Retiring in 1965 - The Worst Time Ever?

[Chuckanut]

Here is one person's thoughts on what might have happened if one retired in 1965 with $1,000,000 and a plan to withdraw about 4% a year.

Getting the one million is another issue. . No small task in the years leading up to 1965.

The Worst Retirement Ever - Go Curry Cracker!Go Curry Cracker!

"Our budgeted spending of $40,000 per year can provide for a high quality of life, more than we will probably spend (Although maybe we will spend that much someday.) Because the early years are critical to a portfolio’s long term survival, the plan is to spend a little less than 4% while we get used to our new life.

Is this plan sufficiently robust?

I hope so. We are about to retire in 1965, the worst year to retire Ever"

 

[imoldernu]

Thanks for the link... I found it especially interesting, as I lived through all the ups and downs detailed in the story.
A different story... between the 1965 story, the mentioned 1974 Collins recollection and my own 'professional' employment date of 1958 after college, and the Army...
Early to be in the market, as buying food came first, along w/4 sons... so thinking about retirement didn't start 'til about 1980. Lots of good things then... buy and sell houses, and savings saw some boosts along the way to 1989 when we retired.
Without matching to charts, our net worth is the same today within dollars, as it was the day we retired.
I never analyzed this. We are only marginally in the market, and don't work on a SWR... but have 'guaranteed' interest income, Social Security and now use age 90 as a spend-down date. Unless we see massive inflation...as in 300%, expect to use the net worth as the buffer for later years.

I believe that one of the reasons, besides frugality, is that spending leveled off dramatically in the early (age)70's... making expenses a two tiered factor. In retrospect, could probably have spent more in the early retirement years.

At this point, much easier to project over 10 years than 30 or 40 years.

Always, always... from retirement age @53... up to SS age @62... ready to go back to w*rk if necessary. Health and age, the ace in the hole.

 

[ejman]

Here is one person's thoughts on what might have happened if one retired in 1965 with $1,000,000 and a plan to withdraw about 4% a year.

Getting the one million is another issue. ��. No small task in the years leading up to 1965.

The Worst Retirement Ever - Go Curry Cracker!Go Curry Cracker!

"Our budgeted spending of $40,000 per year can provide for a high quality of life, more than we will probably spend (Although maybe we will spend that much someday.) Because the early years are critical to a portfolio’s long term survival, the plan is to spend a little less than 4% while we get used to our new life.

Is this plan sufficiently robust?

I hope so. We are about to retire in 1965, the worst year to retire Ever"

Thank you. Very interesting write up on the importance of flexibility and many of the comments are very good as well. As Unclemick says stay mobile and hostile!

Personally, I ER'd 12 years ago (at age 52) and have been living off my taxable investments while IRA/401K continues to grow. Interestingly the dollars in the taxable pot have remained remarkably level even after taking out living expenses over all these years. (Both wife and I started SS at 62).

Of course, on a CPI adjusted basis the pot is smaller now in "real" CPI adjusted dollars. But to be honest I scratch my head regarding inflation measurements such as the CPI because my spending seems to be about level from year to year at about $64k. I don't know if I subconsciously we adjust for a substitution effect or what but our standard of living feels about the same. Same level of eating out, traveling, stuff we buy etc. Its weird.

 

[audreyh1]

Uh-oh, retired mid 30s, expecting to draw 4%? And have it last inflation-adjusted 50 years? Why would anyone use that scenario?!?

Well their investment strategy isn't following the Trinity study anyway.

 

[REWahoo]

Uh-oh, retired mid 30s, expecting to draw 4%? And have it last inflation-adjusted 50 years? Why would anyone use that scenario?!?

Hey, it was the 60's. "Living better through chemistry."

 

[Mulligan]

Thank you. Very interesting write up on the importance of flexibility and many of the comments are very good as well. As Unclemick says stay mobile and hostile!

Personally, I ER'd 12 years ago (at age 52) and have been living off my taxable investments while IRA/401K continues to grow. Interestingly the dollars in the taxable pot have remained remarkably level even after taking out living expenses over all these years. (Both wife and I started SS at 62).

