SORR Mitigation Strategies

[Koolau]

I simply keep a diversified portfolio of fixed, bonds, equities and PMs. I use the concept of FIRE Calc. (Sorta the 4% rule but more so) and don't worry too much about SORR. My back ups are extensive, so again, not much to worry about with the exception of black swans which are difficult to prepare for in any case. YMMV

 

[Echard]

FIRED full time at 56, after partially firing at 45. Unusual work from 45-56 covered living expenses. Since then, since I have no pension and am far from social security:
1. Keep a fair amount in cash/CD’s to cover a few years expenses.
2. Have some higher yielding dividend stocks/funds.
3. Have some higher yielding bonds and funds.
4. Invest in real estate and a few other alternative investments as a passive investor to get higher yields.
5. Setup a mini bond tent where I’m about 50/50 in stocks and bonds for non-alternative asset investments. I plan to be 60/40 later in life.

That covers all of our annual living expenses and more and leaves cash cushions intact. If rates remain elevated, I will dial back some of the higher yield stuff.

 

[Martlet]

I retired in February 2019, about a year earlier than we had expected. So we did a lot of our planning by the seat of our pants over the past four years. We've checked on FIREcalc and similar planners a few times and are comfortable that our assets will support our expenses with a small margin of safety even in adverse circumstances. Our SORR mitigation has been mainly to keep what we thought was ten years' expenses in cash or near cash. (It turned out to be more like six years because we discovered Roth conversions which add to the cash burn rate). The idea is not to sell equities low to the extent possible. We topped up the cash pot in Q1 2022 which was not optimal, but also not terrible. So now we are nibbling away at the cash pile and hopefully in fewer than five years the market will have made a new high and we can replenish the cash.
I am interested in the financial markets and I watch our accounts closely, But I almost never think about running out of money or SORR. If the current down market persisted for more than three more years, we would defer or cancel some major expenses. That's the extent of our SORR planning, and I sleep soundly.

 

[NomDeER]

We had about 3 years of expenses in cash , and when adding in dividends per year, this money would last ~5 years.

I did the same and, with a small non-COLA pension, thought I also could go about five years. I'm glad I did this as I retired around the time as the OP. I'm hoping that inflation doesn't get in the way of the five years.

My biggest mistake was not being conscientious and staying on top of re-balancing. I was so burnt out at the time of my retirement that I just wanted to chill and take my time dealing with real life and planning. So, my asset allocation wasn't what I had planned when the market tanked.

 

[punkinhead]

1) Cut back a little on non essential expenses (e.g. vacations)
2) Acquired a 21 month, interest free credit card for many expenses
3) Ditched our AUM “wealth management company” - kudos and thanks to many of you who helped us through that transition!
4) Took out a HELOC on our primary home (which is paid for)… really haven’t used this option yet and will not unless the market drops again in 2023.

Two out of your 4 strategies involve taking on debt. That's not a plan I'd use.

 

[COcheesehead]

If your SORR strategy includes spending less or taking on debt, that’s not a plan, that’s a reaction.

 

[jazz4cash]

Two out of your 4 strategies involve taking on debt. That's not a plan I'd use.

How is taking out a HELOC that isn’t used taking on debt? An interest free credit card can also be a tool to manage debt, not necessarily ‘taking on’ debt. I view these as mitigation strategies.

 

[pb4uski]

How is taking out a HELOC that isn’t used taking on debt? An interest free credit card can also be a tool to manage debt, not necessarily ‘taking on’ debt. I view these as mitigation strategies.

+1. It's not taking on debt until you either carry a balance on the interest free credit card or use the HELOC.

 

[luckydude]

How is taking out a HELOC that isn’t used taking on debt? An interest free credit card can also be a tool to manage debt, not necessarily ‘taking on’ debt. I view these as mitigation strategies.

I agree. There's nothing wrong with taking out a HELOC to mitigate against any short-term liquidity crunch, especially if the alternative is being forced to sell into a declining market to raise cash.

 

[Time2]

Retired into a rising market 2013. Highly recommend it.
Still keep a bond ladder to cover essential expenses

I do too! Good luck with that. My SORR strategy was to RE only needing a 2-3% WR.

We never had a plan, we lived frugally and started investing early (thanks to Bob Brinker) Looking back, we had enough in 2011, I didn't learn about FIRE until 2014, but didn't start thinking about retiring until 2016 and retired in 2018. It was a wonderful market from 2011 thru 2017 what a ride we had.


