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Old 10-23-2017, 05:39 AM   #21
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I retired 7/5/2016. I planned for a bit of a buffer. I assumed my expenses would be double whet they actually were, and my revenue half of what it was. It's only been a few months, but the portfolio is up, and rents are up very nicely too.

If you retired on a bare minimum, you are at risk of many things. Inflation, lifestyle creep, changing of laws, etc. Sequence of events is just one event.

Worse case happens, and you run out of money, there are many programs that keep people in shelter, food, and healthy. The only thing better financial planning gets you is choices.
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Old 10-23-2017, 06:12 AM   #22
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I FIREd in 2013 and addressed sequence of return risk by assuming a arbitrary 20% increase in expenses, that our money would have to last forever and a few other things.

Returns have been in my favour over the last four years. I know they won't always be so good but I'd like to think we're able to withstand a few bad years without losing sleep.
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Old 10-23-2017, 06:33 AM   #23
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If you retired on a bare minimum, you are at risk of many things. Inflation, lifestyle creep, changing of laws, etc. Sequence of events is just one event.
Agree. 'Sequence risk' might only apply if you're in the market.

IMO, having all your money in CDs or other vehicles with low potential for good growth is far more risky to long term portfolio survival than sequence risk. Poor money management skills is another.

Having said that, I retired at the start of 2006 and endured the 2008 crash 18 months later without any permanent damage; buy and held (white knuckled some days, but held).
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Old 10-23-2017, 06:53 AM   #24
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According to a calculator, the annualized S&P 500 return from January 2000 to September 2017 is only 1.076%. It would be 2.977% with dividends reinvested. So valuation does matter. When you retire does matter. Money should be discounted when the valuation is high.
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Old 10-23-2017, 07:01 AM   #25
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I retired 2014. Earlier this year I posted a thread asking how long do I need to worry about sequence of returns... I still, very much, worry about it... And an keeping my purse strings tightly held. The market gains have been great.... But we all know there are cycles to the market... Including down cycles. I figure we'll be out the worst SOR risk about the time my kids get out of college.... (Freshman and junior in high school now). That's also when we plan to seriously bump up our travel.
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Old 10-23-2017, 07:04 AM   #26
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I retired in late 2008 as the markets were crashing. But that actually helped me a lot, giving me an extra boost to begin my retirement I had not anticipated when I was putting together my ER plan. What happened was I was able to buy about 25%-30% more shares in a bond fund at bargain-basement prices. Those extra shares have given me extra dollars each month in the fund's monthly dividends.


I have two AAs in my portfolio, each monitored separately with different goals. In my taxable portfolio, the one which provides me with the money to pay my bills, I want to keep it more income-oriented while keeping a decent amount in stocks to act as an inflation guard. It's about 65/35 in favor of bonds and I adjust it only to tweak the dividend inflow. Since 2014, I have been taking as cash (instead of reinvesting) the stock fund's quarterly dividend to supplement the bond fund's income and help cover my expenses while maintaining a cushion to enable me to maintain my daily lifestyle. I had always envisioned doing this as part of my ER plan.


In my rollover IRA, one I won't have unfettered access to until I turn ~60 (5 years from now), I have been gradually adjusting the AA toward more bonds. Back in 2008, when I first created it from my 401k, it was 53/47 in favor of stocks (55/45 target). Now, with a 54/46 AA in favor of bonds, it is 53/47. I have made many rebalancing moves in the last 9 years thanks to the stock market increase although a few moves went in the other direction. Both the stock side and bond side have more than doubled.
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Old 10-23-2017, 07:06 AM   #27
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According to a calculator, the annualized S&P 500 return from January 2000 to September 2017 is only 1.076%. It would be 2.977% with dividends reinvested. So valuation does matter. When you retire does matter. Money should be discounted when the valuation is high.
Do you have a link to this calculator? That S&P 500 annualized return sounds low to me.
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Old 10-23-2017, 07:07 AM   #28
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According to a calculator, the annualized S&P 500 return from January 2000 to September 2017 is only 1.076%. It would be 2.977% with dividends reinvested. So valuation does matter. When you retire does matter. Money should be discounted when the valuation is high.
100% agree. If you retire too late, you could be dead.

