loosing sleep over the market!

[retiringat50]

ok so im only a few weeks from "early retirement" and planning on using my Fidelity to fund it (well my share of the bills, for the time being DH is still working)
well with the way the market is going I havent been sleeping
im into a 72t for 9yrs

 

[W2R]

When I can't sleep due to market volatility, I find that a great cure for the problem is tweaking my asset allocation a little bit so that it is more conservative.

Even though I am a worrier by nature, I am sleeping like a baby as far as the market goes (especially this week! ).

 

[bbbamI]

We work, save, try to stay out of debt and learn about investing. At some point we become satisfied with our asset allocation. In other words, we do the best we can. If there is a need, we can go back to work doing something.

Events may cause us to worry, but I believe we will survive...and perhaps have a little fun along the way.

 

[packrat44]

DW retired 9 months ago and I retired almost 2 years ago. While I do not like the radical swings in the market, the 'cleansing' cycle we are in comes about every so often. In the long run run, things should even out. During times like this, besides minimizing our expenditures, we only dip into our MM funds and dividends - we do not sell equities when they are down.

 

[Art G]

Tons of books out there on how to accumulate wealth. Very few good ones teaching how to live once you're there.

 

[jazz4cash]

I don't think anything is worth losing sleep. Not everybody has the constitution to be in the market, but more than likely you need to figure out how to learn enough to set yourself up to sleep peacefully, or just get an autopilot, like a life cycle fund. It almost sound like your ER was not planned in advance.

 

[clifp]

ok so im only a few weeks from "early retirement" and planning on using my Fidelity to fund it (well my share of the bills, for the time being DH is still working)
well with the way the market is going I havent been sleeping
im into a 72t for 9yrs

I think it is perfectly natural to be concerned. Clearly FIRECALC and every other retirement study show that greatest risk is retiring at the start of Bear market. I think we are in one. How long it will last nobody knows, but history suggest that it won't be too long possibly less than year, unlikely to be more than 3 years.

Other than Want2Retire suggestion of adopting a more conservative allocation there is little you can on the income side. You can control your expense to some extent.

I retired a year before the tech bubble burst. In 1999, I made a fairly radical change to my investments to be more conservative. Still my net worth plummetted in 2000 and 2001. I came up with a contigency plan that said if my net worth drops below X, I'd cut my expenses by ~500/month and if drops below Y, I start looking for a job. It came within 50K of X..

 

[retiringat50]

I came up with a contigency plan that said if my net worth drops below X, I'd cut my expenses by ~500/month and if drops below Y, I start looking for a job. It came within 50K of X..

I have been trying to do this. (same as all situations that come up in my life). Just not sure what all my options are. I'll be getting a full paycheck till mid July (leaving work earlier due to surgery and vacation time). Surgery recovery will take me till at least mid Aug. When DS returns to school I can look for something (even parttime) in the fall.

DH carries the health insurance at his job. I can always take a loss and pay off the house if Fidelity gets too low. That cuts our monthly bills in half and DH is planning to work till DS gets out of college.

I slept a little better last night

 

[kcowan]

I ignore the market most days because I am not a day trader. Think of your investments like your house. Do you ever lose sleep when your house declines in value? Most people say no. It is because you don't need to or plan to sell...

 

[ziggy29]

It's not always easy to strip the emotion out of it. My plan is to not retire unless I can weather a sudden 25% drop in portfolio value. That's not bulletproof, but it gives some peace of mind against a market that decides to immediately head south.

 

[mahoneycutt]

Perhaps you should "unretire". While you can't easily get out of the 72t, no one says you have to *spend* the money. Getting a job and saving all/part of the 72t income might give you peace of mind.

Mike Honeycutt

 

[Art G]

I find most people are quite calm and logical when discussing someone else's retirement.
Every day I read someone worried about running out of money during retirement, and yet one of the few guaranteed answers is viewed with skepticism and disdain. I don't get it.

