ugh almost ready to give in to panic

[Razor]

I know if you hold on the market should come back and that is what SWR is based on. But in Japan the stock market didn't come back in 18 years and is still down 65%, just pointing out anything is possible.

.

Closer to home, the NASDAQ is 50% off it's high in 2000. Will it ever come back? The DOW really isn't that good of an indicator , when a stock starts floundering it is replaced with a more robust stock. If the original DOW stocks were still used, where would the DOW be today?

 

[Finance Dave]

I don't want to create work for you, but it might be time well spent to sit down and more accurately total up all of your expenses and your dividend / interest income. Completing that exercise quarterly or once every six months shouldn't take more than a few hours a year, and I really think that it would go a long way towards setting your mind at ease.

I created an Excel spreadsheet with my current budget as a baseline. Then I have another column where I show "after retirement". For each category, I try to estimate what will happen with each expense. Some will stay the same, some go away, some increase. Using this method I feel pretty good about my ability to estimate expenses post ER.

Here is an old example that I did about 3 years ago. The "retirement increased spending factors" are helpful. They indicate that I expect some expenses to increase by certain percentages. For example a 90% factor indicates I think I'll spend 10% less or more than current.

As you can see at the bottom, I've estimated that we can live on about 60% of what we make today. While this may seem low and go against many financial analyst recommendations...please remember that our house will be paid off and that currently between my wife and I we contribute about $40,000 to retirement savings...so simply by not having to save anymore there is a huge reduction.

Note also that I do an inflation adjustment calculation to see what those expenses may look like at retirement.

** Note I have deleted some of the info to protect my privacy...so you may not be able to get the numbers to add up.

ATTACH]3880[/ATTACH]

 

[statsman]

I need a drink.

Not to worry, that will also be too expensive to do in the near future.

Seriously, we have the extreme positions that the stock market*always* comes back and other situations like NASDAQ being 50% of its value from 8 years ago and the Nikkei at 35% of its value from 18 years ago. For someone within striking distance of retirement (or in retirement), these are nightmare scenarios.

I certainly picked the wrong decade to stop drinking.

 

[Finance Dave]

Closer to home, the NASDAQ is 50% off it's high in 2000. Will it ever come back? The DOW really isn't that good of an indicator , when a stock starts floundering it is replaced with a more robust stock. If the original DOW stocks were still used, where would the DOW be today?

I mostly watch the S&P and Wilshire since that's where most of my money is invested. It's been a rough ride since last October.

 

[Nords]

Seriously, we have the extreme positions that the stock market*always* comes back and other situations like NASDAQ being 50% of its value from 8 years ago and the Nikkei at 35% of its value from 18 years ago. For someone within striking distance of retirement (or in retirement), these are nightmare scenarios.

We're never wrong... just early...

 

[DblDoc]

Don't you miss the Carter years with 15% FDIC money market accounts? It would have made things so simple.

After inflation what was the real return?

I'm sensing alot of emotion (potentially) ruling investment decisions in this thread.

What was your plan for retiring into a bear market? Execute it.

If this ~20% correction/bear is causing angst then you need to adjust your AA and lower your risk. Are you well diversified?

Even with no income there are ways to "buy" into this market. Rebalance, redirect dividends, cut expenses and invest the difference etc...

Of course easy for me to say as I'm ~ 10 years from pulling the plug . I do plan to have several years of living expenses in cash/equivalents and many more years in bonds so won't have to tap equities for a very long time.

DD

 

[ERD50]

Don't you miss the Carter years with 15% FDIC money market accounts? It would have made things so simple.

Ahhh, looking at the past through rose-colored glasses.

Do you know what mortgage rates were then?

I got one, blended down to 17% (IIRC) - what a deal - I think the going rate was around 20%. Even though everyone thought it was crazy, I went with an adjustable rate mortgage - they were new at the time, realtor called 'em 'animals'. All but one payment was lower than the previous, so it worked out for us.

But no one back then was thinking that those were 'simple' times, believe me. People were freaking out over the high inflation rates. Every period in time has it's own challenges, deal with it.

