Retirees - Were you ready for the Great Recession?

[kcowan]

It makes the idea of a correction or bear market in the future seem almost tame in comparison to what I went through then...

I went through the gut-wrenching experience during my first 2 years of retirement (2002-3) because I was micro managing the portfolio to ensure that we could afford it. I was into momentum investing so needed to watch the market hourly. Made it!

During 2007-9, I watched the portfolio monthly but made no strategy changes (no longer momentum but buy and hold).

Now I seldom look at the total holdings, doing a complete view once a year. I can get a snapshot with my discount broker which holds 3/4trs of my portfolio every time I login. I am waiting for a market selloff as an opportunistic play because thankfully we don't need it.

You might say that I have finally totally retired, even from my personal portfolio manager role!

 

[Nords]

Like many, while my greed gland loves the continued run up in the market, I can’t help but feel we are close to another correction. How much/how long/when it happens, who knows? Being 2 years out from launching, I can’t help but “fear” I be “that guy” who retires right before the big drop, statistically putting me at a disadvantage of a successfully RE. While I am underwriting to a very generous spend budget with significant discretionary spending, I would like to think my SHTF budget is my fallback.

If you're going to bring up the question then you should consider that your asset allocation may be more aggressive than you'll really be comfortable with. Sleeping comfortably at night is much harder than using math & logic to arrive at an asset allocation. You may also be more vulnerable to sequence-of-returns risk than you may wish, although that's straightforward to handle with variable spending.

If you had a pension that covers most of your expenses, this question is probably not for you. I am curious to hear more from those of you who rely 100% on your assets to fund your retirement. Your experiences will help many of us getting ready to launch plan accordingly. Look forward to your wisdom!

I ER'd in June 2002, just in time for the bottom of the Internet recession. Despite all of our 2002 practice at intense discussions about asset allocation & spending, we were still not emotionally ready for 2008-09. We were financially ready, though, and we held on despite a 58% drop from peak to trough.

Our 2008-09 pension (at the time) covered our mortgage (at the time), but not "most of our expenses". An annuity is a very comforting part of an asset allocation.

We also did a lot of tax-loss harvesting. I don't think we used up those capital losses until well into this decade.

During our first decade of FI, we handled the sequence-of-returns risk by keeping our asset allocation at over 90% equities with two years' expenses in cash. We chewed through the first year of cash by the end of 2008 and chewed through the second year of cash by the end of 2009. We replenished the stash for 2010 and sold some shares for lower capital gains than we'd hoped, but (other than deliberate tax-loss harvesting) we never had to sell shares at a loss.

Our daughter was in high school and driver's ed, so we didn't take any fantasy cruises. However we did buy a used Prius (when Hawaii gas prices were over $4.50/gallon) and we had some home-improvement contractor work done at a huge discount for cash. At the market bottom, though, we were technically no longer FI for a few months.

Another member of the forum kept loading up on Bank Of America stock for the dividend as it kept dropping in share price... and then BofA cut the dividend to a penny. That member may still post here so I'll let them share that story, but I think they're back to FIRE.

I retired on Jan,19,2008 . I did have a survivor pension and SS survivor annuity both of these were not huge amounts. I was aggressively invested and lost 1/3 of my portfolio.I was ready to panic and sell but one of the long term members (Nords ) talked me off the ledge and told me to stay the course .I did except for a small amount I sold before the bottom.My portfolio returned within five years .Like Rewahoo I did claim my SS early . It was a lot more than the survivor benefit . I took a budget cut but We still travelled a lot . There were some incredible deals at the time . Looking back at some of the terrible things that happened to me this is not even on the radar .If you want an insight search for the old threads during that time especially "Who is a member of lost a million club ".

I guess it was group therapy by shared misery!

In early 2008 our daughter was 15 years old, and (according to our predetermined plan for her 15th birthday) we liquidated her college fund into CDs. Berkshire Hathaway B shares (bought in 2001) were a big chunk of that fund. It took the next five years for Berkshire Hathaway stock to recover its 2008 share price, and by that point our daughter was a college junior.

