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Old 10-24-2008, 01:09 PM   #21
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So, how has this bear market affected you personally and your investment plans?
We've begun to crave things we feel we can no longer afford. Example: We'd casually thought about a second home "up nort" or upscaling from our current very modest home to something larger in a swankier neighborhood. 2+ years into retirement, the numbers were looking good and making one of those moves would have only increased personal real estate from about 10% to about 20% of our total net worth. Now, having had our stock market equities fall in value by more than a second home would have cost, we've scratched that thought. And what was once only a "crazy idea" has morphed into something we really wanted to do and has been mercilessly yanked away from us. When we could afford to do it, it was just a vague idea to consider. When we can't afford it, it becomes a craving no longer possible to satisfy. I'm sure it will fade......

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Sounds like a joke, but this represents how it has affected us personally. "Lost" $250,000 in investments, so we'll save $1.49 by not getting a drink.
Yep, been there, done that. Find outselves doing it more these days.


We're also looking at our budget a little closer. So far in retirement, we've done little detail tracking since it's been easy to stay within the broad guidelines we established. But now, we've tightened up the guidelines a bit and it becomes worthwhile to study expenditures for repetitive minor outlays that, if eliminated in aggregate, might be enough to put a fishing trip back on the calendar for next spring.

Our networth is down by about one forth, more or less, from peak My anticipation is that I need to look at that as being a permanent situation and any happy surprises that prove that to be too pessimistic will be easy to deal with. If it's too optimistic, we'll be moving from minor budget tightening to some significant issues.

My major concerns, even beyond fretting what the S and P will close at this afternoon, are:

Will my and DW's access to health care through our previous employers' retiree plans continue?

Will our modest, but enough to keep us above the poverty line, pensions continue unreduced?

Will the kids have job troubles or other issues where we'd normally be happy and willing to temporarily help out but now can't?

Will our health remain good? (Way more important than what happens in the markets, at least so far.)

Will relationships with friends remain stable and good as various couples' financial fortunes erode or prosper to different degrees? (One couple in our crowd, both on generous public pensions, unintentionally rubs it in to the point others are avoiding them. Another couple is clearly so distraut, financial problems are all they talk about. It's getting hard to be around them too.)


While this downturn is indeed a real pita for us, to the extent we can avoid fretting about the small probability we'll be thrust into poverty, life will go on and I have no regrets about retiring at 58. I enjoy my time and while my net worth may or may not recover, I can be sure that time once spent can never be recovered.
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Old 10-24-2008, 01:37 PM   #22
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My plan was to FIRE at age 53 when kids are 18 in 2026.

This market MIGHT have made that more realistic. I had 200k invested earlier in 2008 and this market took about 80k of that (40%) right back. If I can get enough invested now and in coming months, the 20% savings rate we have could probably capitulate the FIRE plan.

1) Need to stay employed
2) Need to keep investing (stay the course)
3) Market needs to stay low for about 6 months. Let me get more money in!

I have no control over #3 (sorry).
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Old 10-24-2008, 01:41 PM   #23
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I will cut my travel budget down and I will slow down on my remodeling . I've already cut back on presents and I plan on increasing my cash to five years . If the real estate market starts getting slightly better I will downsize not because I have to but because I want to .
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Old 10-24-2008, 02:24 PM   #24
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Just a thought - now not the time to go into US Treasuries - price at a high - USA first into a recession; first out so it will raise interest rates them.

You might look at Corp. Bond funds - they have gotten hit hard and paying a good yield over Gov't bond. I don't follow them too much so do your research.
Thanks for the advice! It is much appreciated. I do need to learn much more about bonds before I invest in any more of them. While I am learning, the money stays in money market. While in MM it loses the difference between inflation and the interest rate, but that seems better than the losses experienced by some bond funds this year.
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Old 10-24-2008, 02:35 PM   #25
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W2R, Wellesley is already loaded with corporate bonds (up to 60% of the fund), so I don't know if you would want to add more to your portfolio. I think you said earlier you were worried about inflation. So TIPS could be a nice addition to your portfolio (I am looking into it myself). Lots of people seem to think they are a great buy right now.
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Old 10-24-2008, 02:59 PM   #26
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I find that I can no longer stand watching television shows that are all about violence and misery and gloom.
You mean CNBC, right?
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Old 10-24-2008, 03:03 PM   #27
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I guess that I don't feel too bad about the downturn, but I am expecting a fast recovery (in the market at least). If I felt that it would take 10 years to get to where we were a year ago, I'd feel much worse.
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Old 10-24-2008, 06:31 PM   #28
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:
...
We'd casually thought about a second home "up nort" or upscaling from our current very modest home to something larger in a swankier neighborhood. 2+ years into retirement, the numbers were looking good and making one of those moves would have only increased personal real estate from about 10% to about 20% of our total net worth.
...
Not a criticism, but more as a question for you and anyone else who wishes to respond:
I've never thought of our total net worth, or our house, as significant in calculating retirement. Some day we will probably move to a smaller place (condo?) and be able to clear maybe $150k on that deal, so I include that in FIRECALC. Beyond that; I only look at my pension, IRA's, and SS. All the other "stuff" in our net worth is either depreciating (cars, toys, etc) or will be needed until we die or go into a nursing home.
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Old 10-24-2008, 07:20 PM   #29
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As stated in another thread, TAl's short about $10,000 this year using the 4% SWR.

