Question for the Retired

[Ken.]

I'm not retired yet myself, but was wondering how the retired have managed over the last 10 or so years when the market essentially gained nothing in the first decade of this century.

I don't see how anyone who retired in 2000 with what they thought was enough money to live off going forward would have been able to stay in retirement if the market didn't gain any.

I'm just curious how any retirees who may have been in this situation have managed over the last decade. I've heard that a lot of retirees had to go back to work at least part time.

It seems like even if in 2000 you used sensible calculations, i.e. approx 4% annual withdrawals from your assets, it wouldn't have worked.

[JDCPAEsq]

Retired in 1998 and portfolio is larger than it was then.
John

[jsl11]

Many (most?) retirees have more bonds than stocks. Bonds have done well.

Jeff

[Dandy]

Retired May 2008 at age 60- have more assets now than then. Have about 1.75% withdrawal rate thanks to a decent pension and health insurance. Waiting till 70 for SS. Always had a moderate equity allocation e.g. less than 60% and little or no debt. More luck than skill.

[williamg]

We retired March 1, 2000. Had an allocation of 65/35 and almost immediately went to 50/50. Pretty clever. In retrospect should have definitely been less stock as approaching retirement, and no we weren't clever, just very fortunate in the timing of my birthday.

We really have not suffered with the market volatility even in 2008-09. Big part of making it through the down cycles for us is having the reserve bucket as part of asset allocation. Had read Frank Armstrong articles on Morningstar before retiring; he recommended putting all of your bond allocation in short term bonds so that you could survive a 5-7 year down period without selling at a loss. We don't go that far, but having a buffer to fall back on is great. We also route all stock/bond dividends to cash for spending (or consciously selected rebalances) which is also comforting as an income source.

Stock market has not gained much in about 12 years, but if you were able to do a little buying and selling along the way as part of normal rebalancing it can make a significant difference. Remember when S&P hit 666 in 2009? March was our rebalancing month.

[investor]

retired 1996 (at age 55) and have more assets then when retired. Funds such as Wellington and Wellesley have treated me well. Generally live off of pension and Social Security with some stock dividends on the side. No mortgage to hold me down.

investor

[cheese_breath]

Retired at age 56 in early 1997. Portfolio is roughly 37% more than when I retired, and 18% more than January 2000.

[Dale_G]

I retired in October 2001 - about 1/3rd of the way through the tech wreck.

My portfolio is up 65% in nominal dollars as of last Friday. Accounting for inflation, I am up 27% in real dollars.
Nothing magic here, basically a 50/50 portfolio and not doing anything stupid. In particular, I do not try to outguess the bond market. I Stay the course and rebalance as required.

Good luck to all.

Dale

[SnapShots]

I'm interested in this thread. September 1, 2012 will be our first withdrawal from savings. And, I'm having a lot of anxious moments and nightmares.

[chaz]

I'm doing OK so far.

[Sheepdog]

Retired in 1998 and portfolio is larger than it was then.
John

Me, too. I retired the same year. I live off of my portfolio and SS only. Stock allocation percentage has been 100 minus my age with the remainder in bonds and I Bonds. My only down years after 1998 were 2001 -0.11%; 2002 -1.57%; and 2008 -9.60%. My 3 best years with this annual reducing stock allocation was 1999 +12.6%, 2003 +8.28% and 2011 +12.71%.
Jim

[scrabbler1]

I retired in November, 2008, at age 45, just whent he market was carshing (which was a good break for me). Despite paying $75k in taxes on the company stock I liquidated, my portfolio is up 20-25% since then, and I am in about 62% bonds.

[joe8d]

Quite honestly, Technically retired in March 2004 and current portfolio value is lot higher then the day I retired.

[BigFoot48]

It seems like even if in 2000 you used sensible calculations, i.e. approx 4% annual withdrawals from your assets, it wouldn't have worked.

Ah, but it did work!