 

[Shredder]

I've been retired since 04. Not my choice but forced due to injury at 49 yr old. But lucky for me, I learned from the early 2000's to have a plan and stick to it. 100% stocks then, and mostly techs, lol. By 08 I was using a modified coffee house portfolio (60/40) with a heavier foreign component. Vanguard foreign growth and value. But my contributions ended with my employment. Its like 4 times bigger now although we have started withdrawing small sums occassionally now. This will increase with expenses.

Basically I hunkered down, lived below our means, paid off the house early and then started a Wellesley account in a non tax deferred account and invested when we could. My wife worked part time till 09. And we had a small disability pension that barely paid the bills until I finally was approved for social security disability. Every little bump was invested tho.

Turns out we made out fine and by sticking to our plan, we're much better off today. We've upgraded our house, drive new cars, and are no longer scrimping, but know we could if needed. Losing 65% of a portfolio in the early 2000's was a great teacher, and losing my job in 04 was a great motivator.

 

[CyclingInvestor]

Retired in Oct 2006 at 48, 100% in individual stocks, living on the dividends.

Looking back at my records, every stock I owned at the bottom in early 09 made their expected dividend increases - EMR 10% in Nov08, ADP 13% and SYY 9% in Dec08, KO 8% and MMM 2% in Feb09, PG 10% in Apr09, JNJ 6% in May09 etc. No reason to make any adjustments in AA, never felt any temptation to.

 

[BeachOrCity]

I was responding to a suggestion that the "Great Recession" was probably a "once in a lifetime" occurrence. IMO, that is dangerous thinking, as if to say, "since it happened already in my lifetime, I needn't worry about it happening again".

I think we all understand that current valuations are unprecedented, the length of time since our last "correction" is also approaching that status. Many on these boards point to the crash of 2007, and subsequent Bull run after that bottom, as evidence that a high equities AA is the sensible way to go.
I'd remind those anticipating a long retirement, that it took more than 5 years for the S&P 500 to reach the same plateau.
Towards the end of my dad's career, as he approached R, there was large correction in 1987. By the time he retired in '89, he had recouped those losses. He maintained a 2 year non-equities cushion, on order to ride out the next "correction".
In August of 2000, S&P 500 crested above 15,000. It crashed and burned, and it would be 12 years before it reached that lofty perch again.

If he hadn't made a lucky real estate decision (acquiescing to DM's desire to live on the beach in SW Florida, in 1993) he would have outlived his money. He was retired for 23 years, a much shorter period of retirement than many here are planning for.

So, I still maintain prudent retirement planning should not assume any "once-in-a-lifetime" scenaria, especially for those hoping to retire for 3 or 4 or more decades.

I think this article from 2016 provides some interesting quantitative analysis on how 1999 and 2000 retirees are doing. Net net. They are doing ok but it was a scary ride!!!


https://medium.com/@justusjp/will-2...worst-retirement-outcomes-in-u-s-556a7ba616f7

 

[BeachOrCity]

If you're going to bring up the question then you should consider that your asset allocation may be more aggressive than you'll really be comfortable with. Sleeping comfortably at night is much harder than using math & logic to arrive at an asset allocation. You may also be more vulnerable to sequence-of-returns risk than you may wish, although that's straightforward to handle with variable spending.
.

Good point Nords! +1 If you are asking the question something is off with your AA. Are you perhaps using a higher risk AA to accelerate your ER DATE?

Only you can decide what risk or AA works for you, but I found the following question helped me set my AA appropriately:
“If the equity markets fall 50% would you still ER?”

I lowered my equities allocation until I got to “yes!”

 

[EastWest Gal]

My father lived through both, in one lifetime.

So did my dad, but he was not managing his own money with both. 9 months old when the first started. With the second, I was managing his money as he had a brain hemorrhage in 2007.

