My doomsday scenario

[athena53]

To leave a legacy. Some would argue that if you have a critical mass and a low SWR, then you can afford to be more aggressive.

That's my thinking. DS and DDIL are raising two children on his salary and they want a 3rd. DS has a good job and they're very responsible with money but my third financial priority (after not outliving my savings and helping put his kids through college) is leaving them a legacy so their own retirement is comfortable. I know they have savings but I doubt they'll be able to accumulate what I have.

Another way I look at it after this discussion: about half of what I spend comes from SS and two small non-COLA pensions. I'm withdrawing 3% annually but if I had to cut the dollar amount by, say, 1/3, I'd be left with a reduction in spending of only 17% and probably lower taxes if it's a bad year in the market. (I have a lot of mutual funds and the capital gains distributions would likely plummet.) I could handle that even if it went on for a few years.

 

[24601NoMore]

To leave a legacy. Some would argue that if you have a critical mass and a low SWR, then you can afford to be more aggressive. We have decided to go no lower than 50% equities, despite having a planned withdrawal rate of less than 1%.


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Gotta admire those who want to leave a legacy. For us, it's all about living off our assets and if we exit this life with minimal NW in the bank that'd be just fine - as long as we have enough to get to end of life without having to significantly dial back lifestyle. I'm totally not planning to leave for others. Let them work as hard as DW and I have for 30+ years now, and earn their own keep. I realize that's somewhat selfish, but we didn't inherit squat and for the most part I'm not going to keep working longer than I otherwise would or take more risk than I'd otherwise have to, just to leave a legacy. Once the rest of life is funded, it's time to pull the plug and RE.

 

[Andre1969]

Just out of curiosity, is this hypothetical doomsday scenario based on any real timeline in the past? On some levels, it makes me think of 2000-2002.

In my case, from 12/31/1999 to 12/31/2002, I think I did lose about 45%. However, the true severity was masked somewhat, because I didn't have a lot saved up by then, and at the rate I was investing, the additional assets made a difference. I actually hit an all-time high in May of 2001, and then by September 2002, I think, it bottomed out. So while technically, I had three down years, the actual "crash and burn" period was only about a year and a half.

But then, the following four years were nothing but up. 2003-2006 were excellent years for me, aside from a ~10% pullback in the summer of '06. And again, this was also helped by the fact that I was (and am) still working, and contributing, rather than having to withdraw.

FWIW, I think a cycle that would repeat retiring on 12/31/99 would end up being a failure cycle for me, or at least, one that would require tweaking. Using a $1M starting balance, and using actual inflation numbers, plus my personal rate of return over those years, a 4% withdrawal rate would have me down to $287K as of 12/31/17...and withdrawing about $58K per year. So that scenario, obviously, couldn't go on too much longer. This also doesn't take SS into account though, so if SS comes online for you soon enough, and how big that check is, this scenario might actually be workable.

A 3% withdrawal rate would leave my portfolio at around $817K on 12/31/17, and a withdrawal rate of around $43K per year, thanks to inflation. I think that one would be pretty safe, especially if you factor in SS.

4.5% would have the portfolio down to ~$27K by the end of 2017, so obviously that one's at death's door, and just about to ring the bell. a 5% rate would've had me out on the street a few months into 2015.

I also ran a set of numbers assuming I retired on 12/31/07, just before the "Great Recession" hit. That 2000-2002 period is actually more damaging, to me at least, than the Great Recession, because it dragged out longer. As a result, the balance never got a chance to recover enough, so the Great Recession knocked it down again, to the point recovering again was just about impossible, except for the most conservative withdrawal rates.

Of course, your mileage may vary. I was (and probably still am) invested a bit risky, although I'm almost to the point that dividends could cover my basic living expenses, if necessary. And, if they don't get cut!

 

[samclem]

Bernstein said it best - "if you've won the game, quit playing".

The problem is, we can't just quit playing. If we quit playing the game, then the game plays us. Inflation continues (at some rate). Various investments gain and fall in relative value. Individual expenses can be "lumpy."

I agree with you. Once you reach critical mass, why put your money at risk?

I think it is valuable to make a distinction between "risk" and "portfolio volatility." They aren't the same. A person that needs $30K per year from his $1 million portfolio and buys a 30 year 3% CD is taking a lot of true risk (of declining real spending power due to inflation), but his volatility will be very low. His money isn't at risk. And, his financial situation and available spending power is guaranteed--to seriously deteriorate.

