Sequence of returns risk & fear of retiring into a bear market

[audreyh1]

My question is why do people want to retire too early, like in 30s and 40s. I might be considered old here, I retired at 55, but in real life, nobody I know or met retire that young. Except for one guy who graduated from UCLA in engineering and has not found a job since. He is mooching off his mom and rich brother.

Because they can? If you had come into a windfall in your 30s or 40s would you have continued working? I had an interesting career, but when financial independence came and I decided I could pull it off, I retired at 39 to pursue all those things that I didn't have time or energy to do because of a demanding career.

FWIW, I didn't take a pay cut when I retired, if fact spending increased. So I didn't try to swing anything on a tight budget.

 

[daylatedollarshort]

jjonas, you might want to read the AARP articles lately on what the latest ACA repeal plan means in terms of costs for older Americans and the Fidelity studies on how much health care will cost for an average retired couple. These aren't theoretical costs, most people here without pension insurance really are spending this kind of money and the prognosis is not for these costs to go down in the future. The difference between the advice here and many of the ER blogs is that people who post here aren't selling anything and are older and posting from actual experience.

You can take care of your health, but car accidents, sports injuries, genetic predispositions and other stuff can happen to seemingly healthy people. A fitness trainer from The Biggest Loser was in the news this past year from having a heart attack.

 

[Fedup]

Because they can? If you had come into a windfall in your 30s or 40s would you have continued working? I had an interesting career, but when financial independence came and I decided I could pull it off, I retired at 39 to pursue all those things that I didn't have time or energy to do because of a demanding career.

FWIW, I didn't take a pay cut when I retired, if fact spending increased. So I didn't try to swing anything on a tight budget.

I pursued all those while still working and raising kids. The only thing I didn't do is take off for 4 months at a time like I did last year. I wouldn't take off a week of vacation while my kids were in school, I didn't want to disrupt their schooling. So that's the only hindrance. We did a lot things when we were single too. We didn't have to be in retirement mode to do it.
I personally think it's sad to wait until retirement to do all those things. It's not a binary choice.

 

[jjonas]

"Much of the health care cost people see in this country come from a poor diet, lack of exercise and high stress. I'm trying to eliminate the high stress part."

There is some truth to this. However, your genes and other factors play a part. I know plenty of people that followed "the rules" and ended up with debilitating diseases or conditions in their 50's. I would be cautious with the "I'm going to live to 100 in perfect health and die in my sleep" thinking.

And I know plenty of people who didn't follow the rules and lived until they were 95, relatively healthy. I certainly realize that we could be genetically predisposed to certain illnesses that's why I said if we keep maintaining a healthy lifestyle we'll put the odds in our favor, not eliminate health issues all together. I know health issues may arise but I'm not going to delay retirement for fear of getting sick someday and not being able to afford the treatment for that sickness. I'd much rather enjoy my younger years than work 40-50 hours per week for another 10 years simply so I can have enough money to afford future health care costs.

We all have anecdotes of this and that and we can speak from our personal situations but that doesn't apply to all people. My mother and father in law are in their late 60's and they take zero medication other than something for seasonal allergies. One of the guys I mountain bike with, who is a poster boy for healthy living, got testicular cancer. Who knows what will happen but like I said, i'm not gonna work 40-50 hours per week for another 10 years for something that may or may not happen in the future.

I agree that paying down the mortgage would be more of an ideal situation. If I didn't have the mortgage I don't think I'd wait until 2018 to retire.

Thank you very much for recommending those other blogs by the way. I was looking for people with similar situations.

 

[daylatedollarshort]

My question is why do people want to retire too early, like in 30s and 40s.

Because more people have jobs like in the movie Office Space than have rewarding careers like astronauts or cancer researchers? -

 

[jjonas]

I wish you luck with your plan. But honestly I've done all those while my kids were young, they are now grown up. My husband and I got married late. We're done playing by the time we got married, so our focus was on the kids. So that's what I did while raising my kids and travelling of course. We've been joking last night, after reading your thread, that had we not had kids, we'll be having too much money and time, unpuposedly. So the kids are a blessing in disguise.
Retirement sounds good at first, I was elated, but honestly, I've been retiring for nearly two years and there are time that I thought I was under utilized. And I'm the DYI type of person. So my advice is to make sure you have enough money before you pull the trigger.

