Now Retired: We need 3% yield on a $1.1 mil nest egg

[RunningBum]

Ditto.

Sentiment on this site and many, many others are overly pro-equities at this time only as a reflection of current conditions and that folks have been made complacent towards. Most who are older have been through this all before and knows how it ends. This time it is not different. As Buffett says, we'll find out who's been swimming naked when the tide goes out.

Investment objective and risk profile - that's what counts. Folks most always overestimate their risk tolerance.

Well, I don't know how it ends (not sure how you do), but I suspect it'll end like it always has, since as you say, this time it is (probably) not different. We will have ups and downs, but generally the stock market will rise. We may also have periods of high inflation.

I remember 1987, and how quickly it recovered. I learned a lot from the dotcom bubble burst and won't repeat my mistakes there. I didn't blink in 2008. I don't think I'll blink in the next drop.

We are probably at a high now. But I could've said that a year or two ago, so I'm glad I didn't react to that and get out of the market. I have almost no doubt a low is coming, but I don't know when. So I stay with a relatively aggressive AA, very slowly reducing equities over time.

I'm in my 50s, way too young to declare I've won the game even though I seem to be in great shape. I don't know what inflation will do, or what unexpected large expenses I might hit. Maybe in my late 70s or 80s I'll be confident enough to get out of the market. Not sure how old those of you are who say you've won the game.

 

[Texas Proud]

It seems like there are a number of people who think that we have not had any kind of correction since the 2007 stock market crash and there is a pent up demand to have one.... but you would be wrong...


Decided to look it up and found this...

And lets look at corrections also...

So, we have had a bear market in 2011 (I remember that one, but not quiet a full 20%) and corrections in 2010 and 2012... and IIRC we just had another recently... this article is from 2015 so maybe even a couple..





https://blog.wealthfront.com/no-need-to-fear-market-corrections/

 

[RAE]

Ditto.

Sentiment on this site and many, many others are overly pro-equities at this time only as a reflection of current conditions and that folks have been made complacent towards. Most who are older have been through this all before and knows how it ends. This time it is not different. As Buffett says, we'll find out who's been swimming naked when the tide goes out.

Investment objective and risk profile - that's what counts. Folks most always overestimate their risk tolerance.

Ditto here too. Nothing against equities, but I choose to not go that route anymore (for the most part), as we don't need to. At this stage of my life, I'd rather sleep well and accept a smaller, steady return from safer investments. Our expenses are covered and we have no desire to leave a big chunk of $$ to anyone after we're gone, so it works for us. YMMV.

 

[pb4uski]

This is intended to be informational... I'm not trying to change anyone's minds. It is a hypothetical retiree with $1m retiring on 1/1/2008 with a 3% WR (initial year withdrawal of $2500/month) with withdrawals adjusted for inflation and the portfolio rebalanced annually.

One retiree has a 60/40 index portfolio and the other is 100/0 (all Total Bond).

Retiree 1 (Portfolio 1) incurs a -21.4% return in 2008 and the subsequent recovery gets him back to his $1m in December of 2012.... he surpasses his friend who is bonds only in October 2013 and never looks back.

As of the end of May 2018, Retiree 1 has $1.308 million and Retiree 2 has $1.045 million. An interesting tidbit... despite 100% bonds, Retiree 2 had minor negative returns in 2013 and YTD 2018.

Despite retiring at the beginning of the worst recession in our lifetime, they are both doing very well.

https://www.portfoliovisualizer.com...bol3=VBMFX&allocation3_1=40&allocation3_2=100

 

[Dtail]

I certainly have not won the game yet and will stay with my 55/45 allocation.
I have a plan B and Plan C if things go south in a Japan 1989 extended scenario. Years 2000 and 2008 drops are built into my portfolio.

 

[haha]

Short answer: nothing.

The truth is both life and investing have risks. All any of us can do is diversify our investments, LBYM, and hope for the best.

This is so true. Kind of hard to live with, but no other accurate way to see it.

