Year 2000 retirees using the '4% rule' - Where are they now?

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EnjoyIt
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt » Thu Mar 14, 2019 3:19 pm

carol-brennan wrote:
Thu Mar 14, 2019 1:20 pm

The second point above underscores something that we all need to remember: the stock market essentially runs on faith. If people lose faith in the value of stocks (the notion that someone down the line will care enough about your asset to pay more than you did), the whole system collapses. Your once valuable stock assets will be worth nothing if no one has faith in the stock market anymore.
I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by carol-brennan » Thu Mar 14, 2019 3:52 pm

EnjoyIt wrote:
Thu Mar 14, 2019 3:19 pm

I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.
There is indeed a difference between an asset backed by some tangible value (a company earning money and throwing off a dividend) and an asset backed by nothing or mostly by hope. I grant you that. But in a prolonged downturn, companies will stop paying dividends. When the outlook darkens and stays dark, people's attitude toward stocks will change, and your once coveted asset may no longer look attractive to anyone else. Three people in a room. One of them is you with your previously valuable stock certificates. The other two are hungry, have lost their jobs, their homes, their families. They're not interested in your stock certificates.

We started to get a whiff of that in 08-09. Just a whiff. Then the central bank stepped in, and hope returned, faith in the "system" returned.

What is the central bank going to do next time to save us?

https://www.cnn.com/2019/01/17/business ... index.html
Last edited by carol-brennan on Thu Mar 14, 2019 4:09 pm, edited 1 time in total.

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Time2Quit
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Time2Quit » Thu Mar 14, 2019 4:04 pm

carol-brennan wrote:
Thu Mar 14, 2019 1:20 pm

The second point above underscores something that we all need to remember: the stock market essentially runs on faith. If people lose faith in the value of stocks (the notion that someone down the line will care enough about your asset to pay more than you did), the whole system collapses. Your once valuable stock assets will be worth nothing if no one has faith in the stock market anymore.

The U.S. currency also runs on the full, faith and credit of the US govt, there is no tangible assest backing this currency. The whole US economy could collapse as well if people lose faith in it.

You could have 100x expenses saved and it will not save you if there is an collapse of the economy. There is only so much we can worry about and plan for.

We can use the past as a guide, save as best we can, and take a leap that our planning paid off.
"It is not the man who has too little, but the man who craves more, that is poor." --Seneca

columbia
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by columbia » Thu Mar 14, 2019 5:14 pm

My father retired in ‘96 and has never mentioned distress over his personal sequence of returns.

4 years can make a BIG difference.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Thu Mar 14, 2019 5:53 pm

DonIce wrote:
Wed Mar 13, 2019 1:27 pm
Also, 10 years sounds like an overestimate to go from 25x to 33x under typical conditions. By the time most people are approaching retirement, they are likely in the higher earning years of their careers, and can likely save much faster since they perhaps have their mortgage paid off, perhaps their kids are already done with college and are no longer living at home, etc.
10 years is on the outside range of what would historically be expected, but it's not implausible either.

For someone who's already at 25X and has a 20% savings rate, they need a 5.21% real return to reach 33X in 5 years. If they only get a 2.21% real return, it would take 10 years. There have been several historic periods where stocks didn't have a real return of 2.21% over 10 years, and the same goes for bonds. Over the last 4+ years, total bond market has barely broken even with inflation, resulting in a real return of 0%.

Now if someone in this position can increase their savings rate above 20%, they would indeed reduce the amount of time it took to reach 33X, but it's still likely to be years, time which can never be recovered.
Last edited by willthrill81 on Fri Mar 15, 2019 12:35 am, edited 1 time in total.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt » Fri Mar 15, 2019 12:07 am

willthrill81 wrote:
Thu Mar 14, 2019 5:53 pm
DonIce wrote:
Wed Mar 13, 2019 1:27 pm
Also, 10 years sounds like an overestimate to go from 25x to 33x under typical conditions. By the time most people are approaching retirement, they are likely in the higher earning years of their careers, and can likely save much faster since they perhaps have their mortgage paid off, perhaps their kids are already done with college and are no longer living at home, etc.
10 years is on the outside range of what would historically be expected, but it's not implausible either.

For someone who's already at 25X and has a 20% savings rate, they need a 5.21% real return to reach 33X in 5 years. If they only get a 2.21% real return, it would take 10 years. There have been several historic periods where stocks didn't have a real return of 2.21% over a 10 year, and the same goes for bonds. Over the last 4+ years, total bond market has barely broken even with inflation, resulting in a real return of 0%.