I took out a Heloc in July 2021, because of a drawn out repo house purchase my daughter and son in law were buying. I bought it and gave them a short term mortgage until they could upgrade and refinance it. The did that in 9 months! I then used the heloc again when I had a short term liquidity crunch. Very handy to have.

Also kind off fun to go into my bank and say, I don't have a job and I don't have any income, can I have a HELOC? I had to show a lot of my assets, but it wasn't a problem.

 

[big-papa]

Variable withdrawal strategy that trades off the possibility of running out of money prematurely with withdrawals that fluctuate. See ABW, TPAW and VPW threads on bogleheads as examples of how to do this. There are many others.

Fluctuations mitigated somewhat with the fixed income portion of the portfolio providing an inflation adjusted income floor as a combination of TIPS and I-bond duration matching/ladder.

Flexibility including a simplified plan B for my wife should I pre-decease.

Cheers

 

[audreyh1]

I also should say we use a withdrawal strategy that is based on a fixed % of Dec 31 value each year, so if portfolio drops so does our income the following year. If portfolio appreciates we get a raise. This avoids running out of money but over the absolute worst case scenarios you could still see your real income drop in half before recovering. I have focused on how to mitigate that.

But the very best thing is to be lucky enough that your portfolio grows nicely for several years before you have to deal with any haircuts.

 

[retire48in2018]

If your SORR strategy includes spending less or taking on debt, that’s not a plan, that’s a reaction.

Spending less can be a plan vs reaction.

If there’s significant discretionary items and it’s been a consideration to include/manage/reduce according to market condition. It’s like the 4% rule - it’s a plan according to historical market performance - or can be a reaction to adjust based upon recent market performance.

It’s important, IMO, to be deferential to semantics and not necessarily minimize or characterize others according to one’s own paradigm.

I remember working on some cost reductions at work, many years ago. There was an incentive plan and performance bonus based upon realized savings. Upper management argued a lot on “cost reduction” vs “cost avoidance” vs “job description expectation” in determining payout. It became very politically connected to get payouts - had to be a “cost reduction” vs other 2. Eventually, it was so stigmatizing that no one wanted to communicate or even work on cost savings as there so many trying to then take credit, categorize, etc that if you got a payout everyone was mad at you (working politics), etc.

Point is - if people are going in the right direction, I’d just give encouragement

 

[audreyh1]

Good point - the flexibility of a high % of discretionary spending is a good mitigation strategy. It’s when most of your spending is fixed that you can get into trouble. We also planned this ahead.

Think about it - a high % of discretionary spending means that you are retiring with more than you absolutely need, maybe even Fat FIRE. So of course it’s a good SORR strategy.

 

[COcheesehead]

Spending less can be a plan vs reaction.

If there’s significant discretionary items and it’s been a consideration to include/manage/reduce according to market condition. It’s like the 4% rule - it’s a plan according to historical market performance - or can be a reaction to adjust based upon recent market performance.

It’s important, IMO, to be deferential to semantics and not necessarily minimize or characterize others according to one’s own paradigm.

I remember working on some cost reductions at work, many years ago. There was an incentive plan and performance bonus based upon realized savings. Upper management argued a lot on “cost reduction” vs “cost avoidance” vs “job description expectation” in determining payout. It became very politically connected to get payouts - had to be a “cost reduction” vs other 2. Eventually, it was so stigmatizing that no one wanted to communicate or even work on cost savings as there so many trying to then take credit, categorize, etc that if you got a payout everyone was mad at you (working politics), etc.

Point is - if people are going in the right direction, I’d just give encouragement

I thought I was encouraging- encouraging folks to have a better plan,
My point is that a good SORR strategy should allow you to maintain your retirement and not have to alter it because of a market downturn. There are a lot of ways to do that without cutting the fun stuff out of the budget or taking on debt.

 

[RetiredAt49]

I thought I was encouraging- encouraging folks to have a better plan,

My point is that a good SORR strategy should allow you to maintain your retirement and not have to alter it because of a market downturn. There are a lot of ways to do that without cutting the fun stuff out of the budget or taking on debt.

I’m the OP here and you have a solid point-of-view. Us leveraging our HELOC and acquiring a no payment, no interest credit card for XX months was part of our mitigation strategy going into retirement so we could “blow that dough”. Another card we have in our back pocket is selling our rental properties as/if needed.

Like many others here, we are debt free and have a ton of flexibility as to how much we spend.

 

[sleepysurf]

Prior to retiring in 2018, I built a 7 yr CD ladder for annual spending, separate from our 50/50 portfolio. Portfolio dividends (and DW's part time income) have covered the taxes for annual Roth conversions, up to the top of our current bracket.

