How Many Here Have Experienced a Sustained Net Portfolio Decrease Since Retiring?

[Gatordoc50]

The real return of the SP 500 is just about zero for the last 15 years. For those that retired around 2000, I would think it would be very difficult to be even or better even nominally. Nearly impossible in real terms.

 

[audreyh1]

The real return of the SP 500 is just about zero for the last 15 years. For those that retired around 2000, I would think it would be very difficult to be even or better even nominally. Nearly impossible in real terms.

The S&P500 is up 11.4% in real terms since its peak in March of 2000, which is less than 14 years ago. In 2013 it finally broke even in real terms. It's up quite a bit more than that in the last 15 years. This result includes dividends. If you invest in the S&P 500, you get those dividends - they are part of the total return.

I'm someone who retired near the end of 1999, and my net worth is up over 38% since Jan 1, 2000 and up over 15% in real terms. Hint: I wasn't 100% invested in the S&P500, but had a diversified portfolio over several asset classes.

 

[Gatordoc50]

The S&P500 is up 11.4% in real terms since its peak in March of 2000, which is less than 14 years ago. In 2013 it finally broke even in real terms. It's up quite a bit more than that in the last 15 years. This result includes dividends. If you invest in the S&P 500, you get those dividends - they are part of the total return. I'm someone who retired near the end of 1999, and my net worth is up over 38% since Jan 1, 2000 and up over 15% in real terms. Hint: I wasn't 100% invested in the S&P500, but had a diversified portfolio over several asset classes.

The annualized inflation adjusted return of the SP 500 including dividends from Jan1 1999 to November 2013 is 1.9 %. My assertion that it would be nearly impossible to end up with more in real terms assumed that the retiree was spending down his funds at the recommended SWR of 4%. I'm sure there are success stories like yours but in the minority. Congratulations on your returns, I hope I am as fortunate.

 

[audreyh1]

The annualized inflation adjusted return of the SP 500 including dividends from Jan1 1999 to November 2013 is 1.9 %. My assertion that it would be nearly impossible to end up with more in real terms assumed that the retiree was spending down his funds at the recommended SWR of 4%. I'm sure there are success stories like yours but in the minority. Congratulations on your returns, I hope I am as fortunate.

Remember - that retiree was not likely to be 100% invested in the S&P500 but also had a big chunk in fixed income which had some really good years much since 2000.

1.9% per year real return for S&P500 is not horrible. I think it was 4.68% per year nominal.

 

[Gatordoc50]

Remember - that retiree was not likely to be 100% invested in the S&P500 but also had a big chunk in fixed income which did much better since 2000. 1.9% per year real return for S&P500 is not horrible. I think it comes out to something like 4.8% per year nominal.

That's true. A retiree more broadly diversified in equities and a significant bond allocation would have done much better.

 

[ERD50]

... assumed that the retiree was spending down his funds at the recommended SWR of 4%. ...

A 4% WR is not 'recommended' (well, I suppose you can find people who would recommend anything), it is just a number, and one that would have failed 5% of the time historically. edit/add - I see it as a refernce point, not a recommendation.

I am not basing my planning on 4%, knowing that it has failed in the past, and the future could certainly be worse than the past (records were made to be broken, for better or for worse).

-ERD50

 

[Gatordoc50]

A 4% WR is not 'recommended' (well, I suppose you can find people who would recommend anything), it is just a number, and one that would have failed 5% of the time historically. edit/add - I see it as a refernce point, not a recommendation. I am not basing my planning on 4%, knowing that it has failed in the past, and the future could certainly be worse than the past (records were made to be broken, for better or for worse). -ERD50

I understand that the 4% SWR has been criticized but I think it's pretty good for 30 year horizons. The question of the OP was if balances have decreased in time. My assertion was that it would have been difficult for a retiree to withdraw inflation adjusted 4% or even 3% of his portfolio for the past 15 years and have his initial balance in tact. Nearly impossible to have an inflation adjusted balance in tact. I don't know of many portfolios that returned 4% real for that time period.

 

[scrabbler1]

Right now, I am living off most of the dividend income generated from the non-IRA part of my portfolio. This is how I planned it out when I was putting together my ER plan back in 2007-08. Excess bond fund(s) dividends are reinvested as are all cap gain distributions. There is a stock component of this part of my portfolio whose dividends are reinvested. The IRA has a stock and bond component, too (more stock in here proportionately than in the non-IRA part), and all earnings get reinvested.

In my original ER plan, I split it up into two time frames. The first is living off only the non-IRA part through age ~60. I did predict that in my late 50s I would have to dip into principal a little bit because my dividend income would not be able to rise as fast as inflation but that was okay as long as it was not a huge dip. Once I turned ~60, I would begin to have access to my "reinforcements" which included unfettered access to the IRA, my frozen company pension, and SS. These three items would supplement the dividend income and ease, if not stop, the drain on principal in my late 50s. Indeed, according to Fido's RIP program, my financial situation starting in my 60s vastly improves once the reinforcements begin to arrive.

