Does your retirement plan work if stocks are flat or in decline for decades?

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TheTimeLord
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by TheTimeLord » Tue May 14, 2019 7:27 am

Admiral wrote:
Tue May 14, 2019 7:12 am
burt wrote:
Tue May 14, 2019 7:01 am
bhsince87 wrote:
Mon May 13, 2019 1:42 pm
This is one reason folks like Rick Ferri promote 30/70 AA's for retirees.
+1

Ferri: Wisdom Of 60/40 Portfolios Timeless
https://www.etf.com/sections/index-inve ... nopaging=1

"Retirees and those almost retired shouldn’t care what their highest level of risk tolerance is because they shouldn’t be investing anywhere near it. There is no economic reason for a person to take more investment risk than necessary once they’ve accumulated enough money for retirement. The focus should be on the minimum amount of risk needed to achieve an income required in retirement."
While I generally agree, one can make a good case that there are legit reasons for adding market risk precisely BECAUSE they've accumulated enough: for example, to build a larger legacy. If I have $10m and can live on $10k, why shouldn't I be 90/10 if I want to leave my kids (or charity) the maximum amount possible? Extreme example and of course most retirees are not in this situation. But if one can live on interest alone (or the interest on the interest) there's no reason they should not take more risk, if they desire higher returns (for whatever reason). This argument (both sides) is perennial on the board.
I think when you are talk about having $10m with expenses of $10k you are talking a 1000x expenses and most general advice here seems to assume people retire with roughly 25x-30x expenses. So if we step back and stop officiating things with percentages (which are great for accumulators but less useful for the Financially Independent) and say something similar to Bernstein that retirees should in near retirement or entering retirement have between 20x-30x of base expenses in safe fixed income assets and anything over and above that can be invested in risk assets such as stocks if the retiree chooses we end up with something that essential agrees with Rick Ferri's 30/70 assuming 25x expenses which would be 17.5x expenses in safe fixed income assets or 21x if you retire with 30x expenses. Of course if we are talking about an early FIRE retiree all bets are off.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

SGM
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by SGM » Tue May 14, 2019 7:37 am

Yes. We have multiple income streams. I find it hard to believe they would all dry up.

MnD
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by MnD » Tue May 14, 2019 8:15 am

Yes as pension and two SS claims covers needs and some wants and portfolio SWR is a" % of annual balance" approach for more wants. So mathematically it will never "run out" and overall we'll cover needs and wants. In some terrible return future, that the Gloomy Gus's seem convinced is right over the next hill, the SWR pulls from % of portfolio could get really skimpy. But consider that in some dystopian future of no returns from equity, 99% of everyone else will be worse off - so bargains will arise especially for services and discretionary categories.

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TheTimeLord
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by TheTimeLord » Tue May 14, 2019 8:26 am

MnD wrote:
Tue May 14, 2019 8:15 am
Yes as pension and two SS claims covers needs and some wants and portfolio SWR is a" % of annual balance" approach for more wants. So mathematically it will never "run out" and overall we'll cover needs and wants. In some terrible return future, that the Gloomy Gus's seem convinced is right over the next hill, the SWR pulls from % of portfolio could get really skimpy. But consider that in some dystopian future of no returns from equity, 99% of everyone else will be worse off - so bargains will arise especially for services and discretionary categories.
This thread has reassured me that I am taking a reasonable path to my retirement and to take the Gloomy Gus's posts with a large grain of salt. I don't think they mean any harm in most cases but I think for the most part creating these disaster scenarios is largely an intellectual exercise.
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by MikeG62 » Tue May 14, 2019 8:42 am

mariezzz wrote:
Mon May 13, 2019 4:40 pm
TravelforFun wrote:
Mon May 13, 2019 4:15 pm
willthrill81 wrote:
Mon May 13, 2019 3:27 pm
TheTimeLord wrote:
Mon May 13, 2019 3:24 pm
TravelforFun wrote:
Mon May 13, 2019 2:35 pm

Not if you get the fixed annuity.