I still do many of those things now and want to dedicate more time doing the things I love. I really don't need a job or career to make me feel important or utilized. The possibilities are endless with what I could do if I didn't have employment. I guess you have to be a curious person and you can find an interest and/or challenge in quite a lot. My father is in his mid 70's. He and many of his friends sit around, they watch Fox news, read the paper and do puzzles. Maybe a round of golf here and there. They often complain about the world because they watch and read bad and biased news all day long. If that's what people like, hey I'm not judging but I have so many interest to keep me busy. I won't end up like one of those bored retired people. I just don't know how that even happens.

My concerns about sequence of returns has diverged into health care costs and "what would you do all day" discussion. I still believe, the more immediate risk is retiring into a bear market. I'll have to use more of the recommended calculators and figure things out.

I did use Fidelity's very conservative retirement planning tool and my outcome was successful at 90% confidence level through age 95. This tool assumes a 7% annual inflation rate for health care costs. It's only successful when we both work part time until ages 55. We would both need to bring in $1100 per month. I used conservative estimates for social security and I also modeled in zero income for all of 2018 because it would really be nice to travel through Southeast Asia and South America for a year before we have to work 3 days a week. I'll send you post cards

 

[Fedup]

Because more people have jobs like in the movie Office Space than have rewarding careers like astronauts or cancer researchers? -

I hope you are joking. What happens if everybody decides that their jobs are not rewarding. For once, you house would be full of trash, stinking trash, because the trash man decides that his job is not rewarding.

 

[Whisper66]

1. I'd like to know what your thoughts are about the importance of sequence of returns.......

You've done your homework well. Sequence risk is real and can be huge. For example, our financial plan allows for a 40% reduction in networth due to this issue. That sets the minimum amount of fixed assets we hold - we hold enough cash / bonds to use as spending $$ through a typical downturn (3yrs+) so we don't have to sell equities at a big loss.

The important points are (a) yes, this is a critical risk and (b) have a realistic action plan for what to do if it happens. At your age/situation, a plan may simply involve working longer now to save more assets. Or could be taking on part time work if needed in the event of a downturn. As long as you are monitoring the market and have a real backup plan in place, the risk can be mitigated.

2. If the markets do drop, do I ......... How do people manage withdrawal rate?

If markets drop, activate your backup plan. The goal of the plan should be to NOT sell off your equities during the downturn at a loss. In our plan, we have enough fixed assets to ride out most downturns without cutting expenses. Second step if needed is to cut expenses. We could cut 30-40% without much pain. Last step (extremely unlikely for us) would be to find a way to get some income to help preserve assets.

3. If anyone has a similar financial situation as ours (source of income exclusively from market investments), I'd like to hear your thoughts on early retirement. How are you managing your withdrawals?

We have significantly more assets that you so not similar. But when looking at your numbers in Firecalc and seeing the thought that you have put into your plan, I'd say firm up your plan and go for it. Just make sure of a couple things.
(a) have / or develop a backup plan in the event of a downturn.
(b) watch your expenses VERY closely since you are tying yourself into many, many years of a very low budget (at least relative to what I'm used to).
(c) watch your wife's pension situation, make sure if they go bankrupt or look like they may cut benefits, you adjust your plan for that.
(d) make sure that some of your Firecalc runs account for the possibility of one of you passing early. You'd lose one SS benefit then. Probably not an issue for you but worth double checking.
(e) consider cost of health care if you need it in other countries...ie, if you end up needing expensive back surgery (for example you tripped and messed it up royally), figure our if the local country has facilities you can use and can you afford it .... or do you have to fly back to the US to our expensive options and use them. You have many years when such things might happen so worth starting to get a feel for this. Some here on this board have mentioned using facilities in other countries quite successfully and quite economically. May be worth another thread if interested in this.

Good luck to you and happy travels.

 

[razztazz]

Nonsense. the trashman doesn't think it's rewarding and a job he really loves and wants to do. He does it because he needs the money and his life lacked advantages probably starting with his parents and this is the best he can do at least for the moment. In fact there are lots of people with east lucrative jobs who are still complaining that their jobs aren't rewarding or don't pay enough.

Think of all the jobs that need to be done ( most jobs) that are hard, dirty, dangerous or at least monotonous and stultifying, and not rewarding except on the level of "I need the money." If everybody had the cosmically good luck to be able to do only that which they excelled at, found rewarding, and was concomitantly, lucrative, almost nothing would get done in this world because it is not in the nature of most jobs to be that way.

