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Old 01-06-2017, 03:07 PM   #121
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Originally Posted by RunningBum View Post
Are you also planning on raising your equities a few years after retirement as the advice goes? I went from pretty much 100% equities during my working years to 80/20 the last few years before retirement, then 115-age when I ER'd. I don't think that's too unusual.

But the suggested strategy would be to drop equities way below that heading into retirement, then edging them back up. Is there anyone here who has actually done this, or has definite plans to do it?
That's the plan, to average into more equities over time.
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Old 01-06-2017, 04:37 PM   #122
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Originally Posted by COcheesehead View Post
If you have enough in cash/bonds when you retire to get through 3 years or so, why worry about the market? That gives you all the time you need to recover. Bonds also can take a hit your first few years of retirement as well. See last year for example. Sequence risk is only a "risk" if you need to sell when the market is down. Set yourself up with a cushion and then the risk goes down. Adding equites as a bigger portion of your portfolio later on doesn't guarantee anything.
Even though you may "recover" in those three years you've lost the gains you would have made in a normal market. So you lose 30% in year one but by the end of year three you're back to even. But you lost the 7-10 % you could've made each year had the market not plummeted and just made historical gains. You're still behind.

I saw this on a retirement calculator site, if you had $750K at retirement and withdrew $35k a year hoping to last 30 years and you retired in 1972 your money would run out in 21 years. If you retired in 1973 you'd last the 30 years and still have your $750k or thereabouts left. If you retired in 1974 you'd last 30 years and have over $1.5Million left! That's only a three year difference but a huge difference in outcomes.
Now I'm sure this 3 year period was a worst case scenario (I assume it's correct) but still, it shows what can happen.
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Old 01-06-2017, 04:53 PM   #123
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I previously mentioned 2 people that pulled their pension before 50 and returned. Earlier today I was talking to a friend who still w*rks in the office. We came up with 6 people who pulled their pension.

One person pulled his pension 10 years ago and is still doing great.

One other, unfortunately passed away a year after she pulled the pension. Her health issue was sudden and unknown at the time she left.

The remaining four are back w*rking...three of them back at the office, and one of them at a non-govt. job that pays slightly above minimum wage, but of course without any of the govt. benefits they previously enjoyed. The 3 back at the office are at lower pay scales and treated as "new" employees in the vacation and pay categories.

Although I don't know all the details, it seems that pulling the pension is not a very good idea for most. 4 of the 6 should probably have stayed and put in the 5-7 more years they needed to get to a monthly COLA pension.
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Old 01-06-2017, 04:54 PM   #124
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Even though you may "recover" in those three years you've lost the gains you would have made in a normal market. So you lose 30% in year one but by the end of year three you're back to even. But you lost the 7-10 % you could've made each year had the market not plummeted and just made historical gains. You're still behind.

I saw this on a retirement calculator site, if you had $750K at retirement and withdrew $35k a year hoping to last 30 years and you retired in 1972 your money would run out in 21 years. If you retired in 1973 you'd last the 30 years and still have your $750k or thereabouts left. If you retired in 1974 you'd last 30 years and have over $1.5Million left! That's only a three year difference but a huge difference in outcomes.
Now I'm sure this 3 year period was a worst case scenario (I assume it's correct) but still, it shows what can happen.
What you are describing is opportunity cost, not sequence risk. SR would be having to sell in those down years and not having the same capital left to "grow" back your position.
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Old 01-06-2017, 05:28 PM   #125
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I tend to agree with RunningBum, perhaps because I have at least 90% stocks

The answer if you have 90% stocks is to have 5 years worth of cash (cd's, actual bonds but not bond funds).
The market tanks to 25% is no issue as you still get dividends from your severly depressed stocks and have 5 yrs of cash, all of which should outlast any stock depression.
If you can have 90% in stocks and still have 5 years of cash then you are using a SWR of 2%

For a normal person at 3.5% to 4%, the above is not possible.
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Old 01-07-2017, 09:08 PM   #126
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Jane Bryant Quinn's book Make Your Money Last on p 218 states "the newest idea calls for gradually reducing your stock allocation 5 years before retirement . On retirement day you should just be 30% in stocks.That protects you from risk of a crash in the first few Critical years of retirement.Then gradually increase stocks 2 or 3 % per year for 10 years until you get to 50 or 60% stocks then stop. This prevents you from starting out in the hole like people who retired in 2008 did. Very interesting strategy that people retiring now may want to consider. I would appreciate others thoughts concerning this unique strategy.
We've been doing this the past couple years and I'll explain why it made sense for us.