TravelforFun
What makes you think annuity companies could afford to continue to meet their commitments in those market conditions?
While I agree that annuities are riskier than many believe them to be, my understanding is that annuity companies are investing the premiums into government bonds, not stocks. As such, a long-term stock market decline shouldn't have a direct effect on the insurers' ability to pay annuity benefits.
My state has an Insurance Guaranty Association that would step in if a covered insurance company becomes insolvent to either continue the policy coverage or fund the transfer of the policy to another insurance company. There is a limit to what they would cover. For annuities, it's $250,000.

TravelforFun
What makes you think the state insurance guaranty association will have the resources to step in & bail out if stocks are flat or in decline for decades?

To be clear: I think this thread is fairly pointless, as I've said above....

If 'stocks are flat or in decline for decade' is a highly unlikely scenario ... and if it happened, people would adjust (believe it or not, there are people surviving on SS alone!!). It also would have (mainly negative) consequences for other aspects of the economy, so it could mean SPIAs might not deliver, state insurance guaranty associations might not deliver, state and local governments might default on pensions, and so on. Maybe the US government would default on treasuries! (Yes, very unlikely, as is the situation envisioned in the title of this thread.)
Completely agree with mariezzz.

If Boogleheads are going to be in trouble, what will happen to the other 99% of the population?

On top of that, planning for a truly armageddon financial scenario will no doubt result in one working for many, many, many years longer than necessary to protect against something with an incredibly small probability of occurring. There is sensible planning and then there is "chicken little" planning. I'd avoid allowing myself to fall into the latter category.
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Admiral
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Admiral » Tue May 14, 2019 8:56 am

TheTimeLord wrote:
Tue May 14, 2019 7:27 am
Admiral wrote:
Tue May 14, 2019 7:12 am
burt wrote:
Tue May 14, 2019 7:01 am
bhsince87 wrote:
Mon May 13, 2019 1:42 pm
This is one reason folks like Rick Ferri promote 30/70 AA's for retirees.
+1

Ferri: Wisdom Of 60/40 Portfolios Timeless
https://www.etf.com/sections/index-inve ... nopaging=1

"Retirees and those almost retired shouldn’t care what their highest level of risk tolerance is because they shouldn’t be investing anywhere near it. There is no economic reason for a person to take more investment risk than necessary once they’ve accumulated enough money for retirement. The focus should be on the minimum amount of risk needed to achieve an income required in retirement."
While I generally agree, one can make a good case that there are legit reasons for adding market risk precisely BECAUSE they've accumulated enough: for example, to build a larger legacy. If I have $10m and can live on $10k, why shouldn't I be 90/10 if I want to leave my kids (or charity) the maximum amount possible? Extreme example and of course most retirees are not in this situation. But if one can live on interest alone (or the interest on the interest) there's no reason they should not take more risk, if they desire higher returns (for whatever reason). This argument (both sides) is perennial on the board.
I think when you are talk about having $10m with expenses of $10k you are talking a 1000x expenses and most general advice here seems to assume people retire with roughly 25x-30x expenses. So if we step back and stop officiating things with percentages (which are great for accumulators but less useful for the Financially Independent) and say something similar to Bernstein that retirees should in near retirement or entering retirement have between 20x-30x of base expenses in safe fixed income assets and anything over and above that can be invested in risk assets such as stocks if the retiree chooses we end up with something that essential agrees with Rick Ferri's 30/70 assuming 25x expenses which would be 17.5x expenses in safe fixed income assets or 21x if you retire with 30x expenses. Of course if we are talking about an early FIRE retiree all bets are off.
Sorry, I cannot parse your run-on sentence.

It's a matter of degree. I was using that example to make a point. But it's no less valid for someone who has only 10x expenses but has 90% of expenses covered by SS+pension. The size of the egg is irrelevant. It's the size of the egg to the size of the need.

My withdrawal rate will likely be 1-2% by age 70. I will be perfectly comfortable with 70% stocks in that case.

As always, YMMV.