That's why the exhortations to increase one's skills and get a "better" job are pretty silly and show a lack of knowledge sincere or willful. If I am fortunate enough to do that and leave my stultifying/dangerous/hard job that job will still exist and still need to be done and therefore some unlucky person will get stuck having to do it simply by his circumstances. And someone else will profit from it simply by circumstances. Denial of these facts is denial of Life itself.

 

[Fedup]

Nonsense. the trashman doesn't think it's rewarding and a job he really loves and wants to do. He does it because he needs the money and his life lacked advantages probably starting with his parents and this is the best he can do at least for the moment. In fact there are lots of people with east lucrative jobs who are still complaining that their jobs aren't rewarding or don't pay enough.

Think of all the jobs that need to be done ( most jobs) that are hard, dirty, dangerous or at least monotonous and stultifying, and not rewarding except on the level of "I need the money." If everybody had the cosmically good luck to be able to do only that which they excelled at, found rewarding, and was concomitantly, lucrative, almost nothing would get done in this world because it is not in the nature of most jobs to be that way.

That's why the exhortations to increase one's skills and get a "better" job are pretty silly and show a lack of knowledge sincere or willful. If I am fortunate enough to do that and leave my stultifying/dangerous/hard job that job will still exist and still need to be done and therefore some unlucky person will get stuck having to do it simply by his circumstances. And someone else will profit from it simply by circumstances. Denial of these facts is denial of Life itself.

I'm response to the statement that people decide to quit in their 30s or 40s is because their jobs are not rewarding. Only if you have the money to back up quiting. Otherwise you need to suck it up. Not all jobs are rewarding. Don't kid yourselves.
To me people who don't allocate money properly for health care cost in retirement and then we have thread after thread about worrying about health care cost skyrocketing, is another form of begging. You want to retire on other people's money. No diiference then the guy with a cup on the street with a sign. I see that as nonsense as well.

 

[Al18]

I'm glad to see we haven't scared you off.

I look forward to your updates as you transition from full-time to part-time employment.

Best of luck

 

[razztazz]

You can create your own job. You don't have to work for anybody. You don't have to look for a job even. My kid has her own business for that reason. She takes off whenever she likes, she has one month vacation. But she really enjoys her work. .

And of course 100% of everyone can simply do this. It's as easy as going to the bathroom. Anyone who isn't doing it simply doesn't want to

 

[Fedup]

And of course 100% of everyone can simply do this. It's as easy as going to the bathroom. Anyone who isn't doing it simply doesn't want to

Of course it's not easy, she doesn't have lots of money either and has to pay for healthcare and self employment tax.

 

[SevenUp]

OP, it's good to see that you (and some others) realize your 401k money is accessible penalty-free before age 59.5 using a Roth pipeline.

Those who don't understand this might want to learn....

That said, it seems your plan is "cutting it close" - neither an obvious fail nor a certain success. The more you plan the more likely you will succeed. Best wishes for whatever you choose.

 

[braumeister]

I did use Fidelity's very conservative retirement planning tool and my outcome was successful at 90% confidence level through age 95. This tool assumes a 7% annual inflation rate for health care costs.

It used to assume 7% for healthcare costs but changed (last year?) to something like 4% now.

 

[Blue Collar Guy]

My question is why do people want to retire too early, like in 30s and 40s. I might be considered old here, I retired at 55, but in real life, nobody I know or met retire that young. Except for one guy who graduated from UCLA in engineering and has not found a job since. He is mooching off his mom and rich brother.

Because i was tired of fist fighting with teenagers and 20 year olds, i was tired of seeing kids with cigarette burns on their bodies, i was tired of people saying they were going to sue me when i won the fight, i can go on but you get the idea, and my take home pension was more than i was bringing home.

 

[razztazz]

Of course it's not easy, she doesn't have lots of money either and has to pay for healthcare and self employment tax.

Ok so you've completely undermined your own premise and agreed with me/us. Good to know. Thanks. Have a nice Sunday

 

[Fedup]

Ok so you've completely undermined your own premise and agreed with me/us. Good to know. Thanks. Have a nice Sunday

My post was in regard to your comment that you didn't want to work for anybody or apply for a job. So I said to work for yourself.
My kid's business is hard because she is trying to doubling her revenue, but she could take it easy and work at home and make less. She has an office and the rent needs to be paid. People who work for her also need to be paid. Venice beach is not cheap. But of course you don't have to do all this and still can do something to your liking.