 

[W2R]

I find most people are quite calm and logical when discussing someone else's retirement.
Every day I read someone worried about running out of money during retirement, and yet one of the few guaranteed answers is viewed with skepticism and disdain. I don't get it.

If you are discussing annuities, what happens when the insurance company goes belly up? I am not quite sure, but I also do not personally trust insurance companies very much so I don't really want to find out.

Or were you referring to something else?

 

[2B]

Market volatility had been very sedate in the 2003 to 2006 time period. I think a lot of people were spoiled and especially those planning to retire during this period. The current volatility is "normal" from what I've seen in my decades of investing based on percentage moves up and down.

I think that what has people that are living off their investments is that the market indexes have been significantly down since last October. The nominal 15 - 20% drop in most indexes is a normal correction. If you had a diversified portfolio for the last decade, you are much richer than you were. Unfortunately for us investors, the market doesn't go straight up.

What's a body to do? I suggest a reasonable market allocation. In my case I'm 40% fixed, 30% large cap, 20% foreign and 10% small cap. I have a small amount of "high yield" in my fixed portion but most is in CDs. If necessary, DW and I could live for over 7 years on just the fixed income portion. That should let me ride out any market swing.

For the year, I'm down slightly less than 3%. At the worst this year, I was down about 9%. I can live with this type of swing because I am up significantly over the last 5 years.

It's a shock to retirees to see their portfolio drop when that's their only significant means of support. I know one recent retiree that went back to work to shut his wife up. She had never paid any attention to their investments when he was working but she immediately became obsessed with every market swing after he retired (and the market started down). She wanted to stop this silly index investing and let one of the radio show investment advisors take over because he said he had kept his clients from being significantly hurt during the market drop.

My other suggestion is to address your concern by reducing expenses. We all have a reasonable amount in the budget for travel and entertainment. If your are really concerned, make some cuts here so you can at least tell your self that you won't need as much income from your portfolio.

 

[Art G]

If you are discussing annuities, what happens when the insurance company goes belly up? I am not quite sure, but I also do not personally trust insurance companies very much so I don't really want to find out.

Or were you referring to something else?

Well you know I was. Even though I've gotten some nasty hate mail from posters around here, no one has yet come up with a decent argument as to why lifetime income for part of your money isn't a good idea.
To answer your very valid concern, this would be a very good reason to research the insurance company selected. IF the insurance company went belly up, there are safety features in effect to help pass along policies to other insurance companies, but the bottom line answer is, just like a bank or mutual fund going belly up, your assets are kept in a separate fund and you would get back whatever the value of your portfolio was at the time.
I think someone such as yourself follows the market closely enough that you would see the insurance company's share price dropping and you could move the money elsewhere or just take it out of the account.
I'd say if there's anything we are learning of late, is that the government steps in to save large corporations from disaster.
What happens if your bank where you buy your CD's goes belly up? Insurance companies are larger than banks.

 

[ziggy29]

Well you know I was. Even though I've gotten some nasty hate mail from posters around here, no one has yet come up with a decent argument as to why lifetime income for part of your money isn't a good idea.

If someone wants to do that, they can buy term life, invest the difference as well as more into their 401K plans, and then roll part or all of the 401K into a single payment immediate annuity upon retirement. These can often be purchased for low fees, so it's rare for insurance companies to push them.

I'm not a big fan of annuities, but for the right situation, a low-fee SPIA can make sense for retirement income you can't outlive.

 

[Art G]

want2....First off let me say that I really enjoy conversing with you. I find your posts to be well thought out and objective.
I guess the reason why this topic hits home with me so heavily is that my mother is currently in this boat. I think she has enough money to live the rest of her life on, but each and every day she calls me in a fit, worried that she's gonna run out of money. Her REITS and preferred stocks, which have done quite well for years, have taken a beating lately. Her rental property is half empty and the repairs she had to do last year caused her to have zero earnings last year, causing her to continually take money out of her investment account at the worst time possible. And yet she tells me that 7% guaranteed for life isn't enough income for her. My own mother doesn't see it. Believe me, I understand why people are hesitant, but it's also the reason I think people need to be educated.