 

[Maenad]

One poster on here said that just before the dotcom bubble burst, employees at their company were offered the chance to borrow up to $40K against future salary to buy more company stock. The stock never recovered.

That might have been me. Just for added fun, DH worked at the same company. The good news is that we lost "only" $40K total on that one. It's made me cautious of any ESOP programs since.

 

[ikubak]

Like many, while my greed gland loves the continued run up in the market, I can’t help but feel we are close to another correction.

I’ve thought we were due for a correction for the last three or four years. I recall reading posts from people over that time who have cashed out because the market was due to crash. I never know what the market is going to do in the future.

 

[audreyh1]

That might have been me. Just for added fun, DH worked at the same company. The good news is that we lost "only" $40K total on that one. It's made me cautious of any ESOP programs since.

OMG! How insane was that!!!

 

[NW-Bound]

"Retirees - Were you ready for the Great Recession?"

The above is the OP's question. Come on, how could anybody expect the Great Recession to prepare for it? Would you expect the Spanish Inquisition too? Many of us survived it fine though. The former of course, not the latter.

I was not fully retired, but was still working sporadic part-time contract job. I was able to have enough income to carry two children through college without tapping my nest egg. Otherwise, I would be a lot more worried.

At the bottom on 2009/03/09 my stash dropped to 62.8% of its value at the top in 2007/10/31. That's still better than what I suffered in 2002-2003 recession, because I was earlier more concentrated in the tech sector that suffered a meltdown after 2000.

 

[DawgMan]

OK, so I have listened to many of your responses and it sounds like many of you just grinned and bared it, cut expenses, relied on multiple years of cash to avoid catching the falling knife and selling stocks on the down swing.

So I ran a little exercise I would like to get feedback on, especially from you all that lived through it. I made the following assumptions and tried to chart it out (attached)...

- You retired at the end of 2007
- $1M Portfolio as of 12/31/2007
- 60/40 AA split 60% Vanguard Total Stock (VTSAX), 40% Total Bond (VBTLX)
- 4% WR adjusted annually for inflation
- Annual withdrawal at 1st of every year followed by re-balance (1st withdrawal 1/1/08)



Observations...

- Total portfolio does not get back to $1M until 2013
- Despite falling stock balance, AA says to sell stocks between 2009 - 2012
- As of end of 2017, portfolio balance approximately 30% higher than starting balance

Begs the questions...

- Many of you said you avoided selling stocks and lived out of cash/bond allocation. Does that mean you really let your allocation swing to a higher stock allocation during the years between 2008 - 2012 (assuming you had the portfolio above) as opposed to staying with your predetermined AA and automatically rebalancing?
- Am I wrong that this analysis of staying true to your AA, despite selling stocks in years right after 2008, should give you confidence in staying the course, even when you may be white knuckling it selling stocks while they are down?
- I know it's just 1 sample, but it seems further encouraging that the 4% SWR not only worked during this period, but your portfolio grew during the 10 yr period. Should this not provide you more confidence in the 4% SWR?

I suppose I am looking for some level of further confidence that should I (or anyone) happen to RE when the market takes a big dump, that there is real hope in staying with a reasonable AA, re-balance, WR plan. This, along with flexibility in spending I hope would be enough to give me (and anyone else) the confidence to hit the launch button.

Feel free to punch holes in any of my logic/analysis.

 

[DawgMan]

OK, so I have listened to many of your responses and it sounds like many of you just grinned and bared it, cut expenses, relied on multiple years of cash to avoid catching the falling knife and selling stocks on the down swing.

So I ran a little exercise I would like to get feedback on, especially from you all that lived through it. I made the following assumptions and tried to chart it out (attached)...

- You retired at the end of 2007
- $1M Portfolio as of 12/31/2007
- 60/40 AA split 60% Vanguard Total Stock (VTSAX), 40% Total Bond (VBTLX)
- 4% WR adjusted annually for inflation
- Annual withdrawal at 1st of every year followed by re-balance (1st withdrawal 1/1/08)



Observations...

