to handle this. You might find it reassuring to read what they have to say.
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Old 06-09-2007, 11:40 AM   #9
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Quote:
Originally Posted by bbbamI View Post
However, some people say that they wouldn't retire in a down market. But does it really matter? You could retire one year when everything is dandy and the next year it's rotten. Is there a rule of thumb....or do you just take a chance?
FIRECalc compares your retirement assets to some of history's worst markets. If you can survive those then you can probably choke through the next 30-40 years.

I'd say that a retirement depending on "no down markets" is a retirement that fails FIRECalc's 1930s or 1966-82 periods. And if it fails them by a wide margin then it might be prudent to work until the success rate is higher-- or at least until a Wal-Mart greeter's vest tides you over the shoals.

But it's hard to come up with a blanket rule. If people are planning to retire at a 4% SWR or ESRBob's 4%/95% rules then they'll probably be fine. Having a more aggressive SWR (like Bernicke's or Guyton's 5-6%) or an overly conservative asset allocation or huge one-time expenses during ER or a budget that can't be cut back during extended down markets... that's pushing the envelope.
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Old 06-09-2007, 07:53 PM   #10
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Well once again you all have come through with great advice and explanations!

It seems that the more I learn, the more confused I get. I do like the idea of a few years of near cash as we do not want to sell in a down market.

The truth is, hubby and I have been dreaming about his retirement for several years now...it just has to happen, and I'm doing everything I can to make the dream come true. Trying to cover all the bases is tough.

Thanks again for your replies.
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Old 06-09-2007, 08:18 PM   #11
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I retired in 2001. Held my breath for a couple of years there.

My weapon for fighting a long decline early in my ER was eliminating debt, and keeping my very necessary expenses cheap enough to be able to pay them without selling off depreciated assets. Had the budget pretty tight in 2002 and 2003. Had it gone on another year or two I might have picked up some part time work.

Had I been paying 25-30k a year in debt and pulling a 60-70k+ withdrawal, I'd probably have gone back to work in 2002 and another foray into ER might not have happened for quite some time.
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