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Old 11-10-2008, 10:52 PM   #21
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I retired in March of 2000. This is my 2nd major bear market. I'm still standing. My plan has been successful so far, although I had 40% more padding than required for my 4% SWR. The padding was for luxuries, not basic living costs and to keep me from panicking during market setbacks like we have today.
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Old 11-11-2008, 06:32 AM   #22
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Quote:
Originally Posted by Rich_in_Tampa View Post
I think it might be self-destructive to ER at my original (if tentative) date given the demolished state of the market and unknown trajectory; I am willing to defer somewhat but not indefinitely - lifestyle balance remains the driver for me, even if it means a less luxurious retirement; I will reassess things every 3 - 6 months looking not for a recovery, but for what seems to be a "floor;" I'll fire when the combination of savings, personal motivation, and a less seizure-prone market settle in
I agree completely with this approach Rich_in_Tampa and this is what I am planning to do as well. While still working full time but getting closer to a planned RE date, at least I have the option of trying to “time” my FIRE date. We all know that it can be extremely destructive to begin retirement in a bear market (a la Bill in 1973 …) – especially one that has already decimated portfolio values by 30-40%. History suggests that future returns will improve the further we progress away from the current bear market. If my portfolio value recovers somewhat and the market is showing signs of an upward bullish trend; I’ll be pulling the plug in 2009. I will re-assess my position 1st Q 2009.
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Old 11-11-2008, 07:31 AM   #23
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Originally Posted by Bikerdude View Post
I retired in March of 2000. This is my 2nd major bear market. I'm still standing. My plan has been successful so far, although I had 40% more padding than required for my 4% SWR. The padding was for luxuries, not basic living costs and to keep me from panicking during market setbacks like we have today.
This is encouraging. I remember March of 2000, and as I recall the market just dropped and dropped for two or more years after that. Yet you have been successful with some padding. I also plan to have some padding when I retire in 2009.
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Old 11-11-2008, 08:25 AM   #24
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One of my prior post got me to thinking, always dangerous. The guy who retired a year ago win 1m, at a 4% swr is drawing 40k adjusted for inflation. The guy who retires today with 600k would retire with a 4% swr of 24k. So even though both have 600k today, wouldn't both be able to draw the 40k, even though the second guy never saved that much. Could the second guy take his 600k back in time and deterime when it was at it's max and use a 4% swr from that point, even though he never actually had that much?
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Old 11-11-2008, 08:29 AM   #25
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Could the second guy take his 600k back in time and deterime when it was at it's max and use a 4% swr from that point, even though he never actually had that much?
Only if he agreed to die a year sooner.
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Old 11-11-2008, 10:04 AM   #26
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Originally Posted by Rustic23 View Post
Could the second guy take his 600k back in time and deterime when it was at it's max and use a 4% swr from that point, even though he never actually had that much?
As REW says, that 4% "warranty" is only good for 30 years. So if he goes back in time, he has to end that much sooner.

If he went back 29 years, he could start his ER today at a 100% SWR with a 100% success ratio! "Offer good for a limited time only."
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Old 11-11-2008, 10:17 AM   #27
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Rustic, to respond to your question a little more seriously, I think the "even though he never had that much" qualifier in your example would disqualify the second guy from having good odds of success using the larger SWR - even after adjusting for a reduced time horizon.
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Old 11-11-2008, 10:19 AM   #28
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Hey guys, the Bill, Betty and Bob Firecalc example is extremely misleading. It overstates the difference that one or two years can make.

Here's my reasoning, tell me if you think I've got this about right.

It says "Each had $750,000 in their nest egg." That makes you think that they started in the same place. But in fact, in 1973 Bob had much more money than Bill. That's because he had $750,000 after two years of a bear market. Based on the graph, Bob had about $1,400,000 in 1973. If Bill had retired in 1973, he would have done just about as well as he did retiring in 1975. The only difference is that he wouldn't have contributed to his retirement accounts in 73 and 74 -- those contributions would have been relatively insignificant compared to his 1.4 Million.

If you're not convinced, imagine that the example were stated like this: In 1973 Bill had $1.4 million and Bob had 750K. Bill retired and ran out of money. Bill waited two years to retire and didn't run out of money.

