Concerns About Inflation?

[Montecfo]

That's a big issue, as it appears they just don't wish to raise rates, possibly too expensive to service the debt, concerns about a big drop in the stock market, stagflation, etc.

Fed only controls short term rates. The market sets the rest and it is telling us we are in a low growth low inflation reality on the mid to long term. The market expects low inflation.

And US interest rates are higher than the rest of the developed world.

 

[kcowan]

I have a personal inflation rate in our financial plan. When our spending exceeds that (or not), I revise it. I don't pay any attention to government rates. I did when I first built our plan but concluded that it has no effect on our plans other than increasing our equity allocation because artifically low rates increase equity buoyancy.

It will be fun to see our economy exit the pandemic!

 

[corn18]

Fed only controls short term rates. The market sets the rest and it is telling us we are in a low growth low inflation reality on the mid to long term. The market expects low inflation.

And US interest rates are higher than the rest of the developed world.

The Fed can influence medium and long rates by buying bonds there.

 

[Montecfo]

The Fed can influence medium and long rates by buying bonds there.

Yes. But other market participants provide the greatest influence. and those yields fluctuate greatly even with Fed in the market.

 

[chassis]

Have a look at interest rate spreads now. What are today's spreads telling anyone about future inflation expectations?

 

[Montecfo]

Have a look at interest rate spreads now. What are today's spreads telling anyone about future inflation expectations?

The market is expecting low inflation for sure.

 

[NW-Bound]

And the low inflation expectation comes from the worry about the Delta variant dampening the reopening of the economy.

Not just in the US, but many countries are seeing a surge in infection rates. For example, Japan and Korea are seeing higher infection rates than ever. Vietnam is extending the total lockdown. Sydney and Brisbane are also in lockdown.

I guess the earlier fear of inflation may be premature. Now, we may just see the world slipping back into a global recession.

 

[Theophrastus Bombastus]

Is anyone concerned about higher inflation going forward?

In 2021, as we have seen and experienced firsthand, the dramatic rise in prices of everything from automobiles to housing to zucchini I believe will undoubtedly affect the long term viability of retirement portfolios as purchasing power is eroded while taxation is sure to increase.

I, for one, do not believe that this is a short term issue as has been heralded by either the media or government. Just two years ago the US National Debt was under $23 TRILLION and is now approaching $29 TRILLION (a 26% increase in just two years) as the government just keeps diluting the value of those hard earned dollars saved by so many over a lifetime of working and saving. All DC is doing is dis-incentivizing the old work ethic while encouraging dependency and printing more worthless monopoly money.

I do not believe that increasing one's exposure to equity/stocks or bonds is wise, either. The stock market has undergone a significant rise in the last year, but I think this is a prelude to a catastrophic fall that will make prior corrections and crashes look like child's play.

After the Roaring 20's culminated in the 1929 Crash, which was followed by the Great Depression, the Dow Jones did not return to the peak closing of September 3, 1929, until November 23, 1954.

TWENTY FIVE YEARS!

I do not believe that I have another 25 years left and, if I do, surely don't want to end my days begging or selling pencils on a street corner, standing in a breadline, sleeping under a bridge or hobo hopping a train as my method of transportation. I knew people who did and know others now who stand on corners that 'will work for food.'

So, what steps have you taken or would you take in the event of a total economic catastrophe? What stock/bond/cash/CD/annuity/commodity/real estate or other investment exposure/allocation would you be comfortable with? What level or percentage of debt (if any) are you comfortable with? What would be your acceptable minimum 'foxhole' annual withdrawal rate be and how would you implement it from where it currently is? What would you sacrifice? Obviously an AWR of 0% due to portfolio depletion is a disaster. I have personally known some very wealthy people who did not make adjustments when faced with financial adversity and ended up destitute before death.

I especially want to hear from those already in retirement, whether for one month or twenty years. Those working still have a 'lifeline.'

It's one thing to look at a rope while standing on hard ground and say "It looks strong." It's another to have faith in it as you dangle from it over a cliff.

I've heard it's easy to see who's been swimming naked when the tide goes out.
Do you have confidence in your asset allocation and planned/actual AWR?
Why?

 

[REWahoo]

Today is another beautiful day in the neighborhood.

