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Old 06-24-2018, 09:19 PM   #121
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..... But I had a large enough fixed income allocation I knew that I could survive on that for many years if need be. That knowledge is what helped me rebalance at the bottom which meant I actually had to sell some fixed income to buy some stocks (which might have continued to drop).
I forgot to mention the active rebalancing. I did mention that any selling to cover expenses would be from the fixed side, but many would be actively rebalancing as well.

I didn't do much, but in OCT 2008, I moved 5% of my portfolio from bonds to SPY, at $89.41. SPY went lower, but was back to that level about 7 months later, and is now at $274 (not counting divs, lost a little of that to the lower divs vs bonds).

So yes, doubling my money in 10 years (adjusted for BND/SPY total return), even though I didn't get the timing even close to perfect, is pretty sweet.

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Old 06-25-2018, 03:15 AM   #122
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20 years ago I was paying almost $5/gallon in California. Today I filled up at $2.59/gallon.
I believe your memory is very incorrect on this.

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Old 06-25-2018, 05:12 AM   #123
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Dunno. Don't want to get into an argument over it but we haven't sold a share in the 14 years that we've been RE'd. Just living off dividends (and SS).

We have a healthy dividend bucket as a set-aside and over the years the portfolio has grown (doubled) and the dividends have increased as well.

True, inflation has been tame but I don't see a risk to the strategy at this point in time.
In that point in the discussion, we were referring to "living off the yield" of the fixed portion (CD's were highlighted) of your FIRE portfolio. Not equities.......
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Old 06-25-2018, 05:27 AM   #124
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In that point in the discussion, we were referring to "living off the yield" of the fixed portion (CD's were highlighted) of your FIRE portfolio. Not equities.......
Then in that case I agree with you 100%! I might rename my boat Non Sequitur
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Old 06-25-2018, 05:33 AM   #125
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To add to what ERD50 said and elaborate on my "cash" response, I also relied on dividends and decided to take SS earlier than I'd planned.
Exactly what I did. And I'll add, we didn't reduce spending a penny. We had plans and were quite "adventure minded" early in retirement and have no regrets regarding not cutting back on travel, remodeling, etc., during the recession.

DW had already started her pension. I started my SS in '09 at 62. We had a bit of cash. Divs and interest covered the balance. No selling of fixed or equity positions.

Like ERD50, I marvel at the thought of what kind of income streams (or lack of income streams) and/or AA's folks have in retirement that they feel they'll need to sell equities early in a down market. Maybe something like no pension or hobby job income, no SS and a 100% equity allocation invested in a non-dividend payer like Berkshire Hathaway?
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Old 06-25-2018, 05:35 AM   #126
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I forgot to mention the active rebalancing. I did mention that any selling to cover expenses would be from the fixed side, but many would be actively rebalancing as well.

I didn't do much, but in OCT 2008, I moved 5% of my portfolio from bonds to SPY, at $89.41. SPY went lower, but was back to that level about 7 months later, and is now at $274 (not counting divs, lost a little of that to the lower divs vs bonds).

So yes, doubling my money in 10 years (adjusted for BND/SPY total return), even though I didn't get the timing even close to perfect, is pretty sweet.

-ERD50
That is a big part of what is so scary about rebalancing in a situation like late 2008, early 2009. You know you might need that fixed income portion to live off for many years, yet here you are selling a big chunk to buy stocks that might continue to drop. How many times are you willing to dip into your fixed income to buy stocks if they continue to drop? I finally resolved this by setting a minimum # of years of expenses (after tax) in fixed income. I rebalanced three times while stocks were crashing.

I think many folks didn’t rebalance “near the bottom” for this reason. It’s very scary. It was psychologically very difficult for me to do that last rebalance.

