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Younger retirees... Your game plan?
Old 01-17-2016, 03:33 PM   #1
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Younger retirees... Your game plan?

This Q is targeted at those FIREd retirees who are 15 or more years out from collection of annuity, social security , and do not have a pension at all coming in today and will not have a sizable pension way out in time.. Ie, You rely on what assets you have right now.

Are you doing anything differently now that the market has corrected?

What is your source of living expenses?

Are you selling anything. or spending principle (cash) or only living on dividend and interest income.

Any other sources of passive ( you're retired right) income such as real estate or hobby income?

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc

What's your asset allocation ?

How many years of "cash" do you need to feel secure - for living expenses

Do u have dry powder to throw at the market if so what percent of portfolio ?
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Old 01-17-2016, 05:14 PM   #2
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Are you doing anything differently now that the market has corrected? No.

What is your source of living expenses? Mostly dividend income from bond funds.

Are you selling anything. or spending principle (cash) or only living on dividend and interest income. I don't touch principal. I use only monthly dividend income from bond funds.

Any other sources of passive ( you're retired right) income such as real estate or hobby income? No.

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc. Not sure because my income is a function of the number of shares and the dividends per share, not the value of each share.

What's your asset allocation ? In my taxable accounts, it is 62/35/3 in favor of bonds. I have an IRA, too, which I can't touch. It is 52/48 in favor of stocks (target AA=50/50).

How many years of "cash" do you need to feel secure - for living expenses. I don't keep any big pile of cash, just a little bit excess (about $1,500) in my local bank account to pay my bills. The monthly dividend income from my bond funds replenishes the cash.

Do u have dry powder to throw at the market if so what percent of portfolio ? Not sure what you mean by dry powder. I do rebalance once in a while, more often in my IRA, but I have no pile of cash to throw at the market, if that's your question.
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Old 01-17-2016, 05:43 PM   #3
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Quote:
Originally Posted by papadad111 View Post
This Q is targeted at those FIREd retirees who are 15 or more years out from collection of annuity, social security , and do not have a pension at all coming in today and will not have a sizable pension way out in time.. Ie, You rely on what assets you have right now.
Technically I met this requirement when I retired at 52. I plan to collect SS at 67 or 70... unless I decide to collect earlier. More on that later.

Are you doing anything differently now that the market has corrected?
No

What is your source of living expenses?
Several sources - DH has SS coming in. We have rental income coming in. We withdraw from our portfolio.

Are you selling anything. or spending principle (cash) or only living on dividend and interest income.
For the 2016 withdrawal it was covered 100% from dividends.

Any other sources of passive ( you're retired right) income such as real estate or hobby income?
As mentioned - rental and DH's SS

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc
I'm concerned with all those percentages. I'll admit to being a nervous nelly. But I've read enough studies about the importances of rebalancing to the chosen asset allocation and staying the course.

What's your asset allocation ?
60% equities, 30% bonds, 10%/cash equivalents

How many years of "cash" do you need to feel secure - for living expenses
1 year or less... I know that the equities/bonds will throw off a good amount, and we have cashflow coming in from rent and SS.

Do u have dry powder to throw at the market if so what percent of portfolio ? No dry powder. See asset allocation above. The cash portion is because DH has some fear of the market so some of his IRA money is in CDs. I'm working on converting him to Wellesley.
See my answers in blue.
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Old 01-17-2016, 07:41 PM   #4
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Are you doing anything differently now that the market has corrected?
Buying equities. Just a little bit for now.

What is your source of living expenses?
Dividends, interests.

Are you selling anything. or spending principle (cash) or only living on dividend and interest income.
Only dividend and interest income.

Any other sources of passive ( you're retired right) income such as real estate or hobby income?
No.

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc
We have many years worth of expenses in high quality bonds, CDs, and I-bonds. So in the short run, I am not too concerned.

What's your asset allocation ?
Target is 50/50, I don't really know where it is now.

How many years of "cash" do you need to feel secure - for living expenses
Pure cash? Maybe 1 year.