 

[Aerides]

(posts merged with existing thread)

 

[Badger]

...So, what steps have you taken or would you take in the event of a total economic catastrophe? What stock/bond/cash/CD/annuity/commodity/real estate or other investment exposure/allocation would you be comfortable with? What level or percentage of debt (if any) are you comfortable with? What would be your acceptable minimum 'foxhole' annual withdrawal rate be and how would you implement it from where it currently is? What would you sacrifice? Obviously an AWR of 0% due to portfolio depletion is a disaster. I have personally known some very wealthy people who did not make adjustments when faced with financial adversity and ended up destitute before death.

I especially want to hear from those already in retirement, whether for one month or twenty years. Those working still have a 'lifeline.'

It's one thing to look at a rope while standing on hard ground and say "It looks strong." It's another to have faith in it as you dangle from it over a cliff.

I've heard it's easy to see who's been swimming naked when the tide goes out.
Do you have confidence in your asset allocation and planned/actual AWR?
Why?

First why don't you start us off with your plans? You seem to be very concerned about the future so it makes me think you have a solution.


Cheers!

 

[Theophrastus Bombastus]

First why don't you start us off with your plans? You seem to be very concerned about the future so it makes me think you have a solution.


Cheers!

Actually, I do not have a solution, nor do I profess to. My plans would not necessarily apply to anyone else. I want to know what other retiree's asset allocation and planned annual withdrawal rate has been or would be in an economic meltdown.

As it is, my lifestyle has been supported by an AWR under 3% for nearly a decade.

 

[braumeister]

As it is, my lifestyle has been supported by an AWR under 3% for nearly a decade.

Sounds good.

We appreciate new members introducing themselves over here in this forum:

Hi, I am...

Telling us something about yourself makes discussions much more fruitful.

 

[REWahoo]

Telling us something about yourself makes discussions much more fruitful.

+1

Without that context an initial post like yours is the equivalent of walking into a large, crowded room filled with people who know each other, standing on a chair and shouting, "What steps have you taken or would you take in the event of a total economic catastrophe?!"

 

[ivinsfan]

+1

Without that context an initial post like yours is the equivalent of walking into a large, crowded room filled with people who know each other, standing on a chair and shouting, "What steps have you taken or would you take in the event of a total economic catastrophe?!"

Or perhaps someone that something they want to preach about and/or sell to us. (literally sell).


So if you just want to share, you go first.

 

[marko]

After the Roaring 20's culminated in the 1929 Crash, which was followed by the Great Depression, the Dow Jones did not return to the peak closing of September 3, 1929, until November 23, 1954.

So, what steps have you taken or would you take in the event of a total economic catastrophe?

I'd buy the dip.

Not everyone went broke in 1929. My grandfather made a fortune in 1930 buying everything he could, pennies on the dollar.

 

[Chuckanut]

I'd buy the dip.

Not everyone went broke in 1929. My grandfather made a fortune in 1930 buying everything he could, pennies on the dollar.

IIRC, the legendary John Templeton made a bundle by buying up shares in every stock he could find that sold for under $1 a share.

Are you related to Mr. Templeton by any chance?

https://www.gurufocus.com/news/662888/john-templeton-dared-go-where-no-investor-had-gone-before

He invested in European stocks after World War II decimated the continent. He jumped into Japan when Americans knew little to nothing about foreign investing. And, during the Great Depression, he bought every company listed on the New York Stock Exchange that was selling for under $1 a share.

 

[marko]

IIRC, the legendary John Templeton made a bundle by buying up shares in every stock he could find that sold for under $1 a share.

Are you related to Mr. Templeton by any chance?

https://www.gurufocus.com/news/662888/john-templeton-dared-go-where-no-investor-had-gone-before

Sadly (or happily) no.

 

[Whisper66]

Wife and I are ~61 yrs old and fully retired for 6 yrs. We live off just our investments until we collect Social Security. Not too concerned about a total economic catastrophe but wouldn't be surprised if inflation takes off and is high for several years. We've moved a lot of our fixed assets into an inflation protected bond fund (VAIPX). We're also working on lowering our asset allocation to a more comfortable level. We had bought heavily into the March 2020 correction and our allocation grew to ~85% equities /15 % fixed assets. Today put in some sell orders to drop it to 75/25 and then will wait for a good opportunity to drop it back to probably 70/30 or 65/35. If a major correction happens again, we plan to buy more equities while leaving enough fixed assets to hold us for 3+ years. Our AWR has averaged 5.4% since retirement. In considering how much we can spend each year, we reevaluate the maximum we can spend each year by rerunning Firecalc / I-ORP as if we had just retired. In a major downturn, we would likely cut back our AWR to more like 4%. Just guessing, we will cross that bridge if we come to it.