This plan did not take into account any reduced medical costs from the ACA versus having to buy a far costlier individual policy outside the ACA.

Despite not having added any "new" money to my non-IRA portfolio other than putting back any excess dividends and the more erratic cap gain distributions, the bond-heavy non-IRA portfolio has grown by more than 50% while the IRA portion has nearly doubled in 5 years.

One more thing - the dividend income I receive is not a function of the NAV of each fund generating it but instead how many shares I own. So, it doesn't matter if the 49,000 shares of one bond fund are worth $9 or $9.50. What matters is how many cents per share I get every month from it.

 

[Options]

That's true. A retiree more broadly diversified in equities and a significant bond allocation would have done much better.

Quite true. Further diversification slightly into REIT's and int'l since 2000 demonstrated much less volatility and greater return than 100% US stock allocation (which admittedly, not many have).

My personal plan includes remaining flexible and responsive at all times, with back-up plans. I like the idea of "swinging from the vines" of one back-up plan to another, as was posted somewhere here. FIRE at 59 1/2 (yes, I know not "early" by standards here), remain open to PT work in first 5 years to minimize sequence of returns risk (absolute last resort, like if another 2008 style crash occurs right after FIRE). Downsize and sell hugely appreciated real estate in highly desirable area at age 65 (or earlier) by conservatively calculating deflated RE value on a scale of 2008 crash (vs. current estimated value, which is almost twice that), delay SS until 70 while only calculating 70% benefits (latest SSA estimate of cuts in year 2032 (?) if *nothing* is done to fix SS). Further, 25% of FIREbudget is discretionary so could drastically cut spending during downturns without feeling threatened.

With all of this, all calculations show a significant chance of dying with anywhere from a 6 to 7 figure estate. Since plan is to leave no legacy, may adjust spending upwards in later years. We'll see, again idea is to remain flexible regardless. Never had a problem with LYMM and budgeting since a kid, see no reason why it should be any different in retirement.

 

[NW-Bound]

The real return of the SP 500 is just about zero for the last 15 years. For those that retired around 2000, I would think it would be very difficult to be even or better even nominally. Nearly impossible in real terms.

+1

People who claim to do better might be good (or lucky) traders, whether they claim to be indexers or not.

See Hypothetical Y2K retiree update, where a 75/25 indexing retiree in 2000 has lost more than 50% by Jan 2013. In real terms after inflation, he is down to 36%. The most recent return of 2013 is not likely to save him, unless 2014 and beyond are also bullish years.

Years 2000, 2001, and 2002 were consecutive years of negative return, with $1 in S&P rendered down to $0.62 in nominal term after 3 years. A retiree facing this bad S&P sequence right of bat would have to be wheeling/dealing to stay afloat, compared to raddr's hypothetical passive indexer who rebalanced only on Jan 1st.

PS. I am up 2X since Jan 2000 in nominal dollars, but then I was fully retired only recently.

 

[Chuckanut]

However, members all the time mention how they wish to die just when they have no more money, or sometimes they lament the difficulty in not leaving money on the table. If this is not liquidation, what would be?

It could be liquidation if one's crystal ball actually worked.

 

[Refresher]

I understand the mathematics and historical data of the retirement calculators but do you think the next 30 years will be the same as the last 30 years. What will 99% of the population be dealing with going forward. Seems that if 7 figure portfolios create worries it's going to be a very different world.

 

[Lsbcal]

...(snip)...
My basic question is this: is there anyone here who at this high point in stock and bond prices, has nevertheless seen his or her portfolio decline meaningfully since s/he retired? Any comments would also be interesting.
...

Interesting question but we are not in that category.

I would just hate to think we are all subject to the whims of history, but I fear that is the case.

 

[NoMoreJob]

We early retired 10+ years ago. Our simple 3-fund 60/40 index fund portfolio grew until the '08 downturn and then dropped precipitously. I re-balanced to the extent I could stomach (to approx. 50/50 where I have left it) and we slowed spending a bit - our normal target is roughly 3%. Since then we have ratcheted spending back up to pre-downturn levels and the portfolio has grown to be larger than where it began non-inflation adjusted. At this point I'm very pleased with the risk/performance balance.

Our approach to minimize angst during difficult times is to minimize our fixed costs. This is especially important to us given that we have no guaranteed income (this will eventually change with social security and possible annuitization). For instance, rather than owning a second home we rent which leaves us the option to skip years or choose less expensive locations if and when necessary. Not only does this allow us to cut spending during down times but also provides us with a greater sense of control which helps us not experience the negative feelings you describe, or at least minimize them. It's not that a (hopefully temporary) declining portfolio balance isn't troubling, but it helps a great deal to know that we have some ability to minimize the negative impact.

