Testing my "sleep factor" with a 10% dry run

[target2019]

Roman,
Are you comfortable sharing with us how your health insurance works there?
Thanks.

 

[Roman]

Roman,
Are you comfortable sharing with us how your health insurance works there?
Thanks.

Sure, I will try:
In Switzerland, everyone is legally required to have health insurance — whether you’re a baby, an adult, or a retiree. The mandatory plan is the basic insurance, and it covers medically necessary treatment broadly (no “class-based medicine” and no hard coverage caps for essential care). On top of that, you can buy supplementary insurance, which is mainly about comfort and choice — for example, a private/semi-private hospital room, choosing your doctor, or wider hospital options.

For a family of four, premiums can be around USD 1,200 - 2,000 per month. On top of the premiums, each person has a deductible that can be chosen within a defined range. Higher deductible = lower premium; lower deductible = higher premium. You pay costs yourself until you reach your deductible; after that, the insurance coverage applies.

There isn’t a single state insurer. Instead, there are many private insurers. What they all have in common is that they must offer the basic insurance, and they also sell supplementary “comfort” products (for example, some people add extra services during pregnancy).

This topic is fairly complex and I’m not a true expert, but I hope this explains the Swiss insurance health system in a reasonably understandable way, more or less.

By the way: if a person or family can’t afford the premiums/policy (and can document that), the community supports them through subsidies. In practice, nobody — really nobody — is supposed to have to skip medical care because of cost.

 

[TickTock]

My plan was always that I would not retire unless and until we could could enjoy the same or better financial lifestyle as we had while working. Since we didn't plan on cutting back, we didn't need a dry run. And, with the exception of having more glorious free time, our standard of living has not changed.

This is us as well. We did change overall AA from 80/20 to 60/40 over the four years prior to retirement.

 

[Roman]

I’m currently struggling with a strategic dilemma and would love to hear from those who have already "been there, done that." I have a fairly good grasp of my projected expenses for different life stages—I don't have a crystal ball, of course, but I need some constants to work with for planning purposes.

Our situation is this:
Our basic costs (housing, insurance, living expenses) are largely covered by a monthly pension. However, without additional income from our portfolio, it would be a rather modest lifestyle. We want to travel and enjoy life while we have the health and time to do so, which requires significant withdrawals from our capital. I am perfectly fine with a "capital depletion" model—it would be nice to leave something for the kids, but it’s not a requirement.

My actual problem is the fear of a major market crash (the "Sequence of Returns Risk").

If I invest too conservatively (Cash/Bonds), I’ll likely make it through the years, but my purchasing power will be eroded by inflation. Conservative investments often don't even cover the inflation rate after taxes—especially if we face prolonged inflationary periods like we’ve seen recently in Europe and the US.
In Europe, and especially here in Switzerland, bonds and government securities are extremely conservative and offer almost no yield, making it nearly impossible to keep up with inflation.

On the other hand, if I keep a significant portion in a classic All-World ETF, I have a "growth engine," but I also face the massive anxiety of a crash followed by a long sideways market. If a severe crash happens (e.g., an AI bubble?), I might never recover at my age. In the worst-case scenario, the money could run out even faster than with the conservative approach.

I’m curious: How do experienced investors here handle this psychological balancing act? I realize there is no "magic pill," but I’m looking for your long-term experiences on how you found the right balance between "safety" and keeping the "growth engine" running in practice.

Thanks for your insights, Roman

 

[Gumby]

I'm still riding the ~ 60/40 horse that got me here in the first place.

 

[DJRR]

Not sure how Switzerland works, but they seem to do a better than average job keeping inflation down. In the States people usually take 1 of 2 approaches:

1. Build a fixed income ladder to a specific time when you will have more guaranteed income. Like, I have 6 years to social security, so I will build a ladder of 6 years of my expected social security today 1/6th per year. Could also do to a pension or just wanting to have a more guaranteed income.
2. Take a buckets approach. People will keep 1-5 years of expenses in cash and then 2-5 years of expenses in fixed income. If the market crashes they pull from these buckets instead of selling equities.