YMMV, but here goes...

I hope to ER from Megacorp late this year at age 55 when I will get my non-COLA pension - from a very stable company at which I've worked my whole 30-year IT career. 54YO DW could also ER at the end of this school year, with her non-COLA pension; but she may want to work a couple/few more years, which would increase her pension (tho that's not the reason; she likes the structure of a job, and teaching just two miles from home 180 days/yr and getting home at 2:30 isn't a bad gig). My pension provides a free 60% survivor benefit, but wife's is expensive (10% for 50% or 18% for 100%); so we'll likely forego hers. We'll probably buy term life policies for both of us before retiring to protect us til SS arrives.

Our house is paid off and we don't travel a lot or have expensive hobbies. Cars paid off too, but will need replacing in 3-5 years. Both kids out of college - DD married last summer and doing well, DS 6 months into his career and living with friends. Neither has student loan debt and both are committed to saving 10% of their incomes already toward retirement.

We're pretty sure we can mostly live off pensions (to start anyway, until inflation erodes them), with some portfolio withdrawals to fill the void of no COLAs until SS. At that point, pensions (even deflated), plus SS will put us higher than the day we retire.

Medical coverage: DW gets hers free for life once retired for having spent her entire career in the same state school system. I will get into my employee plan as a retiree, for less than $2k/yr.

So, that brings us to retirement savings... around $920k, mostly pretax. Up until our mid-late 40s, we were 100% stocks, then a few years at 80/20, then down to 70/30 til a couple years ago. As we neared ER, a little over a year ago, and wanted more to protect than grow our portfolio to not jeopardize ER, we shifted first to 60/30/10, then this past fall to 35/50/15 - as you and Jane suggested - to avoid a negative sequence of returns. I do realize that some advocate that with high stable income floors, we could instead take MORE risk with our portfolio. But we'd feel much worse losing money we need than gaining more that we really don't.

We've even gone a step further, tho some might call this market timing regarding the rather high 15% cash position. 5% of that can be used for the first few years of withdrawals when we need to start supplementing our deflating pensions without having to sell stocks or bonds if they happen to be down at that point. The other 10% is the "timing" part - to eventually put back into the market 3-5 years into retirement.

For us personally, our biggest ER financial fear is a negative sequence of returns because we likely won't even need to sell stocks or bonds the first few years of ER - so why risk starting off behind by having a large stock allocation? We opted to shift to a more conservative AA, and the market the last couple years seemed like a good point to sell some.

We have no crystal ball. And if the next big market drop comes in the next 3-5 years, we won't know exactly when to shift some back in. But we'll do our best and ultmately, we'll probably settle somewhere around 50/50 by age 60.

What we do know is that if the market drops a lot in the next few years, we now stand to lose a lot less during the crucial few years before and early into retirement. And given our high stable income floor, that just makes sense for us, even though we realize that if the market goes up, we'd miss out on some gains.

Sorry for the very long story, but this is an important issue to us and I found your JBQ negative sequence of returns reference very close to our hearts.

Thanks for listening.
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Old 01-08-2017, 05:10 AM   #127
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if you retire when the market tanks, then you start out on the wrong foot or in the hole.
IMO I look at it from the other end. If you were to retire at the end of 2008 and set a SWR at that time, your withdrawal rate would be considerably lower and thus, more conservative than if you set your SWR in 2006-7. By 2010 your SWR would be relatively low and you'd have gravy.