Like others here, I'm also a 1998 retiree. Had some severance pay and a little consulting, but no pension, and started 4% withdrawals in 2002, which continued at that rate through 2011 when SS allowed me to drop the rate to about 1.5%. Over the period 2002-2011, despite those withdrawals, my portfolio was about 10% higher at the end of 2011 than at the start of 2002.

Finally, $10,000 invested in Vanguard Wellington (VWELX) at the start of 2002 would be $19,300 today, so the market did not "essentially gained nothing" over the last decade, if one uses a diversified balanced fund as the definition of the "market".

[CarlZ993]

I retired in Jan 2006 at age 51 w/ a pension. Spouse retired Feb 2005 w/ a pension. IRA's (Roth & Rollover IRA from Deferred Comp) have had positive returns every year except 2008 (that year was brutal). Started out at 60/40 stocks/bonds. I let the downturn move us to 50/50 and have stayed there ever since. I have more in these IRA's now that I did when I retired. Just rebalance when the percentages get out of whack. It's still hard to buy stocks when they're in the toilet. But, I do it anyway. Don't plan on drawing the IRA's until the gov't required me to (RMD's).

I can't figure out how to determine the returns of 2006 (when I added to my Deferred Comp - later rolled over into an IRA - and my Roth). No funds were added or withdrawn in the subsequent years.
2006 = ~ 15 - 20%
2007 = 6.14%
2008 = -24.49%
2009 = 21.19%
2010 = 12.32%
2011 = 3.22%

Note: It took until the end of 2010 for our IRAs to be ahead of end of year 2007 (the only time I pay attention to the totals is the end of each calendar year).

[FrugalInvestor]

I retired in May 2003 at age 50. Our portfolio value is up from where it was in '03 and we've been withdrawing 3+% per year. We were about 60/40 at retirement and are now about 50/50. I partially re-balanced during the '08-'09 downturn but couldn't bring myself to go all the way to our target AA at that time (50/50 is now our target AA).

The Total Stock Market Index has produced average annual returns of 6% over the past ten years.

[Johm221122]

I'm not retired yet myself, but was wondering how the retired have managed over the last 10 or so years when the market essentially gained nothing in the first decade of this century.

I don't see how anyone who retired in 2000 with what they thought was enough money to live off going forward would have been able to stay in retirement if the market didn't gain any.

I'm just curious how any retirees who may have been in this situation have managed over the last decade. I've heard that a lot of retirees had to go back to work at least part time.

It seems like even if in 2000 you used sensible calculations, i.e. approx 4% annual withdrawals from your assets, it wouldn't have worked.

Bonds have really helped people who retired in last 10 years or longer.The problem is at today's interest rates,past performance may not be the same.(At this point) I am a big fan of SPIA .Nobody knows future but capital gains from this point in bonds is at best short term and almost impossible for the next 10 years for current new retirement crowd.Of course a bull market in stocks would be the best solution,but there is no guarantee

[Sbashore]

I retired in 2005. My portfolio is 50/50. My average annual return since I retired is 5.38 %. I s/d with tilts to small and value.

[garlandwhizzer]

Retired in Oct. 1997. Have never had more than 35% bonds. Still going strong even though it has at times been a scary roller coaster ride. Started out with 100% stocks, mostly tech stocks which were on a tear for 2.5 years, more than doubling in value, then the bottom dropped out. Learned a hard lesson about broadly diversified asset allocation and aggressive rebalancing especially at extremes of market sentiment, either positive or negative, which helped me over the next 12 years. Also saw the real estate crash coming years before it happened and cashed out on a 1 mil+ house in Ca., buying a smaller home in Hawaii with cash and got rid of all debt. Lowering monthly expenses is quite helpful. I am naturally a risk taker but over time have become more vanilla, no individual stocks, only Vanguard funds, mostly TSM.


Garland Whizzer

[FlyHi]

I retired in 2003 at age 65. My AA has decreased from 45/55 to 35/65 since then. I have no mortgage or debts and live on my pensions & social security. My emergency funds are in 2 savings accounts (1 pays 3%), a CD Ladder & I Bonds. I invest for total return and not for yield. Although I don't have a huge portfolio I feel that (without any major catastrophies) I have enough money to last my lifetime.