However, look at the 4%, if I have my math right. If TAl started out with $700,000 in savings and the market returned 9% over the past 5 years he would have a little over 1M dollars before the crunch. Five years ago the 4% rule would say he could take out $28,000 from his savings and increase it each year for inflation, say 3.5%. That would mean he would need about $33,000 five years later. Now he takes his $250,000 hair cut. His portfolio is worth about $827,000 and to get his $33K would take just a little over 4%. So if he continues on the 4% rule, at least for now, he will be OK.

I know I have omitted the anual deductions for each of the 5 years, and that would make it a little worse, but i doubt if it would be equal to $10,000, and it also assumes only a 9% return on his investments over the past 5 years.
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Old 10-24-2008, 07:40 PM   #30
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Our allocation is 85%+ in equities, so we've taken quite a hit. Still, I haven't sold any shares (been living on our pension and my income from PT work) so I really haven't felt like we have been hit hard. I just don't have a "mark-to-market" mentality: I really don't feel like I've lost anything until I have to sell shares i bought at $20 for $15. We've got enough cash to see us through a few years if I quit working. When I make my solo401K contribution this year it will all go into these bargain-priced equities. I think the market will come back relatively quickly, maybe back to its previous high in 4 years (and we'll be getting dividends until then as well).

Biggest personal impacts:
- We'll cut back on discretionary spending. Eat out less, maybe skip a pricey vacation. But we'll keep fixing up the house.
- I'll do more of the part-time work than I would otherwise. This will allow us to avoid selling equities, and maybe even buy some more while prices are down--speeding up the day that our balances recover to their previous level.

I'm not at all morose. We knew the road would have dips, and this is one of them. Let's get it over with and get the market back into the black.
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Old 10-24-2008, 07:54 PM   #31
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Something else to help put things in perspective:

Let's say your net worth is about $1 million. The worst happens and you need to sell some equities, say $20,000 worth, for expenses for this year.

You're only realizing a real loss (as opposed to a paper loss) on this small amount (2% of your net worth). If you're selling shares that are down 40%, then you are losing a total of $8,000. Plus, those shares probably appreciated over the years.
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Old 10-24-2008, 08:28 PM   #32
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"This is worse than a divorce. I've lost 50% of my net worth and still have my wife."
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Old 10-24-2008, 08:37 PM   #33
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So, how has this bear market affected you personally and your investment plans?
It has shaken my confidence. I was cruising towards RE'ing early 2010 with a pension, health insurance and $1.5m in savings. 1 year ago work got so sh***y that I almost quit even though I would lose health insurance and not be ale to collect pension until age 62 instead of 55 - I was very confident we'd be okay.

Thank goodness that when I talked to HR they offered me a totally different position in a different location.

I am back on track for RE'ing in 2010 with pension and health insurance, and I'll be pleased if I have $1m in savings (I'm down ~$250k this year).

With pension I have 5 years of needed expenses in cash. Without pension I'd have about 2 years in cash.

I plan to continue to hold about 40% in equities, but the main lesson I've learned is that 5 years cushion when you are retiring is essential. This may turn out to be a false assumption as well - the bear may yet run for a long time yet.
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Old 10-24-2008, 08:38 PM   #34
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Not a criticism, but more as a question for you and anyone else who wishes to respond:
I've never thought of our total net worth, or our house, as significant in calculating retirement. Some day we will probably move to a smaller place (condo?) and be able to clear maybe $150k on that deal, so I include that in FIRECALC. Beyond that; I only look at my pension, IRA's, and SS. All the other "stuff" in our net worth is either depreciating (cars, toys, etc) or will be needed until we die or go into a nursing home.
House - you'll find a number of threads discussing whether to include the value of your home when determining if you can FIRE. Good arguments both ways. My rule of thumb is that if I include the value of my home on the asset side of the equation, then I include the cost of renting on the expense side.

My mention of our home in regard to retirement financing was only to clarify that the value of our home is a small percentage of our total net worth and we were, before this "downturn," actually looking to either add a second home or upgrade to a larger home in a nicer area. Not now though.