Do u have dry powder to throw at the market if so what percent of portfolio ?
Plenty. Bonds have done OK so far in this downturn, so I can sell bonds to buy more equities. The percentage will depend on how low we go.
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Old 01-17-2016, 07:50 PM   #5
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Retired in 2010. Market is up, what, 100% since then?

Feeling pretty good.

Check back after another 40% down, or so.

Of course, then I'll be pretty much back to where I started (better, actually, because I've sold equities on the ride up) so still . . .
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Old 01-17-2016, 07:57 PM   #6
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As background, I retired in 1Q15 at 55 yrs old. Married, all kids grown and independent, no other dependent family members (such as parents that need help), no debt, no pension, no passive income.

Are you doing anything differently now that the market has corrected? - In expectation of a correction, I moved more toward dividend paying investments back in the August 2015 correction.

What is your source of living expenses? - Dividends should cover 85-100% of my needs. Any shortfall will be covered by selling bond fund assets as long as we are in a market correction. If run into trouble, can cut living expenses pretty sharply with no real pain.

Are you selling anything. or spending principle (cash) or only living on dividend and interest income. - 2016 is first full year of retirement. Current estimate is 85% - 110% of expense needs will be covered by dividend income. Anything not covered will be covered by selling bond fund assets.

Any other sources of passive ( you're retired right) income such as real estate or hobby income? - No

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc - No concern, plan to ride out any downturn as I've done before I retired. Fully expect any downturn to come back to some reasonable level before I am forced to sell equities.

What's your asset allocation ?- 85% equities, 15% bond funds/cash (I put these in the same bucket). Before the August 2015 dip, AA was more like 70/30.

How many years of "cash" do you need to feel secure - for living expenses - A minimum of 3 yrs of expenses covered by cash + bond assets. This excludes any assistance from dividend income.

Do u have dry powder to throw at the market if so what percent of portfolio ? - No. Shot what I had available in August 2015.
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Old 01-17-2016, 08:39 PM   #7
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Are you doing anything differently now that the market has corrected?
Waiting for sales on some preferred stocks.

What is your source of living expenses?
Interest and dividends.

Are you selling anything. or spending principle (cash) or only living on dividend and interest income.
Base expenses covered by income, can draw down as needed.

Any other sources of passive ( you're retired right) income such as real estate or hobby income?
None.

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc
Not too concerned, not exposed in regular equities.

What's your asset allocation ?
CDs, preferreds, GICs in legacy 401k

How many years of "cash" do you need to feel secure - for living expenses
Can sell stock or break CDs as needed.

Do u have dry powder to throw at the market if so what percent of portfolio ?
No plans to throw into the market any time soon.
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Old 01-17-2016, 10:11 PM   #8
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This Q is targeted at those FIREd retirees who are 15 or more years out from collection of annuity, social security , and do not have a pension at all coming in today and will not have a sizable pension way out in time.. Ie, You rely on what assets you have right now.

I'm in my early 40s with no pension so I guess I fit your criteria. Been ER'd now for almost 2 years (wow time flies)

Are you doing anything differently now that the market has corrected?

No. We will follow the standard buy & hold + rebalance.

But during our planning process we assumed that we would hit a bear market in the beginning and/or experience poor returns. This in turn lead to a low equity percentage (65%) and low planned withdrawal rate (2-3%)


What is your source of living expenses?

Cash in our portfolio. However wife picked up some part time consulting from her former employer (completely unplanned) and this covers a big chunk of basic living expenses (in 2015 this covered roughly 50%).

Are you selling anything. or spending principle (cash) or only living on dividend and interest income.

We haven't had to sell anything yet as living expenses have been covered by taxable dividends and DW part time consulting. Our spending in 2015 was 2% so in theory this could be covered completely by dividends (ignoring the fact that some of our funds are inaccessible in tax-defered accounts).

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc

I'm not concerned at all with capital preservation in the short run. My main concern is long run preservation.


What's your asset allocation ?

65% Equities, 35% Bonds/Cash. Equities are further subdivided in 57% US and 43% Foreign.