25 years from now, someone might say to you - 'oh, the 2000's - what a great time, 5% 30 year fixed rate mortgages, you guys had it made in the shade!'.


-ERD50

 

[clifp]

.

If my portfolio was down 50% and I started with a 4% withdrawal rate, I'd likely cut my withdrawals in half (along with my standard of living) before I'd take out 8% of the current balance on a prayer of a rebound. I think that is the weakness of calculating SWR's from risky portfolios. Emotionally most of us wouldn't continue to take out the 8%, we would cut out standard of living, hopefully to restore it later on. A 4% SWR is a fine concept as long as the portfolio is holding up.

I don't know how you can say that the current market is a garden variety bear market. It could end tomorrow or it could fall another 50% bringing PE's down to the low teens which is not completely out of the question. Was the 90's a garden variety bull market? Markets don't always follow past patterns.

Rock on I think we are in relative rare total agreement. The combination of market drops (my heavy financially weighted portfolio is down 10% over the latest few week plunge) and unexpected expenses has me re-evaluating risk and expenses. I've said in the past that it is silly to blindly use a FireCALC runs to rule your life. That is why I am fan of dividend/income funded withdrawal as opposed to an (arguably) better total return approach. Using SPIA is certainly another option, I am not there yet.

Still when my Muni bond gets redeemed July 1, it will go back into fixed income not the equity market, because you are right I don't know that is a garden variety Bear market. (I thought 97-99 market was a once in a generation market, which is why I took a lot of money off the table Jan 2000)


Nords has said something which I constantly have to remind myself "you already won the game, now we are talking about running up the score". Or as you and Buffett say rule 1 don't lose money!

 

[dm]

I retired last October so I feel the pain. But I did change my AA at the time so I'm not down as much as I could be. I was up around 12% in 2007 and I'm probably down around 6% in 2008 so far. I have several years of living expenses still in cash and I'm still glad I retired when I did. I'm spending more on gas than I had planned, but if I have to I will either cut back, or more likely get a more fuel efficient car when the time comes.

If times really do become bleak I will simply cut back like everyone else will have to durring hard times. I really feel for the people who are just starting out durring these times. I still have several income streams that I can draw on while I do nothing. When I got out of college in 1980 it wasn't the best of times either, but I was able to get a job and put alittle money away. I'm alot better off now than I was then.

I'm really more concerned with getting my golf handicap down. I seam to be stuck around 7.

 

[harley]

Several posters have said how they would me more upset if they were retired in this downswing . I'd be more upset if I was still working and seeing my contributions immediately go into negative terriority .

Personally, I can't imagine a situation where I would rather be working than retired. I'm comfortable with my nest egg and my allocations. If civilization ends and money becomes worthless I probably won't make it, but I'm not anticipating that any time soon. I've seen big ups and big downs, and while I like to fantasize about kicking the market's ass, I'm satisfied with my 8-9% over the long haul.

Harley

 

[RockOn]

I'm satisfied with my 8-9% over the long haul.

Harley

I'd be very very very happy with 8 or 9%. I will not get there because I will not accept the amount of risk necessary.

Historically when owning stocks at the current PE of around 23, stocks haven't done that well. From some research I have seen even 6% going forward for 10 years or so (unless prices decline significantly and it is measured from that bottom) may be too high. John Bogle of Vanguard will tell you that, I am not just making it up. Some research says to only expect 3 to 5% when buying at these PE levels. With quality bonds selling at rates of 4 or 5% and then considering fees, it seems hard to expect more than about 4.5% out of bonds.

P.S. Try this: When will we see average stock returns again...NEVER, (written in 2005)

http://www.crestmontresearch.com/pdfs/Stock Waiting For Avg.pdf

or try this, from the same source:

http://www.crestmontresearch.com/pdfs/Stock Gazing Future.pdf

 

[statsman]

I've seen big ups and big downs, and while I like to fantasize about kicking the market's ass, I'm satisfied with my 8-9% over the long haul.

All we need is 5-6% per year for 6+ years, and we are set for an early retirement. I don't know what gets that return anymore. In the past, a 20/80 portfolio would have no problem achieving this, but now I think you need to settle on at least 40/60 and the increased risk that comes with doubling the stocks.