This is similar to the Kitces bond tent strategy, except our (slowly) rising equity glidepath began immediately upon retirement, as I converted from 100% bonds (VBTLX) in my tIRA to 100% equities in my Roth. With the drop in VBTLX last year, I increased my Roth conversion total, even though it pushed us into the 24% bracket.

Since 2018, our overall portfolio (including the CD ladder) has gone from ~45% equities to 58%. Once we hit 65%, we'll reevaluate whether or not to go any higher. Thus far, we're very comfortable with this approach.

 

[COcheesehead]

I’m the OP here and you have a solid point-of-view. Us leveraging our HELOC and acquiring a no payment, no interest credit card for XX months was part of our mitigation strategy going into retirement so we could “blow that dough”. Another card we have in our back pocket is selling our rental properties as/if needed.

Like many others here, we are debt free and have a ton of flexibility as to how much we spend.

I appreciate your response. I just don’t get how adding another payment(s) via new debt is going to help when funds are already restricted.
Selling the rentals is possible, but what would the market look like in a bad economy and isn’t that also a form of SORR - selling when the market is down.

My point about having a good SORR strategy is that it will allow for consistent income without having to compromise expenditures, sell assets or take on debt.

That’s all I will add at this point. Happy Easter.

 

[RetiredAt49]

I appreciate your response. I just don’t get how adding another payment(s) via new debt is going to help when funds are already restricted.

Selling the rentals is possible, but what would the market look like in a bad economy and isn’t that also a form of SORR - selling when the market is down.

I truly understand where you are coming from because I hate debt as much as anyone. My funds are not “restricted”. A few things:

1) Firecalc (and all other tools) show a 100% success rate at more than double our current annual expenses.
2) I always put everything on credit cards to benefit from miles/cash back - and I obviously pay everything off every month (except for our deferred credit card)
3) By leveraging our no payment, no interest credit card… I didn’t have to touch our 100% stock portfolio during the bear market last year.
4) Our rentals and business buyout could easily cover our annual bare expenses but I’m just using various financial vehicles to benefit me (and most likely my heirs) and just throwing out ideas to others on leveraging various financial vehicles to reduce SORR. I see no issue deferring expenses (while one could easily pay for them) and benefiting financially from it. For instance, by not touching our 100% stock portfolio during the bear market last year, I continued to rake in dividends and watch the portfolio grow by nearly 10% YTD just by leveraging our deferred credit card. I could have also just cut back on some trips/vacations and not put anything on our deferred credit card. I could have also just pulled money out of our 100% stock portfolio during the bear market but why when you can leverage better financial vehicles.

YMMV and I’m just expressing my thoughts/opinions regarding how I/others might reduce SORR.

 

[Markola]

The SORR topic has never come up with our Vanguard CFP. Our plan is not a portfolio longevity strategy but is a far more comprehensive “don’t run out of money during our lives” strategy. These are different things.

 

[USGrant1962]

I truly understand where you are coming from because I hate debt as much as anyone. My funds are not “restricted”. A few things:

1) Firecalc (and all other tools) show a 100% success rate at more than double our current annual expenses.

...

YMMV and I’m just expressing my thoughts/opinions regarding how I/others might reduce SORR.

SORR refers to a sequence of returns that would make you run out of money. That is the risk, portfolio failure, not fluctuations in portfolio value. With double the FIRECalc SWR, you have zero discernable SORR. You have already mitigated SORR by doubling your portfolio above all historical SWR precedent - you won't run out of money. Or if you do, everyone else will too in some kind of Black Swan event.

 

[Koolau]

Spending less can be a plan vs reaction.

If there’s significant discretionary items and it’s been a consideration to include/manage/reduce according to market condition. It’s like the 4% rule - it’s a plan according to historical market performance - or can be a reaction to adjust based upon recent market performance.

It’s important, IMO, to be deferential to semantics and not necessarily minimize or characterize others according to one’s own paradigm.

Point is - if people are going in the right direction, I’d just give encouragement

Good points.

My "plan" includes what I call "back ups." They are already thought out and ready to go. I've been fortunate not to need to invoke them - but they are ready at a moments notice. So they ARE part of my plan even though they would be different than what I'm doing right now.

 

[jazz4cash]

I’d like to hear more details about a no interest, no payment credit card. I’ve had some pretty sweet no interest cards but they always had a minimum payment which the CC issuer expected you to screw up at some point so they could jack the rate up.