How many years of "cash" do you need to feel secure - for living expenses

I don't think of cash separately from fixed income. But at 35% fixed income and withdrawal rate at 2-3%, we're talking over a decade at least of spending money. So I feel secure but I'm not sure what the lower boundary is where I would start to worry

Do u have dry powder to throw at the market if so what percent of portfolio ?

The 35% in bonds/cash
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Old 01-18-2016, 05:34 AM   #9
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Good responses so far. Insightful how people without pension guarantees nor social security cope early on in retirement .

General observation is that the typical AA is approx 70/30. Tilt toward equities with Cash and bonds lumped together- about what I would expect for early early retirees. With a bit of math translation- on average a 8-12 years worth of cash or cash like (bonds Etc) assets that depending on that are not equity- dependent. A few are 80-90 percent in equities but able to live off of dividend income alone thus the higher AA is not cause for concern nor is there a desire to reduce equity exposure as long as dividends hold up in absolute $ payout terms.

WR all all well below 4% - some down at 2% with some part time work or alternate income sources to help reduce the main portfolio WR.

Other observation thus far is that few if any drastic short term changes to AA and no temptation to get in and buy at lower price just because there is a sale ... Most are sticking to their AA and just normal annual etc rebalancing as needed -

Sequence of return risk is real and it's clear many early early retirees have taken a properly conservative stance to prepare for these sorts of "worst case" SOR scenarios*.

*it could get worse yet....
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Old 01-18-2016, 05:40 AM   #10
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Photo guy - quick Q. Was your planned WR at 3% and DW unplanned consulting gig extra income knocks that down to 2% ?

Or you went in to FIRE planning for 2% and the consulting income takes portfolio and dividend dependence WR to less than that ?

Is your WR inclusive of dividends or just what gets drawn down from principle. ?

I got confused. Sorry.
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Old 01-18-2016, 06:37 AM   #11
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At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc. Not sure because my income is a function of the number of shares and the dividends per share, not the value of each share.
This is true in general, and in the shot run, but does not always hold forever. The conditions that lead to severe market declines can also lead to the loss of this income. Companies occasionally go broke and no longer have value or pay a dividend. Example - pre-bankruptcy GM. Securities can also reduce their payouts even if they to not go broke such as banks during the Great Recession and recently KMI. Bond holders occasionally lose income too. Can you say Detroit or Puerto Rico?
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Old 01-18-2016, 08:04 AM   #12
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Papadad, another thing I want to mention about those of use who are ERed years before we are eligible to collect a pension, SS, or tap into a TIRA is this: Many of us have a two-tiered ER plan, the first tier is to get us safely to age ~60 with those early years only able to use our non-retirement assets and their income to cover our expenses. The second tier, which I have often referred to as my "reinforcements," is the unlocking of these additional assets and income streams which only improve my financial picture. This picture is borne out when I run a long-term retirement program such as Fidelity's RIP (I am a Fido client) which shows the huge, growing surplus once I begin tapping into those reinforcements.


The bigger challenge is getting to age ~60, of course. But as long as I can use the monthly dividends from my bond mutual funds (not the more risky individual bonds, DrRoy) to cover my expenses, I will be fine. I do recognize that even those more stable and reliable monthly dividends can and have declined some in the last 7 years in terms of DPS, I have also added many more shares through budget surpluses, rebalancing, and the more erratic and reinvested cap gain distributions to keep the monthly dividend stable. I have also begun using my quarterly stock fund dividend to supplement my income, a Plan B I had always contemplated implementing.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

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Old 01-18-2016, 08:15 AM   #13
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Getting to the "reinforcements" is a gap of 4 to 14 years for me.
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Old 01-18-2016, 08:18 AM   #14
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I left work last year at the age of 43. I will receive some residual separation payments from my employer that will fund my living expenses in 2016 and 2017.

Are you doing anything differently now that the market has corrected?
So far the correction hasn't made me too nervous, nothing like 2008.

Are you selling anything. or spending principle (cash) or only living on dividend and interest income.
Living on severance payments.

Any other sources of passive ( you're retired right) income such as real estate or hobby income?
None.

