Expectations for the US economy

[jimm100]

Wow, that grew to be much longer than I expected. For anyone wanting to quote, please note that you can click Quote, then delete all but the sentences or paragraph that you want to include, not the whole thing. Just don’t delete the stuff in the square brackets at the beginning and end.

 

[RunningBum]

https://www.early-retirement.org/forums/f28/what-are-reasonable-pessimistic-assumptions-116647.html is a somewhat similar thread you might read if you haven't already. Plenty of dismissive comments there, and some very unnecessary mocking ones, but also a few helpful ones.

My answer to that thread as well as this one is to stay with my Variable Percentage Withdrawal plan. Allowed spending is based on the previous end of year balance, with a slight raise in the % factor due to a decreased life expectancy each year. If there is a long run of low/no/negative market growth this will put me ahead of the curve in making cuts to my budget as opposed to holding the course with 4% +inflation withdrawals, banking on historical returns to right the ship.

And if the market follows history, VPW will increase my allowed spending after those good recovery years.

 

[Gumby]

...
As I was reading through any of the responses, I wanted to quote some of them in order to reinforce, but that became too complex. A few people seemed to understand my objective while many said things like “I don’t worry about things I can’t control.” That seems like such ann obtuse statement when discussing investing and planning for the future. All investments are made based on factors an individual can’t control. The list of things that cannot be foreseen or controlled is literally endless and includes an asteroid hitting Earth. Nonetheless, every one of us has an AA based on what we expect the future holds....

Fine. After a long period of starvation, you're going to die hollow eyed and shivering in a sodden, bombed out basement while the smoke from the pyres swirls around you. Feel better now?

From what I can see, this entire thread is an invitation to endless fear conjuring and whining, which won't help you or anyone else.

 

[Koolau]

Fine. After a long period of starvation, you're going to die hollow eyed and shivering in a sodden, bombed out basement while the smoke from the pyres swirls around you.

Danged optimist!

 

[Koolau]

For anyone wanting to quote, please note that you can click Quote, then delete all but the sentences or paragraph that you want to include, not the whole thing. Just don’t delete the stuff in the square brackets at the beginning and end.

I have to congratulate you. It took me a lot longer than 10 posts to figure that one out.

 

[Markola]

https://www.early-retirement.org/forums/f28/what-are-reasonable-pessimistic-assumptions-116647.html

My answer to that thread as well as this one is to stay with my Variable Percentage Withdrawal plan. Allowed spending is based on the previous end of year balance, with a slight raise in the % factor due to a decreased life expectancy each year. If there is a long run of low/no/negative market growth this will put me ahead of the curve in making cuts to my budget as opposed to holding the course with 4% +inflation withdrawals, banking on historical returns to right the ship.

And if the market follows history, VPW will increase my allowed spending after those good recovery years.

Us too. We have Vanguard AUM and the deal is they will never advise that we raise spending above 5% over the prior year or to cut spending more than 2.5% below the prior year. Known large single expenses are plugged into the plan as we know them. This process results in a success score that we try to maintain or exceed above 80%. Currently, we live well in our late 50s with a 99% success score. This Variable Spending program works for our needs and lets us sleep at night.

 

[jimm100]

https://www.early-retirement.org/forums/f28/what-are-reasonable-pessimistic-assumptions-116647.html is a somewhat similar thread you might read if you haven't already. Plenty of dismissive comments there, and some very unnecessary mocking ones, but also a few helpful ones.

My answer to that thread as well as this one is to stay with my Variable Percentage Withdrawal plan. Allowed spending is based on the previous end of year balance, with a slight raise in the % factor due to a decreased life expectancy each year. If there is a long run of low/no/negative market growth this will put me ahead of the curve in making cuts to my budget as opposed to holding the course with 4% +inflation withdrawals, banking on historical returns to right the ship.

And if the market follows history, VPW will increase my allowed spending after those good recovery years.

I had not seen/read that thread, thanks for pointing me to it. There are some interesting and helpful posts.

It is also the quintessential example of what I am questioning because the OP’s list of premises includes:

d) A 60/40 portfolio will return 4% nominal terms every year

A version of that is repeated in the statements “banking on historical returns to right the ship” and “And if the market follows history”.

Given the causes of that growth for the past 100 years and the trends we see in the country and in the world today, is that a safe assumption? VPW is dependent on the economy growing and the market going up in the same fashion (stochastic over short periods but dependable over the long term).

Please don’t get me wrong — I’m totally in favor of the economy growing and the market going up. I’m just looking at why that has happened for the past 100 or so years and asking if those causes will continue in the next 35 years. And longer for my kids and grandkids. But my nearest goal is to determine when to push the Eject button.

If I had retired in the last 3 years at the asset level I thought would get me through the next 35 years, I would be very concerned due to sequence of returns risk. And that’s if I was 100% confident that past performance guarantees future results (5-7% return in equities and 3-5% for bonds over 100 years).

