With this Market, most likely moving FIRE from 2020 to 2022

[pb4uski]

.... So now I'm 65, seems like I can live my life just fine on 3% WR, how exposed do I need to be? My answer: not very. In fact when I do the various calculators, and pencil in different AAs, there is not much difference in success rates between a 20% exposure to equities, and a 60%. So why be more exposed than I need to be?

If you have heirs or charities that you want to donate gobs of money to, then this may be why.

60% equities:

FIRECalc looked at the 118 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 118 cycles. The lowest and highest portfolio balance at the end of your retirement was $561,030 to $5,524,427, with an average at the end of $2,133,336. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.

20% equities:

FIRECalc looked at the 118 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 118 cycles. The lowest and highest portfolio balance at the end of your retirement was $159,379 to $3,751,776, with an average at the end of $993,320. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.

 

[pb4uski]

.... Problem is, I am realizing that any more SS wages won't change the calculus (already have 35 years with nearly all hi pay), and next year the medical pension goes to max. Also lucky enough to have a cash pension for immediate use; however, it only increases $1,000 for each additional year worked.

Saving another $150k only becomes $6000 / year using the simplistic 4% rule. The realization that working another 12-18 months translates into only $588/mo extra for life has me wondering.

Fortunately, a bottle of spiced Rum has followed me home to help ponder the possibilities.

Atom

The reality is that you won't spend an additional $588/month extra... you'll probably spend whatever you are going to spend and your heirs will end up $150k + growth richer as a result of your decision to work an additional 12-18 months. Just sayin.

 

[atmsmshr]

The reality is that you won't spend an additional $588/month extra... you'll probably spend whatever you are going to spend and your heirs will end up $150k + growth richer as a result of your decision to work an additional 12-18 months. Just sayin.

I think an epiphany is coming over my horizon. Stay tuned.

 

[YVRRocketSurgery]

I don’t understand why folks take more risk than they need to. Things to ponder.

Agree and I'm likely guilty to a degree.

I think some of it has to do with a lack of appreciation of how it can take for your portfolio to recover. In the good times, you may be encountering regular corrections with the markets recovering and hitting new gains after a few weeks or months. Whereas if you hit a true bear, your portfolio may take years to recover. That might be ok when you are young and in accumulation mode but it's obviously a different issue when your are in retirement mode and need to draw on your portfolio, impacting its ability to recover and as you grow older such that you don't know how much time you have left for recovery and enjoying your portfolio.

During accumulation phase, when more than a decade from retirement and a well paying job and well funded emergency fund, it makes sense to take on a lot of market risk. I was close to 100% equities during most of it.

Once retired, it depends on your various income streams. For folks with expenses covered by pensions, annuities, ultimately SS, they may choose to keep a high exposure to equities, especially if they are getting some income as a dividend stream.

+1

 

[HadEnuff]

If you have heirs or charities that you want to donate gobs of money to, then this may be why.

60% equities:


20% equities:

I didn't get everything quoted as well as I might have, but your point, if I understand it, is that a higher equities allocation statistically leaves a higher balance when we croak.

Yes, I understand that aspect. And I would like to leave something to my heirs. However, I feel that Job #1 is to try not to show up on their doorstep explaining why they need to take me in for my final chapter.

One thing about these AA conversations, that we all know, but seldom articulate, is that as the years (decades) go by, we will hopefully be in a position to alter the AA, based more upon what we will leave behind, and less upon our fear that we could run out of money.

 

[EastWest Gal]

I tried to retire in 2014 with less than I have now. Firecalc says I’m ok still. But our travel budget will be constricted with this correction. I keep telling myself time>money. And this forum keeps me grounded in what’s important.

 

[COcheesehead]

I tried to retire in 2014 with less than I have now. Firecalc says I’m ok still. But our travel budget will be constricted with this correction. I keep telling myself time>money. And this forum keeps me grounded in what’s important.

Don’t cut travel, cut the cost of the travel.
https://www.costcotravel.com

 

[Bigdawg]

I didn't get everything quoted as well as I might have, but your point, if I understand it, is that a higher equities allocation statistically leaves a higher balance when we croak.

Yes, I understand that aspect. And I would like to leave something to my heirs. However, I feel that Job #1 is to try not to show up on their doorstep explaining why they need to take me in for my final chapter.

One thing about these AA conversations, that we all know, but seldom articulate, is that as the years (decades) go by, we will hopefully be in a position to alter the AA, based more upon what we will leave behind, and less upon our fear that we could run out of money.

I don't think that was his point. I took his point as being at either 20% equities or 60% equities your success rate was still 100%. So no need for the extra risk. Maybe I missed the point.

 

[pb4uski]

The point was that it was 100% either way, but if leaving more to heirs and/or charities is important to you then a higher equities allocation will allow you to bequest more... and 100% is 100% so the risk of ruin is negligible for each alternative.

 

[cyber888]

Thanks for the critique! The value of bonds are not good either. I guess I will have to put at least $200K-$250K in cash .. like a money market CD ladder. I can transform non-retirement equity to $140K-$150K in cash as early as next week and put it in a CD ladder, but then I'm selling stocks at a low. I guess I will have to wait it out and see what happens after the G20 Trump/Xi trade talks .. maybe the markets will ease up and rebound, and maybe the Feds can say they'll probably stall 2019 rate hikes.