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TheTimeLord
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by TheTimeLord » Tue May 14, 2019 9:01 am

Admiral wrote:
Tue May 14, 2019 8:56 am
TheTimeLord wrote:
Tue May 14, 2019 7:27 am
Admiral wrote:
Tue May 14, 2019 7:12 am
burt wrote:
Tue May 14, 2019 7:01 am
bhsince87 wrote:
Mon May 13, 2019 1:42 pm
This is one reason folks like Rick Ferri promote 30/70 AA's for retirees.
+1

Ferri: Wisdom Of 60/40 Portfolios Timeless
https://www.etf.com/sections/index-inve ... nopaging=1

"Retirees and those almost retired shouldn’t care what their highest level of risk tolerance is because they shouldn’t be investing anywhere near it. There is no economic reason for a person to take more investment risk than necessary once they’ve accumulated enough money for retirement. The focus should be on the minimum amount of risk needed to achieve an income required in retirement."
While I generally agree, one can make a good case that there are legit reasons for adding market risk precisely BECAUSE they've accumulated enough: for example, to build a larger legacy. If I have $10m and can live on $10k, why shouldn't I be 90/10 if I want to leave my kids (or charity) the maximum amount possible? Extreme example and of course most retirees are not in this situation. But if one can live on interest alone (or the interest on the interest) there's no reason they should not take more risk, if they desire higher returns (for whatever reason). This argument (both sides) is perennial on the board.
I think when you are talk about having $10m with expenses of $10k you are talking a 1000x expenses and most general advice here seems to assume people retire with roughly 25x-30x expenses. So if we step back and stop officiating things with percentages (which are great for accumulators but less useful for the Financially Independent) and say something similar to Bernstein that retirees should in near retirement or entering retirement have between 20x-30x of base expenses in safe fixed income assets and anything over and above that can be invested in risk assets such as stocks if the retiree chooses we end up with something that essential agrees with Rick Ferri's 30/70 assuming 25x expenses which would be 17.5x expenses in safe fixed income assets or 21x if you retire with 30x expenses. Of course if we are talking about an early FIRE retiree all bets are off.
Sorry, I cannot parse your run-on sentence.

It's a matter of degree. I was using that example to make a point. But it's no less valid for someone who has only 10x expenses but has 90% of expenses covered by SS+pension. The size of the egg is irrelevant. It's the size of the egg to the size of the need.

My withdrawal rate will likely be 1-2% by age 70. I will be perfectly comfortable with 70% stocks in that case.

As always, YMMV.
My understanding is expenses in relation to portfolio value usually refers only to the amount not covered by SS and pensions.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

Admiral
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Admiral » Tue May 14, 2019 9:08 am

TheTimeLord wrote:
Tue May 14, 2019 9:01 am
Admiral wrote:
Tue May 14, 2019 8:56 am
TheTimeLord wrote:
Tue May 14, 2019 7:27 am
Admiral wrote:
Tue May 14, 2019 7:12 am
burt wrote:
Tue May 14, 2019 7:01 am


+1

Ferri: Wisdom Of 60/40 Portfolios Timeless
https://www.etf.com/sections/index-inve ... nopaging=1

"Retirees and those almost retired shouldn’t care what their highest level of risk tolerance is because they shouldn’t be investing anywhere near it. There is no economic reason for a person to take more investment risk than necessary once they’ve accumulated enough money for retirement. The focus should be on the minimum amount of risk needed to achieve an income required in retirement."
While I generally agree, one can make a good case that there are legit reasons for adding market risk precisely BECAUSE they've accumulated enough: for example, to build a larger legacy. If I have $10m and can live on $10k, why shouldn't I be 90/10 if I want to leave my kids (or charity) the maximum amount possible? Extreme example and of course most retirees are not in this situation. But if one can live on interest alone (or the interest on the interest) there's no reason they should not take more risk, if they desire higher returns (for whatever reason). This argument (both sides) is perennial on the board.
I think when you are talk about having $10m with expenses of $10k you are talking a 1000x expenses and most general advice here seems to assume people retire with roughly 25x-30x expenses. So if we step back and stop officiating things with percentages (which are great for accumulators but less useful for the Financially Independent) and say something similar to Bernstein that retirees should in near retirement or entering retirement have between 20x-30x of base expenses in safe fixed income assets and anything over and above that can be invested in risk assets such as stocks if the retiree chooses we end up with something that essential agrees with Rick Ferri's 30/70 assuming 25x expenses which would be 17.5x expenses in safe fixed income assets or 21x if you retire with 30x expenses. Of course if we are talking about an early FIRE retiree all bets are off.
Sorry, I cannot parse your run-on sentence.