Our population is stagnating, the labor participation rate indicates the percentage of those who are able to work but are not working is increasing, the percentage of people who depend on tat payer-funded programs for their lifestyle exceeds those who are paying for it which means they can vote for politicians who promise raises for them in perpetuity, the Chinese have articulated specific plans to overtake the US in economic and military strength, and more. I don’t mean any of those as political arguments. They are facts that present risk to the historical market returns.

I realize we can’t predict the markets or economy with accuracy. Nonetheless, it seems prudent to me to apply the same “past performance does not guarantee future results” wisdom to the US economy when planning for the next 35 or more years. When I do that, I’m concerned that counting on even what would seem to be a conservative 3-4% return is not a safe assumption.

And so I continue to go to work every day with no intention of retiring in the next year or two or three due to my concerns that the causes of the terrific past US economic performance will not hold true for the next 35 years.

For those tempted to post some snarky version of “suit yourself”, please don’t bother. I understand it is my decision based on my perspective and will result in my level of enjoyment of my life. I am responsible for determining my risk tolerance and nothing I have read so far in this discussion or the other one demonstrates to me that I’m wrong to be sufficiently concerned that I am delaying retirement. Such a response is a waste of the attention for those getting emails about updates to this thread. You are stealing time we will never get back.

 

[jimm100]

Occam’s Razor: Maybe he was busy and don’t have time to respond over the past few days.

 

[Koolau]

Occam’s Razor: Maybe he was busy and don’t have time to respond over the past few days.

Maybe someone has Occam's new Safety Razor and came up with Troll instead.

Never take us too seriously. You aren't paying us much and you get what you pay for. Keep posting!

 

[Gumby]

It actually doesn't matter what happens; the advice will be the same throughout all time and in all places. It is so common that these things have become a matter of everyday language.

1. Don't put all your eggs in one basket. Diversify your assets. In my experience it is rare that everything fails at the same time. Engineers call this having multiple redundant components

2. Save something for a rainy day. That's why we have an emergency fund in cash equivalents to handle unexpected expenses when we don't want to sell assets in a down market.

3. Heed Murphy's Law. Things will happen that you didn't anticipate. Give yourself a healthy margin of error so that when the unknown unknowns occur, you can deal with them.

4. Adapt or die. Darwin was right - when the environment changes those species that can adapt will survive. Those that cannot will not. When the investing environment changes, you need to change with it.

In short, use a conservative withdrawal rate and save more money than you really need. Don't get yourself into a hole of financial obligations where you can't cut spending if you need to. Pay attention to what is happening and react intentionally, but never panic. That's it. That's the plan. And I think it will work no matter what happens, which is why I don't spend my time thinking about a parade of potential economic disasters.

 

[Gumby]

....
For those tempted to post some snarky version of “suit yourself”, please don’t bother. I understand it is my decision based on my perspective and will result in my level of enjoyment of my life. I am responsible for determining my risk tolerance and nothing I have read so far in this discussion or the other one demonstrates to me that I’m wrong to be sufficiently concerned that I am delaying retirement. Such a response is a waste of the attention for those getting emails about updates to this thread. You are stealing time we will never get back.

It is immensely presumptuous of you to think that you can dictate how people may respond.

 

[ut2sua]

Such a response is a waste of the attention for those getting emails about updates to this thread. You are stealing time we will never get back.

Wow^^^
I am not jimm100, but I would like to apologize to all posters and others reading this thread for losing some of your valuable time reading the above. I understand that there are tough messages coming from forum members from time to time, normally with constructive intention to add different angles to issues that various folks have bought up. To take the time to response to a post is an act of kindness in an attempt to help the OP and others since the poster has not earned anything in return (whether the messages agree with the OP's thinking or not - in fact, when the messages in a post are not in agreement, we tend to learn more).
Cheers

 

[marko]

It actually doesn't matter what happens; the advice will be the same throughout all time and in all places. It is so common that these things have become a matter of everyday language.

1. Don't put all your eggs in one basket. Diversify your assets. In my experience it is rare that everything fails at the same time. Engineers call this having multiple redundant components

2. Save something for a rainy day. That's why we have an emergency fund in cash equivalents to handle unexpected expenses when we don't want to sell assets in a down market.

3. Heed Murphy's Law. Things will happen that you didn't anticipate. Give yourself a healthy margin of error so that when the unknown unknowns occur, you can deal with them.

4. Adapt or die. Darwin was right - when the environment changes those species that can adapt will survive. Those that cannot will not. When the investing environment changes, you need to change with it.

.

Wow Gumby. You've distilled about 90% of all RE investing answers over the years here into just four bullet points!! Kudos!