 

[COcheesehead]

Thanks for the critique! The value of bonds are not good either. I guess I will have to put at least $200K-$250K in cash .. like a money market CD ladder

With a bit more risk, you can get a much better return from a bond ladder, muni or corporate.

 

[njhowie]

The value of bonds are not good either.

... if you don't know what bonds to be buying.

I buy short-term munis (generally 2 to 3 years) of equivalent credit quality to US Treasuries, but yields well above equivalent maturity CDs.

Go read up on pre-refunded municipal bonds:
https://www.schwab.com/resource-center/insights/content/getting-to-know-pre-refunded-bonds

On Wednesday I purchased 8 years for 4.21%. Six weeks ago I purchased purchased 14 months for 3.93%. I routinely find great ones in the 3.5% to 4% range for short-term (up from 2.5% to 3% a year ago).

There is zero risk with these, unless you believe the treasury securities backing them might default. They are held in an irrevocable escrow account and administration is turned over to an escrow agent (bank). Once the escrow account is funded, the municipality no longer has any obligation and the investor has no risk beyond the risk in the treasury securities.

 

[UnrealizedPotential]

My feeling is that I don't worry about the market fluctuations too much or if the market downturn continues. It's that way by design. I currently have 45% in bonds and cash. Now in a bull market this can lag returns, but it sure helps when the market turns south. I'm willing to give up some growth to be able to sleep at night and to keep from selling.


If I was thinking about being retired and then holding off because of a sudden downturn, the first thing I would look at is my asset allocation. Do I have too much in stocks and not enough in conservative investments? Some investors like a high stock allocation, and that's okay. It's their money, they can do what they want. Just remember that everything has a cost. You can swing for the fence, but you will probably strike out some too. Or you can try to hit singles and go for a more balanced attack . The choice is yours.

 

[cyber888]

Thanks. Will look into these. How are they different from close-end funds with a basket of Munis like .. NMZ ?

... if you don't know what bonds to be buying.

I buy short-term munis (generally 2 to 3 years) of equivalent credit quality to US Treasuries, but yields well above equivalent maturity CDs.

Go read up on pre-refunded municipal bonds:
https://www.schwab.com/resource-center/insights/content/getting-to-know-pre-refunded-bonds

On Wednesday I purchased 8 years for 4.21%. Six weeks ago I purchased purchased 14 months for 3.93%. I routinely find great ones in the 3.5% to 4% range for short-term (up from 2.5% to 3% a year ago).

There is zero risk with these, unless you believe the treasury securities backing them might default. They are held in an irrevocable escrow account and administration is turned over to an escrow agent (bank). Once the escrow account is funded, the municipality no longer has any obligation and the investor has no risk beyond the risk in the treasury securities.

 

[njhowie]

Thanks. Will look into these. How are they different from close-end funds with a basket of Munis like .. NMZ ?

I could write a book on this. However, let me try to summarize as simply as possible.

1. Standard differences in purchasing individual bonds vs. a fund.

2. A closed end fund is a special animal. The daily price will fluctuate based on supply/demand of the shares, no different than how any stock that trades in the market. You are at the mercy of whoever is buying/selling and not the value of the underlying holdings as in a typical mutual fund or ETF.

https://www.fidelity.com/learning-center/investment-products/closed-end-funds/cefs-mutual-funds-etfs

3. NMZ is a high yield bond fund. Understand, that generally means that it's going to be taking a higher level of risk, whether that be in the quality of the bonds held and/or the duration of the bonds, and/or possibly employing leverage. The yield may look great, but total return could be awful. NMZ, for example, ~5.7% current yield, YTD total return is about negative 10%.

4. For the bonds I've spoken of, the fund to invest in would be PRB. Note this fund is specific to tax-exempt muni bonds. You can also employ this with respect to taxable munis as well - which is better suited to tax deferred/advantaged accounts like IRAs. I haven't taken any time to research what other funds are out there.

https://www.vaneck.com/etf/income/prb/overview/

 

[cyber888]

I could write a book on this. However, let me try to summarize as simply as possible.

1. Standard differences in purchasing individual bonds vs. a fund.

2. A closed end fund is a special animal. The daily price will fluctuate based on supply/demand of the shares, no different than how any stock that trades in the market. You are at the mercy of whoever is buying/selling and not the value of the underlying holdings as in a typical mutual fund or ETF.

https://www.fidelity.com/learning-center/investment-products/closed-end-funds/cefs-mutual-funds-etfs

3. NMZ is a high yield bond fund. Understand, that generally means that it's going to be taking a higher level of risk, whether that be in the quality of the bonds held and/or the duration of the bonds, and/or possibly employing leverage. The yield may look great, but total return could be awful. NMZ, for example, ~5.7% current yield, YTD total return is about negative 10%.

4. For the bonds I've spoken of, the fund to invest in would be PRB. Note this fund is specific to tax-exempt muni bonds. You can also employ this with respect to taxable munis as well - which is better suited to tax deferred/advantaged accounts like IRAs. I haven't taken any time to research what other funds are out there.

https://www.vaneck.com/etf/income/prb/overview/

Thanks Man. Looks good