It's a matter of degree. I was using that example to make a point. But it's no less valid for someone who has only 10x expenses but has 90% of expenses covered by SS+pension. The size of the egg is irrelevant. It's the size of the egg to the size of the need.

My withdrawal rate will likely be 1-2% by age 70. I will be perfectly comfortable with 70% stocks in that case.

As always, YMMV.
My understanding is expenses in relation to portfolio value usually refers only to the amount not covered by SS and pensions.
Perhaps, but there's clearly a vocal "SS is going bust" contingent here (aka over-savers :oops: )

Silence Dogood
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Silence Dogood » Tue May 14, 2019 9:10 am

I'm guessing the market has gone down lately?

I don't bother checking, but I can always get a good idea based on the most recent threads (for example, "100% stocks" threads when the market is doing really well).

Anyway, which is the greater risk?:

The risk that a 60 year old, entering retirement, ends up running out of money, due to a 30 year stagnation in the stock market.

The risk that a 60 year old, about to enter retirement, but fearing stock market stagnation, works an extra 10 years, but then dies at age 70.

There are no guarantees in life.

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TheTimeLord
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by TheTimeLord » Tue May 14, 2019 9:20 am

Admiral wrote:
Tue May 14, 2019 9:08 am
TheTimeLord wrote:
Tue May 14, 2019 9:01 am
Admiral wrote:
Tue May 14, 2019 8:56 am
TheTimeLord wrote:
Tue May 14, 2019 7:27 am
Admiral wrote:
Tue May 14, 2019 7:12 am


While I generally agree, one can make a good case that there are legit reasons for adding market risk precisely BECAUSE they've accumulated enough: for example, to build a larger legacy. If I have $10m and can live on $10k, why shouldn't I be 90/10 if I want to leave my kids (or charity) the maximum amount possible? Extreme example and of course most retirees are not in this situation. But if one can live on interest alone (or the interest on the interest) there's no reason they should not take more risk, if they desire higher returns (for whatever reason). This argument (both sides) is perennial on the board.
I think when you are talk about having $10m with expenses of $10k you are talking a 1000x expenses and most general advice here seems to assume people retire with roughly 25x-30x expenses. So if we step back and stop officiating things with percentages (which are great for accumulators but less useful for the Financially Independent) and say something similar to Bernstein that retirees should in near retirement or entering retirement have between 20x-30x of base expenses in safe fixed income assets and anything over and above that can be invested in risk assets such as stocks if the retiree chooses we end up with something that essential agrees with Rick Ferri's 30/70 assuming 25x expenses which would be 17.5x expenses in safe fixed income assets or 21x if you retire with 30x expenses. Of course if we are talking about an early FIRE retiree all bets are off.
Sorry, I cannot parse your run-on sentence.

It's a matter of degree. I was using that example to make a point. But it's no less valid for someone who has only 10x expenses but has 90% of expenses covered by SS+pension. The size of the egg is irrelevant. It's the size of the egg to the size of the need.

My withdrawal rate will likely be 1-2% by age 70. I will be perfectly comfortable with 70% stocks in that case.

As always, YMMV.
My understanding is expenses in relation to portfolio value usually refers only to the amount not covered by SS and pensions.
Perhaps, but there's clearly a vocal "SS is going bust" contingent here (aka over-savers :oops: )
Yeah, that one is below the bottom of my list of concerns.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

visualguy
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by visualguy » Tue May 14, 2019 9:25 am

TheTimeLord wrote:
Tue May 14, 2019 7:15 am
Totally agree. IMHO once you have "enough" you should consider making the transition from a Return Maximizer to a Risk Manager.
"Enough" is unknown, though. I can't say with any precision how much my wife and I will need/want for the rest of our lives without having knowledge of the future. I can come up with a range, but the upper end of that range is quite high even without assuming a combination of unlikely scenarios.