[tiller]

I retired in 04 and have been taking my RMD's along with SS. My allocation is 25/65/10.
We have about the same or a little more since that time.

Good Luck, John

[Steelersfan]

Retired in 2007 not too long before the crash. I stood firm through it and did some tax loss harvesting that I'm benefiting from.

My portfolio is up nicely from 2007.

[Johm221122]

[Post removed for moderator review]

You must have missed all the talk about bond bull market and the fact that retirees have lots of bonds,but OP is looking at past performance with this post,the future may be different, the same or better for retirement portfolios

[exoilman]

Retired 12/31/2002 at age 58. the stock market continued to run up till 2007. At the same time I kept selling equity and moving more to Inf. prot. and bond funds. With pension and wife working part time and SS at 62,(she just got SS at 62 this year) it worked out very well.
We are worth ~ 30-40% more and no doubt luck and being conservative played the major role. I am currently trying to figure out strategy for first RMD which I must take in December of 2014.

regards
Sam

[VictoriaF]

I'm interested in this thread. September 1, 2012 will be our first withdrawal from savings. And, I'm having a lot of anxious moments and nightmares.

This group is quite good in alleviating anxieties.

I came to the M* Vanguard Diehards, now Bogleheads, in October 2001, and this was a great place to be at the time of turmoil. My favorite towers have just fell, I was out of work, my 401(k) took a nose dive, etc. Sometimes even writing about issues helps, but frequently you may find a good advice.

Good luck!


Victoria

[rustymutt]

I retired in 2009 at age 53, but kept working on my own as a private contractor. My wife just did retire in June, and she gets a pension. We've not taken any of the retirement money out yet, and won't til we turn 60. Retirment account is up 25% since July 09. At the time of retirement, I simplified our portfolios, and set our allocation at 50/50.

[3Wood85]

This thread makes me smile, I am only 24 but cant wait for retirement.

[FrugalInvestor]

This thread makes me smile, I am only 24 but cant wait for retirement.

Keep keepin' on and it'll be here before you know it - and you'll wish you were 24 again.

[Taylor Larimore]

I'm not retired yet myself, but was wondering how the retired have managed over the last 10 or so years when the market essentially gained nothing in the first decade of this century.

Do you realize that an investment made ten years ago in Vanguard Balanced Index Fund (60% stocks/40% bonds) has nearly doubled?

Best wishes
Taylor

[Naikansha]

I was fortunate to have retired in 2006 at 64, with full pension and took social security at 67. My 70 year old self-employed spouse (now with social security) will retire this year. We are amazed at how much we have been able to save and invest over the years, far more than our depression-era parents with their extremely frugal habits. For two years we were able to help our oldest son pay his undergrad expenses; fortunately he's now in grad school with a full scholarship. We are living on our social security and pension funds with no withdrawals from our low-ER VG index fund accounts. These are 70% Bond, 30% Stock traditional and Roth IRAs and SEP, and a taxable fund where we have VG Total Stock Market, VG Total International Stock Market (with Emerging Markets fund for tax loss harvesting), and VG Intermediate Term Muni Bond fund (no more IRA bond space). We also have some I Bonds and CDS, as well as a year's cash in emergency savings accounts.

Some reasons for our high savings rate over the years are partially luck, choices we've made, and our moderate frugality:
only two near-total loss 5K investment mistakes
we rent our beautiful living space and sold most real estate we owned before the crash
we never bought life insurance
we pay off credit card debt each month, and have no loans.
we have bought all our cars used and keep them until they break down.
we have excellent health insurance that supplements Medicare.
Let's see what happens when our RMDs kick in!

[ourbrooks]

I'm not sure that the people who are responding that things are just fine are typical. Here's what Wade Pfau has to say on the subject:

http://wpfau.blogspot.com/2012/06/grim-news-another-look-at-2000-retiree.html

Unless stocks perform much closer to their historical averages over the next 18 years, the 4% withdrawal rate won't be sustainable.