- Total portfolio does not get back to $1M until 2013
- Despite falling stock balance, AA says to sell stocks between 2009 - 2012
- As of end of 2017, portfolio balance approximately 30% higher than starting balance

Begs the questions...

- Many of you said you avoided selling stocks and lived out of cash/bond allocation. Does that mean you really let your allocation swing to a higher stock allocation during the years between 2008 - 2012 (assuming you had the portfolio above) as opposed to staying with your predetermined AA and automatically rebalancing?
- Am I wrong that this analysis of staying true to your AA, despite selling stocks in years right after 2008, should give you confidence in staying the course, even when you may be white knuckling it selling stocks while they are down?
- I know it's just 1 sample, but it seems further encouraging that the 4% SWR not only worked during this period, but your portfolio grew during the 10 yr period. Should this not provide you more confidence in the 4% SWR?

I suppose I am looking for some level of further confidence that should I (or anyone) happen to RE when the market takes a big dump, that there is real hope in staying with a reasonable AA, re-balance, WR plan. This, along with flexibility in spending I hope would be enough to give me (and anyone else) the confidence to hit the launch button.

Feel free to punch holes in any of my logic/analysis.

Just noticed my file did not upload. Never loaded one before. Its an .xlsx file. Any help?

 

[DawgMan]

Just noticed my file did not upload. Never loaded one before. Its an .xlsx file. Any help?

3rd time's the charm!

 

[street]

"Retirees - Were you ready for the Great Recession?"

The above is the OP's question. Come on, how could anybody expect the Great Recession to prepare for it? Would you expect the Spanish Inquisition too? Many of us survived it fine though. The former of course, not the latter.

I was not fully retired, but was still working sporadic part-time contract job. I was able to have enough income to carry two children through college without tapping my nest egg. Otherwise, I would be a lot more worried.

At the bottom on 2009/03/09 my stash dropped to 62.8% of its value at the top in 2007/10/31. That's still better than what I suffered in 2002-2003 recession, because I was earlier more concentrated in the tech sector that suffered a meltdown after 2000.

I have a few questions.
1) Did you sell any of your equity stocks?
2) How many years did it take to recover back that 62.8% to your portfolio not including any new money?

 

[marko]

I’ve thought we were due for a correction for the last three or four years. I recall reading posts from people over that time who have cashed out because the market was due to crash. I never know what the market is going to do in the future.

As noted on another thread, "more money has been lost trying to time a correction than is lost in the correction itself" (Peter Lynch) and remember that you only have 'lost' the money if you sell.

 

[audreyh1]

OK, so I have listened to many of your responses and it sounds like many of you just grinned and bared it, cut expenses, relied on multiple years of cash to avoid catching the falling knife and selling stocks on the down swing.

So I ran a little exercise I would like to get feedback on, especially from you all that lived through it. I made the following assumptions and tried to chart it out (attached)...

- You retired at the end of 2007
- $1M Portfolio as of 12/31/2007
- 60/40 AA split 60% Vanguard Total Stock (VTSAX), 40% Total Bond (VBTLX)
- 4% WR adjusted annually for inflation
- Annual withdrawal at 1st of every year followed by re-balance (1st withdrawal 1/1/08)



Observations...

- Total portfolio does not get back to $1M until 2013
- Despite falling stock balance, AA says to sell stocks between 2009 - 2012
- As of end of 2017, portfolio balance approximately 30% higher than starting balance

Begs the questions...

- Many of you said you avoided selling stocks and lived out of cash/bond allocation. Does that mean you really let your allocation swing to a higher stock allocation during the years between 2008 - 2012 (assuming you had the portfolio above) as opposed to staying with your predetermined AA and automatically rebalancing?
- Am I wrong that this analysis of staying true to your AA, despite selling stocks in years right after 2008, should give you confidence in staying the course, even when you may be white knuckling it selling stocks while they are down?
- I know it's just 1 sample, but it seems further encouraging that the 4% SWR not only worked during this period, but your portfolio grew during the 10 yr period. Should this not provide you more confidence in the 4% SWR?