Ha

 

[marko]

Well, I don't know how it ends (not sure how you do), but I suspect it'll end like it always has, since as you say, this time it is (probably) not different. We will have ups and downs, but generally the stock market will rise. We may also have periods of high inflation.

I remember 1987, and how quickly it recovered. I learned a lot from the dotcom bubble burst and won't repeat my mistakes there. I didn't blink in 2008. I don't think I'll blink in the next drop.

We are probably at a high now. But I could've said that a year or two ago, so I'm glad I didn't react to that and get out of the market. I have almost no doubt a low is coming, but I don't know when.

+1

I must say that I'm a bit surprised by some of the comments here. When I first started lurking with this group years ago everyone was all "stay the course, rely on your AA and above all don't panic or try to time the market".

I did just that during all the downturns and I'm glad that I did. At age 66 I'm still 60/40 and have no intention of changing it anytime soon.

Meanwhile, the economy is strong and profits are up. A [-]downturn[/-] buying opportunity coming? Sure. A nice recovery after that? Same as it ever was. People are talking like they're going to be wiped out...I don't get it.

 

[audreyh1]

+1

I must say that I'm a bit surprised by some of the comments here. When I first started lurking with this group years ago everyone was all "stay the course, rely on your AA and above all don't panic or try to time the market".

I did just that during all the downturns and I'm glad that I did. At age 66 I'm still 60/40 and have no intention of changing it anytime soon.

Meanwhile, the economy is strong and profits are up. A [-]downturn[/-] buying opportunity coming? Sure. A nice recovery after that? Same as it ever was. People are talking like they're going to be wiped out...I don't get it.

I don’t know how long a nasty equity bear markets might last. The last two were a few years, but who knows, the next one could well take much longer (like I executed the 2008 recovery to take a very long time due to the damage to our financial system). But I believe that my diversified portfolio still has enough fixed income to carry through, especially if I tighten my belt a little bit if things get very bad. Nothing is frozen in time, unless you sell in a panic at the bottom and then stay in cash (which apparently some of Bernstein’s clients did, forcing him to change his advice).

 

[marko]

But I believe that my diversified portfolio still has enough fixed income to carry through, especially if I tighten my belt a little bit if things get very bad. Nothing is frozen in time, unless you sell in a panic at the bottom and then stay in cash (which apparently some of Bernstein’s clients did, forcing him to change his advice).

That's kind of my point. I don't fear the market's fluctuations as much as I fear inflation and I see the market as the best place to keep ahead of it.

I don't want to be 85 years old wondering how I'm going to pay for a $15 loaf of bread.

 

[OldShooter]

+1

I must say that I'm a bit surprised by some of the comments here. When I first started lurking with this group years ago everyone was all "stay the course, rely on your AA and above all don't panic or try to time the market".

I did just that during all the downturns and I'm glad that I did. At age 66 I'm still 60/40 and have no intention of changing it anytime soon.

Meanwhile, the economy is strong and profits are up. A [-]downturn[/-] buying opportunity coming? Sure. A nice recovery after that? Same as it ever was. People are talking like they're going to be wiped out...I don't get it.

IMO what you don't get is that many people here think they are investors but they are not. They are concerned, even obsessed, with the short term and enthralled by the idea of timing markets due to their superior judgment or by watching various trend charts. There is a huge thread here titled something like "Should I buy GE?" that illustrates.

The investor answer on GE is:"If you have a well-diversified portfolio and want to have a little GE in it, like a couple of percent, fine. If you like to play the slots you might also prefer to bet your portfolio on a small number of stocks, like five. Should GE be part of that? Check back in five years and you will have your answer.

Those of us who have ridden through various catastrophes and corrections have a different attitude.

FWIW DW and I have won the game but just went to 75% equities. I don't think we'll ever need that 75% and we will be quite content to ride through a 50% drop and five year recovery while sleeping soundly. That 75% is for our heirs and the charities that will benefit from our estate.

 

[audreyh1]

That's kind of my point. I don't fear the market's fluctuations as much as I fear inflation and I see the market as the best place to keep ahead of it.

