The year before and after the start of retirement

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Johm221122
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The year before and after the start of retirement

Post by Johm221122 » Mon Mar 04, 2013 3:04 pm

If market dropped say 30-40% before retirement would you delay retirement?
If market dropped 30-40% the year after retirement would you go back to work?
Besides the fact you may not be able to get your job back, does it make sense to delay retirement because of market drop but not consider going back in the job market if it dropped immediately after retirement?
John

YDNAL
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Re: The year before and after the start of retirement

Post by YDNAL » Mon Mar 04, 2013 3:16 pm

Johm221122 wrote:If market dropped say 30-40% before retirement would you delay retirement?
If market dropped 30-40% the year after retirement would you go back to work?
Besides the fact you may not be able to get your job back, does it make sense to delay retirement because of market drop but not consider going back in the job market if it dropped immediately after retirement?
John
I think that a large drop in retirement Assets, especially coupled with an unfavorable sequence of returns (year 2, 3, whatever), can be minimally quite unsettling but perhaps too severe to withstand.
  • Thus, don't retire unless your expected consumption is 3% or less and flexible.
  • This means a portfolio drop of 25% maintains consumption at a level no greater than 4%.
  • Anything well beyond that, we are all cooked!

Code: Select all

  Assets   | Withdrawal
1,000,000 	30,000	3.0%
  750,000 	30,000	4.0%
Last edited by YDNAL on Mon Mar 04, 2013 3:18 pm, edited 1 time in total.
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midareff
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Re: The year before and after the start of retirement

Post by midareff » Mon Mar 04, 2013 3:18 pm

I retired almost a year ago so I am able to answer that question. A 30 - 40% drop in the market is a 15 - 20% drop to a 50% equity/50% bond portfolio. .. maybe a fraction less actually when you throw in a few % cash. I had my minimum (can't leave) and maximum (can't stay) numbers calculated years ago. If I had to.... I could live on my pension, SS and dividends from my taxable portfolio, with no distributions from sales of assets. Weekends out of town and foreign trips might be out for a few years but I could survive that until the market recovered, which it always does.

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Re: The year before and after the start of retirement

Post by YDNAL » Mon Mar 04, 2013 3:22 pm

midareff wrote:I retired almost a year ago so I am able to answer that question. A 30 - 40% drop in the market is a 15 - 20% drop to a 50% equity/50% bond portfolio.
Not if Bonds tank (remember 2008 TIPS?).
midareff wrote:... but I could survive that until the market recovered, which it always does.
From you mouth (keyboard) to God's ear.
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livesoft
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Re: The year before and after the start of retirement

Post by livesoft » Mon Mar 04, 2013 3:40 pm

I guess it would depend on the contingencies built into my retirement plan.

I semi-retired in 2008. I admit that I am glad that I continued working part-time.

I think that some folks are looking for a number and would want to retire as soon as they reach it ... even if the number is reached at the height of a bubble. I was looking for a little more comfort than that, so I did not fully retire. I am familiar with many of failure modes suggested by FIRECalc and other bits of software as well as in numerous articles. So my number is a minimum plus a contigency. In the meantime, I can practice spending at the rate my number (not including contigency) would allow.

Unfortunately, all this may lead to the "just one more year" syndrome.
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Johm221122
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Re: The year before and after the start of retirement

Post by Johm221122 » Mon Mar 04, 2013 3:52 pm

YDNAL wrote:
Johm221122 wrote:If market dropped say 30-40% before retirement would you delay retirement?
If market dropped 30-40% the year after retirement would you go back to work?
Besides the fact you may not be able to get your job back, does it make sense to delay retirement because of market drop but not consider going back in the job market if it dropped immediately after retirement?
John
I think that a large drop in retirement Assets, especially coupled with an unfavorable sequence of returns (year 2, 3, whatever), can be minimally quite unsettling but perhaps too severe to withstand.
  • Thus, don't retire unless your expected consumption is 3% or less and flexible.
  • This means a portfolio drop of 25% maintains consumption at a level no greater than 4%.
  • Anything well beyond that, we are all cooked!

