What is the best time in cycle to retire?

[accountingsucks]

We all know due to sequence of returns risk that retiring on the eve of say the dot.com crash or in 1964 prior to the 10 year bear market would have been terrible times to retire.

Conversely though, when is the best time to retire? As a 42 year old I am aspiring to retire at 50. If the market had a crash today that lasted three years that would put me at 45 - all the while I would be adding to my portfolio. Presumably at some point we would rebound as generally speaking we should be at all time highs more often than not.

So I guess my question is what is the inverse to the sequence of returns risk? What periods in the past would have been the BEST time to retire?

 

[pj.mask]

I think as some people have done, an AA tied to capex/pe is one way to build confidence in this area. That is indirectly tied to market crash/correction cycles.

 

[NgineER]

It would have been best to retire after a prolonged bear market going into a bull. Buying on sale and selling when prices are increasing.

 

[kgtest]

It would have been best to retire after a prolonged bear market going into a bull. Buying on sale and selling when prices are increasing.

So, Retire 'low' Please tell me when that will come so I can be sure to liquify.

 

[FIREmenow]

The best time is when you are ready to retire. Period. [EDIT: 5:00pm on your last day of work. LOL!]

Prepping for being "ready" is a forecast budget and SWR that works in your Firecalc, etc. models.

Kind of analogous to trying to time the market - I think the answer is the same.

 

[Milton]

As FIREmenow said, this question is analogous to market timing. Who really knows what time it is in "the cycle" / what the future holds?

No one can predict, let alone control, macro events. It's much more profitable to focus on the micro stuff, i.e. one's own spending, savings and regular investing.

 

[NanoSour]

The best time is when you are ready to retire. Period.

Prepping for being "ready" is a forecast budget and SWR that works in your Firecalc, etc. models.

Kind of analogous to trying to time the market - I think the answer is the same.

That's pretty much as good an answer as you'll get.

For what it's worth, I retired at 49 after purchasing ESPlanner Plus for $200 and running the Conservative Spending scenario (zero real return for life) and accepting that I could live if this scenario played out. So far we're at 7.2% real and spending has been kept at the conservative level. Spending is all about choices. Clearly we could have spent more, but I sleep better at night with the cushion.

Like you, we batted the ER decision around for well over 5 years. All I can say is it's an interesting journey. Try to enjoy it. It's frustrating at time as you get introduced to analysis paralysis, but you'll end up in the right place when the time comes.

Good Luck...and for heaven's sake, don't try to time the market.

Nano

 

[ERD50]

The best time is when you are ready to retire. Period.

Prepping for being "ready" is a forecast budget and SWR that works in your Firecalc, etc. models.

Kind of analogous to trying to time the market - I think the answer is the same.

Agreed - and I think the question is based on some false comparisons. Let's see if I can explain this, consider someone retiring with $1M and wanting to draw the proverbial 4% - $40,000:

So sure, it is better to retire at the the market bottom with $1M than at the market top with $1M. But...

If this is the same person deciding when to retire, it doesn't work that way! If this person had $1M at the market top, they would have much less at the bottom. You can't assume this same person would have $1M after the drop, the calculation is different.

Remember, a 100% success level was 100% successful for the worst times in history. Retiring at any other time just means you would have died with money left over. It doesn't get worse, it can only get better (historically). FIRECalc is looking for those worst case lines.

-ERD50

 

[Andre1969]

I think in theory, the best time to retire is at the bottom of a bad market, when there's basically nowhere else to go but up, for many years to come. For instance, if you retired at the end of 2000, or 2007, there's a good chance your portfolio took too big of a hit early on, and won't have time to recover. But, if you retired at the end of 2002, or 2008, near the market bottom, you would've seen some spectacular gains.

Only problem with this is that if you didn't hit your magic number in 2000 or 2007, there's a good chance you didn't hit it in 2002 or 2008, either. I imagine most people who retired in 2002 or 2008 had greatly exceeded their number the year before, so they still had plenty of cushion. Or they had other income (pension, SS, inheritance, etc). Or they simply ratcheted back spending and rode out the rough times.

So I guess the right answer is...there really is no right answer. It's whenever feels right for you!

Just out of curiosity, does anybody know what time of the year FireCalc uses, for your retirement? On the front page, it shows three scenarios, of retiring in 1973, 1974, and 1975. But, does it assume you retire at the beginning of the year, the end, or somewhere in the middle? The market was so shaky in that period that not only the year mattered, but even the month of the year! Here's a shot of the SP500 graph from that era...

 

[JohnDoe]

I think it depends on your AA.

If I am 80+ stocks in an 80/20 AA and then at the top of a bull I retire and switch my portfolio to 20/80, and put that 80 in something with nice fixed returns I think that would work at well.

As another posted mentioned, you wouldn't have the same amount if you retired at the end of a bear. Then you switch to a more conservative portfolio and miss the bull.

Just my uneducated 2 cents.

 

[accountingsucks]

This is somewhat on topic. It discusses differing SWR's based on bull vs bear cycles.

https://earlyretirementnow.com/2018/01/24/random-walk/?blogsub=confirming#blog_subscription-3

 

[W2R]

I retired on 11/9/2009, and it turned out to be a very nice time to retire.

Actually, economic cycles aside, I think the best time to retire is the first day when you can manage to do it. I love retirement.

 

[REWahoo]

Just out of curiosity, does anybody know what time of the year FireCalc uses, for your retirement?

January 1, per the guy who wrote the program:

Yep -- Jan 1.