 

[MichaelB]

It’s not possible to predict what will happen, or when. There’s too much we simply don’t know. The obstacles we faced and overcame in the past, including recent past, far exceed the challenges we have ahead, many of which are of our own creation.

For us as individual, what is most important is not speculating on and preparing for what might happen, it’s how we act and react to what actually does happen.

Warren Buffet said “For 240 years, it's been a terrible mistake to bet against America, and now is no time to start”.

 

[audreyh1]

Wow Gumby. You've distilled about 90% of all RE investing answers over the years here into just four bullet points!! Kudos!

+1 Great post by Gumby!

 

[target2019]

Wow, that grew to be much longer than I expected. For anyone wanting to quote, please note that you can click Quote, then delete all but the sentences or paragraph that you want to include, not the whole thing. Just don’t delete the stuff in the square brackets at the beginning and end.

I interpret your cold hard look at the future as "everything can get worse" and "you have cold feet."

There are many excuses on the way to your ultimate retirement decision. To mitigate my own fears and not go on working in the defense/IT/contracting slave trade I geared down to 3 and then to 2 days. I saw a lot, read a lot, wrote a lot. It never changed the ending. The bad guys fight the good guys. Sometime the good guys are really the bad guys!

And it has nothing to do with red and blue factions. When you get into that quagmire you come out with purple welts.

Put Gumby's post on your desktop, and jump in. The water's fine.

 

[DJRR]

I realize we can’t predict the markets or economy with accuracy. Nonetheless, it seems prudent to me to apply the same “past performance does not guarantee future results” wisdom to the US economy when planning for the next 35 or more years. When I do that, I’m concerned that counting on even what would seem to be a conservative 3-4% return is not a safe assumption.

And so I continue to go to work every day with no intention of retiring in the next year or two or three due to my concerns that the causes of the terrific past US economic performance will not hold true for the next 35 years.

Winner winner chicken dinner. Remove the existential dread and it comes down to the same choices:

1. Find a market that you expect to perform better than the US over the next 35 years. Clearly this forum does not think there is a better more transparent market to switch to.

2. Believe in the concept of Fire Calc or don't. There is always a chance a future 30 year period may be worse than the worst previous 30 year period.

3. To mitigate 2 you have one option - work more to save more. You have more money and less time to cover so that is just math. Guess you could spend significantly less, but where's the fun in that?

4. This is balanced by the fact that even if it turns out to be unicorns and rainbows you will die. No one knows when. You will never get the year of working back.

People like me, who remember when you took your life into your hand when you walked into Central Park, Japan almost put Detroit in its grave, read the great depression of 1980, 1990, 2000 etc. seem to take it more with a grain of salt been there done that. You place your bets and take your chances. Not really sure what else you expect anyone to say.

 

[marko]

I've posted the following a few times on this forum:

Maybe I'm just getting old, but over my lifetime I've been warned about Communists, nuclear war, over population, running out of oil, running out of food, nuclear power plants, global cooling, global warming, acid rain, the Japanese buying up all of the US, the Saudis buying up all the US, Y2K and global financial collapse among just a few "end of the world as we know it" apocalypses. (oh! and the end of SS)

But here we all are.

 

[REWahoo]

I've posted the following a few times on this forum:

Maybe I'm just getting old, but over my lifetime I've been warned about Communists, nuclear war, over population, running out of oil, running out of food, nuclear power plants, global cooling, global warming, acid rain, the Japanese buying up all of the US, the Saudis buying up all the US, Y2K and global financial collapse among just a few "end of the world as we know it" apocalypses. (oh! and the end of SS)

But here we all are.

You left out asteroids. Here's something for all who expect/fear the worst to play with: Asteroid Launcher

The asteroid launcher is simple to use. You can select a space rock’s composition (asteroids made of iron, stone, carbon, or gold, or a comet), as well as its diameter, impact speed, and impact angle. Then, on a map, choose impact location anywhere in the world and tap “Launch Asteroid.”
You can then see the effects of the impact, including crater size, shock waves, wind, and earthquake aftermath.

 

[Andre1969]

You left out asteroids. Here's something for all who expect/fear the worst to play with: Asteroid Launcher

I remember being afraid of killer bees when I was a kid. I blame it all on my parents, who one night in 1974 let me stay up just late enough to catch the beginning of an ABC Movie of the Week. It was called "The Killer Bees". They let me stay up just long enough to see that guy go into the vineyard and get chased out by the bees, hop in his car, with them swarming all over him, trying to drive off, and then crashing into a parked car and dying in the ensuing fire.

Of course, this was reinforced a few years later, when I saw "The Swarm", and those bees attacked the model train set, and then made the miniature nuclear power plant go boom.

I can still remember as a kid envisioning some kind of bleak future where all homes had airlocks, and you couldn't go outside without some kind of specialized suit to keep the swarms off of you.

