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Old 06-07-2017, 09:26 AM   #81
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Using VPW I looked at a few post WW2 declines. Here are some for a 60/40 AA and 4% withdrawal:

1969-1970 (1 year)..... -15%
1973-1975 (2 years).... -40%
2000-2003 (3 years).... -30%
2008-2009 (1 year)...... -25%

All were official recessions.

Reducing spending a bit would not really smooth these out. Might make you feel like you are doing something though. Best to have plenty of money to weather the storm or maybe reduce AA ahead of time if one doesn't have enough money going into these declines.

My simulations seem to indicate we have enough but the portfolio could decline by 50% or even a bit more should we get a future sequence that had multiple recessions close together.

Or we could just get a "normal" sequence of returns going forward. That would be nice.
This is not actually what I saw. I was down ~40% nominal at one point in 2009 from the 2007 peak, so that was more than a year. All growth since 1999 had been wiped out and then some. Now maybe it's because VPW is only looking at year end values. But believe you me, you remember the worst points intra-year.
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Old 06-07-2017, 09:28 AM   #82
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I would agree if the only income source is from one's investments.

However if the spending reduction means that one is not spending any more than pension+SS, for example, or perhaps pension+SS+dividends, then that spending reduction does a whole lot more than it otherwise might.
Yes I was thinking of us where spending is all from investments plus SS. That is where the tension comes in between the desire to enjoy one's savings and the need to be aware of possible downturn scenarios.

If one has it all covered by some combo of pension+SS then they are really safe assuming the pension is well funded. No real need to have to manage the portfolio so tightly.
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Old 06-07-2017, 09:32 AM   #83
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...

But as time goes on, I also realize that I am getting closer each day to that proverbial hole in the ground. Can't let financial worries detract from my remaining time too much. I still have that 25' motorhome to serve as the housing of last resort. No fear of living under a bridge for me. Heh heh heh...
Yep, and that is where the planning and re-planning comes in for me. I'm trying to operate at my efficient frontier between spending and having a big enough stockpile of assets.
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Old 06-07-2017, 09:49 AM   #84
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This is not actually what I saw. I was down ~40% nominal at one point in 2009 from the 2007 peak, so that was more than a year. All growth since 1999 had been wiped out and then some. Now maybe it's because VPW is only looking at year end values. But believe you me, you remember the worst points intra-year.
Yes, good points. I didn't want to complicate this picture too much. 2009 turned out well but the market hit its low on March 9, 2009. The intra-year lows can be masked out by the annual data. But those extreme lows are where many throw in the towel.

So they are definitely something to be aware of and prepared for. Of course, one never knows where the valley of death ends until we are past it.
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Old 06-07-2017, 10:34 AM   #85
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About the only adjustments I have made in the last year is to diversify away from some of the riskiest parts of my portfolio and add more to the stable bond fund and dividend fund. When we get a downturn, it will come as a thief in the night. It usually does. I am a little light on equities at 30%. Maybe that is not such a bad thing since the market seems expensive.
That's what I did and the stock I sold went up 20% since. Glad I still have some, but I'm glad I did because I had too much.
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Old 06-07-2017, 09:32 PM   #86
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What I do in good times to prepare for future bad times?

I try not to let my spending go up to use up all that excess return. I try to remind myself that all good times must end at some point.

As a practical example, I do not stay too long in expensive Switzerland in this trip and prefer more time in France. Compared to the former, France is so cheap. Heh heh heh...

But as time goes on, I also realize that I am getting closer each day to that proverbial hole in the ground. Can't let financial worries detract from my remaining time too much. I still have that 25' motorhome to serve as the housing of last resort. No fear of living under a bridge for me. Heh heh heh...


I too, have an Airstream in my driveway that is "plan B" in case tshtf. We moved to a house on an acre before I retired. Right away, we planted 13 fruit trees, built 8 4x8 raised bed Vegi plots, planted two pecan trees and blackberries along the back fence. Now, 3 years later I'm harvesting a quart of berries every 3 days, tons of tomatoes to process, all the onions and peas we'll need for a year, potatoes, pears, peaches, plums and figs for fresh eating, preserves and stocking up the freezer. DH, who will work until next year, will be replacing the tomatoes, peas and potatoes with squash and melons while I travel around to family in July and August. If times get tough, I'll consider a green house.

Couple of unexpected observations: I so enjoy and regularly lose track of time while puttering in the yard/garden; keeping up with harvesting and processing can be labor intensive and time consuming; fresh pecans are the best ever; a jetted soaker tub is a blessing and I am so happy to be out of an office and absolutely love this retirement!