Those who retired at the peak of the market would have greater risk and require a downward adjustment (not knowing that the market would've recovered so quickly)
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Old 01-08-2017, 05:30 AM   #128
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Although I don't know all the details, it seems that pulling the pension [before age 50] is not a very good idea for most. 4 of the 6 should probably have stayed and put in the 5-7 more years they needed to get to a monthly COLA pension.
When I was at a Prudential subsidiary, they made early retirement offers to people whose age plus years of service added up to some number (or higher). I was nowhere near qualifying but was surprised at the number of people in their late 40s/early 50s who took the offer and actually did plan to retire. This plan had no COLA and, being a typical actuary, I wondered how many of them would realize 10 or 15 years later that inflation had eroded the value of the pension and what looked like a good amount for day-to-day expenses didn't cover major items such as replacing a car or a roof. At that point it's difficult to find a decent job even if you're physically up to it.
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Old 01-08-2017, 08:14 AM   #129
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When I was at a Prudential subsidiary, they made early retirement offers to people whose age plus years of service added up to some number (or higher). I was nowhere near qualifying but was surprised at the number of people in their late 40s/early 50s who took the offer and actually did plan to retire. This plan had no COLA and, being a typical actuary, I wondered how many of them would realize 10 or 15 years later that inflation had eroded the value of the pension and what looked like a good amount for day-to-day expenses didn't cover major items such as replacing a car or a roof. At that point it's difficult to find a decent job even if you're physically up to it.

Did Prudential also offer a LS option? If so, was it an attractive choice?
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Old 01-08-2017, 08:26 AM   #130
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Did Prudential also offer a LS option? If so, was it an attractive choice?
No idea; I wasn't eligible so I didn't get details.
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Old 01-08-2017, 10:55 AM   #131
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Sandman62 : I read your entire post and I believe you are on the right path to a successful retirement that will work for you. The plan that you put into action a few years ago seems to be a well thought out plan. If this plan allows you to sleep at night then being able to sleep well is good for your health- and good health is more important than wealth. They say"Everything in moderation", and your middle of the road plan will allow you to participate in some stock market gains, without getting crushed in a market crash.I am in a similar situation as you- age 55, retired after 30 years, pension( with 3% cola) ,but Wife does not have a pension. I also elected to forego survivor benefit and bought term insurance to protect Wife (and if we both pass at same time in accident) the kids would get our life insurance but obviously not our pension.There is no perfect retirement strategy for everyone, but this strategy seems very good for individuals in our similar situations. On Amazon 95% of the readers reviews on JBQ 's book are very positive. JBQ is not trying to sell you investments, thus she seems to be unbiased and also a very smart and well read person. Good luck, and I am sure the Sandman and his family will sleep well with this plan.
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Old 01-08-2017, 10:58 AM   #132
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Thanks JPG. AS much as I try to tackle this mathematically/scientifically, I do realize it's a lot more art than that. Adaptability will be our friend, I hope.

Good luck to you too.
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Old 01-08-2017, 11:31 AM   #133
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When I was at a Prudential subsidiary, they made early retirement offers to people whose age plus years of service added up to some number (or higher). I was nowhere near qualifying but was surprised at the number of people in their late 40s/early 50s who took the offer and actually did plan to retire. This plan had no COLA and, being a typical actuary, I wondered how many of them would realize 10 or 15 years later that inflation had eroded the value of the pension and what looked like a good amount for day-to-day expenses didn't cover major items such as replacing a car or a roof. At that point it's difficult to find a decent job even if you're physically up to it.
During my last year at the office, I became known to a few close co-workers as the "retirement and excel guy". I would make up spreadsheets with charts showing various retirement and pension withdrawal scenarios. As it was the fed govt. and we were all in the same bargaining group, everyone knew what everyone else made, and therefore, no one ever had to reveal a salary they wanted kept private.

For someone that wanted to retire early (and suffer the penalty), I'd calculate their annual pension and create columns showing the total that they would collect over the years, and next to that would add columns with calculations showing the monthly and cumulative amounts if they stayed 1 year longer, 2 years longer, etc., until they reached a full, un-penalized pension.

A friend wants to pull her pension in a few months and has asked for some advice. Based on what she will get pulling her pension compared to retiring early (even with penalty), I don't think it's worth it. I've made a spreadsheet for her and will recommend that she wait and collect the pension, but of course, it's not my choice to make. But, at least she'll be able to make the decision with some solid numbers.
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