Code: Select all

  Assets   | Withdrawal
1,000,000 	30,000	3.0%
  750,000 	30,000	4.0%
Being flexible and being able to survive on 3% or maybe 2% is definitely doable to plan for in worse case
Thank you
John

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Re: The year before and after the start of retirement

Post by VictoriaF » Mon Mar 04, 2013 3:59 pm

Johm221122 wrote:If market dropped say 30-40% before retirement would you delay retirement?
If market dropped 30-40% the year after retirement would you go back to work?
Besides the fact you may not be able to get your job back, does it make sense to delay retirement because of market drop but not consider going back in the job market if it dropped immediately after retirement?
John
"Besides the fact you may not be able to get your job back" is a huge factor for most people. In its absence, the situation is financially symmetrical. It is not psychologically symmetrical, because during the year before one has the habit and the momentum of the schedule and projects; and the year after one is already used to a different lifestyle.

The financial symmetry applies to both those with mostly risky assets and to those with mostly safe assets. The former would continue or restart work, the latter would proceed with their retirement plans regardless of what the markets would do.

Victoria
Last edited by VictoriaF on Mon Mar 04, 2013 4:12 pm, edited 1 time in total.
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Re: The year before and after the start of retirement

Post by Johm221122 » Mon Mar 04, 2013 4:09 pm

livesoft wrote:I guess it would depend on the contingencies built into my retirement plan.

I semi-retired in 2008. I admit that I am glad that I continued working part-time.

I think that some folks are looking for a number and would want to retire as soon as they reach it ... even if the number is reached at the height of a bubble. I was looking for a little more comfort than that, so I did not fully retire. I am familiar with many of failure modes suggested by FIRECalc and other bits of software as well as in numerous articles. So my number is a minimum plus a contigency. In the meantime, I can practice spending at the rate my number (not including contigency) would allow.

Unfortunately, all this may lead to the "just one more year" syndrome.
Definitely having a plan is the answer. I don't know if you remember this post
http://www.bogleheads.org/forum/viewtop ... spend+more
But to be able to spend more than 5% , I will instead have a separate pile of money in cash for my bucket list and hope to spend 4% of my retirement money, but easily be able to live on 3% and survive on 2%.You are definitely right have plan and back up plan.You are 100% right I don't want to be on the one more year syndrome
John

John

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Re: The year before and after the start of retirement

Post by Johm221122 » Mon Mar 04, 2013 4:13 pm

VictoriaF wrote:
Johm221122 wrote:If market dropped say 30-40% before retirement would you delay retirement?
If market dropped 30-40% the year after retirement would you go back to work?
Besides the fact you may not be able to get your job back, does it make sense to delay retirement because of market drop but not consider going back in the job market if it dropped immediately after retirement?
John
"Besides the fact you may not be able to get your job back" is a huge factor for most people. In its absence, the situation is financially symmetrical. It is not psychologically symmetrical, because during the year before one has the habit and the momentum of the schedule and projects; and the year after one is already used to a different lifestyle.

The financial symmetry applies to those with mostly risky assets and to those with mostly safe assets. The former, would continue or restart work, the latter would proceed with their retirement plans.

Victoria
If anything I have definitely learned when your close to retirement or in retirement don't take too much risk. You are definitely right about this
John

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Re: The year before and after the start of retirement

Post by Johm221122 » Mon Mar 04, 2013 4:37 pm

midareff wrote:I retired almost a year ago so I am able to answer that question. A 30 - 40% drop in the market is a 15 - 20% drop to a 50% equity/50% bond portfolio. .. maybe a fraction less actually when you throw in a few % cash. I had my minimum (can't leave) and maximum (can't stay) numbers calculated years ago. If I had to.... I could live on my pension, SS and dividends from my taxable portfolio, with no distributions from sales of assets. Weekends out of town and foreign trips might be out for a few years but I could survive that until the market recovered, which it always does.
Having a portfolio not to aggressive before and after retirement is the best defensive against bear market I can agree with.
John

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Re: The year before and after the start of retirement

Post by ResNullius » Mon Mar 04, 2013 4:43 pm

The safest thing is to work full-time until you die, then you'll never have to worry about your portfolio running out of money.

