My S(?) WR

[REWahoo]

Am I the only one to find Firecalc graphs not helpful ? To me the graph below does not say much...

Try reading the information that accompanies the graph on the FIRECalc site. You might find it educational.

 

[NW-Bound]

I looked closer at the OP's graph and saw that ReW lost about 33% from top in Jul 07 to Apr 09.

Remember how scary it was then? Thank heaven history did not repeat (knock on wood), because in the Great Depression, the Dow lost nearly 90% of its value. To put that in perspective, I took the liberty to draw up an alternative scenario.

Should we all kiss Bernanke or what?
Or is it too early?

 

[Rich_by_the_Bay]

Did you take your SS yet Rich?

No, but since we are living off post-tax savings til full retirement age of 66, SS will serve to gross-up deferred IRA distributions which will generate ordinary income for tax purposes. IIW, SS will pay my income taxes when I switch from tax-free dollars to taxable dollars. The left-overs will be discretionary income.

 

[REWahoo]

I looked closer at the OP's graph and saw that ReW lost about 33% from top in Jul 07 to Apr 09.

Actually, my portfolio low hit a couple of weeks after the end of the quarter captured here. I lost 38% from the high.

Remember how scary it was then?

Yes I vividly recall the sick feeling in the pit of my stomach.

 

[NW-Bound]

But, now is time!

Oops, might have offended the market god. Oh please, I am down on my knees...

 

[Chuckanut]

I guess the thing to do is to remember that one is rebalancing each year to take advantage of market swings. And, of course, one should have a bucket that has seveal years withdrawal money so one can ride out a big downturn. These are some of the basics, are they not?

 

[ERD50]

I'll also say 'Thanks' to REWahoo for sharing, it motivated me to take another look at where I'm at, and that's always a good thing.

My situation isn't apples-to-apples, DW still working, and no SS yet, and no real large purchases (but a string of medium-to-large, but not unexpected ones - room addition, patio, kitchen appliances, house painted, new car). But actual spending is a little over 4% of starting portfolio. But it has a lesser effect on portfolio with DWs (moderate) income (actual outflow is less than 4% with that income offset). NW is up ~ 15% from EOY2003, so all things considered, I'm happy. Esp when we hear what a terrible time this was in the economy.

Am I the only one to find Firecalc graphs not helpful ? To me the graph below does not say much...

The graphs speak volumes. And they are super-helpful. One (of the many things) they say is that there is a wide range of historical outcomes. We can't know which path we will be on, or if future paths will be different, but it is still informative.

Let's say you plan a vacation, and it is the rainy season where you are going. That doesn't mean you will get rained out (or that you won't get rained out in the dry season), but you have some history and some range of expectations. It is still helpful information.

Thank heaven history did not repeat (knock on wood), because in the Great Depression, the Dow lost nearly 90% of its value. To put that in perspective, I took the liberty to draw up an alternative scenario.

Should we all kiss Bernanke or what?
Or is it too early?

Yes, but I don't think REWahoo would be drawing those %'s if he retired right at a 1929 level peak. This is where we start talking valuation....

-ERD50

 

[NW-Bound]

These are some of the basics, are they not?

They are. But would they be enough if we were to have another Great Depression?

Most FIRECalc runs show some percentage of failure, unless the WR is very low. What do these few percents of failure correspond to, if not the Great Depression?

 

[ERD50]

I guess the thing to do is to remember that one is rebalancing each year to take advantage of market swings. And, of course, one should have a bucket that has seveal years withdrawal money so one can rid out a big downturn. These are some of the basics, are they not?

No, they are not (IMO).

A bucket of money that can ride out several years could leave you with a high EQ% AA if we saw an extended downturn. And then we could have several more years of downturns.

Until FIRECALC has a 'bucket' model(*), I'll stick with re-balancing. That's the basics, IMO.


(*) IIRC, this was discussed not too long ago. And as I recall, it was pretty tough for people to agree on what the rules should be for a bucket. You can't (properly) model something you can't define.

-ERD50

 

[NW-Bound]

Yes, but I don't think REWahoo would be drawing those %'s if he retired right at a 1929 level peak. This is where we start talking valuation....
-ERD50

True. We now know what we just experienced was not Great Depression II, but I remember that we surely felt like it then.

 

[ERD50]

They are. But would they be enough if we were to have another Great Depression?

Most FIRECalc runs show some percentage of failure, unless the WR is very low. What do these few percents of failure correspond to, if not the Great Depression?

The great inflation of the 80s.

-ERD50

 

[NW-Bound]

Hmm... I started work and bought my first home in 1980. Inflation was bad, really bad, but I was not scared as what we have just been through. Why? Was it because having an income allowed me to keep up with inflation? However, I do not remember hearing or reading about retirees facing hardship like everybody did during the GD.

 

[W2R]

Hmm... I started work and bought my first home in 1980. Inflation was bad, really bad, but I was not scared as what we have just been through. Why?

Because you were young, and had just borrowed money for the mortgage?

 

[NW-Bound]

I paid 14% for that 1st 30-yr mortgage. I did not score 14% pay raise every year after that.

 

[REWahoo]

Yes, but I don't think REWahoo would be drawing those %'s if he retired right at a 1929 level peak.

As I mentioned, the primary reason for my (choke!) 9.8% withdrawal rate in 2007 and the almost as bad 7.9% in 2008 was the motor home I bought. I signed the purchase agreement in late July of 2007, a few weeks before the market hit an all time high - and W2R "wheed!" us down into what would become the great abyss.

