Y2K Retirement?

[Bikerdude]

I'm curious about those of you who retired into the jaws of the Y2K bear and how your retirement portfolio has done since. What was your asset allocation then and now and have you changed your SWR?

 

[JohnP]

I retired in Feb 2003 and DW retired soon after (DW continues as part time and will retire fully next month) - this was about the time when everyone around us was bailing from their exhausted portfolio into bonds. We stayed-the-course in equities and the recovery has been superb - since Feb 2003 our portfolio has almost doubled! How long can the market go straight up?

Our AA in 2003 was 75% LC and 25% Small-Mid Blend, pretty typical for that time and not too diversified. I took the next couple years to discover this forum and Diehards, read about investing, consolidate our investments into VG and develop an AA that we could live with. Today's AA is roughly 43% LC, 26% MC and 31% International. Morningstar Instant X-ray is

27 23 18
13 9 5
2 2 1

We are living from our cola'ed pensions so far so we haven't taken a SWR yet. Likely to take a basic SWR of 2-3% starting this fall to get into the retirement mode.

JohnP

 

[WilliamG]

I retired 3/1/2000. I was very fortunate in my timing as we went from a 65/35 allocation to 55/45 to begin retirement. Moved a slug of IRA money to GNMA and with taxable money bought IBonds (real 3.4 and 3.6) and a 5 year ladder of treasuries (around 6% yield) to get us through to 59 1/2.

We do up to 5 years of future cashflow to monitor/manage finances. Having been a Qucken user several years before retirement was huge in being able to have a handle on expenses. Do not "budget" 4% but monitor this "plan" against 4% target. We've ranged from 3.5% to 6% with the 6% year being a new car year. Averaging around 4.2%, but started SS this year so expect will help lower portfolio w/d a little. Portfolio is up APPROXIMATELY 25% since retirement! Very good diversification made 2000-2002 bearable, and last few years have been excellent.

 

[lswswein]

The hypothetical Y2K retiree is a favourite topic on another message board.
These are the numbers generated for the last few years by Raddr. As you can see our retiree is in trouble.

The portfolio of a hypothetical investor who retired at the end of 1999 with a 75:25 mix of S&P500 stocks and 6 mo. commercial paper. The following numbers assume a 0.2%/yr. expense ratio, 4%/yr. withdrawal, and are stated in constant (real) dollar amounts:

Year Return CPI Withdrawal Balance
1999 1000
2000 -9.1 3.4 40 869
2001 -9.9 1.6 40 743
2002 -18.8 2.4 40 564
2003 19.7 1.8 40 635
2004 5.3 3 40 628
2005 40 599

Ref: http://www.raddr-pages.com/forums/v...&postorder=asc&highlight=y2k+retiree&start=45

-h
p.s: I hope this is ok to use data from other boards as long as I reference them. If Moderators think otherwise or Raddr objects, feel free to remove the stuff

 

[REWahoo]

p.s: I hope this is ok to use data from other boards as long as I reference them. If Moderators think otherwise or Raddr objects, feel free to remove the stuff

I don't see any problem from the E-R.org perspective.
-------

I have a buddy who retired at the end of 1999 at age 52, with ~$2M portfolio and no pension. He threw in the towel after two years of steep declines in his heavily tech weighted portfolio and returned to work. Looks like he plans to give it another try next year.

 

[WilliamG]

Raddr's hypothetical juxtaposed with my real life seems a good endorsement of diversified slice and dice, at least for this particular period! Not a good time for stock to be relegated to S&P 500. We had some Total Stock Market but also comparable allocations to small cap (both blend and value), REIT, large cap value and international. Makes a big difference over 7 years.......

 

[unclemick]

Oh that dang Raddr is just a trouble making ER'd Radiologist, worry wort, Republican and worst of all The Guy Lives in:

TEXAS!!

Haven't been to his forum in while - let alone bought my yellow dog. Worth a look once in a while.

heh heh heh heh - so what looks good in slice and dice land .

 

[brewer12345]

I have a buddy who retired at the end of 1999 at age 52, with ~$2M portfolio and no pension. He threw in the towel after two years of steep declines in his heavily tech weighted portfolio and returned to work. Looks like he plans to give it another try next year.

So we should all be going to cash next year?

 

[Nords]

What was your asset allocation then and now and have you changed your SWR?

Boy, thanks for helping us relive those days. Don't miss 'em a bit.

I retired a bit later than your deadline-- June 2002. One of the market lows was reached a month later, another in October, and then there was some more market anxiety in early 2003. However none of them were as bad as Sep 2001 so we were worrying less.

Our ER portfolio is up 43% since June 2002. A few percent of that over the last five years is due to contributions from spouse's Reserve drill pay.

Our asset allocation was:
37% Tweedy, Browne Global Value
15% Berkshire Hathaway
12% S&P500 ETF (SPY)
6% NASDAQ QQQs
4% Disney, Lowes, & Kraft
1% TSP "S" fund
25% Cash (stopped out of a lot of QQQs, banking my pay for the last six months)

TBGVX was the only asset "holding" its value back then at $18.91/share, dipping as low as $13.48 in Mar 03. I remember that we'd spent almost two years jumping in & out of the NASDAQ QQQs back then, starting around $60/share, and couldn't believe how cheap they were in June 2002 at $30. In Oct 02 I had an overwhelming "Aw, c'mon" reaction and started buying around $22. But it still took us over a year (and reading a lot of Bernstein) to get completely back into the market.