 

[Redbugdave]

I think the normal person that does not know much about investing listens to the various money managers...and they would probably tell the customers to be in bonds or other "safe" places to preserve their capital. Those "safe" places are probably not in equities so much and the earnings match the risk level.

 

[galeno]

Our approach and strategy.

1. WGD (wide global diversification)
2. CMM (cost matters most)
3. KISS (keep it simple stupid)

We set our asset allocation to balance sleeping well (volatility risk) and eating well (inflation risk).

 

[Bikerdude]

I retired in 2000 and up until 2008 had kept up with inflation despite withdrawing more than 4% of my portfolio each year. Since 2008 I have recovered in nominal dollars however in real dollars I have not even though I now have a pension and SS and withdraw 4% or less.

While I'm not happy about the above results, I'm not concerned as I have a fair amount of fluff in my portfolio. This example merely points out how difficult it is to recover from a major market downturn while continually making withdrawals.

 

[Lsbcal]

Hi Bikerdude, it looks like you had one of those unlucky retirement years in terms of financial history. Who would have guessed it would be like that in 2000 with all the upbeat stories of a new millennium?

We went through a great year in 2013. At least the news is not unduly rosy and expectations are much more realistic then 2000.

 

[qxky27]

I have experienced a bit of a decrease since retirement, around a 3% loss in spending power when inflation is accounted for. My wife is still working but spends quite a lot more than I do, mainly on consumer goods. Around 40% of what I spend is on travel. In the next 10 years I plan to go to all the places in the world I have always wanted to see, even if it takes half my portfolio to do it. I realize it is risky but for me the greater risk is to lose my health before I do everything on my bucket list. The travel I do is adventure type travel and keeps me in great physical condition. I take a few chances when traveling and sometimes go to dangerous countries if I want to do something there. Why not take some risk with your portfolio? After all, what is "old age" for most Americans, another game of bingo in the assisted living recreation room and then a slow death in the nursing home? What kind of "life" is that?

 

[haha]

I have experienced a bit of a decrease since retirement, around a 3% loss in spending power when inflation is accounted for. My wife is still working but spends quite a lot more than I do, mainly on consumer goods. Around 40% of what I spend is on travel. In the next 10 years I plan to go to all the places in the world I have always wanted to see, even if it takes half my portfolio to do it. I realize it is risky but for me the greater risk is to lose my health before I do everything on my bucket list. The travel I do is adventure type travel and keeps me in great physical condition. I take a few chances when traveling and sometimes go to dangerous countries if I want to do something there. Why not take some risk with your portfolio? After all, what is "old age" for most Americans, another game of bingo in the assisted living recreation room and then a slow death in the nursing home? What kind of "life" is that?

interesting viwpoint; but these extreme scenarios are known as straw men and are usually not very convincing to sophisticated readers.

Ha

 

[38Chevy454]

Interesting discussion and opinions. I think I fall in the expect to deplete my savings over time philosophy. The hard part is to get used to withdrawl mode vs investing mode. Not quite at withdrawl mode yet, but I think about retirement every day!

I agree completely with the best planning is to die the day you go broke. No plans at all to leave any legacy. Worked hard to get what I have and intend to use it for my benefit. Call it selfish, but since it is mine I can decide what to do with it. I donate a lot to charity and what I have is mostly a result of my hard work.

 

[jflynn4]

I've been gone for more than 2 years and still ahead but had planned a significant reduction at the time I retired. Effectively I am $100,000 ahead of where my plan called for me to be. Dumb luck, to a degree, because of the stock market rise.

My positions are heavily in corporate bonds that were acquired at significant discount in 08 and 09 and are producing a combined >7% annual return (not calculating discount) and have long term maturities (so I feel comfortable taking more than 4%).

 

[Major Tom]

I agree completely with the best planning is to die the day you go broke.

I have a feeling that if, as a frail old man, I were to check my balances and find them all to be zero, it might just kill me. That's not what you meant though is it?

 

[clifp]

Remember - that retiree was not likely to be 100% invested in the S&P500 but also had a big chunk in fixed income which had some really good years much since 2000.

1.9% per year real return for S&P500 is not horrible. I think it was 4.68% per year nominal.

I retired in 1999/2000 and my portfolio is up 3% in real terms since I retired.
A well time moved from tech into bonds in Jan 2000, helped a lot. A move from bonds from 2009 through 2013 into stocks sure didn't hurt.

Also as we have been discovering there were better choices for both equities and fixed income than benchmarks/calculations we have been using.

 

[kcowan]

I have a feeling that if, as a frail old man, I were to check my balances and find them all to be zero, it might just kill me. That's not what you meant though is it?

I think that, before that Tom, you would take out a reverse mortgage and live on the combination of payments including social security. Once and always an LBYMer!