 

[Razor]

Ahhh, looking at the past through rose-colored glasses.

Do you know what mortgage rates were then?

I got one, blended down to 17% (IIRC) - what a deal - I think the going rate was around 20%. Even though everyone thought it was crazy, I went with an adjustable rate mortgage - they were new at the time, realtor called 'em 'animals'. All but one payment was lower than the previous, so it worked out for us.

But no one back then was thinking that those were 'simple' times, believe me. People were freaking out over the high inflation rates. Every period in time has it's own challenges, deal with it.

25 years from now, someone might say to you - 'oh, the 2000's - what a great time, 5% 30 year fixed rate mortgages, you guys had it made in the shade!'.


-ERD50

Yeah, I know what interest rates were and I wasn't borrowing any money at that time. People were still buying houses back then and not foreclosing on them like they are now. So things were not that bad. People were not freaking out over inflation. Most people wouldn't even have known about it had it not been for the media telling them how bad things were.
I would be happy if interest rates would get back where they should be. 4% on a passbook savings and 6 or 7% for a CD. The FED are ruining the free market system with their manipulation of interest rates.

 

[ERD50]

Ten seconds of googling ( ' foreclosures "1980's" ' ) . Everything was just fine, right. This was number one on the list:

After Heady 1980's, Homeowners Face a Hangover of Foreclosure - New York Times

After Heady 1980's, Homeowners Face a Hangover of Foreclosure

• By ROBERT HANLEY, SPECIAL TO THE NEW YORK TIMES

Published: July 30, 1990

LEAD: Mortgage foreclosures are soaring in the New York metropolitan region as growing numbers of property owners are overwhelmed by crushing real-estate debt.

Mortgage foreclosures are soaring in the New York metropolitan region as growing numbers of property owners are overwhelmed by crushing real-estate debt.

Just months after the giddy boom years of the 1980's, with their rising home values, generous bank lending policies and firm optimism about the regional economy, banks have started declaring defaults on thousands of delinquent mortgages and forcing owners to scramble for new financing or face property losses.

Officials in the region say they are stunned by the depth and suddenness of the increase in foreclosures.

Worst Market in 50 Years

In many cases, officials attribute it to declining real-estate values, people including well-paid professionals carrying too much debt and the slumping construction industry.

It may be worse now, but that does not make the past 'simple times' for everyone.

-ERD50

 

[CitricAcid]

P/E of 23? Where is that number obtained from? S&P is 16.24 from what I can see, and I see no reason that earnings will not begin to kick up in the very near future. I am not expecting a phenomenal bull run, but over a ten year period starting now, I can see 7% a year being very reasonable for a total market return. Especially if you do not look only at the S&P but total stock market, small cap indices, REITs, international equities, etc., etc.

 

[RockOn]

P/E of 23? Where is that number obtained from? S&P is 16.24 from what I can see, and I see no reason that earnings will not begin to kick up in the very near future. I am not expecting a phenomenal bull run, but over a ten year period starting now, I can see 7% a year being very reasonable for a total market return. Especially if you do not look only at the S&P but total stock market, small cap indices, REITs, international equities, etc., etc.

Earning have fallen recently, your 16.24 might be reflecting the peak earnings and not the latest numbers. I don't have time right now to find it for you but 23 is closer than 16.24 for a "current" PE. It might be a little less after the recent swoon.

I think 7% is reasonable for a mix of stocks but that still might be a stretch. All assets went up a lot in recent years, stocks, bonds, real estate, commodities, etc. There are really no bargains out there. When saying 8 or 9%, assuming 60/40 stocks/bonds, I think that is hopeful. If you use 7% for stocks and 4.5% for bonds and go 60/40 you get around 6% total. 8.5% is 42% higher than 6%.

 

[cute fuzzy bunny]

Well I just tried jumping out of a window, but I only fell 3' to the ground. Hmm. I need a little more landscaping bark over at this end of the yard.

Whats with the japan comparisons? Japan had problems, knew about the problems, did nothing about the problems, and voila...they still have the same problems. Nasdaq? Yep, it fell a lot after running up a few brazillion percent because investors couldnt tell the difference between a company that was worth investing in and one that wasnt.