I don't want to be 85 years old wondering how I'm going to pay for a $15 loaf of bread.

Agreed.

 

[daylatedollarshort]

To follow up on my previous post, there is a time in life where capital preservation outweighs the risk of continued growth. Especially if one has enough to last for the predictable future. IMHO that is.

Pensions and SS cover all our basic retirement expenses and we also invest mainly for capital preservation. The kids and favorite charities can inherit our house and portfolio. We're interested in sustainable living so a low consumption lifestyle is more our focus anyway. From what I have read TIPS are supposed to be better for inflation protection than equities but I would enjoy seeing any links to the contrary.

 

[mpeirce]

I must say that I'm a bit surprised by some of the comments here.

...

Meanwhile, the economy is strong and profits are up. A [-]downturn[/-] buying opportunity coming? Sure. A nice recovery after that? Same as it ever was. People are talking like they're going to be wiped out...I don't get it.

I don't know. I see it as a wide variety of views getting aired.

Also, people tend to speak up when their world view is "working" - "see, fully invested in stocks is really paying off this year!" and "see, no stocks for me - look at the carnage in the markets right now!"

 

[mpeirce]

Oh, and people aren't usually "wiped out" by a downturn in the market unless:

1. they have to sell - they need the money right then
2. they panic and sell - some people will do this; they are the ones who should have a small stock market allocation

 

[harley]

That's kind of my point. I don't fear the market's fluctuations as much as I fear inflation and I see the market as the best place to keep ahead of it.

I don't want to be 85 years old wondering how I'm going to pay for a $15 loaf of bread.

Sounds like a good reason to go low carb.

 

[RAE]

I don't know. I see it as a wide variety of views getting aired.

+1. Why is it so hard for some folks to accept that what is best for them isn't necessarily best for everyone else? Personally, I would hate to see this forum become a place where 100% of posters agreed on any topic. Some of us simply expressed that we are okay with giving up some potential return from equities in exchange for the value of sleeping well at night. We don't desire to leave a bunch of $$ to heirs. We've reached the point in our lives where we really don't want the volatility that comes with equities. We've done the math, and we are reasonably confident we can fund our retirements without much equity exposure (and yes, even considering the effects of inflation). I am certainly not trying to convince anyone that how I fund my retirement is the way everyone should do it......so please, let's have some tolerance for alternative viewpoints.

 

[Another Reader]

"Sounds like a good reason to go low carb."

Don't laugh. Have you seen the prices at McDonald's recently? Here in Silly Valley, a Quarter Pounder with Cheese is $4.99 and their fancy new bacon burger is $7.19. Found that out as I was in the drive-thru yesterday to get one of their $2.00 imitation Starbuck's drinks.

 

[kcowan]

FWIW DW and I have won the game but just went to 75% equities. I don't think we'll ever need that 75% and we will be quite content to ride through a 50% drop and five year recovery while sleeping soundly. That 75% is for our heirs and the charities that will benefit from our estate.

We are the same. Retired since 2002, mainly in equities, we have nothing that we don't need. i.e. we are fat and happy. The heirs and charities will benefit. We are starting to share the wealth while we are still here with grants to help them live their lives to the fullest. Mostly enhancements to their lakefront properties. i.e. $40k to push it along.

 

[Bryan Barnfellow]

Dunno. Don't want to get into an argument over it but we haven't sold a share in the 14 years that we've been RE'd. Just living off dividends (and SS).

We have a healthy dividend bucket as a set-aside and over the years the portfolio has grown (doubled) and the dividends have increased as well.

True, inflation has been tame but I don't see a risk to the strategy at this point in time.

I also use the dividend growth model and have been getting 3-5% and higher dividend growth for my portfolio for many years, along with equity price growth of course. I prefer not to depend on pricing behavior in the market.

-BB

 

[kcowan]

But I believe that my diversified portfolio still has enough fixed income to carry through, especially if I tighten my belt a little bit if things get very bad. Nothing is frozen in time, unless you sell in a panic at the bottom and then stay in cash (which apparently some of Bernstein’s clients did, forcing him to change his advice).