Today:
9% TBGVX (started selling around $30/share, up to $33.96 last week)
21% Powershares International Dividend ETF (PID)
30% Berkshire Hathaway
15% S&P600 small-cap value ETF (IJS) & TSP "S" fund
9% DOW Dividend ETF (DVY)
10% Eagle Shipping, Diana Shipping, Tate & Lyle, Superior Industrial, Intel (EGLE, DSX, TATYY, SUP, INTC).
6% Cash.

Tomorrow: approximately equal amounts of PID, Berkshire, IJS, & DVY with about 5-10% cash. Of course testosterone-poisoned stock-picking is interfering with that goal. Hypothetically in 2008 we could harvest a lot of the individual stocks without worrying about cap gains, or we could donate appreciated shares to charity.

Our 2003 SWR (first full year of retirement) was under 3% but spouse worked about 50 days that year. She's worked a lot less since then so our SWR has risen a bit.

We're about out of the SWR debate for the next year. Our rental property, operated at a wash when parents-in-law were living in it, has started throwing off a good bit of income this month with the new tenants. By next year we'll have earned back the rehab and the rent will be covering a good chunk of our expenses. It was a surprise-- I didn't think we'd get that property back under our control for at least the next 20 years. We still need to look at the numbers and decide if the rental income is beating a long-term CD rate but it appears that either one will support the rest of the ER portfolio indefinitely.

 

[REWahoo]

So we should all be going to cash next year?

Looks that way. Maybe use some of it to buy a bomb shelter...

 

[unclemick]

-16.5% one quarter during 2000-2002 for my lead sled dog - Lifestrategy moderate.

A good test of the spincter muscle and the Boglesque: 'hurry up, just stand there.'

heh heh heh - What! You thought retirement would be boring? Katrina in 2005 was kinda interesting also - caused some unscripted expenses. Remember Bear Bryant's linebackers - .

 

[Mwsinron]

Looks that way. Maybe use some of it to buy a bomb shelter...

Plus masks and suits for the ebola's

 

[Jarhead*]

I don't see any problem from the E-R.org perspective.
-------

I have a buddy who retired at the end of 1999 at age 52, with ~$2M portfolio and no pension. He threw in the towel after two years of steep declines in his heavily tech weighted portfolio and returned to work. Looks like he plans to give it another try next year.

ReWahoo: Glad you didn't find any problem with his postings.

The time I've spent on this board, I've seen very few postings that are as illustrative of the "volatility" problem that is facing anyone "rolling his own" as his.

Withdrawel is a helluva lot different than accumulation.

As you know, I've taken a few folks to task regarding the failure to understand this principal.

If you are still in the accumulation stage, working, wife working, etc. etc.
or a pension that comes close to covering your requirements, this will fall on mute ears.

Having retired 20 years ago without any of the above, and withdrawing during that period of time, I have come to understand it pretty well.

I've always tried to maintain a 7 year cushion between me and having to
tap into equities. (While probably not the best thing for building up a net worth, it's kept us off the streets, and allowed my to pay my "Green Fees"and have a good nights sleep)

Starting to sound a little "preachy", so that's a wrap.

You guessed it, raining today (Unusual this time of year).

 

[Dry Socks]

The portfolio of a hypothetical investor who retired at the end of 1999 with a 75:25 mix of S&P500 stocks and 6 mo. commercial paper. The following numbers assume a 0.2%/yr. expense ratio, 4%/yr. withdrawal, and are stated in constant (real) dollar amounts:

Year Return CPI Withdrawal Balance
1999 1000
2000 -9.1 3.4 40 869
2001 -9.9 1.6 40 743
2002 -18.8 2.4 40 564
2003 19.7 1.8 40 635
2004 5.3 3 40 628
2005 40 599

Ref: http://www.raddr-pages.com/forums/v...&postorder=asc&highlight=y2k+retiree&start=45
e or Raddr objects, feel free to remove the stuff

Is a table like this realistic ?
I'm not retired, but, if I were, the withdrawals would have dropped way before now. Probably starting in 2000.

 

[unclemick]

Spring rain in NW Missouri - not unusual.

Raddr used to have some good threads on the ex pat/provincial American problem - currency fluctuation via where you lived versus where your slices and dices were invested to keep your ER ahead of the curve cost of living wise - in addditon to the usual Mr Market gyrations.

heh heh heh - of course I'm in Kansas like Dorothy(actually MO). :

 

[lswswein]

Is a table like this realistic ?
I'm not retired, but, if I were, the withdrawals would have dropped way before now. Probably starting in 2000.