I suppose I am looking for some level of further confidence that should I (or anyone) happen to RE when the market takes a big dump, that there is real hope in staying with a reasonable AA, re-balance, WR plan. This, along with flexibility in spending I hope would be enough to give me (and anyone else) the confidence to hit the launch button.

Feel free to punch holes in any of my logic/analysis.

Selling stocks after they were cut in half? Something does not compute there. Bonds should have covered it in 2009.

Selling stocks after they have substantially recovered (substantial stock recovery happened during 2009 and 2010) because you rebalanced at the lows and you’ve pulled down your bonds over a couple of years? There is nothing wrong with that.

I remember rebalancing by selling stock during 2010 because my equities had grown so much after my early 2009 rebalance. That’s how it’s supposed to work. You bought more stock when it was cut in half. It grows big time, you’ll take some profits to rebalance.

OK I see your comments:

• 2009: Withdrawl 100% from Bonds for 2009, Buy Stock - exactly what you would expect. You sold bonds not stock in 2009.
• 2010: Withdrawl 100% from Stocks for 2010, Buy Bonds - well heck, stocks recovered so much in 2009 you sold some in 2010 that you bought at the beginning of 2009. VTSAX was up 29% that year, way outperforming bonds.
• 2011: Withdrawl 100% from Stocks for 2011, Buy Bonds - another strong year for stocks, VTSAX was up over 17%. By 1/1/11 VTSAX had essentially recovered to its 1/1/08 value.

Seriously, by the end of 2010 stocks had substantially recovered. If you look at VTSAX it had essentially recovered its 1/1/08 value by 1/1/11.

 

[SpinDr]

In my investing lifetime I've been through three significant declines, 87' flash crash (on my birthday no less , the 2001 Dot Bomb, and the most painful recent recession. In in 87, no "brass balls" just young, early in investing, and it happened so fast I would not have known what to do any way.

Paid a bit of a price in 2001 as I did have a couple of tech "high flyers" that became low-flyers, then no-flyers. Most funds, though in 401K and other more conservative investments. Rode that one out which started the thinking that time could heal a portfolio if I was in primarily sound investments, and had time on my side along with dollar cost averaging.

The last one was real tough as living in CA, with high real estate prices, my house equity was pummeled in a significant manner along with the stock market drubbing. The thing that got me through that, was time remaining to keep dollar cost averaging through the downturn, and the previous two recoveries. During this last one did some counseling with younger friends to stay the course and I came out, over time in decent shape.

I now feel fairly confident that I can avoid drastic, stupid moves when we see the next downturn. Now, that is said while I'm still working and can recover funds through work income. When retired I'm guessing it's going to be extra stressful staying the course but I'm hoping to draw on the prior three recoveries to help me through.

Like others, I did see some folks panic during the last recession and move out of equities. Not really sure if and when they jumped back in.

 

[NW-Bound]

I have a few questions.
1) Did you sell any of your equity stocks?
2) How many years did it take to recover back that 62.8% to your portfolio not including any new money?

Being 80% in stocks in 2007 and highly cyclical stocks such as material at that, I liquidated some throughout 2008, then bought back later at the end of 2008 and early 2009 (I am a self-proclaimed market timer). Else, I would suffer galore.

I reminisced about this in a previous thread in mid 2014. A graph was included in that thread, and posted again here. For details, see: http://www.early-retirement.org/forums/f28/how-i-did-during-the-great-recession-72184.html.

 

[DawgMan]

Selling stocks after they were cut in half? Something does not compute there. Bonds should have covered it in 2009.

Selling stocks after they have substantially recovered (substantial stock recovery happened during 2009 and 2010) because you rebalanced at the lows and you’ve pulled down your bonds over a couple of years? There is nothing wrong with that.