The market recovered much faster than I expected after Q1 2009. Extraordinary measures were taken to stabilize the damaged financial system and avoid a death spiral of bank failures, frozen credit, layoffs, bankruptcies and foreclosures (corporate and individual), and money market funds breaking the buck. It might have taken much longer to recover.
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Old 06-25-2018, 05:53 AM   #127
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Just wanted to say this is a great discussion. Thx!
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Old 06-25-2018, 06:21 AM   #128
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I'm not cheesehead, but my wife doesn't get any Social Security spousal benefit now and won't get a survivor benefit when I die due to the Governmental Pension Offset (GPO), because she gets a teacher's pension. She's not eligible on her own account, since teachers in this state do not contribute to social security. This circumstance affects our financial planning. For example, I will take social security at 62 and thereby avoid taking money out of the nest egg so it will be larger for her (she will likely survive me). I also have a paid up whole life policy that, if annuitized, will make up for the loss of my social security.


Ditto...
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Old 06-25-2018, 09:04 AM   #129
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I suppose if your lifestyle doesn't radically change and you have no (or very little) significant big cost surprises in 30 to 40 years, having a fixed income, mostly TIPs, portfolio, you will be OK. Hopefully, one in that position has anticipated major health costs and potentially big health surprises. That's a big IF for long term.

We're into sustainable living; have cheap hobbies like hiking, going to concerts and art museums; and combined with my particular set of skills (bargain hunting) we just don't spend that much relative to our NW so our planned withdrawal rate for our basic retirement expenses is actually zero, and that is with a mortgage and RMD taxes. SS and pensions will cover our basic lifestyle. In the future our mortgage will be paid off so our expenses will decrease over time as the mortgage interest decreases.

We can do our retirement planning in a spreadsheet because we plan on a .5% return plus inflation, with the return and inflation as parameters. In my modeling we actually come out ahead with high inflation because our biggest expense is our house that has a fixed, low interest rate mortgage, a low Prop 13 tax base that will not increase with high inflation (though the house value will) and a healthy allocation of TIPS which will increase in value with inflation while our housing expenses will not. So as best we can we have avoided any white knuckling or scary times in our investing future. Our portfolio actually usually goes up when the market tanks because we own more Treasuries than equities.
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Old 06-25-2018, 10:58 AM   #130
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To add to what ERD50 said and elaborate on my "cash" response, I also relied on dividends and decided to take SS earlier than I'd planned.
Yes, if SS is there for you and you need it, it's your decision to make. I just found out I am eligible to take my pension at age 50 at a much reduced rate admittedly, but it would still be enough to get me through if my plan or the market went south.


But age 50 , which is only a year and half away for me seems way too early to take it, and I probably won't, but I like to know my options. So I wrote and found out what I needed to know. Isn't it great to have options ? I love them.
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Old 06-25-2018, 11:11 AM   #131
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This thread is quite applicable, as friends of mine just came into (Lucky Buggers) exactly double the OP's stash ($2.2m) and has asked me what to do to get completely stress free income, as we are typically a Zero risk kind of family, my advice would be to get a 5 year CD ladder, which I know would make some folks here cringe. Based on what I know of their lifestyle, I think that would spin off ~$60k annually and along with their current ~$26k PA SS (His only if he takes it now) would give them a good QOL.
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Old 06-25-2018, 06:12 PM   #132
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OP here: Thanks everyone, this is a lot to digest, I will print the whole thread out and take a yellow highlighter to it. I am with the folks who want to sleep well and not be tethered to the market, just today the DJ went down 328 pts. That's why I decided on the bucket approach with 5 years of CDs in Bucket #1, so we can sleep when it drops. Like my parent's generation did with annuities and bonds.

Someone asked why my wife won't get my social security. In IL there's a law that a union teacher with a pension gets none of their spouse's ss, so that's a good reason to keep the principal as intact as possible for my, probably earlier rather than later, demise.