The problem comes if 40K is your base expenses. Also that is why it is called hypothetical. That is th reason why a lot of people are searching for newer asset classes and lower SWR along with working just a little bit more for the safety net

-h

 

[Jarhead*]

Is a table like this realistic ?
I'm not retired, but, if I were, the withdrawals would have dropped way before now. Probably starting in 2000.

It's realistic if you believe that the 4% rule will eventually bail you out.

In using a historical perspective, chances are you are probably o.k.

Question is, do you have the "Huevoes" to put your full faith in that theory?

 

[Dry Socks]

Question is, do you have the "Huevoes" to put your full faith in that theory?

Nope.

 

[Jarhead*]

Nope.

Neither do I. (Hedging is not a crime).

 

[lswswein]

It's realistic if you believe that the 4% rule will eventually bail you out.

In using a historical perspective, chances are you are probably o.k.

Question is, do you have the "Huevoes" to put your full faith in that theory?

Yes it is all about who has the "Huevoes" to stick with 4% SWR and sticking with your Asset Allocation

-h

 

[lswswein]

Our asset allocation was:
37% Tweedy, Browne Global Value
15% Berkshire Hathaway
12% S&P500 ETF (SPY)
6% NASDAQ QQQs
4% Disney, Lowes, & Kraft
1% TSP "S" fund
25% Cash (stopped out of a lot of QQQs, banking my pay for the last six months)

Today:
9% TBGVX (started selling around $30/share, up to $33.96 last week)
21% Powershares International Dividend ETF (PID)
30% Berkshire Hathaway
15% S&P600 small-cap value ETF (IJS) & TSP "S" fund
9% DOW Dividend ETF (DVY)
10% Eagle Shipping, Diana Shipping, Tate & Lyle, Superior Industrial, Intel (EGLE, DSX, TATYY, SUP, INTC).
6% Cash.

Btw Nords that's a whole lot of trading going on there! It almost looks like a complete overhaul with a few things left. Tax consequences?

-h

 

[unclemick]

Yes it is all about who has the "Huevoes" to stick with 4% SWR and sticking with your Asset Allocation

-h

And a large supply of clean underwear.

heh heh heh - the Norwegian widow's version of aggresive defense is to cut spending back to 'current yield' of portfolio. - Yet another way to skin the cat. 8)

 

[Dawg52]

I've always tried to maintain a 7 year cushion between me and having to
tap into equities. (While probably not the best thing for building up a net worth, it's kept us off the streets, and allowed my to pay my "Green Fees"and have a good nights sleep)



You guessed it, raining today (Unusual this time of year).

I like the 7 year cushion. That's what I plan to do.

Hey Jar, got my round in this morning and shot a 73. That included an eagle from a hole out with a 7 iron on a par 4 hole. My partner and I won the money. Life is good!

 

[Nords]

Is a table like this realistic ?
I'm not retired, but, if I were, the withdrawals would have dropped way before now. Probably starting in 2000.

No, it's not realistic because inflation has already eaten nearly 13% of the person's spending power and yet their withdrawals haven't gone up to reflect higher living expenses.

But a mechanical withdrawal scheme can't easily adapt to huge changes in portfolios. ESRBob's 95% rule is a good start yet the results would give even the most ardent statistician reason to reflect on the benefits of part-time employment.

It's also a warning to those retiring on a razor's edge into a potential bear market. Having a big cash cushion or a flexible budget helps a lot.

Btw Nords that's a whole lot of trading going on there! It almost looks like a complete overhaul with a few things left. Tax consequences?

Over five years? That's not much turnover, especially compared to the average actively-managed mutual fund. Most of the last couple years' trading has been on market weakness. Berkshire's change in the AA has been all by itself.

We sold our Heartland Value holdings in late 1999 & early 2000 amid their bond-fund scandals, so that was a huge tax bite that raised the basis of our subsequent purchases (mostly Berkshire). We dumped the S&P500 fund & QQQs in favor of DVY & IJS a couple years ago. We dumped TBGVX for an unhedged index (PID) a year ago. Disney, Lowes, & Kraft all had their day in the sun and were sold on weakness in favor of other "undervalued gems".

Tax consequences weren't much. My military pension isn't taxed by the state and we have a big mortgage deduction so we stay well within the 15% bracket. The QQQ cap losses neatly balanced out the shift to DVY & IJS. The TBGVX sales have been mostly in IRAs. The cap gains in the stocks have mostly been long-term as I improve my analysis skills.

The remaining TBGVX will be sold to buy more PID. The stocks will eventually be sold for more DVY & IJS. I don't know if I'll ever feel comfortable selling Berkshire shares. And our trading activity will continue to taper off, although hopefully the testosterone poisoning will remain confined to my personal account.

I can't take any credit for Tate & Lyle-- spouse picked that up from Splenda commercials a few years back. When she asks "Is ____ made by a publicly traded company?" I've learned to bite my tongue and start researching it.

 

[haha]

Is a table like this realistic ?
I'm not retired, but, if I were, the withdrawals would have dropped way before now. Probably starting in 2000.

This table may be more realistic at least for some people than your solution to the problem. Not everyone retires with a 100% over-funding; hence not everyone will be able to cut back very much without cutting into the part that hurts.

Ha