Now if someone in this position can increase their savings rate above 20%, they would indeed reduce the amount of time it took to reach 33X, but it's still likely to be years, time which can never be recovered.
And, the same people that want 33x are the same ones predicting 2% or less returns. You can't at the same time expect 5% returns now just because you are working and trying to save to 33x. Which means those who want to go from 25x to 33x based on their own pessimistic prediction will indeed be working 10 more years to get there.

EnjoyIt
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt » Fri Mar 15, 2019 12:17 am

carol-brennan wrote:
Thu Mar 14, 2019 3:52 pm
EnjoyIt wrote:
Thu Mar 14, 2019 3:19 pm

I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.
There is indeed a difference between an asset backed by some tangible value (a company earning money and throwing off a dividend) and an asset backed by nothing or mostly by hope. I grant you that. But in a prolonged downturn, companies will stop paying dividends. When the outlook darkens and stays dark, people's attitude toward stocks will change, and your once coveted asset may no longer look attractive to anyone else. Three people in a room. One of them is you with your previously valuable stock certificates. The other two are hungry, have lost their jobs, their homes, their families. They're not interested in your stock certificates.

We started to get a whiff of that in 08-09. Just a whiff. Then the central bank stepped in, and hope returned, faith in the "system" returned.

What is the central bank going to do next time to save us?

https://www.cnn.com/2019/01/17/business ... index.html
Sure, but you are missing a few things in your argument:
1) Those companies will still not be worthless, they still have assets and unless all companies go bankrupt, will still have a profit which in turn creates value for the company. Those companies are not worthless.

2) Just because the 3 people in your room are hungry does not mean people in others rooms won't find value in investing in those companies. Denizens of other countries may step in and buy those equities at the bargain basement prices propping up those values.

3) If there are no people in other rooms then you are essentially discussing a worldwide collapse of our economic system. If that is the case 33x, 50x or 100x won't protect us from that. We need guns, ammo, and stored food. Well, I have the guns and ammo and some food. Maybe I should invest in more food.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DonIce » Fri Mar 15, 2019 1:19 am

EnjoyIt wrote:
Fri Mar 15, 2019 12:17 am
3) If there are no people in other rooms then you are essentially discussing a worldwide collapse of our economic system. If that is the case 33x, 50x or 100x won't protect us from that. We need guns, ammo, and stored food. Well, I have the guns and ammo and some food. Maybe I should invest in more food.
Civilization has collapsed before, multiple times, taking centuries to recover, it's not impossible. Consider the Bronze Age collapse and the fall of Rome as perhaps the two most prominent examples from the history of Western civilizations. Probably the richer you are, the more potential risks you can protect against, and a once per 2000 years type event still has a 3-5% chance of happening in your lifetime.

EnjoyIt
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt » Fri Mar 15, 2019 4:37 pm

DonIce wrote:
Fri Mar 15, 2019 1:19 am
EnjoyIt wrote:
Fri Mar 15, 2019 12:17 am
3) If there are no people in other rooms then you are essentially discussing a worldwide collapse of our economic system. If that is the case 33x, 50x or 100x won't protect us from that. We need guns, ammo, and stored food. Well, I have the guns and ammo and some food. Maybe I should invest in more food.
Civilization has collapsed before, multiple times, taking centuries to recover, it's not impossible. Consider the Bronze Age collapse and the fall of Rome as perhaps the two most prominent examples from the history of Western civilizations. Probably the richer you are, the more potential risks you can protect against, and a once per 2000 years type event still has a 3-5% chance of happening in your lifetime.
I don't disagree that civilization collapse is possible. All I am saying is that having 25x or 50x will make no difference at that time cause your money is worthless. One will find more value in ammunition and food as opposed to a portfolio which is why I think saving for that possibility is foolish. One will be better off buying guns, ammo and food.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DonIce » Fri Mar 15, 2019 4:43 pm

EnjoyIt wrote:
Fri Mar 15, 2019 4:37 pm
DonIce wrote:
Fri Mar 15, 2019 1:19 am

Civilization has collapsed before, multiple times, taking centuries to recover, it's not impossible. Consider the Bronze Age collapse and the fall of Rome as perhaps the two most prominent examples from the history of Western civilizations. Probably the richer you are, the more potential risks you can protect against, and a once per 2000 years type event still has a 3-5% chance of happening in your lifetime.
I don't disagree that civilization collapse is possible. All I am saying is that having 25x or 50x will make no difference at that time cause your money is worthless. One will find more value in ammunition and food as opposed to a portfolio which is why I think saving for that possibility is foolish. One will be better off buying guns, ammo and food.
Sorry, my post wasn't clear, I was agreeing with you. What I was saying was that for those that have the resources, protecting against the small probability of civilization collapse during one's lifetime may be worthwhile. Protecting for that eventuality would include guns ammo and food, as well as I think a secure location far away from major population areas and an assured method of getting there safely.