I do not see any reason to tighten your belt unless you have an obligation to leave your equity to someone else. For me the objective to just to make it to the end. Anything left over is a planning error!

 

[Dtail]

Perhaps the comments not fully supporting the non equities folks seem to relate to the inflation theme.
However it is entirely possible that the CD folks' own inflation rate is much lower than the govt supplied rate and thus their concept works for them and will continue to do so.
I am a market guy, but would switch to CD's, etc if I had won the game.

 

[HarveyS]

I'm getting income from A) individual muni bonds that I own, as picked by me with the help of a Fido rep. and B) dividends from a well-diversified portfolio of individual stocks as picked by ML years ago. With regards to B), I am moving those funds to mutual funds. This move is both slower and less disciplined than it should be. The bull market has made me lazy.

 

[audreyh1]

Perhaps the comments not fully supporting the non equities folks seem to relate to the inflation theme.
However it is entirely possible that the CD folks' own inflation rate is much lower than the govt supplied rate and thus their concept works for them and will continue to do so.
I am a market guy, but would switch to CD's, etc if I had won the game.

I don’t know. I can see not noticing 10% or 15% loss in purchasing power, because your personal inflation rate is very low. But over the past 20 years official inflation was 54%. It is hard for me to believe that someone would not experience a large percent of that.

 

[RunningBum]

+1. Why is it so hard for some folks to accept that what is best for them isn't necessarily best for everyone else? Personally, I would hate to see this forum become a place where 100% of posters agreed on any topic. Some of us simply expressed that we are okay with giving up some potential return from equities in exchange for the value of sleeping well at night. We don't desire to leave a bunch of $$ to heirs. We've reached the point in our lives where we really don't want the volatility that comes with equities. We've done the math, and we are reasonably confident we can fund our retirements without much equity exposure (and yes, even considering the effects of inflation). I am certainly not trying to convince anyone that how I fund my retirement is the way everyone should do it......so please, let's have some tolerance for alternative viewpoints.

FWIW, I felt like the previous post I responded to challenged the equity crowd. Maybe I just read into it but it pretty strongly implied that we were being short-sighted on how the equities market performs. I read a few posts that said, zero equities for me, I've already won the game, and I shook my head here at home and thought "That's not for me." I didn't respond until someone basically said "those equity people don't realize what they are in for." Tolerance is for all sides, isn't it? Sometimes it's hard to see that someone debating on your side isn't being so tolerant.

I don't mind being challenged--that's how we learn. And I'm going to respond with what I think, and if I'm shown to be wrong, then I've definitely learned something. Or else maybe the other person will. Healthy debate, as long as it doesn't get personal and people realize no situation the same, is good.

Perhaps the comments not fully supporting the non equities folks seem to relate to the inflation theme.
However it is entirely possible that the CD folks' own inflation rate is much lower than the govt supplied rate and thus their concept works for them and will continue to do so.
I am a market guy, but would switch to CD's, etc if I had won the game.

That makes sense, if inflation soars, CD rates will almost certainly soar along with them. Will the gap get bigger? I don't know. But I can't see double digit inflation and still have 2% CDs.

My bigger concern is the unexpected expenses. Either a few big things happens that puts a dent in my portfolio, or something changes that makes my monthly or annual expenses go way up. I don't know what those would be, but at 56 I don't have much confidence in saying I know what my expenses will be for the rest of my life. I know how to do the math, I just don't know how sure I am of my inputs.

 

[daylatedollarshort]

The article below states TIPS, bonds, leveraged loans and real estate income as better assets for inflation protection. Stocks came in at #5 and a stock and bond portfolio at #7.

https://www.investopedia.com/articles/investing/081315/9-top-assets-protection-against-inflation.asp

I would be interested in the research showing stocks are the best inflation hedge. Most people interested in fixed income would buy a ladder or a fund with yields changing over time with the market, not lock themselves into an entire portfolio of 2% individual bonds for 30 years.