Of course, on a CPI adjusted basis the pot is smaller now in "real" CPI adjusted dollars. But to be honest I scratch my head regarding inflation measurements such as the CPI because my spending seems to be about level from year to year at about $64k. I don't know if I subconsciously we adjust for a substitution effect or what but our standard of living feels about the same. Same level of eating out, traveling, stuff we buy etc. Its weird.

I have been retired 5 1/2 years. The first 5 years I was in total agreement with you. Until Obamacare kicked me in the inflation groin for a tripling increase in premium from Dec. to Jan. this year. That was worse than any 1970's CPI increase at any time and probably the entire decade in one month!


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[ejman]

I have been retired 5 1/2 years. The first 5 years I was in total agreement with you. Until Obamacare kicked me in the inflation groin for a tripling increase in premium from Dec. to Jan. this year. That was worse than any 1970's CPI increase at any time and probably the entire decade in one month!


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Interesting. Just curious did health insurance then came to be a majority of your monthly expenditures say greater than housing and food, travel and so on put together? I guess it would have to be to have such a massive impact on your overall inflation rate. Sorry to hear that.

Fortunately in my case with Obamacare I went from a crappy insurance policy with a $10,000 deductible that cost me $370 a month to a much better policy with a $5,000 deductible BUT with free yearly health checkups. The Obamacare policy cost me $390 a month. I'm not sure the $20 increase would be considered inflation being that the benefits were better. A prior colonoscopy that cost me $3,500 under my crapy old policy was covered under yearly checkup under Obamacare. Oh well, different strokes for different folks.

 

[Mulligan]

Interesting. Just curious did health insurance then came to be a majority of your monthly expenditures say greater than housing and food, travel and so on put together? I guess it would have to be to have such a massive impact on your overall inflation rate. Sorry to hear that.



Fortunately in my case with Obamacare I went from a crappy insurance policy with a $10,000 deductible that cost me $370 a month to a much better policy with a $5,000 deductible BUT with free yearly health checkups. The Obamacare policy cost me $390 a month. I'm not sure the $20 increase would be considered inflation being that the benefits were better. A prior colonoscopy that cost me $3,500 under my crapy old policy was covered under yearly checkup under Obamacare. Oh well, different strokes for different folks.

I do not think we are using numbers in the same manner. My MONTHLY INCREASE in health insurance went up more than ALL my other expenses INCREASED in the past 5 years COMBINED. But that does not mean it is the most expensive part of my budget though. My BC/BS $5k deductible for about $85 monthly was replaced with an Obamacare plan with $6500 deductible in a very narrow network for about $300. So yes, way higher rate, considerably higher deductible, and less choice. If I wasn't healthy and actually needed the thing I would be worse off even more financially.


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[ejman]

I do not think we are using numbers in the same manner. My MONTHLY INCREASE in health insurance went up more than ALL my other expenses INCREASED in the past 5 years COMBINED. But that does not mean it is the most expensive part of my budget though. My BC/BS $5k deductible for about $85 monthly was replaced with an Obamacare plan with $6500 deductible in a very narrow network for about $300. So yes, way higher rate, considerably higher deductible, and less choice. If I wasn't healthy and actually needed the thing I would be worse off even more financially.


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I see, so on average your monthly living expenditures went up by $215. So if, just to pick a number, your monthly living expenditures were $5,000 per month on average over the last 5 years, now they are $5,215 and all the increase is due to Obamacare. Got it.

 

[Mulligan]

I see, so on average your monthly living expenditures went up by $215. So if, just to pick a number, your monthly living expenditures were $5,000 per month on average over the last 5 years, now they are $5,215 and all the increase is due to Obamacare. Got it.

That is correct. And yes I confess to "drama queening" it a bit. A tripling increase of premiums sounds more dramatic than $225 does. I am also sure there are many who may think $300 is a good deal compared to what they may be paying.


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[user5027]

I wonder if the 1965 retiree was more prepared for what was to come by having lived through the Great Depression.

 

[audreyh1]

Hey, it was the 60's. "Living better through chemistry."

Its just a straw man type set up that doesn't really follow any model. So I'm not really sure what the point is other than flexibility and being able to live off less are key.