 

[DrRoy]

On the other hand, one might have RE'd March, 2017, (which I did) and the S&P 500 is up 15% plus dividends. Bottom line is, the market will rise and it will fall. Over time one needs some equities for growth and covering inflation.

 

[Huston55]

Ballpark 60/40 the whole way hand grenade wise. ER 1993 to now and counting.

Stayed the course and cut expenses as main strategy when required. Nervous at times? Big time. About 50/50 now going on age 75.

heh heh heh - nobody says ER has to be boring.

Mick’s your Uncle!

 

[big-papa]

You may want to checkout the Boglehead wiki on matching strategies and perhaps consider a TIPS ladder for inflation adjustments.

+1 on that. And if you don't want to go through the effort of building a TIPS ladder by buying individual bonds, over on Bogleheads, BobK described a nifty way to do something almost identical by holding a short term and a long term TIPs fund/ETF and varying the proportions of each as you rebalance or withdraw.

 

[GravitySucks]

Well I doubt inflation would double if equities tank. Deflation would be more of the worry in this case.
If I lost 1/2 of my nut I think I'll survive. Maybe get some work if it's available, but at a down that great there probably isn't much work around. Take in a paying roommate maybe? I'll squeak by on my bond ladder and dividends.
I have changed my perspective over the last few months though. If I make it to 70 before starting SS, and still have a paid off home, and a couple hundred thousand $$ invested I will be better off than 80% of Americans at that age.
I'll consider that a win.

 

[Bir48die]

Its funny, my doomsday scenarios generally involved pandemics, civil unrest, zombies, etc., not money.


Lots of ways to skin this cat, but they often involve significant costs or giving up a lot of upside. There is no having your cake and eating it too. You pays your money and you takes your chances.

+1

I had all sorts of anxiety at the start. Obviously I'm lucky with 2+ years in RE that my gains have covered all expenses plus some. However there are a number of things we can do to lower expenses. We are not spendthrifts but have enjoyed our income to date. If as a previous poster said the SHTF, we do the following in order:

1) Cut expenses. We're debt free so maybe it's the golf club membership, wine clubs, furniture/projects and of course being a little more discerning on our travel budget.

2) Ignore as best I can the loss of portfolio value and remember income from the dividends and MLP's that will cover expenses.

3) Last and hopefully never done is to claim my SS prior to FRA or 70.

 

[daylatedollarshort]

I've not personally read any research showing equities are a better inflation hedge than TIPS ladders. Most, if not all, of what I have read says the opposite is true. I would be very interested in seeing any links on this subject. Our 401K mutual fund adviser kept telling us we needed stocks for growth, and we pointed out his own retirement planner results show we did not.

 

[SecondCor521]

To have enough money to not work for six years and end that period with $1.9M would mean you would still have over twice the amount necessary to put you in the top 1% of wealth today (https://www.investopedia.com/articles/personal-finance/050615/are-you-top-one-percent-world.asp). If you have your health, indoor plumbing, temperature control, and an Internet connection, you're arguably wealthier than almost any of the 100 billion plus people who have ever lived.

Using the word "doomsday" in association with that scenario suggests to me that the OP has lost some perspective. Regaining it might help one worry less and appreciate life more.

 

[GTFan]

Does anyone ever worry about their portfolio?

No, because I've already factored in another 50% market drop. I wouldn't have ER'd if I couldn't handle another 2008-9. And if it goes deeper than that we're all going to be eating dog food.

 

[GTFan]

In a really bad starting scenario like this, I'd be happy just to survive it. I don't need to "make back" the $1M+ I"m down from my starting $3M. It would be nice, of course, and it's also quite possible, but not a requirement. I would definitely be looking to cut back on my spending, or considering rejoining the workforce if I thought that the $1.9M wouldn't last for the remainder of my life.

Exactly.

 

[youbet]

No, because I've already factored in another 50% market drop. I wouldn't have ER'd if I couldn't handle another 2008-9. And if it goes deeper than that we're all going to be eating dog food.

Did you factor in a permanent 50% decline in your portfolio value (50% of your investments go belly-up/worthless) or did you assume a recovery at some point such as we had a decade ago?

