When you have enough?

[samcat]

How do you know when you have enough to retire when the stock market is so wild? Even with diversification, it is crazy.

I think we have plenty but as March showed us, one could lose tens of thousands of dollars in one day.

 

[OldShooter]

... I think we have plenty but as March showed us, one could lose tens of thousands of dollars in one day.

Stop watching. It will make you crazy. Check maybe once a year and have faith in the long-term trends.

 

[ut2sua]

How do you know when you have enough to retire when the stock market is so wild? Even with diversification, it is crazy.

I think we have plenty but as March showed us, one could lose tens of thousands of dollars in one day.

No one knows for sure. Vast majority of folks believe that the stock market will generally go up in value. Try FireCalc which will simulate your numbers using data since before 1900 (?)
It will help to note that the market has always been wild; Going up and down as much as ~50% in history, and with those up and down data, FireCalc will let you know if you are likely to be OK or not

 

[RobbieB]

Impossible to know, just make best guess.

 

[OldShooter]

... FireCalc will let you know if you are likely to be OK or not

Well, not exactly. From the FireCalc home page:

(FAQ) How can FIRECalc predict future returns from past performance? (Answer) It can't.

 

[Rianne]

You could also use Firecalc' tab "Your Portfolio" and click "Portfolio Consistent Growth" and put 0 or .1 or .01. I've done this thinking absolute worse case scenario, using a starting portfolio of 1/2 of what we have currently. So, you're entering numbers that you're actually losing money over time. The inflation rate might be 2% and your consistent growth might be 1%. Or a negative number in consistent growth.



It's my "doomsday" scenario. This approach helps me stay in the market, actually. We're staying in 60/35/5.

 

[steelyman]

With respect to market volatility, it helps me to remember that I’m only relying on a small portion of my retirement portfolio each year. I’m decumulating well in advance of RMD time (personal choice) and will be withdrawing 2.9% this year. Any percentage change this year will only affect that 2.9%. Then start again, so time is on your side.

 

[jollystomper]

How do you know when you have enough to retire when the stock market is so wild? Even with diversification, it is crazy.

I think we have plenty but as March showed us, one could lose tens of thousands of dollars in one day.

Before you answer that question, you have to answer the question "what do I need?" Calculators like FIRECalc will help you find that answer. Once you have that number, that will put a different perspective on what you choose to have in the market.

The other exercise I do, imagine your equities are priced at 50% (or lower if you are really pessimistic) of what they are now. What does that do to your numbers? If you can still sleep at night, fine. If not - reconsider your AA.

 

[Go-NoGo]

I recall a posting saying that Firecalc updated its recent market data, does this include the great recession of 2020 data in its models?

 

[RunningBum]

I didn't retire until I had a nice buffer. How big of one depends on your comfort level and what you think of the market in general, and how much you rely on it. It could possibly drop 50% as someone above said, but it would likely (but not certainly) bounce back from there.

A lot also depends on how fed up you are with your job, how your health is, how easy it would be for you to make a decent income if you did have to return to work, how easy it is to cut fat out of your retirement budget, and so on.

As you can see, there are too many factors to give you a concrete answer. Back to my situation, I'm glad I didn't pull the trigger going into the great recessions. I waited until 2011 because my job situation was very manageable. It's been really nice to not sweat whether my funds will last, even as the market dropped this year.

 

[Dtail]

I recall a posting saying that Firecalc updated its recent market data, does this include the great recession of 2020 data in its models?

Firecalc usually has its data updated around Apr/May once a year for data up until 01/01 of the the current year, so no Mar 2020 update yet.

 

[Dtail]

Try using many of the retirement calculators to feel a little more comfortable.

 

[SpinDoctorTX]

I use firecal along with fidelity's tool (always counting on the very worst market conditions just in case). So far, they have given me increasing confidence in the plan we acted on almost 4 years back. No matter what, some of this RE biz is (for me) a bit of guesswork & intuition combined with years of finance experience + luck & the largest by far being good advice. Much of this guidance was gathered in these forums, or in places to which they referred.

 

[Go-NoGo]

Firecalc usually has its data updated around Apr/May once a year for data up until 01/01 of the the current year, so no Mar 2020 update yet.

thanks !

 

[Unpaintedhuffhines]

Stop watching. It will make you crazy. Check maybe once a year and have faith in the long-term trends.

Great advice. I have no idea how I would have the willpower to pull this off though.

 

[samcat]

This has nothing to do with watching the markets on a daily basis. It has to do with how do you know when you have enough and can retire without worrying if the market goes down.

I feel like we have enough now but if the market were to go down like it did in March, we would have sleepless nights. I guess that is my answer!

 

[RunningBum]

This has nothing to do with watching the markets on a daily basis. It has to do with how do you know when you have enough and can retire without worrying if the market goes down.

I feel like we have enough now but if the market were to go down like it did in March, we would have sleepless nights. I guess that is my answer!

I agree. When you're making a big decision like when to ER, you don't just look at the market once a year. Especially when it really seems overpriced right now.

 

[Dtail]

This has nothing to do with watching the markets on a daily basis. It has to do with how do you know when you have enough and can retire without worrying if the market goes down.