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Re: The year before and after the start of retirement

Post by midareff » Mon Mar 04, 2013 4:45 pm

YDNAL wrote:
midareff wrote:I retired almost a year ago so I am able to answer that question. A 30 - 40% drop in the market is a 15 - 20% drop to a 50% equity/50% bond portfolio.
Not if Bonds tank (remember 2008 TIPS?).

They recovered fully in one year Landy ... that's just not a biggie, unless YOU are a big TIPS guy.
midareff wrote:... but I could survive that until the market recovered, which it always does.
From you mouth (keyboard) to God's ear.
Well, it always does. ... you don't need to recreate the wheel when it is historically in place.

I'm waving from across the Bay. :mrgreen:

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Re: The year before and after the start of retirement

Post by VictoriaF » Mon Mar 04, 2013 4:48 pm

ResNullius wrote:The safest thing is to work full-time until you die, then you'll never have to worry about your portfolio running out of money.
What if you never die?

Victoria
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Re: The year before and after the start of retirement

Post by midareff » Mon Mar 04, 2013 4:48 pm

Johm221122 wrote:
YDNAL wrote:
Johm221122 wrote:If market dropped say 30-40% before retirement would you delay retirement?
If market dropped 30-40% the year after retirement would you go back to work?
Besides the fact you may not be able to get your job back, does it make sense to delay retirement because of market drop but not consider going back in the job market if it dropped immediately after retirement?
John
I think that a large drop in retirement Assets, especially coupled with an unfavorable sequence of returns (year 2, 3, whatever), can be minimally quite unsettling but perhaps too severe to withstand.
  • Thus, don't retire unless your expected consumption is 3% or less and flexible.
  • This means a portfolio drop of 25% maintains consumption at a level no greater than 4%.
  • Anything well beyond that, we are all cooked!

Code: Select all

  Assets   | Withdrawal
1,000,000 	30,000	3.0%
  750,000 	30,000	4.0%
Being flexible and being able to survive on 3% or maybe 2% is definitely doable to plan for in worse case
Thank you
John

I like living on distributions and selling nothing.

Johm221122
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Re: The year before and after the start of retirement

Post by Johm221122 » Mon Mar 04, 2013 4:58 pm

ResNullius wrote:The safest thing is to work full-time until you die, then you'll never have to worry about your portfolio running out of money.
I'm not saving 25% + and work the rest of my life :oops: (at least I hope not)
John

ResNullius
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Re: The year before and after the start of retirement

Post by ResNullius » Mon Mar 04, 2013 5:21 pm

Reminds me of an article I saw about the things you should do "the year before and after you died."

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Re: The year before and after the start of retirement

Post by The Wizard » Mon Mar 04, 2013 5:29 pm

I'm right at the CUSP of transition.
A big drop would be unsettling, yes, but I'd try to stay the course as per usual.
One option would be to claim SS earlier, rather than waiting till age 70...
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Re: The year before and after the start of retirement

Post by MathWizard » Mon Mar 04, 2013 5:38 pm

With even an aggressive 75% stocks and a 40% drop in stocks, that is a 30% hit to portfolio.

If SS is supplying half the income, then this would be a 15% drop in income.
So if you are flexible enough so that you can handle a hopefully temporary
15% drop in income, then you are OK.

Personally, I would drop consumption to preserve assets, and maybe only
take half the inflation adjustment from my portfolio rather than the full adj.
If the SS cola stays, then I have 3/4 of the inflation adjustment.

This all of course depends on my having discretionary income from
which to cut. Unless I had this, it would not have been a voluntary retirement.
If it is not voluntary, the returning to work is not likely an option.

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Re: The year before and after the start of retirement

Post by Mill » Mon Mar 04, 2013 5:57 pm

Personally, I intend to live forever. So far, so good.

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Re: The year before and after the start of retirement

Post by sport » Mon Mar 04, 2013 6:26 pm

You either have to have more money saved than you actually require, or you need to be flexible in your spending, or some of each. If you have "just enough" and are not flexible, you really are not quite ready (financially) to retire.
Jeff

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Re: The year before and after the start of retirement

Post by ResNullius » Mon Mar 04, 2013 7:18 pm

VictoriaF wrote:
ResNullius wrote:The safest thing is to work full-time until you die, then you'll never have to worry about your portfolio running out of money.
What if you never die?