Had I known then what I know now, I'd probably still be tent camping...

 

[Major Tom]

Hmm... I started work and bought my first home in 1980. Inflation was bad, really bad, but I was not scared as what we have just been through. Why?

Because you were busy working and enjoying the pride of home ownership for the very first time perhaps? In other words, you were too busy being "distracted" with your life to be concerned with the possible ravaging effects of inflation.

For some reason, the recent downturn didn't scare me all that much. I too was distracted. One of my parents died, then I was laid off, then my other parent died. On top of that, there were 2 infusions of cash into my portfolio - a smallish one from my severance pay, and a fairly sizable one from my share of my parents' estate. Both of these cash infusions helped keep the value of my portfolio up so that I didn't have to pay too much attention to my recent investment returns. By the time I started paying attention, things were getting significantly better.

Let's hope they don't get worse again anytime soon......

 

[W2R]

As I mentioned, the primary reason for my (choke!) 9.8% withdrawal rate in 2007 and the almost as bad 7.9% in 2008 was the motor home I bought. I signed the purchase agreement in late July of 2007, a few weeks before the market hit an all time high - and W2R "wheed!" us down into what would become the great abyss.

Had I known then what I know now, I'd probably still be tent camping...

So now you understand the source of my leanings towards frugality! Ah, if you only knew what I know.... gaze into my crystal ball.....

 

[NW-Bound]

Because you were busy working and enjoying the pride of home ownership for the very first time perhaps? In other words, you were too busy being "distracted" with your life to be concerned with the possible ravaging effects of inflation.

That's a possibility. However, I do remember reading about people "investing" into collectibles like rare stamps, gold, arts, etc... Fuel costs were high, and people were talking about burning newspaper for heat. Solar water panels were popular for a while. There were lines at gas stations due to gas shortage.

But, still there were no soup lines, no 25% unemployment, no CCC like during the GD... Nor do we have those now.

 

[ERD50]

Hmm... I started work and bought my first home in 1980. Inflation was bad, really bad, but I was not scared as what we have just been through. Why? Was it because having an income allowed me to keep up with inflation? However, I do not remember hearing or reading about retirees facing hardship like everybody did during the GD.

Now that you mention it...

DW and I bought a house in 1981, mortgage rate was (hold onto your hats kiddies!) 17% !!!! That was 'blended' down. But it was adjustable, and so every month that mortgage went down, down, down. And since I had money from the sale of my townhouse for a good down payment, and we were both working, the payments were affordable. And in the mean time, since inflation was high, I was getting in the range of 10% raises, and promotions. I really don't recall other major expenses raising that much though, so it wasn't painful.

I remember figuring that with mortgage rates at historical highs, and the economy slowing, that something had to break. So I guess I had enough confidence to feel good about going with an adjustable rate. Fortunately, it was interest rates that 'broke' - had it been something else, I can't say I had a good plan 'B'. But we had >20% down and could handle the payments at the starting rate, so we weren't too far out on a limb.

Retirees on SS were getting COLA, right? So maybe they were OK. Oh yeah, CDs were paying over 10%.

-ERD50

 

[NW-Bound]

Now that you mention it...

DW and I bought a house in 1981, mortgage rate was (hold onto your hats kiddies!) 17% !!!

Retirees on SS were getting COLA, right? So maybe they were OK. Oh yeah, CDs were paying over 10%.

-ERD50

Yes, I also remember patting myself on the back for "landing" that 14% fixed-rate 30-yr mortgage, when later buyers had to cough up 17%. Even for quite a few years later, pundits talked about how we would never ever have single-digit mortgage rates again!

I refinanced twice before selling the house in 1986. Yes, I did get a special "one-time" raise after starting work for 6 months. I was told that new hires were getting paid more than people starting out 1-2 years earlier, so the company was making amendment to bring everybody's pay up to make it fair.

Then, the recession of 81-82 hit, because of the Fed's effort to combat inflation. And there was lay-off, which I was spared, thank goodness.

Oh man, it's been 30 years already. I feel old.

 

[Koolau]

No, but since we are living off post-tax savings til full retirement age of 66, SS will serve to gross-up deferred IRA distributions which will generate ordinary income for tax purposes. IIW, SS will pay my income taxes when I switch from tax-free dollars to taxable dollars. The left-overs will be discretionary income.

I assume you have begun Roth conversions or else considered and rejected that idea. I have looked at Roth conversions as a tax "smoothing" gambit. Obviously, not for everyone. YMMV

 

[Midpack]

Am I the only one to find Firecalc graphs not helpful ? To me the graph below does not say much...

The graph is not supposed to be the focus, the text summary above it is the point. And for folks with a technical interest, the graph gives a broad visual confirmation. Clearly shows the range of possibilities is a broad distribution vs a few bunched up outcomes. FIRECALC is a great tool IMO, that's all it's intended to be.

 

[Major Tom]

And for folks with a technical interest, the graph gives a broad visual confirmation. Clearly shows the range of possibilities is a broad distribution vs a few bunched up outcomes.

I like to look at the one line that shoots up almost to the sky, transforming my modest portfolio into a small fortune and think to myself "Please be this line, PLEASE be this line"

 

[Midpack]

I like to look at the one line that shoots up almost to the sky, transforming my modest portfolio into a small fortune and think to myself "Please be this line, PLEASE be this line"

Don't we all!

 

[Dawg52]

Before I retired, I ran my numbers through FIRECalc all the time. Not much since. A great tool when planning though. Now I just concentrate on the good life and roll the dice.