Financially: SS + military retirement + one other pension, 60/40 AA portfolio (3 bucket methodology) and no debt should allow us to weather market downturns.
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Old 06-09-2017, 11:26 PM   #87
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Old 06-10-2017, 12:03 AM   #88
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This is what we have been doing:

1) rebalancing to our target AA as the stock market continues its upward trajectory.
2) keeping enough in less volatile assets to cover fixed costs until full SS retirement age.
3) reducing our fixed costs (we recently moved from a HCOL area to a below average COL area). Fixed costs can now be covered with a very safe 1.5% WR.
4) building up a cash buffer every month as a reserve for bad times.
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What you do in good times to prep for the bad?
Old 06-10-2017, 06:23 AM   #89
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What you do in good times to prep for the bad?

Our SWR is teeny tiny, as cola'd pensions and SS cover the bulk of our spending, but I recall the feeling in the pit of my stomach during the 2008-2009 time frame. DH had retired on 7-1-2008, so the downward spiral made us feel particularly vulnerable. We hung tough and didn't sell, rebalanced on 3/9/09 of all days, but the experience remains vivid in my memory. I look back at how much our assets declined and the resulting trek back upward by 153% in wonder. It was a valuable lesson. That experience did convince us to change our AA however from 60/40 to 55/45, when with 20/20 hindsight, we reanalyzed our tolerance for risk.

As this is the last year that my consulting business will operate, and as I join the Class of 2017, we have decided to ratchet our equity portion down further 1% per year until it reaches 50%. And we've settled on a cash position of 5% out of an abundance of caution. We also have rebalanced more frequently(twice a year) to lock in gains and purchased another year on our bond ladder each time. I am to a lesser extent, concerned with interest rate risk. So just yesterday we sold all of our Intermediate term muni fund, 8% of assets, and bought a short term muni fund.

Even though I know we are bullet proof, psychologically I'm certain we would cut spending in a prolonged deep downturn. There is much fat in our budget, so many options to run leaner.


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Old 06-10-2017, 11:58 AM   #90
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Originally Posted by Lsbcal View Post
Using VPW I looked at a few post WW2 declines. Reducing spending a bit would not really smooth these out. Might make you feel like you are doing something though. Best to have plenty of money to weather the storm or maybe reduce AA ahead of time if one doesn't have enough money going into these declines.
Obviously reducing spending doesn't affect the dropping portfolio value at all; that is a function of AA as you properly note.

What reducing spending does in a downturn is shrink the size of the bites of the apple that one is taking, leaving ever so slightly more of the portfolio there to rebound when the market recovers.

It sounds like you think this effect is slight. I have seen studies - sorry but I don't have a link handy - that indicate that this effect can be, depending on the parameters one sets, worth 0.5% to 1% of SWR.

As I said, I'd probably naturally cut back some anyway in a downturn.
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Old 06-10-2017, 04:46 PM   #91
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What I'm thinking is that it's critically important for the retiree to enjoy the later years. The retiree might not have those portfolio recovery years to look forward to. So it's really good to have a forward plan that provides for adequate spending even if there is a bad sequence of years. If your plan can handle some of those previous bad sequences, it is probably a pretty good plan.

What is adequate spending? That is an exercise for the individual retiree. But just saying "I'm going to cut back if things go south" isn't a satisfying plan to me. Not saying that one should not cut back, but it would be a good idea to decide in advance what the lower bound of "happy spending" is and make sure one can cover that.
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Old 06-10-2017, 04:59 PM   #92
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I think the hardest part is to set the right AA for your comfort zone. I thought I was 60/40 kind of person, then I realized I'm actually the 40/60 kind of person. Right now I have my target set as 50/45/5. But I'm not even there yet. It takes time to know how one would react to a down market. I did not even lose any money in 2008-2009. I took my time crawling back to the stock market, but I can't imagine the yo yo.
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Old 06-10-2017, 05:15 PM   #93
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I'm the 60/40 type in an up market.
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Old 06-10-2017, 05:31 PM   #94
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What I'm thinking is that it's critically important for the retiree to enjoy the later years. The retiree might not have those portfolio recovery years to look forward to. So it's really good to have a forward plan that provides for adequate spending even if there is a bad sequence of years. If your plan can handle some of those previous bad sequences, it is probably a pretty good plan.