pdavi21
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by pdavi21 » Tue May 14, 2019 9:28 am

(EDIT: assuming stocks will be flat or negative) would be a bad plan. Switching to 100% TIPS would be better (in that scemario).
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

Admiral
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Admiral » Tue May 14, 2019 9:33 am

visualguy wrote:
Tue May 14, 2019 9:25 am
TheTimeLord wrote:
Tue May 14, 2019 7:15 am
Totally agree. IMHO once you have "enough" you should consider making the transition from a Return Maximizer to a Risk Manager.
"Enough" is unknown, though. I can't say with any precision how much my wife and I will need/want for the rest of our lives without having knowledge of the future. I can come up with a range, but the upper end of that range is quite high even without assuming a combination of unlikely scenarios.
I agree with this. I know people in their 70s who are still supporting (for whatever reason) their 40-YO children. Some of it is because they can and want to, some is because the kids are dysfunctional. So, one's retirement plan could include (for example) $0 to grown children, or $12k per year (or much more) to grown children.

That's just an illustration of the range. I could envision owning one home, or owning 2. Flying coach, or Intl business. Taking 4 trips a year, or only 2.

DrGoogle2017
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by DrGoogle2017 » Tue May 14, 2019 9:46 am

Yes, and I’m working to arrange my finance to make it even safer. I have not withdrawn any money yet. That money is possibly for very long LTC, that’s the only unknown so far.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by mtmingus » Tue May 14, 2019 10:35 am

bhsince87 wrote:
Mon May 13, 2019 1:42 pm
This is one reason folks like Rick Ferri promote 30/70 AA's for retirees.
That's the AA of Vanguard Target Retirement Income.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by engineerartist » Tue May 14, 2019 10:49 am

Ron wrote:
Mon May 13, 2019 10:15 am
Since I/we draw income from our respective portfolios via dividends, the actual share price is of no concern to us.

Our distributions more than exceed our RMD's, which are used to pay FIT on the RMD, pay FIT on all our other income (SS, SPIA, Pensions, etc.) with the remainder of the RMD being sent to savings (or spent as we want/need).

While we are not strictly dividend investors, it has turned out in that manner since we both started age-70 SS and we no longer have to sell any of our portfolio holdings in order to meet our retirement income needs beyond our other sources of income, which was a normal situation during our early years of retirement; I retired at age 59, wife at age 64.

BTW, I'm only speaking of our TIRA holdings; our Roth account distributions are fully reinvested with the goal of leaving those accounts for the future generation.

FWIW,

- Ron
+1
Retired - dividend growth investor

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by longinvest » Tue May 14, 2019 11:08 am

My retirement plan combines two types of retirement income:
  1. guaranteed stable lifelong income like Social Security, a pension (if any), and (if necessary) an inflation-indexed Single-Premium Immediate Annuity (inflation-indexed SPIA), and
  2. flexible withdrawals from a balanced global stocks/bonds portfolio using the VPW method.
All of my life, I've adjusted my spending to available income (after taxes and savings). When I'll retire, I'll just continue to adjust my spending to available income (after taxes). This approach lets me sleep well.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

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TheTimeLord
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by TheTimeLord » Tue May 14, 2019 12:24 pm

visualguy wrote:
Tue May 14, 2019 9:25 am
TheTimeLord wrote:
Tue May 14, 2019 7:15 am
Totally agree. IMHO once you have "enough" you should consider making the transition from a Return Maximizer to a Risk Manager.
"Enough" is unknown, though. I can't say with any precision how much my wife and I will need/want for the rest of our lives without having knowledge of the future. I can come up with a range, but the upper end of that range is quite high even without assuming a combination of unlikely scenarios.
I guess I may be inline for a rude surprise then.
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by gmaynardkrebs » Tue May 14, 2019 12:24 pm

Question for those who answered yes to the OP's question, ie that their retirement plan will work even if stocks returns are flat, almost flat, or in decline for decades. What is percentage of your income are you saving every year (including taxable and IRA.401K/TSP/403)? Also, what's your age and when do you plan to retire?