 

[Art G]

If someone wants to do that, they can buy term life, invest the difference as well as more into their 401K plans, and then roll part or all of the 401K into a single payment immediate annuity upon retirement. These can often be purchased for low fees, so it's rare for insurance companies to push them.

I'm not a big fan of annuities, but for the right situation, a low-fee SPIA can make sense for retirement income you can't outlive.

I can't imagine a senior buying a term policy, a joint life annuity would seem to make much more sense to me. However, I'm just not a fan of annuitizing, unless you are OJ Simpson or Ken Lay

BTW, an SPIA will never give you a raise in income. No need to do it anymore.

 

[P.S.]

I lose sleep b/c I have a 29 mo old who gets up at night to go potty, get a drink of milk, a little water.

Would there be any harm in delaying retirement a bit... or doing something however little income generating, to somewhat placate your fears, and allow you to sleep better at night?

 

[ziggy29]

I lose sleep b/c I have a 29 mo old who gets up at night to go potty, get a drink of milk, a little water.

We lost sleep last night because our neurotic dog started pacing, panicking and whining during a thunderstorm at 3 AM. Jumping all over the bed, too. Damn dog. She's lucky she's a cutie.

 

[ladelfina]

Think of your investments like your house. Do you ever lose sleep when your house declines in value? Most people say no. It is because you don't need to or plan to sell...

kcowan.. I perceive a big difference.
The money I paid for the house is almost an annuity in that its output is a fixed monthly amount of housing.

OTOH, yearly investment returns (variable) and yearly expenses (now more variable than I had thought) can have more volatility. I worry about disconnection there.

 

[2B]

Well you know I was. Even though I've gotten some nasty hate mail from posters around here, no one has yet come up with a decent argument as to why lifetime income for part of your money isn't a good idea.
To answer your very valid concern, this would be a very good reason to research the insurance company selected. IF the insurance company went belly up, there are safety features in effect to help pass along policies to other insurance companies, but the bottom line answer is, just like a bank or mutual fund going belly up, your assets are kept in a separate fund and you would get back whatever the value of your portfolio was at the time.
I think someone such as yourself follows the market closely enough that you would see the insurance company's share price dropping and you could move the money elsewhere or just take it out of the account.
I'd say if there's anything we are learning of late, is that the government steps in to save large corporations from disaster.
What happens if your bank where you buy your CD's goes belly up? Insurance companies are larger than banks.

I don't think my anti-annuity posts would qualify as hate mail but I'll give you some reasons to not buy a SPIA.

1. They are bad investments with high fees. They payment is based on your expected mortality. From what I've seen, you have to live about 10 or more years past your mortality table expected lifespan to break even with high quality corporate bonds. Do you feel lucky?
2. The payout is fixed and based on the interest rate at the time of purchase. Laddered bonds will mature and can be reinvested. With interest rates at historic lows for our lifetimes, this doesn't seem like a good time to lock up money for the rest of your life.
3. You can't get your money back. Develop a degenerative condition and you won't be able to cash in the annuity for your nursing home care. Those "lifetime" payments might have looked good when you were planning to live to 150 (like most forum members) but won't cover a very large part of your assisted living/nursing care. But I know it won't happen to you.
4. If you throw a "little" of your portfolio in a SPIA, you're still going to have to live with the gut churning pain you'll experience with the rest of your portfolio. So, the initial belief that it will calm your nerves will be short lived from the people I've known that have bought a SPIA with a "small" part of their portfolio. The only answer is to put all of it in one which is what the insurance companies want anyway. People who buy one are usually solicited reguarly to put more money into an annuity.
5. Inflation will eat your lunch if you really do live forever. Figure that the actual purchasing power of your annuity will drop by 50% every 20 years (conservative). What seemed like a lot of steady money when you were 65 is pretty little to live on at 85. You don't think you'll live that long? If so, please reread my first point.
6. You could buy an inflation adjusted annuity. That's even more fees and "limitations" with a significantly lower initial payout.
7. What do you think they insurance company is going to do with your money? After paying their agent's hefty sales commission, flying his sales manager to Hawaii for a "sales conference" and building that much needed expansion to their office building, the insurance company invests in a diversified portfolio of bonds and stocks. Maybe we could all do the same and take our own trip to Hawaii? I hear Nords will give personal surfing lessons to members of this forum.