Probably well before going past 50x in your portfolio to protect against increasingly non-existent risk of running out of money during normal times, you'd want to "diversify" your assets into protections against unlikely events like civilization collapse.

This same idea was behind my other post in this thread, the probability of medical technology achieving significant life extension during the next several decades is not zero, so that's something to also consider and plan for if you're well beyond normal asset requirements but are still accumulating.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Sat Mar 16, 2019 12:13 am

protagonist wrote:
Mon Mar 11, 2019 9:45 pm
As for the success of year 2000 retirees following a specific plan between 2000-2019, I doubt that has much bearing on what will happen to people following a similar plan between 2020-2039. There is no reason to assume that history will repeat what it did in the past twenty years in the next twenty. Hopefully they will be similarly lucky.
True enough, but it should be somewhat reassuring that even retiring at the highest valuations in U.S. history, and then experiencing TWO crashes in the first 9 years still didn't derail a 4% withdrawal plan with a balanced portfolio.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Sat Mar 16, 2019 12:21 am

ChipKnox wrote:
Thu Mar 14, 2019 3:09 pm

I too, only rebalance out of stocks to bonds to maintain my risk profile. I do NOT rebalance the other direction anymore. I'm more interested in keeping my "safe" money safe, instead of trying to increase returns. It's always possible that someday the stock market will go down, and never (or take a really long time) to come back, and I'm not interested in taking that risk.
Homer: What do you suggest today for a retired 61 year old, who is only 20% in stocks today, but desires to be 40%? I'm assuming you don't rebalance the other direction anymore (i.e., bonds to stocks), because the market has been on a tear for the last decade and you've never needed to, yes?
If you desire to be 40%, then you probably should just sell bonds and buy stocks until you're at 40%.

But I know that sounds scary, so maybe do 5% a year until you hit 40%.

But if it sounds scary, are you sure you want to be 40%? You have to be able to stick with 40% during the next crash. Otherwise don't move to 40%.
The J stands for Jay

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Sat Mar 16, 2019 12:25 am

carol-brennan wrote:
Thu Mar 14, 2019 3:52 pm
EnjoyIt wrote:
Thu Mar 14, 2019 3:19 pm

I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.
There is indeed a difference between an asset backed by some tangible value (a company earning money and throwing off a dividend) and an asset backed by nothing or mostly by hope. I grant you that. But in a prolonged downturn, companies will stop paying dividends. When the outlook darkens and stays dark, people's attitude toward stocks will change, and your once coveted asset may no longer look attractive to anyone else. Three people in a room. One of them is you with your previously valuable stock certificates. The other two are hungry, have lost their jobs, their homes, their families. They're not interested in your stock certificates.

We started to get a whiff of that in 08-09. Just a whiff. Then the central bank stepped in, and hope returned, faith in the "system" returned.

What is the central bank going to do next time to save us?

https://www.cnn.com/2019/01/17/business ... index.html
The Great Depression was far far worse, and stocks didn't go to zero, and dividends didn't go to zero.

Stock certificates will be still worth something. A share in a company that is selling the food that the hungry people need to live will still be worth something.

You are really beating the doom drum here. A bit over the top.

No one here recommends that people should be heavy in stocks near or in retirement. I think you are preaching to the choir when you talk about having a good chunk of money in fixed income. At least enough to make it through a 10-year crash. Someone with 25x expenses in a 50/50 portfolio has 12.5x years in bonds and CDs. And stocks will still be throwing off dividends during that time too, so the fixed income will last even longer.

We mostly agree with you.
The J stands for Jay

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Sat Mar 16, 2019 12:30 am

DonIce wrote:
Fri Mar 15, 2019 4:43 pm
This same idea was behind my other post in this thread, the probability of medical technology achieving significant life extension during the next several decades is not zero, so that's something to also consider and plan for if you're well beyond normal asset requirements but are still accumulating.
I want to keep saving just in case they invent the holodeck in 2035.

Because I'll want one. :)
The J stands for Jay

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DonIce » Sat Mar 16, 2019 12:38 am

HomerJ wrote:
Sat Mar 16, 2019 12:30 am
I want to keep saving just in case they invent the holodeck in 2035.