So take heart guys, a year or two doesn't make as much difference as you might think. The reason is that your contributions are small relative to your current nest egg.
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Old 11-11-2008, 10:24 AM   #29
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Hey guys, the Bill, Betty and Bob Firecalc example is extremely misleading. It overstates the difference that one or two years can make.

Here's my reasoning, tell me if you think I've got this about right.

It says "Each had $750,000 in their nest egg." That makes you think that they started in the same place. But in fact, in 1973 Bob had much more money than Bill. That's because he had $750,000 after two years of a bear market. Based on the graph, Bob had about $1,400,000 in 1973. If Bill had retired in 1973, he would have done just about as well as he did retiring in 1975. The only difference is that he wouldn't have contributed to his retirement accounts in 73 and 74 -- those contributions would have been relatively insignificant compared to his 1.4 Million.

If you're not convinced, imagine that the example were stated like this: In 1973 Bill had $1.4 million and Bob had 750K. Bill retired and ran out of money. Bill waited two years to retire and didn't run out of money.

So take heart guys, a year or two doesn't make as much difference as you might think. The reason is that your contributions are small relative to your current nest egg.
To me, the Bob, Bill, and Betty paragraphs are a little confusing. I prefer to just use Firecalc as a starting place, and temper the results with my own ultra-conservative safety nets and instincts. If the market goes up 25% in the 12 months between now and my future retirement date, I would probably select a slightly lower SWR than Firecalc decrees on the day of my retirement, "just because".

I have never planned to spend as much as Firecalc will allow, even back when my retirement plans were assuming a bare bones retirement. To me, the HUGE advantage of Firecalc is in the comparison between different scenarios, and not in the absolute amount one can spend. I am just more conservative than Firecalc about how much I am willing to spend. Perhaps that means that I am pessimistic about our economic future relative to our economic history up to now. Or, perhaps it means that I would like to see my nestegg growing and my spending growing along with it.
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Old 11-11-2008, 10:28 AM   #30
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Originally Posted by TromboneAl View Post

Here's my reasoning, tell me if you think I've got this about right.

It says "Each had $750,000 in their nest egg." That makes you think that they started in the same place. But in fact, in 1973 Bob had much more money than Bill. That's because he had $750,000 after two years of a bear market. Based on the graph, Bob had about $1,400,000 in 1973.

I don't see it Al. The text says and the graph shows all three starting with $750,000 when they began retirement in their respective year. Where do you get the higher numbers for Bob?
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Old 11-11-2008, 11:58 AM   #31
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I agree it's confusing, and I had to think about it for a bit. See if this doesn't make it clear:

Here's the original plot. The x axis is years from retirement.



Now, let's get rid of Betty, and replot it so the x axis is date:


Now the x axis starts at 1973. I've shifted Bob's line over, because he retired in 1975.

Now to extrapolate to see how much Bob had in 1973. Bill went from 750 K in 1973 to about 400K in 1975. So Bob must have had 1.4 Million in 1973 (750/400 * 750). The dotted green line shows that.

Does that sound right?
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Is the x axis supposed to represent time?
Old 11-11-2008, 12:01 PM   #32
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Is the x axis supposed to represent time?

Edit: I was composing this while Al was posting the previous post.

The text says Bill, Betty, and Bob retired in 1973, 1974, and 1975 respectively and it is implied that each had $750,000 when they started. But ... all three graphs start at about .5 on the x axis (or we could say that 1.0 is actually midway between the first two tickmarks).
Betty's graph should be offset to the right by one tickmark, and Bob's should be offset by two.
Just kinda guessing, the graphs look like they might be correct but Betty and Bob start in the wrong places on the x axis.

Bill started with two down years followed by an up year.
Betty's first year was down and the second was up. Betty's first year coincides with Bill's second year, and Betty's second year coincides with Bill's third year.
Bob's first year was up. Bob's first year was Bill's third year and Betty's second year.

This is the classic scenario in which Bill will never catch up with Betty or Bob, and Betty can never catch up with Bob.

I think it would be easier to understand if the graphs started at the correct places on the x axis.

