1999 was the worst year to retire??

[Independent]

With all the "worst drop since ...." stories out there, I had to check a retirement oriented number. So I ran FireCalc this morning, leaving all inputs at the defaults except the number of years. I replaced the "30" with "10". This resulted in FireCalc picking up 1980 through 1999 as possible starting years.

I did the "write data to a spreadsheet" option so I could look at the detail. The default original balance is $750,000, with a 4% ($30,000) annual withdrawal. The end-of-10-years balance for a retirement beginning in 1999 was about $432,000. This was a poorer 10-year performance than the prior worst years of 1929, 1930, and 1937, which were $476k, $550k, and $567k, respectively. For more recent years, 1965 and 1969 had 10-year balances of $584k and $594k.

Of course, the "??" in the title indicates that we don't know how this is going to work out. For all I know, we've already hit the market bottom and we're into another big bull market. All these number show is that 1999 is off to a poor start.

This is particularly relevant to me because in 1999 I was talking to a friend who worked for a "financial services firm". He had done a survey of the firm's sales staff asking them about the advice they would provide people at the point of retirement. The consensus answer was "You should plan for a long retirement. That means stay heavily in stocks. Since stocks have yielded about 8% over inflation, you can probably withdraw 8% from your stock fund each year without invading principle." So I always have to think about the people who were retiring around then.

(I should add that my friend actively tried to change the sales reps attitudes, using things like the Trinity study that was pretty new at the time. Now, according to the Sharpe paper that Jacey linked to recently, the 4% SWR has become conventional wisdom. It's not perfect, but it's a lot better than 8%.)

 

[MasterBlaster]

You have a point, It's been a brutal 10 years since the internet bubble.

However I still suspect that when inflation is considered retiring in the late 60's may have still been worse than 1999.

 

[ziggy29]

Time will tell whether retirement in 1966 or 1999-2000 will turn out to be "worse." The market has been more in the crapper from 2000-2009 in terms of the indexes, but the 1966-82 period was marked by much higher inflation.

 

[audreyh1]

I retired in August of 1999 and I'm still here! LOL! Although that thread about whether your net worth is higher or lower than when you retired made me go do those calcs and I discoverer that my net worth is lower than when I retired in 1999.

All the 2003-2007 gains wiped out: Net worth up 55% from retirement after 8.2 years (to Oct 2007), then down 40% in 1.4 years!

I'm more worried about making it through this bear though than making it through the 2000-2002 bear because this recession is much, much worse.

Oh well - life goes on......

Audrey

 

[Independent]

MasterBlaster and Ziggy are correct. I assumed that FireCalc did an inflation adjustment on its output balances, it doesn't.

After making a rough CPI adjustment, I get 1972, 1973, and 1969 to have worse performance in the first 10 years.

 

[MichaelB]

I stopped working (for money) 12/99. Since then I've had much good fortune and made many dumb mistakes, and our net worth is about the same in nominal terms as a result. It could have been worse - because that includes 8 years of [-]vastly overpriced[/-] private college tuition.

Now, if I can go forward and only make half the mistakes, things should work out. After all, this upcoming decade could never be as bad as the past one.

Or could it?

 

[bbbamI]

After all, this upcoming decade could never be as bad as the past one.

Or could it?

It may really be different this time.....

 

[clifp]

Retired in May 1999. This 3 days in the market has cut my liquid net worth to under 50% from the peak. (My total net worth is down 35% due to real estate). I'd say there is 1/2 chance that I'll need to come out of retirement in the next few years.

 

[FIRE'd@51]

MasterBlaster and Ziggy are correct. I assumed that FireCalc did an inflation adjustment on its output balances, it doesn't.

After making a rough CPI adjustment, I get 1972, 1973, and 1969 to have worse performance in the first 10 years.

Now I'm confused. I thought that Firecalc's ending balance was expressed in the starting year's dollars, i.e. the 432K is in 1999 dollars, not 2008 dollars. This is because you did 10-year Firecalc runs, so the ending balances were discounted back using the inflation experienced over the 10-year period. Had you done 30-year runs and looked at the 10-year balances, the numbers would not have been inflation-adjusted. That is my understanding of the way Firecalc works.

I took Ziggy's and MB's comments to mean that the 1965 and 1969 paths' ending balances, although higher in real terms, would still have to face the high inflation of the late 70's and early 80's, and that is why those paths ultimately failed in the 30-year runs.

 

[Bikerdude]

When I retired in March of 2000 I said to a friend, "Just my luck we'll have another 1929 crash now that I've retired." He said, "Come on man", "Your luck can't be that bad." That being said, I've done OK (meaning not losing it all) with a balanced portfolio, and the fact that I'm turning 62 this year and can collect SS.