The financial crisis of 2008, uncertainty, and change in plans

[obgyn65]

Interesting article in the NYT this week...

The financial crisis of 2008 and the uncertainty that continues today have made many people radically alter their plans... How has the financial crisis altered your plans ?

http://www.nytimes.com/2012/03/08/b...-make-a-second-act.html?ref=retirementspecial

 

[hellbender]

Didn't Change a Thing

Retired on schedule in March 2009. I don't invest in equities though.

 

[Dawg52]

Fortunately like many here, my portfolio has recouped all my losses and then some from the 2008 crash. But I am much more conservative with my AA. As far as altering my retirement, not so much. Other than my golf, it doesn't take a lot to live the way I do. I'm certainly not taking my retirement for granted though. Who knows........I might go bonkers and spend all my money on wild women or turn over my portfolio to an insurance salesman.

 

[donheff]

It was kind of a stress test on the plan. I ERd in January 2005 and didn't change anything. But if I was relying solely on my portfolio for income and if I was still employed when the bottom fell out I suspect I would have delayed ER a couple of years to let the recovery start before I pulled the plug.

 

[Ed_The_Gypsy]

We have had collapses before, several in my lifetime. How could people not learn from them?

 

[REWahoo]

I find it interesting that this NYT piece and many other similar articles cite example after example of retirees or near retirees who had their retirement plans "wiped out".

...the financial crisis of 2008 swamped Ms. Worth. “Like everyone else, I watched my retirement savings plummet,” she said. “I lost a big percentage of my investments.”

Fred Sanford, 59, moved to Orlando, Fla., from Illinois in 2004 to take a job as a financial adviser with Merrill Lynch, helping to attract clients and invest their money. He steadily put aside money for retirement, he said, investing it conservatively, but nonetheless “lost a chunk” in the stock market after Lehman Brothers collapsed in 2008.

This leads to the assumption they sold their investments when the market was down and didn't participate in the recovery. But this and many other similar articles I've read never seem to mention much on that subject.

I suppose stories of anguish and financial ruin sell more papers than stories about those who hung in there and took the white-knuckle ride on the volatility roller-coaster.

(BTW, Fred Sanford's experience should have anyone relying on Meryll Lynch for financial advice asking themselves some serious questions...)

 

[MichaelB]

We have had collapses before, several in my lifetime. How could people not learn from them?

Gypsy Ed, most do learn, but some learn the wrong lessons, and others don't learn anything at all. After seeing some friends and family lose their houses and others completely miss out on 3 years of stock market rise, it is clear some people are going to have a hard time making it to the finish line even if you give them a map.

 

[rescueme]

I've learned to "harvest" our profits earlier rather than "let it ride" as I had done before my retirement in early 2007, and DW will do at the end of this month when she retires.

It would be different if I was still in my accumulation stage (with a j*b) and did not need current income from my retirement portfolio. However, without a pension, SS, or a j*b , we need to protect what we have. That dosen't mean that I/we have rejected equity funds. However, we've reduced our exposure by 10% (from 60% to 50% target) and sell off from both equity and bonds when we have a 5% gain in any one fund, regardless of the time of year. At that time, the decision is made to just keep it in cash or rebalance, if we're above our 3-4 years of gross income held in cash.

 

[donheff]

I find it interesting that this NYT piece and many other similar articles cite example after example of retirees or near retirees who had their retirement plans "wiped out". This leads to the assumption they sold their investments when the market was down and didn't participate in the recovery. But this and many other similar articles I've read never seem to mention much on that subject.

As I read the article I was thinking the same thing and waiting for some discussion of the negative impact from panic selling but it never came. It struck me that the first woman discussed should be back up where she needs to be had she hung tight yet retirement didn't seem to be in sight for her. Either she sold near the bottom or she was never close in the first place and is now realizing it.

 

[braumeister]

I've learned to "harvest" our profits earlier rather than "let it ride" as I had done before my retirement in early 2007.

That's my approach, too. My ER was in 2001, and I've always been that way. I simply get too nervous when I see an investment doing extremely well, so I gradually sell it off as it continues to rise. That's why I have almost no Apple stock left, unfortunately.

It took about 15 months to completely recover from the 2008 dip in my portfolio value.

 

[LOL!]

I semi-retired in 2008 about 4 years ago. In anticipation, we had shifted our asset allocation to about 30% fixed income from a lower amount of bonds. Also due to the economy my spouse had a 10% pay cut.

At the low point our portfolio was down about 30% from the October 2007 high.

One has to remember that the low point in March 2009 was rather sharp since by 3 months later our portfolio was down only 17% from the October 2007 highs. We can all easily stomach a 15% to 20% drop in our portfolio values by now, can't we? That kind of thing happens almost every year, including as recently as last year: From April 2011 to October 2011, our portfolio was down 18%.

In other words, the drop over a few summer months in 2011 was about the same as the drop from October 2007 to June 2009.

What did I learn? I learned that sticking to the asset allocation plan and rebalancing on the way down and on the way up really works. However, while is is easy to buy equity funds with new money coming in from a job, it is hard to exchange from a bond fund to an equity fund when the market seems to be heading down. But one definitely has to do this in order to end up ahead overall.

Furthermore, some things about these drops are extremely helpful in reducing one's taxes in the future. These kinds of things are not in any of the books I have read. For example, because of the tax-loss harvesting going into March 2009, we have a enough carryover losses to allow us have no taxable income for a decade or so. We can use those years to convert 401(k) and IRA assets to Roth IRAs at an effective tax rate of under 5%. Those savings in taxes are real, but are not easily predictable when doing planning for the future.