I calculate net worth as home + deferred (IRA, 401k) assets + non-deferred assets (investment portfolio). Like you, I don't include any depreciating assets like cars, etc.
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Old 10-24-2008, 08:42 PM   #35
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(deleted, unnecessary question)
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Old 10-24-2008, 08:43 PM   #36
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W2R, Wellesley is already loaded with corporate bonds (up to 60% of the fund), so I don't know if you would want to add more to your portfolio.
Thanks, but I am not considering adding any? Today I have exactly the percentage (well, within less than half a percent) of Wellesley called for by my investment plan. Despite the big dividends it doesn't seem to be doing any worse than the rest of my portfolio up to now. While everything else has been plummeting, Wellesley is what has given me peace of mind as it slowly drifts downward at a more gentle and tolerable pace.

Do you expect it to experience some sort of delayed effect for some reason that I don't know about? The reason I am asking is that I am not the only one on the board with a substantial chunk in Wellesley, and OldBabe warned me about the exact same thing just a few hours ago.

If Wellesley is in trouble, then I think another thread should be started to warn all the others here who are in the same boat. (?) I do own it with a long time horizon in mind. It is mainly for dividends, and actually has paid out more this year than last, I believe. So, I am not sure what you and OldBabe are expecting to happen that hasn't already happened but would like to know.
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Old 10-24-2008, 09:00 PM   #37
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W2R to me it seemed Firedreamer was saying you might not want to add more bonds to your portfolio (since Wellesley already has some in its mix, so you might already have a good allocation of them without realizing it)--didn't seem to be a caution about adding more Wellesley itself.
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Old 10-24-2008, 09:01 PM   #38
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W2R,

Wellesley is providing you with an income stream. If you sell it, you lose that stream of income. If I've read correctly, it fits within your asset allocation and that allocation hasn't drifted too far from what you intended.

Bonds can go down because the issuer can go bankrupt. With credit as tight as it is, even the best bond funds are losing principle, but the income stream continues. IIRC, the bond portfolio is most in AAA, so you have the safest bond investment available -- assuming Moody's did their job well.

I don't mean to throw any curves here -- once the credit uncertainty (including hedge fund redemptions) becomes less volatile, I think you'll see the value of Wellesley go up. I've seen my bond fund investments pretty much be the stable investment while my stock funds are all over the map.

All I'm saying is wait til the dust settles before making decisions. If you should decide you want to invest in other bond funds (or bonds themselves), I'm sure you'll be looking at your total asset allocation before doing so.

-- Rita

Full Disclosure: I don't own Wellesley but do own other bond funds (including TIPS) as part of my AA -- which is currently 43/57 -- I intend for it to be 55/45.
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Old 10-24-2008, 09:12 PM   #39
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So, how has this bear market affected you personally and your investment plans?
We were so close. If our portfolio had gone up just another 5% last year around the high, we would have both retired. Our portfolio is pretty aggressive, targeting between 28% and 30% bonds, the rest in stocks.

This fall, just before the market fell, my wife did basically retire, giving up a secure middle management job to instead work part-time at a non-profit for roughly minimum-wage. She definitely had great timing, since I would be screaming NO if she asked to do that today.

Now as I watch our portfolio's value decline, I measure the decline in terms of years of salary. Through mid-summer, we had lost about 2 years of combined salary since the peak. Not wonderful, but not enough to really bother me. Now, with our greater losses and lower salary, we are down by almost 10 years of salary!

All of a sudden, my job is precious. Though I don't enjoy it any more that I did before. Three months ago I would have viewed being fired as an excuse to retire a bit early, and was seriously considering forcing my manager to let me work part-time. Now, part-time is out of the question, and losing my job would mean searching for a new job in the middle of a recession.

Investment wise, I've been harvesting tax losses and buying more equities to keep the allocation near 70% equities. I currently think I'll keep chasing the market down until either it bounces, I only have about 4 years of expenses left in bonds, or I lose my job, whichever comes first.

On my sad days, I figure I could easily end up working for another decade. On my happier days, I figure when I do ultimately retire, I'll probably have a wealthier retirement than I expected. In the mean time, I'm working to hang on to my job, and am starting to cut expenses at home. So far that mainly means no new toys. I'm not sure how frugal we will ultimately go. Thankfully the house is paid off, so if we really needed to we could get pretty frugal.
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Old 10-24-2008, 09:16 PM   #40
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Thanks, Rita and BestWifeEver. I guess I misunderstood what FireDreamer was getting at. Whew!

I really don't want to get rid of my Wellesley (you'd have to kill me first, I think! ), and I am OK with how it has been behaving during this economic mess. And yes, it is in my plan and my asset allocation is about as it should be according to my plan, right now. I have been beefing up my stock index fund holdings to keep it that way.

Although Wellesley does have something like 62% bonds (and 38% stocks), I regard it as an actively managed balanced fund rather than a bond fund.

I was wanting to learn more about bonds before investing any more in (purely) bond funds, since some of them have dropped a lot more than I would have expected. Maybe those funds have lower quality bonds than I was aware that they had. I have another chunk of money in money market, which probably isn't the most ideal place for it to be. However, I am not ready to buy bond funds with it, yet.

Thanks again! And FireDreamer, sorry if I misunderstood what you were getting at!
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