 

[Mark24609]

To have enough money to not work for six years and end that period with $1.9M would mean you would still have over twice the amount necessary to put you in the top 1% of wealth today (https://www.investopedia.com/articles/personal-finance/050615/are-you-top-one-percent-world.asp). If you have your health, indoor plumbing, temperature control, and an Internet connection, you're arguably wealthier than almost any of the 100 billion plus people who have ever lived.

Using the word "doomsday" in association with that scenario suggests to me that the OP has lost some perspective. Regaining it might help one worry less and appreciate life more.

[mod edit] Currently I am in the top 6-7% of people in the US in terms of wealth. To be in the top 1% of the world, if I recall correctly, you need 650,000 dollars. Of course, that is because most of the world is mired in poverty. I told my kids, no need to win the lottery. Just by being born in the United States, you already won the lottery.

 

[copyright1997reloaded]

I'm in the camp of if you have enough, why NOT risk the overage. That is, if pension (if you have one) + social security + "safe" investment income flow > income need, then invest any additional wealth in equities which have better growth prospects and are more inflation protected than CD's etc.

This is essentially a variation on the rising glide path approach. I'm also moving assets (subject to gift limits) to DC hoping that DC has a lot of years to have appreciated assets.

 

[COcheesehead]

I'm in the camp of if you have enough, why NOT risk the overage. That is, if pension (if you have one) + social security + "safe" investment income flow > income need, then invest any additional wealth in equities which have better growth prospects and are more inflation protected than CD's etc.

This is essentially a variation on the rising glide path approach. I'm also moving assets (subject to gift limits) to DC hoping that DC has a lot of years to have appreciated assets.

I kinda agree with this. If you have a good 5,10 year fixed income runway, let the risk assets ride.

 

[RunningBum]

To me the biggest risk is probably unexpected large expenses, so keeping a decent investment in equities builds me a bigger base in case that happens. I feel like I'm in the middle of the 3rd quarter of this "game", way too early to say with certainty that I've won.

 

[brewer12345]

No, because I've already factored in another 50% market drop. I wouldn't have ER'd if I couldn't handle another 2008-9. And if it goes deeper than that we're all going to be eating dog food.

Squirrel in my case. Then again...

 

[W2R]

No, because I've already factored in another 50% market drop. I wouldn't have ER'd if I couldn't handle another 2008-9. And if it goes deeper than that we're all going to be eating dog food.

Squirrel in my case. Then again...

I am not sure which would be worse!

Luckily I have Social Security, which could help with groceries if they don't axe it.

 

[Mark24609]

I am not sure which would be worse!

Luckily I have Social Security, which could help with groceries if they don't axe it.

Hehe true of course the way the government loves to print money we may be eating Alpo ������

 

[Mark24609]

To me the biggest risk is probably unexpected large expenses, so keeping a decent investment in equities builds me a bigger base in case that happens. I feel like I'm in the middle of the 3rd quarter of this "game", way too early to say with certainty that I've won.

Yeah I also worry about the large expenses too.

 

[Mark24609]

No, because I've already factored in another 50% market drop. I wouldn't have ER'd if I couldn't handle another 2008-9. And if it goes deeper than that we're all going to be eating dog food.

Yes we may indeed the way the government loves to print money.

 

[W2R]

Hehe true of course the way the government loves to print money we may be eating Alpo

So true!! Inflation would be awful.

I don't have a pet, so I have no idea of what Alpo might cost these days - - but my guess is that peanut butter sandwiches or ramen noodles might not cost too much more than Alpo, especially if I bought generics at a discount store and stayed away from brand names.

 

[marko]

Gotta admire those who want to leave a legacy. For us, it's all about living off our assets and if we exit this life with minimal NW in the bank that'd be just fine - as long as we have enough to get to end of life without having to significantly dial back lifestyle. I'm totally not planning to leave for others.

That's sort of how we view it.

My entire family's (grandparents, great grandparents etc) view was "If you think I worked hard so that YOU can enjoy my money you're dreaming! You'll get whatever is left over when I'm dead!"

The family crest could easily read "What's mine is mine!".

That's what they said, but as I've noted here several times, my grandfather turned into a very wealthy man living like an outtake from the Grey Gardens movie and his family's residue did provide me a trust fund.

So...go figure. I think the difference was that they never had any intention of leaving money behind.

DW and I have no intention of legacy (no kids, just nieces/nephews) but we have provided for them with the residue after we're both gone, but as grandpa would say "but not a minute before!!".