When I got a bit older, and found out what a killer bee really was, it was kind of a letdown.

Anyway, there's always something out there to scare us into thinking the world is going to hell in a handbasket, and this time it's different. Yet, somehow, we find a way to pull through these dire circumstances...both the real ones, and the ones in our mind!

 

[Gumby]

According to Bill Gates, it would be better to be born 20 years from now than at anytime in the past. https://www.cnbc.com/2023/01/24/bill-gates-is-very-optimistic-about-future-of-earth-humanity.html

 

[aja8888]

You left out asteroids. Here's something for all who expect/fear the worst to play with: Asteroid Launcher

No wonder you live in West Texas. If a big asteroid hits Houston dead on, you might be safe and only get a few things falling out of the sky in your yard.

 

[jimm100]

It actually doesn't matter what happens; the advice will be the same throughout all time and in all places. It is so common that these things have become a matter of everyday language.

1. Don't put all your eggs in one basket. Diversify your assets. In my experience it is rare that everything fails at the same time. Engineers call this having multiple redundant components

2. Save something for a rainy day. That's why we have an emergency fund in cash equivalents to handle unexpected expenses when we don't want to sell assets in a down market.

3. Heed Murphy's Law. Things will happen that you didn't anticipate. Give yourself a healthy margin of error so that when the unknown unknowns occur, you can deal with them.

4. Adapt or die. Darwin was right - when the environment changes those species that can adapt will survive. Those that cannot will not. When the investing environment changes, you need to change with it.

In short, use a conservative withdrawal rate and save more money than you really need. Don't get yourself into a hole of financial obligations where you can't cut spending if you need to. Pay attention to what is happening and react intentionally, but never panic. That's it. That's the plan. And I think it will work no matter what happens, which is why I don't spend my time thinking about a parade of potential economic disasters.

Excellent advice. #3 and #4 are why I am still working. I am hoping my employer will give me the flexibility to back off to 4 days per week at the end of the year and then 3 days per week. The cost of health insurance is a significant factor in my decision keep going past the planned retirement date. And I left a very stressful job and am now in a much less stressful position. I’d still rather be retired, but, as someone said in a previous reply, I’d much rather err on the side of much caution than be worried about running out of money in my final years.

My DW and I have gone to multiple dinners at restaurants I would never pay for on my own courtesy of wealth planning firms. We have enjoyed some wonderful meals at places we had heard of but never experienced and I learned a few things at each one. I noticed the caveat that “Past performance does not guarantee future results” on the very same charts and graph where they were saying that the past performance of the US stock market pretty much guarantees the same results going forward. That was the catalyst for my current ponderings.

I was hoping someone would say “that occurred to me too, and here are rational reasons to believe it will continue to be the case.” Continued innovation and automation in the technology industry is a bright spot. But is it enough to more than counterbalance the challenges? Especially given the concerted and very advanced cyber capabilities of our competitors and adversaries? I think there is ample reason to be concerned and to include the risk in family financial planning. No individual can control it, but that doesn’t mean the only option is to ignore it.

 

[jimm100]

I've posted the following a few times on this forum:

Maybe I'm just getting old, but over my lifetime I've been warned about Communists, nuclear war, over population, running out of oil, running out of food, nuclear power plants, global cooling, global warming, acid rain, the Japanese buying up all of the US, the Saudis buying up all the US, Y2K and global financial collapse among just a few "end of the world as we know it" apocalypses. (oh! and the end of SS)

But here we all are.

That’s a useful reminder. And yet the caveat of “past performance” still holds …

My parents both remembered the Great Depression. They were young, but it shaped their perspective and they passed it on. My dad lectured my brother and I by saying “You will be the man of the family, it is your responsibility to ensure there is always a roof over their heads, food on the table, and clothes on their backs.” Those are part of my foundational values.

 

[Popeye]

I remember being afraid of killer bees when I was a kid. I blame it all on my parents, who one night in 1974 let me stay up just late enough to catch the beginning of an ABC Movie of the Week. It was called "The Killer Bees". They let me stay up just long enough to see that guy go into the vineyard and get chased out by the bees, hop in his car, with them swarming all over him, trying to drive off, and then crashing into a parked car and dying in the ensuing fire.

Of course, this was reinforced a few years later, when I saw "The Swarm", and those bees attacked the model train set, and then made the miniature nuclear power plant go boom.

I can still remember as a kid envisioning some kind of bleak future where all homes had airlocks, and you couldn't go outside without some kind of specialized suit to keep the swarms off of you.

When I got a bit older, and found out what a killer bee really was, it was kind of a letdown.

Anyway, there's always something out there to scare us into thinking the world is going to hell in a handbasket, and this time it's different. Yet, somehow, we find a way to pull through these dire circumstances...both the real ones, and the ones in our mind!

I thought it’s all about the Murder Hornets now?