[FrugalInvestor]

I'm not sure that the people who are responding that things are just fine are typical. Here's what Wade Pfau has to say on the subject:

http://wpfau.blogspot.com/2012/06/grim-news-another-look-at-2000-retiree.html

Unless stocks perform much closer to their historical averages over the next 18 years, the 4% withdrawal rate won't be sustainable.

Maybe not typical of the population as a whole but likely typical for Bogleheads. The trick seemed to have been to have a reasonable portion of your portfolio in bonds and not be paying an annual 1% advisor fee. I think many if not most of us meet those two criteria.

[frose2]

You must have missed all the talk about bond bull market and the fact that retirees have lots of bonds,but OP is looking at past performance with this post,the future may be different, the same or better for retirement portfolios

I am aware of the performance of longer-term bonds, especially the astonishing recent performance of long Treasuries thanks to Bernanke "doing the Twist" (a dance of my remote childhood). You yourself seem to recognize that it is very difficult to expect this particular good performance to repeat itself.

[2beachcombers]

Retired in 2000, now 66
Downsized Home in 2006 and invested $ in Market-80% equities( : OUCH)
Negligible bond holdings--big mistake
Large TLH in 2008 , Fired financial planner and moved to Bernstein portfolio and DIY.
Boglehead follower. Plan to maintain 70/30 equity/ bond allocation.

Portfolio value Today nearly equal to 2000 value
have fully funded 3-529's since retiring
have converted 50% of IRAs to RIRAs (low marginal tax yrs) to manage Marginal tax rate in future years
RMDs in 5 yrs and SS @ 70 allows Taxable account to grow untouched--Annual gifting to kids

Live off 2 pensions and small SS of spouse and spouse SS/2 for me.
Waiting for my SS at 70
buy a new Used car every 10-15 yrs.

Retire life is good.

[Wagnerjb]

I don't see how anyone who retired in 2000 with what they thought was enough money to live off going forward would have been able to stay in retirement if the market didn't gain any.

Maybe they had ample additional assets. Remember, those who retired in 2000 had benefitted from a tremendous 20 year bull market for equities (and bonds for that matter). I suspect some found themselves retiring with more assets than they originally planned (or needed).

Best wishes.

[Ken.]

A lot of interesting replies, thanks. Yes I was assuming that you retired in 2000 with just enough to meet your needs, a 50/50 split between stocks and bonds, and no other sources of income.

It looks like most of the posters had other sources of income from pensions, downsizing their homes before the crash, or part-time work.

That article by Wade Pfau seems to be more in line with what I expected. Your portfolio would have dropped 50% since then. However he assumes a 4% withdrawal but inflation adjusted, 1% fees, and a simple split between the SP500 and 90 day T bills.

[mptfan]

I'm not retired yet myself, but was wondering how the retired have managed over the last 10 or so years when the market essentially gained nothing in the first decade of this century.

I don't see how anyone who retired in 2000 with what they thought was enough money to live off going forward would have been able to stay in retirement if the market didn't gain any.

I'm just curious how any retirees who may have been in this situation have managed over the last decade. I've heard that a lot of retirees had to go back to work at least part time.

It seems like even if in 2000 you used sensible calculations, i.e. approx 4% annual withdrawals from your assets, it wouldn't have worked.

This is a pretty easy one to answer. First, "the market" includes international markets and emerging markets, and those have done better during the first decade than U.S. markets. For example, the Vanguard total international fund has returned an average 6.3% per year over the last 10 years. (I realize that is a slightly different period than 2000-2009, but you get the point). A wise investor is more diversified in their equity holdings than just the U.S. market.

Second, and more importantly, a wise retiree has most of his or her investments in fixed income and cash. Take a look at Vanguard's Lifestrategy Income fund, which is about 20% stocks / 80% bonds... it returned an average 5.2% per year for the last 10 years, and 6.88% since it began in 1994. Or look at the Lifestrategy Conservative Growth Fund with 40% stocks / 60% bonds, it returned an average 5.43% over the last 10 years and 7.12% since inception in 1994. So, a retiree with a well diversified portfolio of mostly bonds would have done just fine with a 4% withdrawal rate, and their portfolio would have increased in value in the process.