 

[Fermion]

I am curious what a exact repeat of the 1960s inflation and interest rate situation would look like. Could the government debt even be serviced at 8%, 10%, 15% interest rates? Could pensions survive the drops in bonds AND markets?

It doesn't so much sound like a problem with 4% vs 3% as a problem with USA surviving. It could go as far as asset seizure.

 

[Major Tom]

I agree it was just a set-up to show that if this was the worst that a sequence of returns could throw at a retiree, then maybe things weren't so scary after all. Besides, who begins a 50 year retirement period with a 4% WR? It just served to make me feel better about my 2.5% WR, that is now 2% of my current portfolio value. On top of that, I'm about 11 years away from early SS, which I haven't even taken into account. Even though the fictitious retirees made it through, there were some nail-biting periods, and the article merely served to make me feel better about the whole concept of conservative planning.

Yes, you may well make it through with a less conservative approach, but I think the point that is often missed by hopeful ER's who are trying to justify higher WR's to themselves is that you have to be sure that "making it through ER" is your primary goal. For me, at least, "sleeping well at night" is far more important than ensuring I spend as much of my portfolio as possible.

Your portfolio may survive, but what is it actually going to feel like if market dips guide it to stomach-churning lows?

 

[thefinancebuff]

Besides, who begins a 50 year retirement period with a 4% WR?

MMM followers. A lower withdrawal rate will push the required stash higher and delay the age by which to achieve it.

 

[Bestwifeever]

Hey, it was the 60's. "Living better through chemistry."

It was the best of times, it was the worst of times.

 

[MooreBonds]

Here is one person's thoughts on what might have happened if one retired in 1965 with $1,000,000 and a plan to withdraw about 4% a year.

Getting the one million is another issue. . No small task in the years leading up to 1965.

The Worst Retirement Ever - Go Curry Cracker!Go Curry Cracker!

"Our budgeted spending of $40,000 per year can provide for a high quality of life, more than we will probably spend (Although maybe we will spend that much someday.) Because the early years are critical to a portfolio’s long term survival, the plan is to spend a little less than 4% while we get used to our new life.

Is this plan sufficiently robust?

I hope so. We are about to retire in 1965, the worst year to retire Ever"

A major item that these MMM types aren't factoring in well enough is the very real issue of health insurance. In 1965, people didn't have the potential for healthcare-related items to be such a huge part of their budget - whether you're looking at the "minimum" impact of just healthcare premiums, or the occasional "maximum" of paying your multi-thousand deductible as well. And it's tough to retire on a relatively tight budget and saying "we can live a little less than 4% in our 30s", without really looking long and hard at what that same insurance will cost you in 20 years, when your age-bracket premium inflation is much much higher than your portfolio growth. Also, back then, life had far fewer choices to spend your budget on compared to today.

Plus, interest rates weren't destabilized for as long back then as they are now. Having 20%-40% of your portfolio in bonds when they are paying negative real rates AND have almost zero nominal rates is a serious blow to your portfolio.

Much different than earning 6%+ when inflation is 6%-8% - because you are able to substitute some things to offset inflation while earning 6% on your bonds and have a net positive effect....but if bonds are paying 2% or less, and inflation is 2%, even if you substitute things, there's only so much you can substitute to reduce expenses enough to not spend down more principal to make up for the miniscule bond interest rates and the income that provides. And back in the 60s, stocks were yielding 4%+, so you could still get some income from your stock portfolio, compared to a sub-2% on the S&P 500 now.

 

[Major Tom]

MMM followers. A lower withdrawal rate will push the required stash higher and delay the age by which to achieve it.

Ah yes. THOSE people. I had forgotten about them

 

[ERhoosier]

Interesting that original piece never mentions health care costs. Back then there were no $5+k deductible plans and the post-Medicare HC cost inflation spiral had not yet taken hold. One could actually afford an ER visit without facing financial ruin

 

[rodi]

My grandparents retired in the mid-late 60's and moved to San Diego. They were lifetime renters, and continued to rent out here. I think they were mid 50's. Gramps had a non-cola'd pension and health insurance from the auto industry. They were fine for the first several years... then the 70's inflation took hold. My Gram took a job as a "shop girl" in La Jolla, part time. That allowed her to earn some SS credits and bring some income in. I think she worked for 5-7 years. in her mid 60's. Fortunately, she enjoyed the work. Gramps was already collecting SS and the pension, so it made sense for her to go to work.

