How hard is it to RE at the market top (2014)?

[ERD50]

Originally Posted by photoguy View Post
A simple method might be take 4% of current portfolio value (not starting value adjusted for inflation).

This idea is more robust wrt failure, but at the cost of higher income variability. I would prefer this. ...

Who would head to Europe when his portfolio was down 20% or more? I wouldn't even do this at a 10% drawdown.

I would not like this, but even if securities suffered some more, or didn't bounce back, or inflation picked up less than disastrously, I should nevertheless be ok to stay in the game. ...

Well, this is definitely in the 'to each his own' area, but I strongly prefer to plan on a lower average WR%, and to maintain that through ups/downs. Part of that is that we have always been LBYM, so where would we cut? We do have a bigger home than we need now, but I'm not sure i makes sense to sell it in a downturn, and anywhere we would want to live probably won't be all that much cheaper.

If I told DW (or myself for that matter), that the market is down, we need to cut spending, I would feel that I 'failed' - I should have found employment if I couldn't maintain our lifestyle.

A few posters do have discretionary spending that they say they could cut to the bone and still be happy - so the variable plan could work well for them. I really want what I have now. More would be better, but no big deal. Less would take some soul-searching.

The only time I went to Europe on my own dime was 2011. Market had recovered by then, but that deep dip was still fresh in my memory. The budget could handle it.

This thread has renewed a few questions that I need to think about:

1) TIPS

2) When would I need to cut spending? I slept fine in the last crash, I'm not going to cut spending if a two year bear comes around, they happen regularly. But at some point, an extended bear means trouble - how do you act in time, but not over-react to market gyrations? I do not believe this is as simple as many think. That could be its own thread, but I really should attend to some other things for the next week or two ...

3) And just how much could I cut spending? This is a high COL area, and our kids and parents are here, so moving may not be in the cards right now.

To me much bigger risks would be accidents or sickness, or some boneheaded investment error.

Ha

That's for sure. That's one of the reasons I try to limit my annual driving miles. I could never get on a motorcycle or bicycle on public ways. If I 'wipe out', finances won't matter.

-ERD50

 

[daylatedollarshort]

There are quite a few posters here who have a lot of dividend stocks, and they said that they only cared about the dividend income which tended to hold up well through the Great Recession, and not looked at the value of the stocks.

The S&P is paying only 1.85% now, but one can get up to 2.5% with a basket of value stocks. Suppose you put your money in that black box, and just spend the 2.5% that it spits out, which increases with time too to match inflation, and not look inside that box. Would that make you feel OK?

Do you get better and more secure income than that 2.5%, I am curious?

We don't have a set AA. We just have a retirement plan that assumes 1% real with pad in it for less and we play it buy ear. Today we had an auction order in for 30 year TIPS that came in at 1.116%. Not great by ER forum standards but more than our plan calls for.

I would probably not feel okay with a high allocation of value stocks but I am sure for some people that could work great. I would personally be sad seeing the NW go down and it is the feeling sad part I want to avoid.

 

[NW-Bound]

I did not suggest that stock income investing will work for you. I am just trying to see what you will accept as sufficiently "safe". Different people find comfort at different points on the risk/reward trade-off curve, and out of curiosity I am just trying to see where you are. There is a poster who's only comfortable with CDs and annuities, but he has not posted for a while.

You said you play it by ear, but what parameters are you monitoring and what are you willing to change? Again, I am just trying to understand a different way one can finance the retirement.

 

[springnr]

I don't remember seeing this Variable "use it up" spread sheet mentioned here before, very different from the have more at the end than started with most shoot for. I'm guessing not many fans here, as little to no inheritance would be left.

Variable percentage withdrawal - Bogleheads

 

[daylatedollarshort]

I did not suggest that stock income investing will work for you. I am just trying to see what you will accept as sufficiently "safe". Different people find comfort at different points on the risk/reward trade-off curve, and out of curiosity I am just trying to see where you are. There is a poster who's only comfortable with CDs and annuities, but he has not posted for a while.

You said you play it by ear, but what parameters are you monitoring and what are you willing to change? Again, I am just trying to understand a different way one can finance the retirement.

Our parameters are to just try to average out to 0 - 1% real, of course more is better, with low volatility. My husband suggested I tell you our investment plan can be summed up in two words: TIPS and a condo.

