How Much Is Enough for Game Over Won!!

[Trawler]

So many us are FIRED with our wealth tied to the markets which has risks. We have calculated those risks using all kinds of calculators etc.
My question has anyone here gotten to the point where they pulled out the markets because they calculate they do not need anymore portfolio growth or income from the portfolio to live the way they want for their balance of time on the planet and did not want to take anymore risk? Hence Game Over!

The reason a pose this question is a dear older friend of mine was asking me what I invest in and wondered how risky those investments were. I explained to him it was his risk tolerance and his time horizon for his investments that mattered. He then shared with me how much he had and how much he needed each year to be happy and he did not like much risk but felt compelled to invest it. What I found out is he has enough to spend 2x what he needs to be happy and live to 122 with out earning anything from his portfolio. I said to him why take any risk at all you my friend have won the Money Game why not exit? Do you need to leave something behind for the kids? No need to leave anything behind but he does like to watch it grow. This conversation took place a few months ago and last night he told me he thought about what we talked about and decided he did indeed had Won The Game and pulled out of market now all cash and is laddering CDs.

It also started me thinking if DW and I reach game over status what would we do? Based on firecalc and if history repeats itself we have a high probability of reaching the Game Over point

Any thoughts on this

 

[Rustic23]

I took everything out when the DOW was at 18,300. To be fair, my savings is more my emergency money than my need for daily expenses. I'll put it back in, maybe, someday. Then again maybe not.

 

[W2R]

There's always the possibility of increased inflation.

I'd have to be expecting death pretty soon before I'd consider pulling completely out of the market. This would be the case no matter how much I had accumulated.

Now, I could see pulling out everything except for an amount that could produce the income I need for my present lifestyle. Then I would have big cash buffer while still investing.

 

[RE2Boys]

Even cash has risk, primarily inflation. Your friend has not eliminated risk, possibly just reduced it. That is what asset allocation is all about, balance risk versus desired returns.
As I get older and the net worth keeps rising, I don't see the need for being aggressive or increasing my equity positions. Overall currently 50/50 but the likely what will be passed to the kids is my Roth IRA accounts which are 65/35 as I see their time horizon to include my and their lifetimes.

 

[Car-Guy]

To be perfectly honest, the OP scenario sounds a lot like how my investment strategy has gone. The DW and I have more than enough to live in our chosen lifestyle for the rest of our lives even if we live to 100+. (very unlikely). I still play in the market but it's with money I can afford to totally lose. My fixed income investments keep me about even with inflation. As I said in other posts, several times, I'd need many more millions to really change my current lifestyle, which is not a lifestyle anyone here would consider LBYM... To do that, at this stage, I'd need to take some serious risks. I'm a gambler, but not that much.

 

[Trawler]

To add My friend and his DW are in their early 80s and did use an inflation factor of 4% .

 

[Mulligan]

I dont see how inflation factors into his situation at all. CDs will always track close to inflation at a minimum, so if he has enough, he has enough. The only way inflation would most likely play into his situation is if he buried it in the ground.


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[pb4uski]

....Any thoughts on this

Given your friend's situation they could probably have the best of both worlds. Either buy an inflation adjusted SPIA or put together a CD ladder that meets their needs with very conservative spending and inflation assumptions and then invest the rest in a conservative equity fund.

The former allows them to sleep at night knowing that their spending needs will be provided for. The remainder is mad money to support any splurges or charitable giving that they want to do.

After decades of investing in a moderate risk/return, balanced portfolio I have difficulty with even the notion of shifting to very safe, low return portfolio so I'm planning to dance the the girl that brought me and stay at 60/40... there is enough redundancy in our portfolio that I can sleep well at night. Remember, the 4% rule is sort of based on close to a worst case scenario.

 

[W2R]

To add My friend and his DW are in their early 80s and did use an inflation factor of 4% .

OK, given his advanced age I am on board. If I was in my early 80's (and not before), I'd probably sell most of my portfolio and buy an immediate lifetime annuity to cover my expected yearly expenses. That ought to be really, really cheap in one's early 80's.

If he does decide to move some of his portfolio to cash, he would need to make sure it is all covered by the FDIC.

 

[Midpack]

If you are talking taking your assets out of the market permanently, history says you will need a nest egg 50% larger than if you keep some assets in equities, so that means working that much longer or spending that much less in retirement. Many can't manage accumulating a nest egg that large.

It may only take 20-40% equity to protect against inflation and keep the required nest egg $ more in line with SWR, but eliminating equities altogether is costly. And if present yields persist for a long time, 150% may not even be enough...

 

[phil1ben]

I know this is not very helpful but for most people the answer normally is "twice what I have". I have met people with $500,000 that say they would "definitely" be comfortable retiring if they had $1,000,000.00 and I have met people with $25,000,000.00 in investable assets saying they would "definitely" be comfortable if they had $50,000,000.00. As much as we all want certainty there is none because we do not know the future.

Hold your nose and realize that no one on their dying bed said "I should have spent more time at the office" and pull the trigger when logic and current facts dictate. That is what I intend to do this year. No one on this board knows your situation any where near as well as you do. What pushes me is realizing that each year I spend at the office is one less year I will have to enjoy what I have worked for.

 

[Mulligan]

If you are talking taking your assets out of the market permanently, history says you will need a nest egg 50% larger than if you keep some assets in equities, so that means working that much longer or spending that much less in retirement. Many can't manage accumulating a nest egg that large.

It may only take 20-40% equity to protect against inflation and keep the required nest egg $ more in line with SWR, but eliminating equities altogether is costly. And if present yields persist for a long time, 150% may not even be enough...