 

[Gone4Good]

I find it interesting that this NYT piece and many other similar articles cite example after example of retirees or near retirees who had their retirement plans "wiped out". This leads to the assumption they sold their investments when the market was down and didn't participate in the recovery. But this and many other similar articles I've read never seem to mention much on that subject.

I wonder how many people did sell at, or near, the bottom? I'm thinking probably a lot.

 

[REWahoo]

I wonder how many people did sell at, or near, the bottom? I'm thinking probably a lot.

Based on my personal experience I suspect you are correct. My gut and my mind were severely conflicted during those dark days but I knew the only chance I had of not being like one of those folks in the article was to ride it out.

 

[Lagniappe]

Interesting article in the NYT this week...

The financial crisis of 2008 and the uncertainty that continues today have made many people radically alter their plans... How has the financial crisis altered your plans ?

http://www.nytimes.com/2012/03/08/business/retirementspecial/recovering-from-a-crash-to-make-a-second-act.html?ref=retirementspecial

My original plan was to RE in April 2010. The through the crisis I continued to contribute and rebalance. New date is April 2012. So the financial crisis moved my plans out two years. That doesn't seem so bad, but I must confess there were moments when it felt like I would never get there.

 

[grasshopper]

In 2006 me and Ms G ER'd and downsized our home. We happen to sell our home at the top of the market, and had profits from the house sale sidelined. We never felt a thing, but than we are LBYM. I still only have expenses coming from our taxable acct, and the value now is more than the end of 2006.

 

[Spanky]

We did not change our plans and sold some for tax harvesting.

 

[harley]

In 2006 me and Ms G ER'd and downsized our home. We happen to sell our home at the top of the market, and had profits from the house sale sidelined. We never felt a thing, but than we are LBYM. I still only have expenses coming from our taxable acct, and the value now is more than the end of 2006.

That sounds similar to some of what I did. Out of curiosity, did you get the house money reinvested while prices were down? Or did you sit out the recovery like I did? Or did you ever plan to put the house money into the market?

 

[BTravlin]

We held tight during the downturn and kept contributing more every month. Have recovered nicely and am still on schedule to retire in 3-4 years. Our ER will not be as secure as it would have been but we see no reason to postpone.

 

[Moemg]

I wonder how many people did sell at, or near, the bottom? I'm thinking probably a lot.

I retired in Jan.2008 and was ready to pull the trigger on selling several times . I did sell a tiny portion pretty close to the bottom but I held tight with the rest . It was a real test of my sanity . I have re cooped all of my lost money and next time I hope to have the strength to totally ride it out .

 

[eytonxav]

I simply get too nervous when I see an investment doing extremely well, so I gradually sell it off as it continues to rise. That's why I have almost no Apple stock left, unfortunately.

Sounds familiar, we held pat during the great downturn and started buying more individual stocks in March 2009. I'm still kicking myself over all the Apple shares I bought then and then proceeded to sell them off too soon.

 

[Gone4Good]

Based on my personal experience I suspect you are correct. My gut and my mind were severely conflicted during those dark days but I knew the only chance I had of not being like one of those folks in the article was to ride it out.

I imagine that anyone who hadn't spent many years preparing themselves emotionally and intellectually for the volatility didn't stand a chance. Even many who had found their faith and resolve badly tested.

There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.

 

[martyp]

I lost a "chunk" of my 403b in the 2008 crash. However, I had enough remaining that it didn't deter my decision to ER 15 months ago. Both my wife and I have good pension plans and health care to live off of. My plan is not to touch the 403b money for the next 10 years (I am 56 right now). I don't have that money in the stock market. I am waiting for the next election to think about investing again.

 

[ejman]

I had the good fortune of starting my investment "career" in January of 1987 by converting a good chunk of money I had painfully saved during my overseas work into stocks and stock mutual funds. Of course, the crash of October 1987 promptly followed. This crash was notorious for having a single day drop of over 20%. In my terror at loosing most of my hard earned money I went into "shut down mode" and did absolutely nothing. I was paralyzed by fear. Low and behold this was a short lived crash and in a year or two it seemed like it had never occurred. With that bit of information in my bonnet subsequent crashes - 1990, 2000-2003, 2008-2009 were much easier to handle and I just kept plugging along.

Been retired for 10 years now and NW is highest it's ever been but I'm sure the dance of crash/recovery/crash will continue indefinitely it's how we respond that's critical. For me, sticking to an AA that became progressively more tilted to to bonds as I aged proved crucial. Now at 55% equities with wide 10% band before rebalancing.

 

[TrvlBug]

We rode it out, harvesting losses for tax purposes. Still have years worth of losses to offset gains. Greatly reduced our cash accounts to take advantage of buying opportunities and postponed my retirement by 2 years to pump more $ into our accounts. The job became too stressful so I pulled the plug last fall.

 

[Danmar]

Based on my personal experience I suspect you are correct. My gut and my mind were severely conflicted during those dark days but I knew the only chance I had of not being like one of those folks in the article was to ride it out.

Agree. ER'd in 2006. What I learned was don't sell when the market is down. In my case the risk was even higher as I had several million dollars of employee option gains that evaporated. This would have had a severe effect on my retirement. Just waited it out and everything worked out. Didn't get what I hoped but got a lot more than I feared.