Retirees - Were you ready for the Great Recession?

[scrabbler1]

I ERed 10/31/2008, as the markets were crashing but hadn't hit bottom yet.


For me, the markets crashing ended up being a huge benefit for me because it created a huge buying opportunity to buy an extra ~25% shares of my chosen bond fund. Those extra shares provided me a proportional boost in the monthly dividends that bond fund generated and continue to do so today. I used the proceeds of the company stock I had cashed out when I left the company. At the time, that stock's NAV was determined once every 3 months, so it had not been evaluated since the end of September, and it had dropped only about 1% since its June evaluation. (The stock price had risen by 3000% since its inception in 1997.)


I did become a little nervous when the stock fund I already owned kept dropping for the next few months and well into 2009 before it finally began climbing again. I had no plans to sell any of it and did manage to do a little bit of rebalancing at the end of 2009.

 

[street]

Thanks for the history stories and the archives.

So the moral of the story (bad times) is STAY THE COURSE right? You haven't lost a dime if you can wait it out.

 

[SecondCor521]

I think it would be worthwhile to point out that there were some who sold out around the bottom of the Great Recession, went back to work, and didn't get back in for a while. I think most of those people left the board. So the OP, in asking for stories, might want to consider that there is some survivorship bias in the replies.

 

[travelover]

Fortunately I have a pension that sustains me, but I did tax loss harvest like crazy and am still using up the carried forward paper losses.

 

[Human]

My experience:
I retired right before the Great Recession. I was fairly young, so my portfolio was still about a 75/25 mix. So took a hit. But my wife was working part-time, and I went straight into doing a bit of consulting. That helped financially, but more than anything it gave me the peace of mind that I could have ramped up my income if needed.

Wisdom?

1. Nail the asset allocation you are comfortable with
2. Have the ability to increase/decrease withdrawals rates

On this last point, for me, some flexibility in consulting work and spending helps. So does having a "cushion" built into my projected withdrawals.

With that in mind, I subscribe to the idea of having a “ceiling” and a “floor” to percentage-based withdrawals, based on how well the market performs. Vanguard has an overly detailed dry paper on this approach here: https://personal.vanguard.com/pdf/s823.pdf

 

[garyt]

Come on. An 80 year span. A bit of a stretch don't you think? What was your dad's net worth in '29??

Yea, my Dad lived through both ,too. But he was 5 in 1929, hardly counts, imo.

 

[kramer]

I am single and I retired at age 41 in April, 2007. My asset allocation was 65/35 with more in emerging markets than I wanted because I had big gains in the Vanguard taxable EM index fund that I couldn't sell for tax reasons. My portfolio got hit hard. I was out traveling the world when the market really started crashing.

Did I panic? No, not even a little. Did I have balls of steel? You decide -- I rebalanced all the way down and actually slightly upped my stock percentage near the bottom (I figured my need to take risk had increased at that point). One investing forum in which I participate, in a February 2009 thread, someone mentioned how everybody was so downbeat except Kramer(!) who seemed so positive about the future.

When the market was at or near the bottom (something we only know now in retrospect), I realized that I could still live at 4%, albeit not with the style or safety margin that I had hoped for just a year or two earlier. Anyway, I am much wealthier now (in real terms) than when I retired in 2007.

 

[athena53]

When the market was at or near the bottom (something we only know now in retrospect), I realized that I could still live at 4%, albeit not with the style or safety margin that I had hoped for just a year or two earlier. Anyway, I am much wealthier now (in real terms) than when I retired in 2007.

Thanks for the encouraging story- I haven't hit a major bear market since retiring in mid-2014 but I know it will happen. Your first sentence above is key. I think the retirees who withdrew a larger % of their portfolios during the bad years, either out of ignorance or because they had to in order to meet their fixed costs, were the ones who ended up worse off afterwards.

 

[HadEnuff]

And no, the "Great Recession" will not likely be a "once in a lifetime" experience.

Why not? The Great Depression was.

My father lived through both, in one lifetime.

Come on. An 80 year span. A bit of a stretch don't you think? What was your dad's net worth in '29??

Yea, my Dad lived through both ,too. But he was 5 in 1929, hardly counts, imo.

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.

 

[Moemg]

I think it would be worthwhile to point out that there were some who sold out around the bottom of the Great Recession, went back to work, and didn't get back in for a while. I think most of those people left the board. So the OP, in asking for stories, might want to consider that there is some survivorship bias in the replies.

Absolutely , I was at lunch last week with a few friends and we were talking about the recession . Several women got out at near the bottom and have never gotten back in.They did not have the stomach for any more losses .

 

[Aerides]

While I wasn't retired then, and we only got serious about RE planning in about 2011, our FA (don't...) sold us on an approach that has stuck with me: Keep enough in cash to sleep at night and ride it out. Hence we keep about 3 years in CD's/high int. banks. That, with a haircut to discretionary spending should work for any repeat of 2008/9. No selling, no panics. While the portfolio was smaller then, we have the experience of seeing it bounce back and grow in memory.