When you are in your 80s as this couple is, I doubt they have to worry about these scenarios. For young ER people, I imagine your advise should be listened to.


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[daylatedollarshort]

So many us are FIRED with our wealth tied to the markets which has risks. We have calculated those risks using all kinds of calculators etc.
My question has anyone here gotten to the point where they pulled out the markets because they calculate they do not need anymore portfolio growth or income from the portfolio to live the way they want for their balance of time on the planet and did not want to take anymore risk? Hence Game Over!

Yes. Check out liability matching as a retirement strategy. Expenses subject to inflation are matched with income adjusted to inflation, such as Social Security, inflation adjusted pensions and annuities, TIPS and I-bonds. It is a limited growth, but also low risk strategy where income and expenses are matched as much as possible with near certainly. Under this methodology, stocks may be used as an investment for discretionary expenses, but not as an inflation hedge for essential expenses as their prices are not tied to inflation and historically they have not always kept up with inflation, except for time frames of 20 - 40 years, which might be a longer time than one's retirement plan "end dates".

 

[pb4uski]

Yes. Check out liability matching as a retirement strategy. ...

or see Post #8 for a cliff notes version.

 

[Midpack]

When you are in your 80s as this couple is, I doubt they have to worry about these scenarios. For young ER people, I imagine your advise should be listened to.

Good catch, I didn't pick up on that on my first read, but I see you're right after re-reading. Thanks.

My Dad exited the markets completely in his late 80's, he could never spend what he has left, much like the OP's friend. I hope we all have that problem one day...

 

[photoguy]

I'm not in game over state now. My budgeted w.r. is around 2.2% but I'm my 40s and may have a long retirement to fund.

If my portfolio ever hit "game over" state, I'd probably actually increase my equity percentage (right now it's 65%) to something like 90% equities/10% bonds. I believe this is what Buffett plans for his wife. But I'd expect the amount in fixed income to be larger in absolute dollars but perhaps not as a percentage.

The only time I could ever imagine reducing equities below 50% was if I thought valuations were way out of whack and I wanted to market time.

 

[VFK57]

I think that it is better to have diversified portfolio at any age: cash(CDs), equities, bonds, REIT or rental properties, PMs. Currently my equities and PM are loosing a lot but cash (no inflation) and rental property (rents and properties went up) are doing good. We cannot predict future, our life span and markets, that is why most investors diversifies their savings.

 

[hnzw_rui]

Hmm, game over for me is $1,000,000,000.00. Even if we do get hit with uber crazy inflation, I don't think that's something I'll ever earn in a lifetime so that's a very, very, very safe figure. Heck, even at 0.10% yield, that still gives you $1,000,000 interest a year.

As it's highly, highly, highly unlikely I'll ever have that, reckon I'll just always keep some funds in equities. That said, I do plan on a conservative 30/70 upon retirement.

 

[ERD50]

One added caveat, does this person really know what they spend, and what they might need to spend or keep in reserve?

When I reviewed my Mom's situation with an hourly FA years ago, she just thought about her regularly monthly spending (modest with no mortgage - food, utilities, misc), and didn't think about the non-monthly things like property tax, income tax, insurance, car replacement, home & car maintenance, etc. So in casual conversation, they might spit out a number that requires a bit more thought.

If there's a chance one of them could make it to 100 (on average it probably is not unlikely, unless they have known health issues), you could run FIRECalc with their specifics over a 20 year time frame, and 'Investigate' for portfolio AA. I'm assuming a fairly small (25%?) allocation to stocks would have been the historical optimal, and fairly low volatility overall.

-ERD50

 

[RunningBum]

I wouldn't totally exit because I'd want to leave my heirs more than a 100% cash portfolio would probably leave them. I'll likely stick with my 115-age in stocks. That would leave low 30s% in equities in my early 80s. I think I'd be fine with that.

 

[Mulligan]

Good catch, I didn't pick up on that on my first read, but I see you're right after re-reading. Thanks.

My Dad exited the markets completely in his late 80's, he could never spend what he has left, much like the OP's friend. I hope we all have that problem one day...

I think so too. Some people are aggressive until they die. While some are worriers, and being retired they have plenty of time to worry. I could see 80 year olds feeling a bit vulnerable and worrying about their investments. If they have enough that is one less thing to worry about by laddering the ol CDs.


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[Car-Guy]

to something like 90% equities/10% bonds. I believe this is what Buffett plans for his wife.

I feel pretty confident saying that Astrid, even being 15+ years younger, will be financially comfortable even if Warren were to bury her inheritance in a coffee can in the back yard. They do make 10,000 gallon coffee cans, don't they?

 

[NYEXPAT]

DOD is 98 has always been/still is 100% individual equities (self managed). Never owned Bonds, bought a CD once back in the late 70's so my Mother could get a free big screen color TV. Near as I can figure, he has 100x expenses in net worth. Has always told his three kids that he is "our retirement plan". All three of us are retired and have not seen a cent yet. In all fairness it is probably my fault, as he has been praying to pass on every night for 8 years.

We speak once a week and I bet him a liter of Jack Daniels (5 years ago) that he would live to be 100.

 

[Senator]

If I was 80, like your friend, maybe take a bit out. Capital gains taxes might be steep, so that's a reason to leave it in.

 

[David1961]

The issue for me would be how can I be 100% sure I have all the money I would ever need. I imagine that determination would be easier for someone in their 80s. Sometimes I do consider what I would do if I were as wealthy as Bill Gates,but then it's a bummer to come back to reality. But at some point I would consider leaving the market entirely, but I would probably assume an annual inflation rate of at lewst 10% to be cautious.