Audreyh1 mentioned she was pleasantly surprised how quickly the market bounced back in Q1 of 2009. Well, we lost 40% of our Nest Egg in The Crash and it took 5 years to get back to where we were, so there were no pleasant surprises in our family. We never sold, although my screaming teacher wife wanted to, at the bottom. Hence we are now in the bucket system, so we can sleep well through corrections.

We don't want to be more than 40% in the market, and we have 15% or so in CDs, so the rest needs to go into the income Bucket #2 and since bonds ain't what they used to be I'm attracted to paying for an actively managed position. I do not enjoy following financial matters like most on this board do, I'm fairly math impaired which is why I ended up making a living in the visual arts. Many here sound as if they are/were engineers or number crunchers, that ain't me, so paying the .8% or .9%, which is an increase of Wellesley's .22%, I'm OK with that because as for fixed income, I don't know how to do it well. If not BlackRock Diversified Income I'd be taking positions in Wellesley, Vanguard High Yield, Vanguard's TIPs funds and perhaps VG Short Term Investment Grade. That's where I'm at now and it isn't pretty. I don't know when to add or get out of them and at 65 I can't ride things down because they take so long to come back up. I've had a lifetime of doing index funds and holding them passively, DCAing into them, but building a steady income portfolio has me confused. I'm more concerned with inflation and if I can't squeeze 3% out of $1.1mil our alternative would be to move to a cheaper state with lower taxes. We're presently paying $13.5K In property taxes and they will be going up.

I learn a lot by reading these posts but do get bummed out, like on the above post, of people being gifted $2.2mil. I'm the poster boy Working Class Hero! I should have known, like everything else in life, retirement favors the rich...

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Old 06-25-2018, 06:50 PM   #133
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OP here: Thanks everyone, this is a lot to digest, I will print the whole thread out and take a yellow highlighter to it. I am with the folks who want to sleep well and not be tethered to the market, just today the DJ went down 328 pts. That's why I decided on the bucket approach with 5 years of CDs in Bucket #1, so we can sleep when it drops. Like my parent's generation did with annuities and bonds.

Someone asked why my wife won't get my social security. In IL there's a law that a union teacher with a pension gets none of their spouse's ss, so that's a good reason to keep the principal as intact as possible for my, probably earlier rather than later, demise.

Audreyh1 mentioned she was pleasantly surprised how quickly the market bounced back in Q1 of 2009. Well, we lost 40% of our Nest Egg in The Crash and it took 5 years to get back to where we were, so there were no pleasant surprises in our family. We never sold, although my screaming teacher wife wanted to, at the bottom. Hence we are now in the bucket system, so we can sleep well through corrections.

We don't want to be more than 40% in the market, and we have 15% or so in CDs, so the rest needs to go into the income Bucket #2 and since bonds ain't what they used to be I'm attracted to paying for an actively managed position. I do not enjoy following financial matters like most on this board do, I'm fairly math impaired which is why I ended up making a living in the visual arts. Many here sound as if they are/were engineers or number crunchers, that ain't me, so paying the .8% or .9%, which is an increase of Wellesley's .22%, I'm OK with that because as for fixed income, I don't know how to do it well. If not BlackRock Diversified Income I'd be taking positions in Wellesley, Vanguard High Yield, Vanguard's TIPs funds and perhaps VG Short Term Investment Grade. That's where I'm at now and it isn't pretty. I don't know when to add or get out of them and at 65 I can't ride things down because they take so long to come back up. I've had a lifetime of doing index funds and holding them passively, DCAing into them, but building a steady income portfolio has me confused. I'm more concerned with inflation and if I can't squeeze 3% out of $1.1mil our alternative would be to move to a cheaper state with lower taxes. We're presently paying $13.5K In property taxes and they will be going up.

I learn a lot by reading these posts but do get bummed out, like on the above post, of people being gifted $2.2mil. I'm the poster boy Working Class Hero! I should have known, like everything else in life, retirement favors the rich...

Best,

Cheesehead
First of all, with 40% in equities, you should have enough to cover future inflation.