I also distinctly remember in about Feb09, my MC's stock was down to about 25% of it's pre-recession value. No one knew if we were at the bottom, or if everything would really go to zero. I remember Warren Buffet saying "ooh bargain, time to start buying at that price!".

If I had, I'd have RE'd far sooner!

 

[athena53]

I also distinctly remember in about Feb09, my MC's stock was down to about 25% of its pre-recession value. No one knew if we were at the bottom, or if everything would really go to zero. I remember Warren Buffet saying "ooh bargain, time to start buying at that price!".

If I had, I'd have RE'd far sooner!

Hindsight- it could have gone the other way. 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.

I also have a financial advisor- they get maligned here a lot (and some deserve it). He was a really good sounding board when things got bad, and made a point of staying in contact with his clients even when the news was bad. It helped.

 

[Danmar]

I apologize to those who may have heard my story before. I retired in the fall of 2006 and was most certainly not ready for the events of 2008-2009. I had effectively all my net worth tied up in my employer, ie employee options, RSU’s, actual stock. My actual stock was leveraged by margin loans as well. Obviously not a good position to have going into retirement. There was one mitigating factor though, I was the CFO of the company and had an intimate understanding of the financial condition and prospects of the company.

During the period mid 2008 to early 2009 my net worth declined by about 75%. Some days I lost over $1million. Luckily I was very liquid and none of my options were expiring until around 2011 or so. I was very worried but didn’t do anything (not much I could have done really). Waited it out, and by the end of 2009 I was back to where I was prior to the recession. My employer ended up unscathed by the recession. They have done very well since then. Repaid all margin loans and diversified somewhat although I am still quite concentrated in my employers stock.

Was very scary. For a while it looked like my retirement was going to be quite different than I had thought. My current position seems downright conservative in comparison to those days even though it would still be viewed as aggressive by most people. I learned that I have a very high risk tolerance.

Cut back spending for a while, cancelled a couple of trips, etc. Luckily the whole thing didn’t last much more than a year. I thought I retired with a very large “cushion” but I was very happy to have it during this period. I was very lucky (still am).

 

[walkinwood]

Yes and No.

(My story can be found in other threads too, so I'll summarize.)
We ER'd on May 1, 2008. In September of the same year, all hell broke loose and our portfolio was down by a third by April of 2009. We were obviously NOT prepared for this to happen so quickly and so soon after we ER'd. We decided to take a year off anyway and then look for jobs.

The "year" extended to the end of 2009 and we both worked in 2010 - DW for 10 months and I worked for 6. By the end of 2010, the portfolio had almost recovered to its May 2008 value, so we breathed a sigh of relief and gave up paid work for the last time (so far).

It was a valuable, if painful, lesson. We learned that we could be very flexible with our spending - ie. we had a large enough non-discretionary budget that allowed us to enjoy life even while cutting down expenses in 2009 by almost 25%. We stayed within our planned withdrawal formula 4% of portfolio value on Jan 1.

We also learned that we were capable of going back to work and still be relatively happy with life. This will be more difficult now than it was in 2010, but if needed, we will do so again.

Our portfolio risk assessment was fairly on target. We didn't sell anything in a panic, but we didn't rebalance right away and let our equity allocation drop with the market. I did buy some funds, but not enough to get back to our original 60-40 allocation.

It also brought to the forefront, the expense of living in urban NJ. That and our love for the outdoors resulted in our moving to Denver CO. We love it here.

Our expenses reduced almost permanently after 2009 and only now approaches what we spent in 2008 - in nominal $s. The move to CO had a bit to do with that. We now have an even bigger discretionary budget than we did in 2008.

Edited to add: One more thing... this forum was absolutely invaluable to me at the time. Hearing what others in my situation were doing and why helped a lot... a lot! Thanks to all those who were around at that time.

 

[walkinwood]

Maybe I am missing your drift, but if you had a plan as of 1/1/07 that says you were good with a 4% SWR and 2008+ happens, I would argue that it DOES take brass balls to blindly stay the course. This is exactly why I am asking the question.

I don't think you need brass ball though I don't know how life would work out with them. Clank clank all the time?

You need to have done your homework and fully understand the history of markets, why you have chosen the AA you have, why you've chosen the withdrawal method and percentage you have etc. Study, study, study. If you do that, a 2008 type meltdown will keep you up some nights, but you won't panic.

I don't know what would happen to me if we had a 1929 type meltdown.

 

[redduck]

Didn't sell but didn't have the nerve to rebalance on the way down and ended up with an AA of roughly 45/55, where I remain today - including seven years of cash/ST bonds.

As my investment decisions hinge on your every word, I want make sure I understand your every word. So, does your 45/55 include seven years of cash/ST bonds (as you state), or is (are)? the cash/ST bonds in addition to (as you don't state) the 45/55 allocation?

 

[45th Birthday]

I stopped working for money in mid-2006 at age 45. No pension, only an investment portfolio. I ran the numbers and knew I had a cushion in case things went south.