[mptfan]

A lot of interesting replies, thanks. Yes I was assuming that you retired in 2000 with just enough to meet your needs, a 50/50 split between stocks and bonds, and no other sources of income.

If that was your assumption, then your question is flawed, because a well diversified investor with a 50/50 allocation during 2000-2009 would have probably gotten a 4-5% return from their portfolio.

[Ken.]

Yes that is interesting. If you were a conservative investor you would have done well, but if you were a middle of the road investor with a 50/50 split you would be down, unless you had other sources of income.

[unclemick]

I'm not retired yet myself, but was wondering how the retired have managed over the last 10 or so years when the market essentially gained nothing in the first decade of this century.

I don't see how anyone who retired in 2000 with what they thought was enough money to live off going forward would have been able to stay in retirement if the market didn't gain any.

I'm just curious how any retirees who may have been in this situation have managed over the last decade. I've heard that a lot of retirees had to go back to work at least part time.

It seems like even if in 2000 you used sensible calculations, i.e. approx 4% annual withdrawals from your assets, it wouldn't have worked.

Retired 1993. 60/40 stocks/bonds. age 49. Read Mr. B's book 1994. As a retired engineer - I place a moistened forefinger to bellybutton and consider last years Mr. Market. If it quivers - CUT Expenses(sometimes a lot) and Stay the Course.

2012 - ballpark 60/40 now with SS and modest pension so I don't seem to cut as much in 'hard times' but principle remains the same - agile, mobile and hostile.

heh heh heh - all praise to Mr. Bogle, stay the course, index, rebalance as required. Mr Market has never listened to my wishes since 1966 but I can move the budget up and down.

Hindsight - 2-6% withdrawal range with 4% benchmark.

[mptfan]

Yes that is interesting. If you were a conservative investor you would have done well, but if you were a middle of the road investor with a 50/50 split you would be down, unless you had other sources of income.

Ken, no, that is not correct. A middle of the road investor with a 50/50 allocation would have done just fine with a positive return of 4 - 5% per year during the 2000-2009 period.

[Ken.]

Ok, well that is good to know. I hope that is true. I guess that article linked above shows what a difference a 1% fee and inflation-adjusted withdrawal, and possibly not enough diversification does to a portfolio.

[mptfan]

Ok, well that is good to know. I hope that is true.

Ken, there is no need to hope, we can prove it, take a look at the 10 year return of the following funds...

Vanguard Total U.S. Stock Market 6.00%
Vanguard Total International Stock Market 6.35%
Vanguard Total Bond 5.44%
Vanguard TIPS 6.98%

A middle of the road retired investor who followed Boglehead recommendations and who had a 50/50 stock/bond portfolio would have a portfolio close to this...

Total U.S. Market 30%
Total Int'l Market 20%
Total Bond Market 30%
TIPS fund 20%

That investor would have an average annual return between 2002 - 2012 of approximately 6%. I recognize that the 2002 - 2012 period is different than the 2000-2009 period, so to be fair, even if you assume the total U.S. market had a zero return, the portfolio would still return 4.3%. So I think it is reasonable to say that a well diversified investor during the 2000-2009 period would have gotten a 4-5% portfolio return.

[Default User BR]

Ken, there is no need to hope, we can prove it, take a look at the 10 year return of the following funds...

You can pretty easily get even better results with the Morningstar total return charts. Setting a period from 1/1/2000 to present, the growth of $10,000 for the four funds you mention are:

Vanguard Total Stock Mkt Idx Inv: $12,408.18
Vanguard Total Bond Market Index Inv: $21,243.29
Vanguard Total Intl Stock Index Admiral: $9,901.88
Vanguard Inflation-Protected Secs Inv: $24,173.50

If you started with 10k of each, currently you'd have $67,726.85. That's an increase of 69% over about 12.5 years, or an annualized return of around 5.5%.