Because I'll want one. :)
Me too! Although I may wait a few years after they're out for prices to come down :)

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by protagonist » Sun Mar 17, 2019 7:40 am

HomerJ wrote:
Sat Mar 16, 2019 12:13 am
protagonist wrote:
Mon Mar 11, 2019 9:45 pm
As for the success of year 2000 retirees following a specific plan between 2000-2019, I doubt that has much bearing on what will happen to people following a similar plan between 2020-2039. There is no reason to assume that history will repeat what it did in the past twenty years in the next twenty. Hopefully they will be similarly lucky.
True enough, but it should be somewhat reassuring that even retiring at the highest valuations in U.S. history, and then experiencing TWO crashes in the first 9 years still didn't derail a 4% withdrawal plan with a balanced portfolio.
Agreed.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Sun Mar 17, 2019 8:30 pm

HomerJ wrote:
Sat Mar 16, 2019 12:25 am
carol-brennan wrote:
Thu Mar 14, 2019 3:52 pm
EnjoyIt wrote:
Thu Mar 14, 2019 3:19 pm

I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.
There is indeed a difference between an asset backed by some tangible value (a company earning money and throwing off a dividend) and an asset backed by nothing or mostly by hope. I grant you that. But in a prolonged downturn, companies will stop paying dividends. When the outlook darkens and stays dark, people's attitude toward stocks will change, and your once coveted asset may no longer look attractive to anyone else. Three people in a room. One of them is you with your previously valuable stock certificates. The other two are hungry, have lost their jobs, their homes, their families. They're not interested in your stock certificates.

We started to get a whiff of that in 08-09. Just a whiff. Then the central bank stepped in, and hope returned, faith in the "system" returned.

What is the central bank going to do next time to save us?

https://www.cnn.com/2019/01/17/business ... index.html
The Great Depression was far far worse, and stocks didn't go to zero, and dividends didn't go to zero.

Stock certificates will be still worth something. A share in a company that is selling the food that the hungry people need to live will still be worth something.

You are really beating the doom drum here. A bit over the top.

No one here recommends that people should be heavy in stocks near or in retirement. I think you are preaching to the choir when you talk about having a good chunk of money in fixed income. At least enough to make it through a 10-year crash. Someone with 25x expenses in a 50/50 portfolio has 12.5x years in bonds and CDs. And stocks will still be throwing off dividends during that time too, so the fixed income will last even longer.

We mostly agree with you.
And if the stock market really did go to zero, what would be the 'safe' alternative? Beans, bullets, and Band-aids I suppose.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Turbo29 » Sun Mar 17, 2019 9:42 pm

DonIce wrote:
Fri Mar 15, 2019 1:19 am


Civilization has collapsed before, multiple times, taking centuries to recover, it's not impossible. Consider the Bronze Age collapse and the fall of Rome as perhaps the two most prominent examples from the history of Western civilizations. Probably the richer you are, the more potential risks you can protect against, and a once per 2000 years type event still has a 3-5% chance of happening in your lifetime.
Bernstein seems to think its a lot more probable than a once per 2000yr event.

http://www.efficientfrontier.com/ef/901/hell3.htm

"
So, think about what a 97% 40-year success rate means: the absence of all of the above for approximately the next 1,200 years. (A 97% success rate means a 3% failure rate; those 40 years divided by 0.03 is 1,200 years.) Ignore for a minute the uncertainties of the less-developed world and think only about the winners: Germany—in this century alone, three episodes of military and/or economic disaster, the first two associated with mass starvation. Japan—wartime devastation even worse than Germany’s. England—near brushes with disaster in 1812-1814 and in both world wars. And even the United States—repeated banking failures, civil war, and the near-bankruptcy of the Treasury in the 19th century. The near collapse of the capitalist economy in the 1930s. And oh yes, I almost forgot—the entire globe barely missed mass incineration in October 1962.

History’s best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries (if you ignore the odd sackings of the capital after 200 A.D.).

A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by ChipKnox » Tue Mar 19, 2019 1:18 pm

HomerJ wrote:
Sat Mar 16, 2019 12:21 am
ChipKnox wrote:
Thu Mar 14, 2019 3:09 pm

I too, only rebalance out of stocks to bonds to maintain my risk profile. I do NOT rebalance the other direction anymore. I'm more interested in keeping my "safe" money safe, instead of trying to increase returns. It's always possible that someday the stock market will go down, and never (or take a really long time) to come back, and I'm not interested in taking that risk.
Homer: What do you suggest today for a retired 61 year old, who is only 20% in stocks today, but desires to be 40%? I'm assuming you don't rebalance the other direction anymore (i.e., bonds to stocks), because the market has been on a tear for the last decade and you've never needed to, yes?
If you desire to be 40%, then you probably should just sell bonds and buy stocks until you're at 40%.

But I know that sounds scary, so maybe do 5% a year until you hit 40%.

But if it sounds scary, are you sure you want to be 40%? You have to be able to stick with 40% during the next crash. Otherwise don't move to 40%.
:beer Cheers, thanks.

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