We also lost close to 40% of our nest egg from the (somewhat stratospheric?) Oct 2007 peak. In terms of recovery - from the bottom of the market in Feb-Mar 2009, we had recovered our Oct 2007 peak by April 2011, so just a bit over 2 years. Now some folks may count that differently - counting from peak to peak level recovered, which would then be 3.5 years, but I tend to count from trough to recovery.

I suspect that rebalancing on the way down helped the investments recover more quickly. We were probably overall around 65% equities before the free fall.

But, again, I expected the recovery to take far longer than that.

Paying out 0.9% or so to advisors cuts directly into your income.

I simply take x% out of the portfolio every year and then rebalance so I don't worry about building any kind of "income stream".

My fixed income is mostly in core and index type bond funds. I don't do anything fancy, and I don't try to anticipate any interest rate type moves, but just rebalance after the fact. The cash part I have used some CDs and some high yield savings accounts, but still pretty simple stuff.
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Old 06-25-2018, 07:40 PM   #134
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... . Well, we lost 40% of our Nest Egg in The Crash and it took 5 years to get back to where we were, so there were no pleasant surprises in our family. We never sold, although my screaming teacher wife wanted to, at the bottom. Hence we are now in the bucket system, so we can sleep well through corrections. ...
But keep in mind ( see my post in this thread from yesterday), that a 40% drop from a peak is a kind of misleading knock against equities. You would not have reached that peak to fall from w/o them.

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... We don't want to be more than 40% in the market, and we have 15% or so in CDs, so the rest needs to go into the income Bucket #2 and since bonds ain't what they used to be I'm attracted to paying for an actively managed position. .... paying the .8% or .9%, which is an increase of Wellesley's .22%, I'm OK with that because as for fixed income, I don't know how to do it well. If not BlackRock Diversified Income ...
I'm skeptical that the active managers can do it so well that they can provide a benefit to you after you pay those extra fees. Here's a discussion at bogleheads from a few years ago:

https://www.bogleheads.org/forum/viewtopic.php?t=142305

A 40/60 AA is pretty conservative - maybe re-think that after thinking about that 40% drop being a bit of an illusion, like looking through a one-way mirror. There's probably nothing 'wrong' with 40/60, but IIRC, that's on the edge of what FIRECalc reports where success rates start dropping (might be 30-35% ?). I like to have a little more buffer between me and the edge. As they say, the future will likely be different, and if it worse for a conservative portfolio, well, success rates are pretty flat all the way up to 95%, and drop just a bit at 100%.


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... but building a steady income portfolio has me confused. I'm more concerned with inflation and if I can't squeeze 3% out of $1.1mil our alternative would be to move to a cheaper state with lower taxes. We're presently paying $13.5K In property taxes and they will be going up. ...
3% is a very safe WR. Run those numbers in FIRECalc to see. You shouldn't have to do anything special or complex (that probably wouldn't help anyhow) to achieve it. An index bond fund will kick off income of about 3%, an index stock fund about 2%. Even if you had to pull 1/2% out of principal, and you had no growth at all, it lasts 200 years (not really, as it drops there will be less income, but it is lots of years, and zero growth for 30 years is unlikely).

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... I learn a lot by reading these posts but do get bummed out, like on the above post, of people being gifted $2.2mil. I'm the poster boy Working Class Hero! I should have known, like everything else in life, retirement favors the rich...

Best,

Cheesehead
No point in getting bummed because someone else got an inheritance (if that's what it is). Nothing you can do about it, just focus on your situation.

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Old 06-25-2018, 08:00 PM   #135
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We're into sustainable living; have cheap hobbies like hiking, going to concerts and art museums; and combined with my particular set of skills (bargain hunting) we just don't spend that much relative to our NW so our planned withdrawal rate for our basic retirement expenses is actually zero, and that is with a mortgage and RMD taxes. SS and pensions will cover our basic lifestyle. In the future our mortgage will be paid off so our expenses will decrease over time as the mortgage interest decreases.