That was a good clue to me (as an adult reflecting back) that inflation can kill the best plan and that you need to stay adaptable.

Like many - I don't think they had much in the market... mostly in cash savings accounts. Interest rates were better then - but inflation took care of that.

 

[Running_Man]

These carefree yes you can retire with 80 - 100 percent stock portfolios presented as see you can survive the worst times are absurd, the article has the following problem:

1) How was this mythical person invested? In non-existent low cost ETF's? Per John Bogle in 1965 only 5.7% of equities were owned by funds and most of those funds were blends of stocks and bonds. Pure equity plays were almost impossible to find.

2) in 1975 when they cut their spending to 2.5% of the original portfolio amount, at that point the 40K withdrawal should have been $69,418 with inflation, they are going to live on 25K? The chart implies about 18K on an inflation adjusted basis but that does not match with the article statement. That 2,5% of original portfolio is equivalent to $15,716 in 1965 or in other words changed to a 1.5% withdrawal rate! Hey you can retire with 4% withdrawals, all you need is flexibility to live on 1/3 of that amount.

3) In the middle of this in 1970's they consider a part time minimum wage job to make $500 a month after tax. Minimum wage in 1977 is $2.30 so they are going to need to work 217 hours without considering taxes to make $500 per month. This is 54 hours per week. But hey no, let's just move to Brazil for a couple of years it'll be great there and we'll save a fortune so we go!.

4) The article implies you live off an average of 3.75% over the lifetime of 50 years with a little flexibility - really what is written calls for psychic powers. Despite a belief in 4% withdrawals you know enough to start at 3% and average a 2.5% withdrawal during the early bad years and are able to drop that to 1.5% 10 years in and at the all time low in stocks you go 100% stocks invest at the absolute bottom. Then when portfolio is just starting to recover you go to 4% of original portfolio, 8% withdrawal of the actual portfolio why not!, right when the market makes a huge multi-year greatest bull run ever, which helps because otherwise that withdrawal rate would have failed for sure.

This psychic ability is necessary since if you started at 4 per cent withdrawals and dropped to 3% as the portfolio fell and invested in the mutual funds available at the time you would be a 50 year old bankrupted individual in 1980 otherwise, right when unemployment is set to be at an all time high. Of course at age 50 with no retirement savings, you would be no worse off than over 50% of all 50 year olds.

This obvious rip-off of the Mr Money Mustache the world is all sunshine blog and 100% stocks always works out if you keep a good attitude and are willing to ride a bike is dangerous to financial planning. Of course the income from the blog from people wishing to be able to stop working at age 35 means the writer never has to worry about living on stocks, he's got blogging income!

 

[GravitySucks]

All you need to do is live in a tent for two years and South America for a couple other years.
I'd rather get another job than live in a tent.

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[Bestwifeever]

Bloggers. I also read the comments to the link, most made by other bloggers. I wonder how many of their commenters/readers are bloggers. I bow to whoever created the blogosphere.

He links to another article of his about how the 4 percent annual withdrawal for 50 years is supported, but that article of course is all about the 30 year period, not 50. I think we need a blog entry about how you can take 4 percent from birth.

 

[Fermion]

All you need to do is live in a tent for two years and South America for a couple other years.
I'd rather get another job than live in a tent.

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And yet quite a few very rich people live in a tent and endure harsh conditions for weeks or months, paying money to do so. Safaris, Everest climbs, etc.

Perceptions are very skewed on here about what qualifies as an acceptable level for living. If you don't have a car, 2000 sq-ft of house, and the ability to cram yourself in a aluminum cylinder for cross ocean trips several times a year, you are essentially miserable.

 

[David1961]

Wonder what would have happened if someone retired in 1965 with a WR of 3%, or 2%. Over the long haul, a small change in WR can make a big difference.