What is adequate spending? That is an exercise for the individual retiree. But just saying "I'm going to cut back if things go south" isn't a satisfying plan to me. Not saying that one should not cut back, but it would be a good idea to decide in advance what the lower bound of "happy spending" is and make sure one can cover that.
My plan is complicated (4 pages single spaced Arial 8 point) but conservative. As mentioned elsewhere, I am at a 90/10 AA but have a 0.3% net withdrawal rate. I regularly monitor things and try to stay at better than a 95% historically safe WR per FIREcalc.

I track my spending by category and regularly find that my lower bound is around $24K per year, which is less than my non-portfolio income. In other words, if things go south, I can go to a 0% WR indefinitely.
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Old 06-10-2017, 07:12 PM   #95
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My plan is complicated (4 pages single spaced Arial 8 point) but conservative. As mentioned elsewhere, I am at a 90/10 AA but have a 0.3% net withdrawal rate. I regularly monitor things and try to stay at better than a 95% historically safe WR per FIREcalc.

I track my spending by category and regularly find that my lower bound is around $24K per year, which is less than my non-portfolio income. In other words, if things go south, I can go to a 0% WR indefinitely.
As Bernstein pointed out in the Retirement calculator from Hell series DATAQUEST There are many ways that things can go South and financial "security" might be the easiest to "secure" of all the possible and impossible ways that things can go belly up. I would say that the 4 riders have plenty of scope. Financial security is such a paltry portion...
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Old 06-10-2017, 07:18 PM   #96
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Approaching my last year of employment (not sure if this will be DH's last year or if he will continue) and have been funding my 457 in my state's Deferred Comp plan in the Stable Value Fund earning 2.2% instead of using a bond fund.

I have upped my contribution to the SV fund to 85% from 60%, with the rest going to stocks. The 457 is for funding my 2 gap years to 59 1/2 and 5 years to 62 after I (or we) retire if DH does not continue to work. The 457 is accessible without tax penalty after separation of service regardless of age. My AA in this fund presently is at 60% Stable Value, 30% Vanguard Institutional Index large cap, 5% small cap index, and 5% American Funds New Perspective (Int'l). Have been contemplating going 100% Stable Value for this next year's contributions but still undecided. I am also toying with converting some of my money in the stock funds to the SV to protect the gains and possibly bring the AA down to 40% fixed. I will have a pension when I retire so this will not be my sole source of funding but will provide a cushion and hopefully provide for a few extra vacations before we can access our IRAs and SS whenever that might be.

My state just discontinued the PIMCO Total Return Instl Fund (PTTRX) and instead is using Baird Aggregate Bond Inst. fund (BAGIX)
They also changed from BlackRock Inflation Protected Bond Inst. fund (BPRIX) to Fidelity Inflation-Protected Index Institutional fund (FIPBX). The prospectus for each won't be out until July as this is when the change is being made.

Anyone have any opinions on using the 2.2% Stable Value for my fixed or would either of these new bond funds be a good investment? Thanks for any suggestions and for all the valuable information provided on this forum!
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Old 06-10-2017, 07:55 PM   #97
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I think the hardest part is to set the right AA for your comfort zone. I thought I was 60/40 kind of person, then I realized I'm actually the 40/60 kind of person. Right now I have my target set as 50/45/5. But I'm not even there yet. It takes time to know how one would react to a down market. I did not even lose any money in 2008-2009. I took my time crawling back to the stock market, but I can't imagine the yo yo.
It's so hard to tell a downturn ,that is really on its way to a bear market from just a correction. Most investors, myself included, only realize a bear market when it is obvious, and don't see the downward momentum beforehand. That is why it is so important to know what market risk you can tolerate. Trying to figure that out during a bear market is a bad scene. If you are not sure what equity risk you can handle, take your best guess and then subtract 5-10% from your guess. You can always up the equity portion later. I am only at 30% equities myself.
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Old 06-10-2017, 09:15 PM   #98
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Staying the course with AA, but I've been putting some gains into physical real estate. Not paper assets, but physical property. Closing on a piece of land next week in one of the ski resort areas near us.
Nice move
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Old 06-12-2017, 06:30 AM   #99
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Some folks in good times fret and worry about bad times and don't spend. When bad times come, they fret and worry and don't spend. They usually have plenty of money left over then they depart this realm.
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Old 06-12-2017, 06:43 AM   #100
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Some folks in good times fret and worry about bad times and don't spend. When bad times come, they fret and worry and don't spend. They usually have plenty of money left over then they depart this realm.
Their heirs will thank them for it and if there's no heirs their charities will appreciate their frugality......
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