We can do our retirement planning in a spreadsheet because we plan on a .5% return plus inflation, with the return and inflation as parameters. In my modeling we actually come out ahead with high inflation because our biggest expense is our house that has a fixed, low interest rate mortgage, a low Prop 13 tax base that will not increase with high inflation (though the house value will) and a healthy allocation of TIPS which will increase in value with inflation while our housing expenses will not. So as best we can we have avoided any white knuckling or scary times in our investing future. Our portfolio actually usually goes up when the market tanks because we own more Treasuries than equities.
My bold. I hate to bust your bubble, but with rising inflation, all costs will rise, including utilities, repairs, maintenance, stuff you buy at home stores, etc. Having lived in CA for a dozen years and know Prop 13, I was surprised that while taxes may be frozen, bond issues from municipalities for local improvements are routinely applied to homeowner's tax bills for repayment. It's really not a free ride on taxes under P13 as everyone seems to say.

Around here, a replacement roof (asphalt shingle) on a 2,000 square foot home went from $6,000 to over $10,000 as oil prices were rising and wages were following along. This was over a period on 10 years (2008 - 2018). i replaced our roof in 2008 and again in 2017 (hailstorm) and experienced that increase. The contractor I used for both roofs explained that materials costs were escalating and the wages he had to pay for his labor were also increasing. I shopped the second roof and got similar quotes.

I suspect you will find out how much of a "money pit" a house can be once it gets to the point of needing major repairs. Check the threads here and see what others are experiencing. A real eye opener.

I understand your concept of living near to the bone to keep expenses low, but in due time, we will have price and wage inflation and if you are retired, you will have the same, but won't be working and receiving raises to cover inflation.
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Old 06-25-2018, 09:05 PM   #136
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OP here:

Someone asked why my wife won't get my social security. In IL there's a law that a union teacher with a pension gets none of their spouse's ss, so that's a good reason to keep the principal as intact as possible for my, probably earlier rather than later, demise.
That's a federal law, not a state law, and therefore not specific to Illinois (or to union teachers). The question is whether the spouse is collecting a government pension from any job that did not withhold for social security. https://www.ssa.gov/pubs/EN-05-10007.pdf Although, for planning purposes, it doesn't matter that it is a state or federal law. It is enough to know the result.
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Old 06-25-2018, 09:39 PM   #137
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This thread is quite applicable, as friends of mine just came into (Lucky Buggers) exactly double the OP's stash ($2.2m) and has asked me what to do to get completely stress free income, as we are typically a Zero risk kind of family, my advice would be to get a 5 year CD ladder, which I know would make some folks here cringe. Based on what I know of their lifestyle, I think that would spin off ~$60k annually and along with their current ~$26k PA SS (His only if he takes it now) would give them a good QOL.
Based on the minimal info, I'm not one of the folks who would cringe at the CD ladder approach for this.

It does sound like an inheritance, or lottery (since you said 'luck'), but maybe a sale of a business (were 'lucky' to get that much?), but either way, sounds like they have not had any experience with investments. So a CD ladder is a good way to start, and then, if appropriate, they could move into other investments over time.

Maybe FIRECalc doesn't have such great options for fixed income, but when I ran it with 0/100 AA I couldn't get a very good success rate for 40 years, with a 2.27% WR (60/2200). Can a CD ladder really kick off 2.27%, inflation adjusted w/o depleting principal? I dunno, but I know that even a modest equity allocation has succeeded at that WR, historically.

Now even though the data says it is on average a better bet to go right into equities at any chosen AA, here I do think emotions could have a strong influence, and even though it may not be numerically optimal, I would think inexperienced investors especially should dollar cost average into equities over a pretty long term, if they have a large lump sum. Like I mentioned earlier about those 40% drops from peaks - most everyone reached that peak with purchases over time at much lower levels, so it's not a drop from their purchase price. But an all-in lump sum into equities could do exactly that. And that might scare a novice enough to sell low. Yes, I'm a numbers guy, but I don't ignore emotions - its just that in most cases, I just don't think it should be that hard to control those emotions, once the understanding is there. But seeing a large lump sum take a dive from a peak - that could be a tough ride.