I doubt that the creator of that page intended for it to be picked apart like this.
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Old 11-11-2008, 12:01 PM   #33
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Originally Posted by Rustic23 View Post
One of my prior post got me to thinking, always dangerous. The guy who retired a year ago win 1m, at a 4% swr is drawing 40k adjusted for inflation. The guy who retires today with 600k would retire with a 4% swr of 24k. So even though both have 600k today, wouldn't both be able to draw the 40k, even though the second guy never saved that much. Could the second guy take his 600k back in time and deterime when it was at it's max and use a 4% swr from that point, even though he never actually had that much?
Either one of these guys is on thin ice, or the other is is really good shape!
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Old 11-11-2008, 12:03 PM   #34
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Or verbally:

Bob had 750,000 in 1975.
Bill had 750,000 in 1973 and had 400,000 in 1975.
Bill lost 53% between 1973 and 1975.
Bob must have also lost 53% between 1973 and 1975.
Bob must have had 1.4 million in 1973.
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Old 11-11-2008, 12:34 PM   #35
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Bob must have had 1.4 million in 1973.
Or he could have had 0 in 1973, lived off his dying parents for two years, and inherited $750,000 on 1/1/1975.

Kidding aside, I understand where you're getting your numbers. To your original point - that things may not appear as bad as they seem in this example - I certainly hope you are correct. I retired mid-2005 and see a close parallel to the performance of my portfolio and the first three years of Bob's green line. I can only hope it continues to follow a similar course.
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Old 11-11-2008, 01:56 PM   #36
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If someone retires into a bear market, and can still live on their SWR, then one could argue that this is probably the safest way to retire.

I would think it more risky to retire in a bull market, where a 4% SWR would be a lot more. Really, a 4% during a bull market might represent 5% or 6% later on in the depths of a bear market.

Besides, after the bear comes the bull, and that would be really nice a few years after retiring.
Yes 4% at the bottom of a bear should be pretty safe if things return to normal in a reasonable period of time.

------------

I dredged up a few old posts on P/E10.

Business Week's "special retirement issue"

Another Look at Safe Withdrawal Rates and PE Ratios

At an S&P 500 P/E10 of 15, Kitces indicates that a SWR of about 4.8 might be OK. Not sure if I trust the numbers.

Anyone have a current P/E10 calculation?
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Old 11-11-2008, 11:12 PM   #37
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Shiller himself puts one out every month: Online Data

The last one was 20.67 based on an S&P of 1266. An S&P of 900 would be about 14.7.
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Old 11-11-2008, 11:50 PM   #38
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Originally Posted by TromboneAl View Post
Or verbally:

Bob must have had 1.4 million in 1973.
You don't know that T'AL. We only know he had $750k in '75 when he retired, however he got it. It's not necessarily the residual from $1.4 mil in '73.

I wish you were right. But I think actual back-testing shows that the one year differences as shown are accurate.

Despite having done dozens (hundreds?) of FireCalc runs, I'm still surprised at the variation in outcomes depending on the year you retire. For the run that represents my FIRE status, outcomes vary from failure to about 7X what I started with!

Only time will tell how it works out......
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Old 11-12-2008, 04:11 AM   #39
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I am about 3 years off ER.

There are two hurdles to retire in this type of situation. The numbers... and the persons basic confidence. I could tighten the belt and get by until the market returned (if the recovery is somewhat typical of other bears/recessions). My fear would be a long protractive recovery or sideways for quite a while.


IMO - this situation is different than anything we have experienced. There are some similar scenarios that might lend insight into the recover.


I am optimistic and keeping my fingers crossed. But I am braced and going to be realistic.

Several people I know at work were intending to retire in the next couple of years at 62... they are considering delaying till 65.
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Old 11-12-2008, 05:31 AM   #40
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The biggest risk is that when you retire the market will not meet your expectations, especially in the first few years, i.e., you'll be blindsided by and unexpected bear market. Given the present state of affairs, your expectations for the next few years should be very low. Therefore, if you run the numbers and can live with such low expectations, there is little risk of disappointment -- any surprise is more likely to be to the upside. So, this is a good time to retire . . . provided you can handle the likelihood of very anemic returns. My own plan is to retire next spring, or early summer. I can live on fixed income investments for quite some time. When it is reasonably clear that the bear has gone back into hibernation, I'll venture back into some equities. I'll probably miss the initial upward climb. However, bull markets tend to last longer than bears, so I should have ample opportunity to catch some of the ride. At this stage of the game, however, preservation of my nest egg is more important to me than increasing its size. All I need is a little boost from equities, so I won't get greedy, or expose myself to unnecessary risk. Bottom Line: I'll wait for the all clear signal, knowing that I'll probably miss a fair amount of the upside.
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