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TheTimeLord
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by TheTimeLord » Tue May 14, 2019 12:37 pm

gmaynardkrebs wrote:
Tue May 14, 2019 12:24 pm
Question for those who answered yes to the OP's question, ie that their retirement plan will work even if stocks returns are flat, almost flat, or in decline for decades. What is percentage of your income are you saving every year (including taxable and IRA.401K/TSP/403)? Also, what's your age and when do you plan to retire?
Another question that has come to my mind is what is each posters definition of failure. For me it would not being able to have the retirement I plan for/expected within reason which I get is subjective, for others it could be quite different.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

longinvest
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by longinvest » Tue May 14, 2019 12:42 pm

gmaynardkrebs wrote:
Tue May 14, 2019 12:24 pm
Question for those who answered yes to the OP's question, ie that their retirement plan will work even if stocks returns are flat, almost flat, or in decline for decades. What is percentage of your income are you saving every year (including taxable and IRA.401K/TSP/403)? Also, what's your age and when do you plan to retire?
My approach to savings is described in this post.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by RNJ » Tue May 14, 2019 12:44 pm

mptfan wrote:
Mon May 13, 2019 10:12 am
TheTimeLord wrote:
Mon May 13, 2019 9:36 am
So my question is will your retirement plan work if stocks do not at least outperform bonds for the duration of your retirement or worse yet have returns below 0% real? Or another way to put it does your retirement plan have a contingency for stocks being flat or declining throughout your retirement?
My plans do not depend on stocks outperforming bonds, but they do depend on stocks at least doing as well as bonds. If stocks overall remain flat or return less than bonds over the next 10-15 years then I will have to work longer. I would point out that I don't just invest in the total bond fund (which approximates the return of intermediate term investment grade bonds) as so many on this board, I also include a helping of long term investment grade bonds (a greater helping than contained in the total bond fund) as well as high yield corporate bonds.
This is a really interesting response and I'm not quite sure what to make of it. If stocks decline for "decades" I would imagine that corporate bonds - especially of the high yield variety - would fare poorly, as well.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Wiggums » Tue May 14, 2019 12:55 pm

TheTimeLord wrote:
Tue May 14, 2019 9:01 am
My understanding is expenses in relation to portfolio value usually refers only to the amount not covered by SS and pensions.
That is the way I look at it as well.

This question is interesting. I’m guessing that most people in the world have insufficient retirement savings and would just throw up their hands.

mptfan
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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by mptfan » Tue May 14, 2019 2:11 pm

RNJ wrote:
Tue May 14, 2019 12:44 pm
If stocks decline for "decades" I would imagine that corporate bonds - especially of the high yield variety - would fare poorly, as well.
I agree. If stocks decline for decades I think we would have bigger problems though.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by midareff » Tue May 14, 2019 2:14 pm

A decline or deflationary spiral would not change things for us. Pension and SS pay the bills. Portfolio income is for toys, frills and travel.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by RNJ » Tue May 14, 2019 2:15 pm

mptfan wrote:
Tue May 14, 2019 2:11 pm
RNJ wrote:
Tue May 14, 2019 12:44 pm
If stocks decline for "decades" I would imagine that corporate bonds - especially of the high yield variety - would fare poorly, as well.
I agree. If stocks decline for decades I think we would have bigger problems though.
Yup.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by willthrill81 » Tue May 14, 2019 2:38 pm

mptfan wrote:
Tue May 14, 2019 2:11 pm
RNJ wrote:
Tue May 14, 2019 12:44 pm
If stocks decline for "decades" I would imagine that corporate bonds - especially of the high yield variety - would fare poorly, as well.
I agree. If stocks decline for decades I think we would have bigger problems though.
Maybe, maybe not. There has been at least one 20 year period where U.S. stocks' had a negative real return, and Japan is doing quite well despite their stock market having had negative cumulative returns for 30 years and counting.

What would be really interesting from the perspective of an observer, not a participant, is whether a 20+ year period of negative real returns of U.S. stocks would coincide with ex-U.S. stocks would also performing poorly. I suspect that it likely would.
“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: Does your retirement plan work if stocks are flat or in decline for decades?