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc
I'd be worried at a 20% correction and would cut spending. At 30% I'd be more worried and might

What's your asset allocation ?
Right now I'm 80/20 Stock/Bonds+cash

How many years of "cash" do you need to feel secure - for living expenses
2 years in cash, with the current dividend yield of my taxable portfolio I would stretch it to 4 years or more if I kept discretionary spending under control.

Do u have dry powder to throw at the market if so what percent of portfolio
If we appeared to hit bottom I'd probably increase my equity allocation and lower my cash and make due with just my dividend income. In a pinch I would survive on dividends and wait for the market to move back up before selling.
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Old 01-18-2016, 08:23 AM   #15
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Yes. Good point scrabbler1. That approach is very conservative.

When you state a portfolio WR is that a mental exercise to base it on non IRA assets ? Or X percent is X percent of everything ?

It's a critical element to have sources of money prior to that magic age of 59.5 outside of IRA's or be willing to pull a 72T
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Old 01-18-2016, 08:24 AM   #16
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Getting to the "reinforcements" is a gap of 4 to 14 years for me.

Why such a variation? Pension vs SS ?
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Old 01-18-2016, 08:29 AM   #17
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Why such a variation? Pension vs SS ?
Pension starts from 55 to 65, Social Security from 62 to 70.
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Younger retirees... Your game plan?
Old 01-18-2016, 08:32 AM   #18
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Younger retirees... Your game plan?

Quote:
Originally Posted by FreqFlyer View Post
I left work last year at the age of 43. I will receive some residual separation payments from my employer that will fund my living expenses in 2016 and 2017.



Are you doing anything differently now that the market has corrected?

So far the correction hasn't made me too nervous, nothing like 2008.



Are you selling anything. or spending principle (cash) or only living on dividend and interest income.

Living on severance payments.



Any other sources of passive ( you're retired right) income such as real estate or hobby income?

None.



At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc

I'd be worried at a 20% correction and would cut spending. At 30% I'd be more worried and might



What's your asset allocation ?

Right now I'm 80/20 Stock/Bonds+cash



How many years of "cash" do you need to feel secure - for living expenses

2 years in cash, with the current dividend yield of my taxable portfolio I would stretch it to 4 years or more if I kept discretionary spending under control.



Do u have dry powder to throw at the market if so what percent of portfolio

If we appeared to hit bottom I'd probably increase my equity allocation and lower my cash and make due with just my dividend income. In a pinch I would survive on dividends and wait for the market to move back up before selling.

Eventual pension ? Or no pension at all -- all on your own for ever til Uncle Sam comes up with some SS ? Or retired military ?
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Old 01-18-2016, 09:35 AM   #19
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Hey Papadad - how about you share your answers?
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Old 01-18-2016, 10:08 AM   #20
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Are you doing anything differently now that the market has corrected? No; not really. I had moved a big chunk into cash/cash equivalents in the Fall of 15 in anticipation of some tax moves at the start of the year - and while all that stuff is being set up and $$ moved around, I am not upset that we did that.

What is your source of living expenses? Small consulting contract w/ former employer, but mostly trading profits on portfolio and then portfolio cash.

Are you selling anything. or spending principle (cash) or only living on dividend and interest income. See above.

Any other sources of passive ( you're retired right) income such as real estate or hobby income? Small consulting income; DW has a small hobby business; substantial trading income/profits that in most years will exceed our living expenses.

At what market level from the top do you start to be very concerned about capital preservation in the short run ? Down 10-20-30-50-66 percent etc. Probably at >30% we would have to re-look at things.

What's your asset allocation ? Plan is 80-ish% equities (incl ETF, equity mutual funds and individual issues) and 20-ish% cash and bonds (incl cash, CDs, AAA or better corp debt and municipal bond fund)

How many years of "cash" do you need to feel secure - for living expenses Well, is our first year of full RE and we have just started to dip into the pile, having lived off severance and consulting for the last 6 months of 15. This year we will start the year with about a year's costs plus one year of college expenses in true cash; too much, I know, but we wanted to be conservative and make sure we didn't tap the big pile (by selling assets) this year if possible.

Do u have dry powder to throw at the market if so what percent of portfolio ? Yes, per above; will deploy the cash slowly.
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