How do you know if the valuation is too high? And do you keep working until it is low? Or how much do you discount it? Those are the OMY+ things that keep many people in the salt mines...
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Old 10-23-2017, 07:17 AM   #29
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How do you know if the valuation is too high? And do you keep working until it is low? Or how much do you discount it? Those are the OMY+ things that keep many people in the salt mines...
Right. "When you retire DOES matter" but it's usually in hindsight.
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Old 10-23-2017, 07:27 AM   #30
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100% agree. If you retire too late, you could be dead.

How do you know if the valuation is too high? And do you keep working until it is low? Or how much do you discount it? Those are the OMY+ things that keep many people in the salt mines...
Exactly...
and valuations like PE are not predictive....PE at end of 2008 was over 50...markets aren't that easy to predict....and this whole CAPE thing is flawed too and by admission of the author is not predictive either....
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Old 10-23-2017, 08:30 AM   #31
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Can't comment on investment risk because I don't have a good background in finances. So far, probably below average returns on our IBonds (1989 -2003)... long haul about 5+%. The good part is that our net worth hasn't changed dollarwise since retirement, and now planning for the future is much easier, since the "future" is much shorter. A quick look at the median net worth for our age (soon to be 82) shows we're at the 75th percentile.

The "best" part is that at this age, worry about money is no longer there, having been replaced by concern about the coming zombie apocalypse.
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Old 10-23-2017, 08:41 AM   #32
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Do you have a link to this calculator? That S&P 500 annualized return sounds low to me.
dqydj.com
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Old 10-23-2017, 08:53 AM   #33
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Quote:
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According to a calculator, the annualized S&P 500 return from January 2000 to September 2017 is only 1.076%. It would be 2.977% with dividends reinvested. So valuation does matter. When you retire does matter. Money should be discounted when the valuation is high.

These numbers are "inflation adjusted" by the calculator. https://dqydj.com/sp-500-return-calculator/

Not adjusting for inflation the calculator shows the returns are 3.222% and 5.164% respectively.
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Old 10-23-2017, 08:55 AM   #34
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According to a calculator, the annualized S&P 500 return from January 2000 to September 2017 is only 1.076%. It would be 2.977% with dividends reinvested. So valuation does matter. When you retire does matter. Money should be discounted when the valuation is high.
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Originally Posted by REWahoo View Post
Is this the calculator on that site? https://dqydj.com/sp-500-return-calculator/
Ok, thanks. So, that S&P return of 2.97% is real return, after inflation. After adjusting for taxes (capital gains @15%), real return is 2.5%.
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Old 10-23-2017, 09:54 AM   #35
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Careful there, for many of us qualified dividends and LTCG are 0%, not 15%.
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Old 10-23-2017, 10:29 AM   #36
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I retired in July 2013. DW and I both have pension annuities and some rental income. That, combined with dividends from the taxable account, means that we rarely sell shares. Our WR is less than the overall portfolio dividend rate, but because we reinvest in tax-deferred, we do have to sell shares occasionally in the taxable account.

We are both 56 with no mortgage and two large SS benefits still to come. We also plan to downsize the house at some point, which will reduce total expenses by about 15%. Portfolio is up 32% since July 2013 and that includes expenditures for a new car, several home improvement projects, college expenses for DD the first year, and international travel every year.

I don't worry much about SOR. The market could drop 32% and we'd still have the same nestegg as the day we retired. Plus same cashflow coming in and several years closer to SS. If necessary, in the remaining years before SS, we could easily drop discretionary spending such that expenses were covered with cash inflows from pensions, rentals, and dividends.

My bigger long-term concern is inflation since one pension is non-COLA and the other has a partial COLA. I also worry about longevity and LTC both for ourselves and the in-laws who are 85, in poor health, and just about out of money.
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Old 10-23-2017, 10:34 AM   #37
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Cobra: sounds like you are in excellent shape. I would note however that based on your portfolio increasing 32% since retirement you could have a .32/(1+.32) or about 24% decline to get back where you started.
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Old 10-23-2017, 10:38 AM   #38
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I retired two years ago and also plan to slowly reduce my equity AA as I get older.
I also retired two years ago but plans to keep my 60/40 ratio.
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Old 10-23-2017, 10:49 AM   #39
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I assume this does not reflect any rebalancing activity. However, if one rebalanced a 60/40 portfolio over all of these years, I suspect the returns would be much higher.
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Old 10-23-2017, 11:00 AM   #40
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Sequence of returns has provided significant gains to our portfolio. So has low inflation. There was an added bonus from downsizing, placing our home equity in the market, and renting for five years.
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