Post by mptfan » Tue May 14, 2019 3:13 pm

willthrill81 wrote:
Tue May 14, 2019 2:38 pm
mptfan wrote:
Tue May 14, 2019 2:11 pm
RNJ wrote:
Tue May 14, 2019 12:44 pm
If stocks decline for "decades" I would imagine that corporate bonds - especially of the high yield variety - would fare poorly, as well.
I agree. If stocks decline for decades I think we would have bigger problems though.
Maybe, maybe not. There has been at least one 20 year period where U.S. stocks' had a negative real return, and Japan is doing quite well despite their stock market having had negative cumulative returns for 30 years and counting.

What would be really interesting from the perspective of an observer, not a participant, is whether a 20+ year period of negative real returns of U.S. stocks would coincide with ex-U.S. stocks would also performing poorly. I suspect that it likely would.
I think the key phrase that you used is "negative real return." When I referred to a declining market over decades I meant a nominal decline, i.e. the nominal, actual value of the stock market indices continues to decline over decades. That is different than a negative real return because the stock market could have a positive nominal return over decades but less than the rate of inflation and that would be a negative real return, but that is not what I meant, and that is not what I interpreted the OP to mean.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by willthrill81 » Tue May 14, 2019 3:17 pm

mptfan wrote:
Tue May 14, 2019 3:13 pm
willthrill81 wrote:
Tue May 14, 2019 2:38 pm
mptfan wrote:
Tue May 14, 2019 2:11 pm
RNJ wrote:
Tue May 14, 2019 12:44 pm
If stocks decline for "decades" I would imagine that corporate bonds - especially of the high yield variety - would fare poorly, as well.
I agree. If stocks decline for decades I think we would have bigger problems though.
Maybe, maybe not. There has been at least one 20 year period where U.S. stocks' had a negative real return, and Japan is doing quite well despite their stock market having had negative cumulative returns for 30 years and counting.

What would be really interesting from the perspective of an observer, not a participant, is whether a 20+ year period of negative real returns of U.S. stocks would coincide with ex-U.S. stocks would also performing poorly. I suspect that it likely would.
I think the key phrase that you used is "negative real return." When I referred to a declining market over decades I meant a nominal decline, i.e. the nominal, actual value of the stock market indices continues to decline over decades. This is different than a negative real return because the stock market could have a positive nominal return over decades but less than the rate of inflation and that would be a negative real return, but that is not what I meant, and that is not what I interpreted the OP to mean.
Thanks for clarifying. Considering that the OP is referring to a retirement plan working, I would believe that real returns would be far more relevant. I personally couldn't care less if my nominal return was 10% but inflation was 20%. That doesn't help me pay for groceries, insurance, property taxes, etc.
“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: Does your retirement plan work if stocks are flat or in decline for decades?

Post by mptfan » Tue May 14, 2019 3:19 pm

willthrill81 wrote:
Tue May 14, 2019 3:17 pm
Thanks for clarifying. Considering that the OP is referring to a retirement plan working, I would believe that real returns would be far more relevant. I personally couldn't care less if my nominal return was 10% but inflation was 20%. That doesn't help me pay for groceries, insurance, property taxes, etc.
I may agree with you that real returns are more relevant, but that doesn't change the validity of what I said.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by protagonist » Tue May 14, 2019 3:30 pm

Silence Dogood wrote:
Tue May 14, 2019 9:10 am
I'm guessing the market has gone down lately?

I don't bother checking, but I can always get a good idea based on the most recent threads (for example, "100% stocks" threads when the market is doing really well).

Anyway, which is the greater risk?:

The risk that a 60 year old, entering retirement, ends up running out of money, due to a 30 year stagnation in the stock market.

The risk that a 60 year old, about to enter retirement, but fearing stock market stagnation, works an extra 10 years, but then dies at age 70.

There are no guarantees in life.
Right.
According to this site (FWIW), an "average" 60 y o has a 14.7% chance of dying within the next 10 years. https://www.finder.com/odds-of-dying
( assuming the stats are accurate and for US residents). That number is pretty meaningless to an individual, but certainly less meaningless than any stock market prediction.