The problems we have right now can be resolved in a matter of months.

Anyone with a good plan has nothing to worry about. In fact, you're reinvestments at low prices and rebalancing should benefit you in the long run.

Anyone still making money and investing should be thrilled to be buying investments on sale.

There are few reasons why the markets should fall much further from here, yet they could. So what? I guess if we're still here wallowing downwards 3 years from now I might join the chorus...

 

[Dawg52]

The problems we have right now can be resolved in a matter of months.

Anyone with a good plan has nothing to worry about. In fact, you're reinvestments at low prices and rebalancing should benefit you in the long run.

Bless you. I'm putting the pistol back in the drawer.

 

[CitricAcid]

Japan also experienced significant deflation which, for the most part, was fueled by their meteoric rise and fall in their real estate market. As the bank reluctantly cut rates, not reaching 0% until 2000 I believe, people were losing money nominally but for many retirees, they found that they could afford better houses, or similar houses at lower prices as the deflation helped offset some of their losses.

 

[ladelfina]

CitricAcid.. let's assume I'm a Japanese retiree. How do I get a better/similar house at a "lower" price, if I'm selling my current house at a deflated price also? I fail to see the advantage. Even if I had planned on downsizing and buying a smaller, less valuable home, the profit I might have planned to recoup from that trade will have also shrunk drastically. (That's assuming the Japanese have much room to begin with for "downsizing".)

 

[harley]

Anyone with a good plan has nothing to worry about. In fact, you're reinvestments at low prices and rebalancing should benefit you in the long run.

Exactly what I mean. I'm not looking at next year, or the next 5, or even the next 10 years. I'm only 52, and I'm hoping to have an investing horizon of at least 50 more years. I suspect over that time I'll be able to average my 8-9%. I'm not interested in minor market gyrations like we're going through right now. I figure I've got maybe 30 years of being young enough to do a lot of things (travel, kayak, golf, etc), then a couple of decades of quiet contemplation on my wasted youth. O0 If you can find fairly trustworthy investment vehicles and a good AA, keep an eye on them to make sure they don't get too out of balance, that's all you can do. Jumping around and freaking out over every surge or ebb of the economy isn't good for my digestion. Plus I know that I'm not going to figure out the best thing to do in every situation, at least not until I've already missed it. Peace, dudes, enjoy life and don't get an ulcer. 50 years of Titrilac is not something I'd be looking forward to.

Harley

 

[CitricAcid]

If you are looking at a timeframe and have deflationary expectations you can sell out at the "already lower" price and then rent for months or whenever you feel that you can hold off untily ou can buy the newer depressed home. This is the backbone to teh argument for why deflationary spirals occur, when people start expecting deflation to happen, they refuse to buy because they can buy the same good for less later and people don't lend money because they would need to offer about 0-1% on their rates when in real purchasing power they could just hold onto the money and get better returns. Thus, in simple purchasing power, it is possible if played correctly for their nest egg to grow if deflationary expectations exist.

 

[unclemick]

Psssst - Wellesley! You don't have to buy exactly 'that.' Just work the concept.

heh heh heh - agile, mobile and hostile. .

 

[ladelfina]

CA, that requires people to have a crystal ball and engage in market timing. You say people can do well if they "play" it correctly. But that's the antithesis of the passive investing promoted by most here. I don't know what Japan's culture and economy is like, but even in the US few retirees eagerly imagine themselves back in the transitory position of renting (moving is a bitch when you are 20, imagine at 70..). What if their predictions are wrong and they have just sold at a bottom?

I think it's a pretty grim affair if the only way to make money is by selling off the roof over your head in a declining market. At that point you might as well do a reverse mortgage: less trauma, no?

 

[TromboneAl]

Well I just tried jumping out of a window, but I only fell 3' to the ground.

Remember that ad? One of my favorites of all time. It was for some online trading company. The guy gets so excited about online stock trading, that he jumps out his window, but he's on the ground floor.

I'll click the "Thanks" button for anyone who can find a video of that.