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Timing retirement
Old 08-05-2016, 09:15 AM   #1
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Timing retirement

Firecalc has that example of three different people retiring '71,'72'73. Always gave me a scare with one guy running out of money.

I retired July '11 with the S&P around 1200. Lucky me!

Bob
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Old 08-05-2016, 03:22 PM   #2
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I think it is less of a worry if you have pensions and SS. If not it would be a big worry.
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Old 08-05-2016, 05:27 PM   #3
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Anyone retiring in 2015 or 2016 and "just" making it in terms of savings, when the market was at the high point is in danger of that happening if things go south very soon for a few years. Especially if they don't have a pension and are too young for SS.

That is why it's valuable to have a cushion built into your savings or your spending plans.

Yes lucky you, as the S&P has risen about 82% (~ 16.5% per yr) since you retired, but someone retiring 1 year ago has seen it rise only 4%
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Old 08-05-2016, 06:02 PM   #4
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Yes lucky you, as the S&P has risen about 82% (~ 16.5% per yr) since you retired, but someone retiring 1 year ago has seen it rise only 4%
The S&P may only be up 4%, but I am up about 10% after withdrawals!



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Old 08-05-2016, 06:28 PM   #5
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Our plan always involved having ~3 years expenses in addition to whatever we plugged into firecalc. I plan to keep that approach rebalancing to maintain 3 years "safe" to allow us to weather out reasonable future storms, at least for the near future. But yes, I'm glad we OMY'd and didn't RE in summer 2015 or that would have been too much worry to start with.
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Old 08-05-2016, 09:01 PM   #6
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Firecalc has that example of three different people retiring '71,'72'73. Always gave me a scare with one guy running out of money.
Sitting at the fancy sidewalk café, I overheard three young gentlemen, perhaps each around 40 years old. They were toasting to their success, having worked their IPO to a point where they were tired of working for the man.

Person A: “I checked my brokerage account this morning, and it turns out that I have right at 2.2 million. I figure that I need $100,000 each year to maintain my lifestyle.” (Does the math on his smartphone, 4.7% withdrawal rate) “That’s it! I am going to retire!”

Person B: Checks his brokerage account- 2.7 million. Does the math- 3.7%. “I agree! $100K is about what I figured I need also, I am also going to retire!”

Person C: Checks his brokerage account- 3.7 million. Does the math- 2.7%. “I agree! $100K is about what I figured I need also, I am also going to retire!”

What might their balances look like in 25 years? (Hint: look at the results chart on the FireCalc page)

The way the problem is presented on the FireCalc homepage suggests that the only variable is which year the people retired. The market dropped 19% from 1973 to 1974, and another 25% from 1974 to 1975. In my case study above, Person B would have 2.2 million one year later, and Person C would have 2.2 million 3 years later. The majority of the reason that Person A fails, is because they were right on the edge of being financially viable, and sequence of returns got them. Person B had just enough, and made it successfully. Person C had conservative numbers, and thrived. These numbers are roughly the numbers presented on the FireCalc home page, adjusted by CPI, then divided by 2.1. I added one year of expenses to Person B's portfolio, and 2 years to person C. This way they could all retire at the same time.

This would be the risk of having a 'magic number' that you hit just before a huge drop in the market, especially if all of your living expenses come from that account.
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Old 08-05-2016, 10:07 PM   #7
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All of this argues for having a back-up plan. With the example of $100K withdrawal, it's not too difficult to imagine turning in the Beemer and picking up a used Toyota - maybe also trading the luxury apartment for a modest one, etc. With strategic cutting, such folks can weather the storm. The folks you might feel more pity for are the ones who have little room to cut. My opinion: Anyone depending totally upon withdrawal from a portfolio should have several back up plans already laid out. YMMV
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Old 08-05-2016, 10:22 PM   #8
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I think Wade Pfau has a couple articles where he says a person should be heavy in bonds at the beginning of retirement then add more equities as they age. This combats sequence of returns. Reverse of what everyone does.

I don't do it. Just mentioning it. Decide for yourself. lol
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Old 08-05-2016, 10:30 PM   #9
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Our plan always involved having ~3 years expenses in addition to whatever we plugged into firecalc. I plan to keep that approach rebalancing to maintain 3 years "safe" to allow us to weather out reasonable future storms, at least for the near future. But yes, I'm glad we OMY'd and didn't RE in summer 2015 or that would have been too much worry to start with.
We worked a little more than needed, because I didn't realize we could retire, so we built up a cushion accidentally, so we are past our "just made it" number.
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Old 08-06-2016, 07:41 AM   #10
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I think Wade Pfau has a couple articles where he says a person should be heavy in bonds at the beginning of retirement then add more equities as they age. This combats sequence of returns. Reverse of what everyone does.

I don't do it. Just mentioning it. Decide for yourself. lol
I think this is very sound advice. I'm at 60/40 now, but when I fully retire and stop generating any income, I plan to drop to 45/55, and then gradually increase a percentage or so a year until I get back to 60/40. That eases any worries about bad sequence of returns in the early years of my retirement.
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Old 08-06-2016, 07:46 AM   #11
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If it is tight and you are worried would a part time job help?


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Old 08-06-2016, 07:56 AM   #12
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A good way to see if your portfolio can survive a bad sequence of returns is to use the investigate tab in Firecalc, and see what WR would have a 100% success rate. This shows you the WR and the spending level that would have survived the worst years for sequence of returns, including the years that fall into the 5% failure rate for a 4% SWR.
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Old 08-06-2016, 08:27 AM   #13
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A good way to see if your portfolio can survive a bad sequence of returns is to use the investigate tab in Firecalc, and see what WR would have a 100% success rate. This shows you the WR and the spending level that would have survived the worst years for sequence of returns, including the years that fall into the 5% failure rate for a 4% SWR.
+1 This is what I used as a check on our readiness. We also have about 35% discretionary spending sp that helps too.

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