I remember rebalancing by selling stock during 2010 because my equities had grown so much after my early 2009 rebalance. That’s how it’s supposed to work. You bought more stock when it was cut in half. It grows big time, you’ll take some profits to rebalance.

By all means, check my math (human error very possible). I was trying to subscribe to strict re-balance 60/40 policy to see what the "ride" would have been like.

 

[Moemg]

I was heavily in stocks when the recession hit and I stayed that way until they had recovered . I then dropped my allocation in stocks to a more reasonable level .The biggest mistake I made was not having enough cash to see me through several years .I now have a pile of it . I also do straight 4% not 4% with inflation so I took a big cut in my budget in 2009.Thinking back I can not remember any big change to my life style .

 

[audreyh1]

By all means, check my math (human error very possible). I was trying to subscribe to strict re-balance 60/40 policy to see what the "ride" would have been like.

I didn’t check your math. I reviewed your comments in the xls file. And you state you took 100% from bonds and bought stock in 2009. That is what I would expect. I don’t know why your previous comment said that you had sold stock in 2009, you didn’t.

The next two years were huge stock market recovery years where you were were able to sell stock because you had bought some in 2009 after VTSAX had dropped 37%. And by the end of 2010 VTSAX was just shy of its 1/1/08 level.

This is how rebalancing works.

I added comments to your comments from the xls file in my prior post. Please take a look at that.

 

[marko]

I suppose I am looking for some level of further confidence that should I (or anyone) happen to RE when the market takes a big dump, that there is real hope in staying with a reasonable AA, re-balance, WR plan. This, along with flexibility in spending I hope would be enough to give me (and anyone else) the confidence to hit the launch button.

I'm not sure there's ever a 'best time'. Sometimes you just have to hold your nose and jump in.

In my particular case, our portfolio recovered from its high around June 2010. Our dividends kept coming in at nearly the same level with notably lower cap gains. We were only drawing about 2% at the time, so we weathered the storm fairly well.

 

[DawgMan]

I didn’t check your math. I reviewed your comments in the xls file. And you state you took 100% from bonds and bought stock in 2009. That is what I would expect. I don’t know why your previous comment said that you had sold stock in 2009, you didn’t.

The next two years were huge stock market recovery years where you were were able to sell stock because you had bought some in 2009 after VTSAX had dropped 37%. And by the end of 2010 VTSAX was just shy of its 1/1/08 level.

This is how rebalancing works.

I added comments to your comments from the xls file in my prior post. Please take a look at that.

Appreciate the feedback. Perhaps I am missing where you say my comments are off?? Your additional comments in your revised post seem to match my comments?

I was really trying to illustrate for myself, and perhaps others, the effects of strictly following the re-balance formula (in this case 60/40) regardless of individual balances for stocks & bonds. In my example, after re-balancing and taking your annual distribution, the stock allocation does not get back to the original balance until 2014, yet the "strict" re-balance method told me to sell stocks every year except 2008. Yes, stocks improved so the formula says sell, however, I got the sense from many here that they were trying to avoid selling stocks while they were below their starting balance and instead continue to pull from their bond/cash allocation. This would arguably not keep a re-balance purest properly balanced for that year(s) as their AA would sway more heavily into stocks. I get the logic, just making an observation. To me, the good news is the true dedicated re-balancer could still retire right before a big drop, hit their 4% WR, and eventually see their portfolio exceed their starting balance (at least in this specific example).

Makes me feel better about my plan. Just thought I would share the good news.

 

[tmm99]

Basically I hunkered down, lived below our means...

I think that's what I would do too if the market tanked. An average person would not keep on spending the same amount of money (unless his/her pensions/annuities covered all his/her expenses.) I certainly wouldn't. When in famine, we conserve energy, kind of thing. To me, it's built into us.

As for the 2007-2009, I was still wo*king, so but I wasn't bothered by it much. I bought a little more and tried not to look at my 401K balance as often. (It's much more fun to look when the numbers are going up!)