Victoria
You're completely correct. Past performance is not a predictor of future performance.

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Re: The year before and after the start of retirement

Post by VictoriaF » Mon Mar 04, 2013 8:13 pm

The Wizard wrote:I'm right at the CUSP of transition.
How does it feel
How does it feel
To be without a home
Like a complete unknown
Like a rolling stone?

(Bob Dylan)

Victoria
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Re: The year before and after the start of retirement

Post by ThePrune » Mon Mar 04, 2013 8:28 pm

livesoft wrote:I guess it would depend on the contingencies built into my retirement plan.
+1
If you have a well thought our retirement plan that recognizes the main contingencies, you put yourself in a position to "make lemonade out of lemons." It depends on how many "moving parts" you have available for adjustments as the investment environment changes.

I retired in June 2007 at age 53, while my wife continued to work 1/2 time. Our optimized retirement plan called for making systematic Roth conversions in order to reduce our eventual tax bracket once RMDs began at age 70 1/2 .

The equity market downturn made my Roth conversions more advantageous, and I actually forced myself to make full conversions in 2008 and 2009 up to the top of our 15% tax bracket. (Sickening feeling then making quarterly estimated tax payments on the conversions, but now it looks great!) I finished converting my wife's IRA in 2010 and assigned it to 2010 taxes. I then took full advantage of "quirk" in the tax law that allowed Roth conversions in 2010 to have their taxes spread across 2011 and 2012, and assigned my IRA conversions to 2011 and 2012 taxes, once again maintaining our 15% tax bracket.

Another contingency I had was the timing to start my corpoprate pension. For each year of delay, my pension would grow by 9-10% (key here was to really understand the pension plan - recognize my contingencies.) I decided to wait a few years to start the pension, just to see how things would work out. So when the market downturn made my personal savings less valuable than my pension, I gladly lived with "reverse dollar cost averaging" on my savings withdrawals because it allowed my to delay my pension and achieve good growth in those funds.

Once again, the key is to recognize contingencies in your specific retirement plan that allow you to take advantage of a wide variety of market conditions. Most such contingencies will die unused, but some will prove to be priceless.
Investment skill is often just luck in sheep's clothing.

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Re: The year before and after the start of retirement

Post by 6miths » Mon Mar 04, 2013 8:50 pm

I have been slowing down for the last 3 or 4 years and plan to retire from my major income source next year. If the market plummeted again, I would likely consider staying at work for another year or two because it's not actually that onerous. If I had already retired I would likely just carry on with the plan as I have a big enough buffer to make it work. It would just mean less to pass on to the kids. Tough luck!
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Re: The year before and after the start of retirement

Post by BHCadet » Tue Mar 05, 2013 12:42 am

The year before the start of my retirement, I would:
1. Reduce all the debts to zero like paying off mortgage, car loan (if there is any), and no other consumer debt.
2. If my kids are still in college, I would make sure there is enough cash to cover the tuition.
3. At least two years' worth of living expense in cash or short term bond.

During retirement, I would:
1. Be flexible and adjust my spending according to the market condition.
2. Rebalance my portfolio or TLH annually to withdraw fund needed for living expense.

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Re: The year before and after the start of retirement

Post by jimkinny » Tue Mar 05, 2013 9:14 am

I recently retired before age 65.

I have about 35% equity so a downturn in equities would not be too bad and would not make me change my plans. If I lost 50% of my portfolio, then I would likely start taking several pensions and still delay SS. If necessary, I would start SS.

The great recession caused me to delay retirement for about 2 years, so instead of retiring at 62 I did so at 64.

jim

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Re: The year before and after the start of retirement

Post by mptfan » Tue Mar 05, 2013 10:00 am

ResNullius wrote:The safest thing is to work full-time until you die, then you'll never have to worry about your portfolio running out of money.
This happens more often than the folks on this board are willing to admit. The people who are retired are able to post about their experience withdrawing money from their portfolios, but the people who die while they are still working without ever withdrawing a penny from their retirement savings are not around to post anything, so there is survivorship bias.

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