Will you be 'lucky' to know these lucky people? I like having friends with money!

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Old 06-25-2018, 10:39 PM   #138
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My bold. I hate to bust your bubble, but with rising inflation, all costs will rise, including utilities, repairs, maintenance, stuff you buy at home stores, etc. Having lived in CA for a dozen years and know Prop 13, I was surprised that while taxes may be frozen, bond issues from municipalities for local improvements are routinely applied to homeowner's tax bills for repayment. It's really not a free ride on taxes under P13 as everyone seems to say.

Around here, a replacement roof (asphalt shingle) on a 2,000 square foot home went from $6,000 to over $10,000 as oil prices were rising and wages were following along. This was over a period on 10 years (2008 - 2018). i replaced our roof in 2008 and again in 2017 (hailstorm) and experienced that increase. The contractor I used for both roofs explained that materials costs were escalating and the wages he had to pay for his labor were also increasing. I shopped the second roof and got similar quotes.

I suspect you will find out how much of a "money pit" a house can be once it gets to the point of needing major repairs. Check the threads here and see what others are experiencing. A real eye opener.

I understand your concept of living near to the bone to keep expenses low, but in due time, we will have price and wage inflation and if you are retired, you will have the same, but won't be working and receiving raises to cover inflation.
You are not busting my bubble at all. I have inflation included in my spreadsheet for all our expenses and more than enough for repairs. We have had a house for decades so we know how much repairs cost and that is in the budget with the inflation parameter included. Plus we have already fixed up our house quite a bit - new roof, wood and tile floors, stone countertops, bathrooms remodeled, replaced all the plumbing, foundation leveled etc. so there is not that much more to do for a couple of decades.

What won't go up our are mortgage interest payments or property taxes during high inflation years, but our Social Security, home value and TIPS will increase so we come out ahead with high inflation. We have lived in our current house for decades and our property taxes are under .4% of the market value. So it is possible they will increase dramatically in the future but that is where the 0% withdrawal rate provides a lot of buffer for unplanned expenses.

Worst case we could go from 0% withdrawal to up to 3.33% of our portfolio money. If we moved to a lower cost of living area we could live just on the rent from our current house. We don't live near the bone. We just don't spend that much relative to our income and net worth. And I get a lot of freebies and discounts - up to $2K in a good month. So far this week we went to a free concert, and I got a free meal coupon, a free big screen TV and two free tickets to a touring Broadway play. And it is Monday.
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Old 06-25-2018, 11:19 PM   #139
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OP, you sound pretty conservative so you may not like this suggestion, but we have elected to go with trust deeds for the majority of our fixed income investing. These are not without risk, but on average for the last 8 years, we’ve earned ~9%/year. They are not as predictable as highly rated bonds ... when the economy tanked in 2008-9, lenders holding trust deeds had to suspend principal payments and reduce interest rates to avoid ending up owning properties that weren’t fully renovated. And the cash flow can vary; the longest we’ve had to go between a loan paying off and another loan being generated for us to make was about 6 months. More typically the wait has been 4-8 weeks, which is why the return has been 8-9% instead of the higher rate borrowers typically pay of 10-11%.

Anyway, you might consider this approach with at least a portion of your fixed income portfolio if you want to improve your returns and you can handle the risk. As others have said, you can’t get higher returns without taking more risk.
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Old 06-25-2018, 11:26 PM   #140
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Quote:
Originally Posted by njhowie View Post
I believe your memory is very incorrect on this.

California gas prices over the years | The San Diego Union-Tribune
Well, maybe six years ago

https://www.usatoday.com/story/money...allon/1616773/
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