I feel like we have enough now but if the market were to go down like it did in March, we would have sleepless nights. I guess that is my answer!

Forgetting the quickness of it, the March drop represents a typical bear market, but just much more condensed.
Over the longer term, the markets usually work out if one has a reasonable WR%.

 

[jebmke]

This has nothing to do with watching the markets on a daily basis. It has to do with how do you know when you have enough and can retire without worrying if the market goes down.

I feel like we have enough now but if the market were to go down like it did in March, we would have sleepless nights. I guess that is my answer!

Then you are holding too much equity. It may not have anything to do with the amount you have but more your tolerance for volatility.

 

[Car-Guy]

Maybe you just don't have enough saved to retire if you are really dependent on market returns.... Check out some of the "won the game threads" that talk about this in some detail.

Example, in my case I set aside enough in fixed income investments that I could live comfortably for the rest of my life if the market tanked for an extended period of time. The rest I play the market and hope for the best. Now totally economic collapse would get us all.

 

[OldShooter]

I agree. When you're making a big decision like when to ER, you don't just look at the market once a year. Especially when it really seems overpriced right now.

I didn't say it was easy. The problem is that looking frequently doesn't give you any information. It just gives you data that is almost pure noise. Here is a graphic I use when discussing this in my Adult-Ed investing class:

​

There is no way that someone looking only at daily numbers could discern the trend. And the trend is your friend.

There is research that says that investors who look frequently have poorer performance than those who look less frequently. The behavioral finance people explain this as a consequence of our human asymmetrical view of losses and gains. We hate losses more than we love gains. So someone who looks too frequently is frequently exposed to loss scenarios and tends to not buy and hold as he/she should.

I look at the markets every day like I look at those TV sets in bars/restaurants. The TVs, sound off, show various people running around. Usually some kind of ball is involved. It's hard to not look at them but when I leave I care nothing about what I have seen. With markets, when I actually want to know what is going on I look at the 5-year charts. FWIW, over 5 years the Dow is up 57.91% and the S&P is up 61.31%. And those are just nominal numbers, no dividends included. Total return is significantly higher.

Here is another pertinent chart:

 

[UnrealizedPotential]

Well, it's not such an easy question to answer. I approach it like this: What if the stock market went down 50%? Could I survive? Will my investments survive? Most likely, yes! That is why I have between 45 and 48% stocks right now. If I had 100% stocks right now, I wouldn't feel so confident about surviving an ugly downturn because if that were the case { having 100% in stocks}, I would have to go back to work if we went down 50% or more. I do not plan on doing that. I have been retired since 2016.

While I likely could survive a 50% downturn, the psychological depression that would probably result from such an event , would probably be too much for me to handle. I could handle a 20-25% downturn with 45- 48% stocks,but if i was exposed 100% in stocks and my portfolio went down 50% or more, it would be devastating to me personally.

In addition to all that, I get enough income for me with a little extra to reinvest if I want to , that helps with inflation. So for me, that is how I know I have enough, in the fact that i have enough income to live on, I have a little extra money to reinvest every month if I want to, and I feel comfortable that if TSHF I will be alright, thus the conservative stock allocation.
ETA-Ok, maybe know no one can know for sure they have enough, but you try to give yourself the best chance for success.

 

[swakyaby]

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I think we have plenty but as March showed us, one could lose tens of thousands of dollars in one day.

If you don’t sell equities during a severe market downturn, then you really have not lost anything. Holding enough stable value assets to live on during a bear market will allow you to sleep better. Since February, I have been spending from my money market as well as the dividends generated from my 60:40 asset allocation portfolio. I left my equities untouched, and my portfolio is now within a few percentage points of its all-time high. I expect more market volatility ahead, but as long as you maintain enough cash reserves, you can ride it out without too much anxiety.

 

[OldShooter]

If you don’t sell equities during a severe market downturn, then you really have not lost anything. Holding enough stable value assets to live on during a bear market will allow you to sleep better. Since February, I have been spending from my money market as well as the dividends generated from my 60:40 asset allocation portfolio. I left my equities untouched, and my portfolio is now within a few percentage points of its all-time high. I expect more market volatility ahead, but as long as you maintain enough cash reserves, you can ride it out without too much anxiety.

That's exactly what we do.

The reality is that every dip is followed by a rise. Sometimes we have to wait a while, but that's why a 100% stock portfolio is unwise if you have to spend from it.

 

[jazz4cash]

This has nothing to do with watching the markets on a daily basis. It has to do with how do you know when you have enough and can retire without worrying if the market goes down.



I feel like we have enough now but if the market were to go down like it did in March, we would have sleepless nights. I guess that is my answer!

If you are having sleepless nights, your equity allocation is out of line with your tolerance for risk. If you can tolerate 50-70% equity allocation AND 4% withdrawal rate will meet your needs, you have enough. As someone pointed out, you don’t need the whole nest egg at the same time. A safe withdrawal rate will meet your needs while equities recover as they have since March. Spending down the non equity allocation and rebalancing should meet your needs for 30 years. If you expect a longer retirement or can’t tolerate 50% equities, you’ll need to adjust accordingly.