Personally, I retire next month, and I have 2 years expenses in a money market and 4 years in fixed income. This is enough to bridge me to my full retirement age for Social Security. This does not guarantee that my portfolio won't crash, but at least I will not accelerate the process by selling stocks in the downturn. If things work out I will delay social security to 70. If things go really bad I will claim early to take pressure off the portfolio.

 

[Koolau]

Hi,

I’ve been reading a lot here lately and noticed how much of the retirement game is actually about psychology, not just math.

For my own plan, I’m thinking about a 3-bucket setup. My idea is to keep about one year of expenses in cash and a bond buffer of maybe 3 to 4 years of withdrawals. The rest would go into broadly diversified, worldwide ETFs.

But to be honest, I’m not sure yet how I’ll really feel when the market eventually drops and later I have a small monthly pension coming in.

So, I started a little experiment: I’m currently running a "live test" with about 10% of my savings. I’ve put it into these buckets and I’m following my own rules for refilling the cash part. Good market > refill Cash with ETF, Bad market > refill with Bonds.

It sounds a bit silly since it’s only 10%, but even this small step helps me sleep better. It’s a totally different feeling than just looking at a spreadsheet without a value behind. When I retire, I don't want to impatiently watch the charts, but rather replenish my capital once a year with investments that are currently performing well.

I’m curious—did any of you do a "dry run" before you fully retired? Or did you just jump into the deep end and adjusted your strategy as you went?

Roman

This is the age old problem of trusting and dealing with markets that can not only rise, but fall. I retired in 2005 - not long after the dot-com bust and just before the "Great Recession." And just before the GR, I moved 5000 miles to a HCOL area. So I can tell you it got a bit tense. What helped me was that I had a good portion of my retirement funds (within my 401(k)) invested in a GIF (Guaranteed Income Fund). At that time, it didn't pay very well, but the cash was always available (as long as I was willing to pay regular taxes on withdrawals).

So what ever you have to do to sleep at night in terms of cash available is probably what you need to do. There are any number of vehicles to do this and some have been and more will be mentioned.

How much? Only you can decide. Most downturns/doldrums don't last very long - but there have been 10 year periods where the markets were stagnant. Do you need 10 year's of cash? My gut says (that for me) 5 years is enough - but that's me. All the best as you w*rk through the issues of "insuring" your retirement.

 

[Roman]

Not sure how Switzerland works, but they seem to do a better than average job keeping inflation down. In the States people usually take 1 of 2 approaches:

1. Build a fixed income ladder to a specific time when you will have more guaranteed income. Like, I have 6 years to social security, so I will build a ladder of 6 years of my expected social security today 1/6th per year. Could also do to a pension or just wanting to have a more guaranteed income.
2. Take a buckets approach. People will keep 1-5 years of expenses in cash and then 2-5 years of expenses in fixed income. If the market crashes they pull from these buckets instead of selling equities.

Personally, I retire next month, and I have 2 years expenses in a money market and 4 years in fixed income. This is enough to bridge me to my full retirement age for Social Security. This does not guarantee that my portfolio won't crash, but at least I will not accelerate the process by selling stocks in the downturn. If things work out I will delay social security to 70. If things go really bad I will claim early to take pressure off the portfolio.

That is exactly the approach I was aiming for with my planning. Like you mentioned in point 2, I wanted a system that provides a 'bridge' during a downturn so I don't have to sell equities at the worst possible time.

Even though I never worked in the field, my background is in mathematics, so I tend to need 'hard numbers' and visualizations to truly internalize the logic of a strategy.

To gain more confidence in this strategy (3-buckets with cash/bonds/ETF), I actually built a small browser simulation tool to visualize the 'refill logic' and the cash flow between these buckets over a 30-year horizon. I even stress-tested it with two major crashes within that period, and it was quite a relief to see how the bond buffer (I calculated with a 4-year buffer) keeps the portfolio alive until the markets recover. It really helps with the 'Sleep Factor'.