Now I have learned that the people who have already committed to buying an immediate annuity will only find fault with my points. If anyone is like that here, please go on with your plans. I only hope to influence those that have not already succumbed to the siren's song trumpeted by the financial media and the legions of annuity salespeople.

Now, I know some people on this forum have also bought indexed annuities and various other "sophisticated" products. I find no redeeming value in these (sold to my father and FIL and produced terrible returns versus just buying the S&P). All of my above comments apply to these except you pay even more in fees for very little potential benefit.

For those that I have not swayed, all I can do is offer you my heart felt thanks. I own the insurance companies that sell the worst (IMHO) of the annuity products in my index mutual funds. You making what I am convinced is a terrible investment helps build my own wealth.

 

[unclemick]

Hmmm - the pucker factor improves - and sometimes you even brag a little after having weathered one of the minor cycles in retirement(2000 - 2003, down 16.5% during one quarter)

And then there is the Norwegian widow who is always bouncing 'the core budget' against current yield of 'the portfolio'. Dividends and interest being almost as good as real money.

Finally - to buck everybody up - Pssst Wellesley, current yield 4.2% on the Vanguard website.

heh heh heh - Just because I look a lot doesn't I have to lose sleep or do anything!

 

[Art G]

2B....couldn't agree with you more. I think SPIA's and indexed annuities are terrible products.
I hope you weren't answering my reference to VA's with living benefits with your answer.

 

[brewer12345]

To answer your very valid concern, this would be a very good reason to research the insurance company selected. IF the insurance company went belly up, there are safety features in effect to help pass along policies to other insurance companies, but the bottom line answer is, just like a bank or mutual fund going belly up, your assets are kept in a separate fund and you would get back whatever the value of your portfolio was at the time.
I think someone such as yourself follows the market closely enough that you would see the insurance company's share price dropping and you could move the money elsewhere or just take it out of the account.
I'd say if there's anything we are learning of late, is that the government steps in to save large corporations from disaster.
What happens if your bank where you buy your CD's goes belly up? Insurance companies are larger than banks.

What our resident (Edited by Moderator) annuity salesman doesn't bother to tell you about this rosy, horse excrement-smeared vision is:

1) State guaranty funds are thinly funded if at all and would be cold comfort at best if your insurer went belly up. The only thing backing the state funds is assessments levied on other insurers in the state. In contrast, the FDIC has the explicit guarantee of the feddle gummint. There is a world of difference here that is not to be glossed over.
2) The VA assets would be segregated, but the guarantees (which according to our salescritter is the whole reason you would buy one of these policies) is not. The guarantee comes from the insurer's balance sheet. If they blow up, guess who is screwed?
3) The suggestion that the policyholder could jump out of the product if they thought things wre going pear-shaped is ludicrous. First of all, doing so would incur large penalties and you would lose that all-important guarantee (supposedly the reason for buying these things). Secondly, I had a hard enough time judging creditworthiness of these companies when I did it for a living and was an insider. You think Joe Consumer can do it by reading headlines? Please.

Flog these crappy, overpriced policies all you want (until the mods do their job and rein you in), but don't pee on my head and tell me its raining.