When the recession hit, we didn't reduce spending, and we didn't sell any physical assets.

As for the portfolio, I harvested a lot of tax loss carry-forwards that I will finally use up with the 2016 tax year. The portfolio itself was pretty heavy on the bond allocation because things went south right after I FIREd, I hadn't had time to roll all the money into equities. So, I increase equity exposure, mostly by buying more dividend ETFs as I figured it might be awhile before a recovery and I wanted to somewhat protect current income.

I don't have any contingency plan in place now. If (when) things go bad again, I will harvest some more loss carryforwards if possible and put more into equities.

 

[REWahoo]

As my investment decisions hinge on your every word, I want make sure I understand your every word. So, does your 45/55 include seven years of cash/ST bonds (as you state), or is (are)? the cash/ST bonds in addition to (as you don't state) the 45/55 allocation?

My 45/55 AA includes the cash. My target AA is 45/45/10.

Note: Check your PMs for an invoice for investment services rendered.

 

[redduck]

My 45/55 AA includes the cash. My target AA is 45/45/10.

Note: Check your PMs for an invoice for investment services rendered.

Thank you. Your unopened bottle of Night Train Express is on its way.

 

[Skeptic]

Dumb question: how far did your 45/55 portfolio fall in 2008? I guess the market fell by 50%. Does that mean such a portfolio falls by about 25%, or what?

 

[tmm99]

I apologize to those who may have heard my story before. I retired in the fall of 2006 and was most certainly not ready for the events of 2008-2009. I had effectively all my net worth tied up in my employer, ie employee options, RSU’s, actual stock. My actual stock was leveraged by margin loans as well. Obviously not a good position to have going into retirement. There was one mitigating factor though, I was the CFO of the company and had an intimate understanding of the financial condition and prospects of the company.

During the period mid 2008 to early 2009 my net worth declined by about 75%. Some days I lost over $1million. Luckily I was very liquid and none of my options were expiring until around 2011 or so. I was very worried but didn’t do anything (not much I could have done really). Waited it out, and by the end of 2009 I was back to where I was prior to the recession. My employer ended up unscathed by the recession. They have done very well since then. Repaid all margin loans and diversified somewhat although I am still quite concentrated in my employers stock.

Was very scary. For a while it looked like my retirement was going to be quite different than I had thought. My current position seems downright conservative in comparison to those days even though it would still be viewed as aggressive by most people. I learned that I have a very high risk tolerance.

Cut back spending for a while, cancelled a couple of trips, etc. Luckily the whole thing didn’t last much more than a year. I thought I retired with a very large “cushion” but I was very happy to have it during this period. I was very lucky (still am).

Thank you for sharing (again), since this is the first time I heard your story. It's amazing that your NW declined by 75%. I wouldn't be able to sleep if it happened to me (hence I have a relatively conservative asset allocation.) I'm happy to hear that you persevered and came out unharmed. Can you imagine the people who took everything out when the market tanked?


Sent from my iPhone using Early Retirement Forum

 

[audreyh1]

Having all that stuff on margin is what freaks me out about Danmar’s story. I can’t imagine facing margin calls as stocks dropped. Maybe his margin loans were low enough that he did not face that.

 

[Danmar]

Having all that stuff on margin is what freaks me out about Danmar’s story. I can’t imagine facing margin calls as stocks dropped. Maybe his margin loans were low enough that he did not face that.

I was indeed worried about a margin call but the loans were quite low in relation to the stock value. I also had untapped HELOC’s that I could have used. My stock would have had to drop another 75% from the low point to get a margin call as a I recall.

But it was very scary for sure. Cured me of ever wanting to have debt (of any kind) again.

 

[Danmar]

Thank you for sharing (again), since this is the first time I heard your story. It's amazing that your NW declined by 75%. I wouldn't be able to sleep if it happened to me (hence I have a relatively conservative asset allocation.) I'm happy to hear that you persevered and came out unharmed. Can you imagine the people who took everything out when the market tanked?


Sent from my iPhone using Early Retirement Forum

You are welcome. Might be a cautionary tale for some. I certainly wasn’t sleeping very well at the time. Blood pressure was elevated and was tested for sleep apnea.

My case was a little different from most I think, in that I became financially independent (several times over) very quickly. To a large extent this success was the result of leveraged equity investing (coupled with a high paying job). It just seemed a little like “easy come easy go” or “stick with the girl you brung”. It makes the idea of a correction or bear market in the future seem almost tame in comparison to what I went through then.

My real concern was a dividend cut but that was never even close (in retrospect). So in the overall scheme of things as long as I could live on the divs (I could) things would be OK. My biggest worry was my options expiring worthless.

It was a very humbling experience. One that I probably needed.

 

[DrRoy]

And no, the "Great Recession" will not likely be a "once in a lifetime" experience.

+1. Maybe not the "GR" precisely, but certainly another bad bear market. I've also seen '73-74, and 2000-2002.