The stock returns are a bit low, but that is with two major bear markets in the period, and doesn't factor in any rebalancing or new investments over the period.


Brian

[mptfan]

Default User, thank you for your analysis. It supports my conclusion that a well diversified middle of the road investor with a 50/50 portfolio during the so called "lost decade" of 2000-2009 would have gotten approximately a 5% annualized return.

[Ken.]

Yes, thanks for providing those numbers. Do those return figures assume reinvestment of dividends? I'm guessing they do because the chart I used showed break even for the Vanguard Total Stock Index fund over that time.

[investor]

Ken, there is no need to hope, we can prove it, take a look at the 10 year return of the following funds...

You can pretty easily get even better results with the Morningstar total return charts. Setting a period from 1/1/2000 to present, the growth of $10,000 for the four funds you mention are:

Vanguard Total Stock Mkt Idx Inv: $12,408.18
Vanguard Total Bond Market Index Inv: $21,243.29
Vanguard Total Intl Stock Index Admiral: $9,901.88
Vanguard Inflation-Protected Secs Inv: $24,173.50

If you started with 10k of each, currently you'd have $67,726.85. That's an increase of 69% over about 12.5 years, or an annualized return of around 5.5%.

The stock returns are a bit low, but that is with two major bear markets in the period, and doesn't factor in any rebalancing or new investments over the period.


Brian

returns 01/01/2000 to today 07/10/2012
growth of $10K..Total Return for Wellington and Wellesley Investor shares: slightly better for admiral.

VWELX $10K became $22082.11
VWINX $10K became $25068.25

investor

[ourbrooks]

Ok, well that is good to know. I hope that is true.

Ken, there is no need to hope, we can prove it, take a look at the 10 year return of the following funds...

Vanguard Total U.S. Stock Market 6.00%
Vanguard Total International Stock Market 6.35%
Vanguard Total Bond 5.44%
Vanguard TIPS 6.98%

A middle of the road retired investor who followed Boglehead recommendations and who had a 50/50 stock/bond portfolio would have a portfolio close to this...

Total U.S. Market 30%
Total Int'l Market 20%
Total Bond Market 30%
TIPS fund 20%

That investor would have an average annual return between 2002 - 2012 of approximately 6%. I recognize that the 2002 - 2012 period is different than the 2000-2009 period, so to be fair, even if you assume the total U.S. market had a zero return, the portfolio would still return 4.3%. So I think it is reasonable to say that a well diversified investor during the 2000-2009 period would have gotten a 4-5% portfolio return.

This calculation assumes that the investor is in the accumulation phase. It doesn't work for retirees who are are spending out of their portfolio and increasing their spending to adjust for inflation. Read Wade Pfau's article; he does the calcuations based on actual returns and the results are that, even with a 50/50 portfolio, people who retired in 2000 are not likely to have enough money to last the full 30 years unless the market does a lot better over the next 18 years or they drop their withdrawal rate.

[frose2]

returns 01/01/2000 to today 07/10/2012
growth of $10K..Total Return for Wellington and Wellesley Investor shares: slightly better for admiral.

VWELX $10K became $22082.11
VWINX $10K became $25068.25

I don't deny the basic point that bonds have done OK from 2000 to date, somewhat compensating for stocks' underperformance in balanced portfolios. However, Wellington and Wellesley have a long-bond bias. We know how well long bonds have done, and in recent times when they've been the subject of direct government manipulation, why. Those funds are also actively managed which is widely criticized on this board. A more "typical" portfolio would be something like Life Strategy Conservative Growth or Life Strategy Moderate Growth, which have done OK but not nearly as well as Wellington and Wellesley.

[Ken.]

Re Wade Pfau's article, I wouldn't withraw 4% inflation adjusted. I'd just withdraw 4% of whatever the value of the portfolio is at the time. I would have liked to see how that would have turned out over the period.

For the reduced income I'd just try to get by on that or get a part-time job. I guess another approach is when the times are good save a small percentage of your income in a rainy day fund.