Timing Your Retirement

[retire@40]

A concern many retirees have is that they may retire into a bear market. That concern has become reality for many who have retired in the past few months.

Instead of timing retirement on a specific date, or when a specific dollar amount is reached, another option would be to wait until we come out of a bear market.

This may require more flexibility on the part of the retiree since the trigger may not happen for years and cannot easily be anticipated, but this option may enhance the long-term success of retirement for those that could potentially go into the red if their retirement date coincides with a recession.

 

[Dawg52]

Yup, I retired 04/07. Perfect timing eh? If I had been as smart as a couple of posters who saw this coming, I would have worked a while longer or gone with an all cd portfolio. But I'm not that smart so it is what it is. But it's not all bad. I can still survive on the income from my remaining portfolio and currently working a short term job which may turn out to be a longer part time position if I pursue that. We will see.

 

[W2R]

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.

 

[dm]

I retired 10/07, how is that for timing. But I'm still happy that I did.

 

[Moemg]

I fully retired Jan. 20 2008 . I was ready no matter what the market did . No regrets !

 

[REWahoo]

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.

I think Dawg might have a legitimate concern about being "Bill, 1973" in this FIRECalc example: FIRECalc: A "Real Numbers" example

 

[fisherman]

Semi-retired 12-07 with the plan of using a Clyatt style allocation.

In 9-07 went to all money market and CD with the plan to reallocate after retirement to the Clyatt plan. I still have not and thankful for the luck of timing. I have bought Wellesley a couple of times when the DOW was around 8000 and recently a few muni bonds and preferred BAC shares at good rates. I am currently at 17% stocks and need to keep moving into the market over time by DCAing. This board is a big help in that area and I really appreciate all the good info here.

 

[Rich_by_the_Bay]

A concern many retirees have is that they may retire into a bear market. ..Instead of timing retirement on a specific date, or when a specific dollar amount is reached, another option would be to wait until we come out of a bear market..

While typical bear markets last 10-20 months making the above strategy palatable, deep bear markets superimposed on a housing crisis, subprime implosion, recession, and bailout take us to uncharted waters. Someone following the strategy you suggest should be prepared to defer ER for 4-5 years, maybe more, in my admittedly speculative opinion.

As someone almost 60 years old, caught in suspended animation by these circumstances I'm taking a different approach: 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; for all of that, we'll probably scale down our retirement goals to keep a larger cushion; I will use part-time work to fill in the cracks. Plus, I don't hate my current job like some do.

Barring ongoing seismic changes, I don't see waiting 4-5 years as an option. But this is a real personal decision and everyone has to play their hand in their own way.

 

[REWahoo]

I will reassess things every 3 - 6 months...

Doc, you've gone from "Just one more year" to this. You've been around here for three years - it's nice to finally see a little progress.

 

[tightasadrum]

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.

I agree. It's all about what base amount you calculated the SWR against.

I hung it up in April. But, with 50% in cash and rental property to keep me busy, I don't foresee any problems. I've never deluded myself by forcing the numbers. I've used very conservative estimates. I'm still on plan to defer non-COLA's pension and social security a few more years to get 100% of each. If things don't work out, I'll pull one of those rabbits out of the hat sooner. Plus, I get a big raise in June. DD graduates.

 

[Geoffrey]

The worst case scenario is retiring, then being blindsided by a severe bear market. Not much chance of being blindsided at this stage. Ergo, this is an excellent time to retire if you figure you have enough to muddle through until the economy turns around.

 

[Gone4Good]

The worst case scenario is retiring, then being blindsided by a severe bear market. Not much chance of being blindsided at this stage. Ergo, this is an excellent time to retire if you figure you have enough to muddle through until the economy turns around.

Ditto . . .

A 4% WR utilized after stocks have already fallen 40% seems super, duper, safe.

My original plan was for a 3% WR because of a hopefully very early retirement. But I wouldn't have any concern withdrawing 4% today if I were to lose my job.

 

[W2R]

I think Dawg might have a legitimate concern about being "Bill, 1973" in this FIRECalc example: FIRECalc: A "Real Numbers" example

I see your point! (from that page, emphasis mine):

Bob, the lucky one, actually had only average performance for a 30 year span, given the investment choices for this portfolio. He was lucky because he caught a bull market his first few years into retirement. Betty got clobbered by a down market early on, but survived, while Bill just never could recover from the initial bear market. The annual withdrawals consumed a larger and larger percentage of his dwindling portfolio, leaving nothing to grow

I was thinking more along the lines of Betty, I guess. Retiring into a bear market (especially into the beginning of a bear market) has got to be tough!!