 

[NW-Bound]

OK. One has to do what he/she is comfortable with. I will not deny that the stock gyrations of the last decade were quite exciting and who can say that they will not repeat?

I just looked at my diary and found the following records.

Mar 24, 2000 S&P @ 1527
Oct 09, 2002 S&P @ 777

That's a drop of 50%. My portfolio dropped 44%.

Oct 09, 2007 S&P @ 1565
Mar 09, 2009 S&P @ 677

That's a loss of 57%. My portfolio dropped 37%.

So, I can claim that between the recession of 2001-2002 and the Great Recession I learned a thing or two, although my normal AA has been around 70-80% stock, 5% bonds, and with the rest mostly in cash (I-bonds, money market, stable value funds). Will see if I can maneuver faster when the next big crisis hits.

I should add that in between the above recessions I managed to beat by a large margin the S&P which was flat. It was both scary and exciting.

 

[ERD50]

I don't remember seeing this Variable "use it up" spread sheet mentioned here before, very different from the have more at the end than started with most shoot for. I'm guessing not many fans here, as little to no inheritance would be left.

Variable percentage withdrawal - Bogleheads

I don't get the impression that the majority here are all that worried about whether or not they leave an inheritance.

But most conservative withdrawal plans will end up leaving something (maybe a lot) on the table if things don't go as bad as worst case history. Since the future cannot be predicted, it's not easy to plan to use it all up before you expire.

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

A 90 YO male has ~ 5% chance to live to 100. But if he makes it to 95, (a 29% chance), he has a 17% chance to live to 100. So even a 90 YO may not want to spend down too quickly.

So I think these ideas are worthwhile - some others are based on a revised RMD formula. All worth considering, IMO.

-ERD50

 

[springnr]

I don't get the impression that the majority here are all that worried about whether or not they leave an inheritance.

But most conservative withdrawal plans will end up leaving something (maybe a lot) on the table if things don't go as bad as worst case history. Since the future cannot be predicted, it's not easy to plan to use it all up before you expire.

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

A 90 YO male has ~ 5% chance to live to 100. But if he makes it to 95, (a 29% chance), he has a 17% chance to live to 100. So even a 90 YO may not want to spend down too quickly.

So I think these ideas are worthwhile - some others are based on a revised RMD formula. All worth considering, IMO.

-ERD50

Running alternate tools is another check on where you stand, offer another perspective in a down cycle.

 

[explanade]

When people reach their late 80s, can they spend a lot?

Other than for something like long term care?

 

[Mulligan]

When people reach their late 80s, can they spend a lot?

Other than for something like long term care?

Well that is pretty pricey in and of itself. That is basically why I am still saving. Them senior casino shuttles may help with the draw down rate though. Thanks to the above post, I need to remind myself if I make it to 90 not to look at actuarial table. Long term planning would consist of waking up and determining what to eat for dinner if I am still alive then.


Sent from my iPad using Tapatalk

 

[daylatedollarshort]

When people reach their late 80s, can they spend a lot?

Other than for something like long term care?

I am okay with keeping a nest egg into old age for financial security and leaving it to the kids and charity. I do not think having the last check bounce would make us any happier. Plus I do not know how to do that. With medical advances who knows how long we might live and incur medical costs and long term care costs well into old age. I don't want to have to worry about running out of money at 95, if I am fortunate to live that long.

There is a quote by Bertrand Russell that I like, "The thing that I should wish to obtain from money would be leisure with security."

 

[kcowan]

You should note that the graph produced is presenting median results so if the tool says you have a 40% to live to age 85, there is a spread of outcomes with a spread in longevity with, for example a lower decile of 79 and an upper decile of 91! Such is the complexity of statistics...

(and I think life expectancy is far more important than SWR in determining portfolio performance! I use the upper decile in our planning.)

 

[springnr]

Low nineties is entrance the top decile in my case, at 100 I would enter the 1% club, bittersweet. In the near generational future, longevity could well factor as a true wild card for early retirement due to advances.

http://www.cdc.gov/nchs/data/nvsr/nvsr62/nvsr62_07.pdf

 

[kcowan]

- low investment returns
- lower amount saved/earned
- higher life span
- expensive end of life care

The "perfect storm" for some future retirees.