 

[Fedup]

Because i was tired of fist fighting with teenagers and 20 year olds, i was tired of seeing kids with cigarette burns on their bodies, i was tired of people saying they were going to sue me when i won the fight, i can go on but you get the idea, and my take home pension was more than i was bringing home.

IIRC, your previous line of work is the kind of work one should retire early from. Policeman. But even then, I didn't think you retired that early, certainly not in your 30s or 40s.

 

[Blue Collar Guy]

IIRC, your previous line of work is the kind of work one should retire early from. Policeman. But even then, I didn't think you retired that early, certainly not in your 30s or 40s.

Sir, i retired October 19th 2008, i was Born April 25th 1962. i was 46. I was hired January 3rd 1983, I should have ran out the door January 2nd 2003. As my signature line suggests i stayed too long

 

[Fedup]

Sir, i retired October 19th 2008, i was Born April 25th 1962. i was 46. I was hired January 3rd 1983, I should have ran out the door January 2nd 2003. As my signature line suggests i stayed too long

Closer to 50, hey I round up.

 

[clifp]

I still do many of those things now and want to dedicate more time doing the things I love. I really don't need a job or career to make me feel important or utilized. The possibilities are endless with what I could do if I didn't have employment. I guess you have to be a curious person and you can find an interest and/or challenge in quite a lot. My father is in his mid 70's. He and many of his friends sit around, they watch Fox news, read the paper and do puzzles. Maybe a round of golf here and there. They often complain about the world because they watch and read bad and biased news all day long. If that's what people like, hey I'm not judging but I have so many interest to keep me busy. I won't end up like one of those bored retired people. I just don't know how that even happens.

My concerns about sequence of returns has diverged into health care costs and "what would you do all day" discussion. I still believe, the more immediate risk is retiring into a bear market. I'll have to use more of the recommended calculators and figure things out.

I did use Fidelity's very conservative retirement planning tool and my outcome was successful at 90% confidence level through age 95. This tool assumes a 7% annual inflation rate for health care costs. It's only successful when we both work part time until ages 55. We would both need to bring in $1100 per month. I used conservative estimates for social security and I also modeled in zero income for all of 2018 because it would really be nice to travel through Southeast Asia and South America for a year before we have to work 3 days a week. I'll send you post cards

In my experience (retired for 18 years and being ER boards the same length of time) There are two components to retiring psychological and financial.

I think you are well-prepared psychologically, i.e your job does really define you. I don't even consider myself having a ton of hobbies, but I'm not bored in retirement. If I could get by on 5 hours of sleep instead of 7 I would.

You have done a good job saving a million bucks by 40 (average between the two you ) is quite good. So it is perfectly ok to take 6 months or a year off to travel and smell the durian I know I really valued my (company paid) sabbaticals.

For some people working part time is the key to reducing the stress and not feeling like a wage slave. If you can get work 3 days and get 60% of your salary and 100% of the benefits, that is probably ideal. The one thing I'd
caution against is the attitude of "I'll work part time and some random job."

At least for me, I found the idea of working, even for some the places I volunteered at, at 1/3 my former salary, on far less interesting tasks, would have been awful.

I think it is worth sucking it up for a few more years to avoid being in that position.

 

[Blue Collar Guy]

Closer to 50, hey I round up.

OK cant argue with that, By the way. my lump sum , partial annuity loan, sort of thing, was calculated at 46 instead of 47 as i was not quite 46.5

 

[braumeister]

Closer to 50, hey I round up.

Actually, I think you'll find quite a few on the younger end. I retired at 42 (USAF) and I could have stayed that way and been OK, although the pension was only just enough to live on. I decided to take on a second career at far lower stress and raise my standard of living. Did that for another dozen years and it worked out great.

 

[Fedup]

Actually, I think you'll find quite a few on the younger end. I retired at 42 (USAF) and I could have stayed that way and been OK, although the pension was only just enough to live on. I decided to take on a second career at far lower stress and raise my standard of living. Did that for another dozen years and it worked out great.

The military folks are another group that I can think of that people retire early, my husband was working at the USAF base before he retired. I think it depends on the rank, one has to get out after so many years.