On the other hand, I plan to retire in November, 2009, come h--- or high water. If I can live happily on 2% to 3% of what miserable amount is left of my portfolio then, I think the market can go no place but up. Famous Last Words.

 

[Rustic23]

I posted something similar to this in another thread, but I think it belongs here instead. While this may not be comfortable for most, I don't think it is necessary to change ones retirement timing, if you believe in FIRECALC's results.

If you had $1m in Jan 08, and a $40k retirement gave you what you need. i.e. enough cash for retirement and reserves. Then a down market should not make any difference. Retire in Jan 09, and take you $41.6. (40k+inflation) If you can live on less all the better. If you had retired in 08, you would be taking $41.6 this year, and FireCalc would still say you are ok.

To assume otherwise does not make since to me. The guy retiring in 08 has 40k + inflation, while a guy in 09 with 500K can only spend 20k + inflation. The 08 guy only has 500k in his account in 09 and is in the exact same situation as the 09 guy.

 

[yakers]

Well, we will see if this is worse that anything in the past on which Firecalc is based. I retired in March 08 (had an earlier thread about "Worst Possible Retirement Date" which is a similar subject to this really. I knew the market was not going in a good direction and planned not to touch the IRAs for two years and even then there should not be a big problem drawing off Wellesley and a target retirement type fund.
I tell my wife if things work out as planned we go to Tahiti and if the market stays low we go to Tijuana but after that night in the cardiac ward last year I just don't see much sense in working.

 

[CuppaJoe]

A concern many retirees have is that they may retire into a bear market. That concern has become reality for many who have retired in the past few months.
....

Yes, I retired 8/29/08 knowing full well where we are headed, the term "bear market" doesn't concern me, but must pay attention to what RichInTampa points out is his post regarding the current conditions: "deep bear markets superimposed on a housing crisis, subprime implosion, recession, and bailout take us to uncharted waters."

The term that could scare me now is "mother of all depressions" but then since I'm retired I'd have time to figure out where to buy ammo.

I am a bull, I am a bull.... Thank you for continuing to use the word bear.

 

[Animorph]

I retired with severence pay lasting until 4/2008. Not great timing, but I kind of knew that. Although I like 100% equities normally, I went to 15% cash and another 15% gold/bearx before I retired. I planned to spend the cash and leave the equities alone until they recovered. My retirement simulations showed only a small decrease in income due to holding cash for 3 years or so. Much less than holding it forever.

DW decided to keep working, so I have been converting some cash to equities as the market dropped. While this hasn't been a fun year, the plan seems to be working like a charm. Now it's just about time to start that recovery part...

 

[jIMOh]

My plan would be to live off income and savings only the first 7-15 years of retirement. Meaning my plan would be sell 0 shares of anything until around year 15 of retirement.

Have around 7 years in cash
make sure dividends and interest provide enough for 1 years expenses
continue for another 7 years.

 

[ejman]

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.

I totally agree with you. If one can live comfortably witha 4% SWR in today's market and has a comfortable cash cushion in case the s**t really hits the fan - what better time that now? Certainly much better at 4% on todays market that 4% on October 9 2007. I personally ER'd December of 2002 after running multiple scenario calculations that showed that my portfolio would survive even the GD. Since then thru today, the RR is 5.5% annualized on a plain vanilla diversified portfolio.

Sure, you can say well, this could be worse than the great depression, values could drop to zero - mayhem and the four horses could let loose etc etc. Yes indeed, anything is possible but to live in fear and not do something that is so enjoyable as ER because of some potentially catostrophic global economic pandemic...

 

[CuppaJoe]

.... Yes indeed, anything is possible but to live in fear and not do something that is so enjoyable as ER because of some potentially catostrophic global economic pandemic...

I agree! Reminds me of one of my dad's old sayings: putting off ER would be "folly of the highest order."

 

[Bikerdude]

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.

 

[Sandman]

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.

 

[W2R]

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.

 

[Rustic23]

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?

 

[REWahoo]

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.