 

[W2R]

I want to know what other retiree's asset allocation and planned annual withdrawal rate has been or would be in an economic meltdown.

As it is, my lifestyle has been supported by an AWR under 3% for nearly a decade.

ANNUAL WITHDRAWAL RATE: My lifestyle for the past 12 years of retirement, has required an average 1.6% WR.

I know that sounds small, but right now I am in a pretty good position. I have a paid off house and car, no loans, and mostly I live on Social Security and a 3-figure mini-pension that I get each month. I spend whatever I want, but I have pretty much all that I need, already. In an economic meltdown I would probably just stop withdrawing entirely.

ASSET ALLOCATION: My planned AA is 45/55 (equities/fixed), but due to the equity run-up it is now 50/50. I probably should do something about that but haven't. It's mostly in broad index funds and cash. In an economic meltdown I would do nothing and wait.

 

[daylatedollarshort]

I've heard it's easy to see who's been swimming naked when the tide goes out.
Do you have confidence in your asset allocation and planned/actual AWR?
Why?

I do have confidence in our asset allocation and safe withdrawal rate. I modeled a huge stock crash and high inflation in our spreadsheets before we retired. We don't have a high allocation to stocks. I bought a lot of TIPS when rates were higher. If stock collapse, we don't have too much to lose. If inflation takes off we have a low fixed, rate mortgage that won't change, TIPS should go up in value, SS and one of the pensions will increase, and our HCOL area home with low Prop 13 taxes will be go up in value. According to my models, we actually come out ahead with high inflation.

I'm really into sustainable living and low overhead, so our current WR is negative. Our regular expenses (excluding big purchase years like remodeling the house) are less than half of what we could spend, less than a third if we moved and rented out the current house, which is kind of big for the two of us these days. We're saving money living on SS, pensions and my hobby income (credit card games, free merchandise for reviewing products, bank bonuses, ink recycling, etc.). If real estate crashes we'll help the kids buy their own homes. If stocks crash, it will be a good buying opportunity. If things stay the same, we'll keep on truckin' like we have been and keep living below our means.

 

[ownyourfuture]

I have a question I've been meaning to ask for a while now.

I realize it's a long time ago, but when I bought my first home on July 1, 1994, a 30 year fixed was 9.25%

As far as I remember, the economy was doing fine. 27 years later, a 30 year fixed is around 3.00% yet the federal reserve seems absolutely terrified to raise rates a measly 25 basis points.

I realize we've been dealing with the pandemic for well over a year now, but even before that came along, interest rates were at, or near historical lows.

What does that say about the underlying economy ?

 

[razztazz]

I realize we've been dealing with the pandemic for well over a year now, but even before that came along, interest rates were at, or near historical lows.

What does that say about the underlying economy ?

It's barely alive and has been so since 2008. It's all white wash, smoke & mirrors, Johnny Carson breaking into a tap dance while the band played Tea for Two. And stop talking about it or people will notice. A few years ago someone here on this forum, when referring to the economy, stated (paraphrasing): The patient didn't recover, he's just been on life support since 2008. I am not an economist so perhaps it's not quite that bad but it can't be good. Don't let the numbers confuse you. Hence the inability/unwillingness to declare normalcy after half a generation.

 

[yhoomajor]

It all boils down to value of dollar. US debt is now close to $30T.

Even 2% interest on this amount will cost around $600B per year. That will tell anyone (who wants to look rationally) that rationality no longer exists in US financial system.

All is fine and dandy as long as poor schmucks in China, Bangladesh & Vietnam & (commodity producers).. keep sending us the output of their hard labor .. for these funny dollars (zero labor to produce these dollars). There would come a time when those nations will wake up and realize that they have been fooled.

Until then, its Party ON!

 

[Montecfo]

I'd say all or just about all of the retired folks here have confidence in their investments and AA. If not comfortable, they should change it.

Predicting financial Armageddon has been a losing proposition.
But if you know it's happening and when simply sell everything and short the market.

In the meantime I will maintain a sensible AA in accord with my risk tolerance and adjust as appropriate.