No matter what you decide you are taking a risk. Risk of running out of money vs. risk of dying on top of a pile of money you never got to enjoy.
To quote the Incredible String Band paraphrasing Shakespeare: "All the world is but a play. Be thou the joyful player".

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by G12 » Tue May 14, 2019 4:26 pm

I would be more concerned with political, nukes, significant water challenges for crop production, health care costs, large scale negative climate change, etc more so than the stated question. Equities, if remaining flat for multiple decades, would likely continue to pay dividends given what happened in 2008 - 2010 when the largest dividend reductions occurred in the financial sector. Given current bond yields are not very enticing these days compared to dividend yields and dividend increases I will stay at 50 - 60% equities for the time being, + fixed income + investment property income streams, then some pension and SSI commencing in roughly 10 years. We have cushion built in, projected retirement income could drop 35% and we should still have ample income to lead a good lifestyle. We are pulling the cord in 12 months, yet I will bet my wife will return to her occupation part time just knowing her.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by mariezzz » Tue May 14, 2019 4:42 pm

Silence Dogood wrote:
Tue May 14, 2019 9:10 am
I'm guessing the market has gone down lately?

I don't bother checking, but I can always get a good idea based on the most recent threads (for example, "100% stocks" threads when the market is doing really well).

Anyway, which is the greater risk?:

The risk that a 60 year old, entering retirement, ends up running out of money, due to a 30 year stagnation in the stock market.

The risk that a 60 year old, about to enter retirement, but fearing stock market stagnation, works an extra 10 years, but then dies at age 70.

There are no guarantees in life.
Or, more likely for people following the BH approach, the risk that a 60 year old, entering retirement at the beginning of a 30 year stagnation in the stock market, cognizant of SWR issues, decreases spending by cutting out unnecessary spending on consumer goods, travel, and restaurant, and dies at age 92 with money in the bank.

There's risk in worrying unnecessarily. People with such anxiety may find ways to rationalize it, but allowing anxiety about a highly unlikely (<.1%) scenario to substantially affect one's financial decisions is far more likely to cause people to run out of money in retirement (this is the reason why a 20/80 AA isn't recommended for people in the accumulation phase).

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by TravelforFun » Tue May 14, 2019 7:39 pm

mariezzz wrote:
Mon May 13, 2019 4:40 pm
TravelforFun wrote:
Mon May 13, 2019 4:15 pm
My state has an Insurance Guaranty Association that would step in if a covered insurance company becomes insolvent to either continue the policy coverage or fund the transfer of the policy to another insurance company. There is a limit to what they would cover. For annuities, it's $250,000.

TravelforFun
What makes you think the state insurance guaranty association will have the resources to step in & bail out if stocks are flat or in decline for decades?
If you assume worst case scenarios then there are many other things that you could worry about: Insolvent FDIC or social security, black Mondays after black Mondays, massive weather-related events, new wars, etc. I try to make decisions based on the information I currently have.

TravelforFun

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Turbo29 » Tue May 14, 2019 9:50 pm

TravelforFun wrote:
Tue May 14, 2019 7:39 pm

If you assume worst case scenarios then there are many other things that you could worry about: Insolvent FDIC or social security, black Mondays after black Mondays, massive weather-related events, new wars, etc. I try to make decisions based on the information I currently have.

TravelforFun
Let’s examine a small sampling of possible political, economic, and military failure modes:

The mildest scenario is that of catastrophic inflation, as experienced in Germany and Hungary in the 1920s or, more recently, in much of the developing world.

Political failures are slightly worse, since these threaten the basic human motivation to work and produce. The state, for whatever reason, can decide to confiscate your assets or, worse, society’s means of production. Anyone who judges this unlikely should turn on CNN during any G-8 or WTO conference.

Local military action. Probably the lowest-probability item on this list, but something to think about on other continents.

The Big One: Some deranged prime minister or colonel in central Russia, Pyongyang, or South Asia could let loose the four horsemen upon the planet.

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.

--William J. Bernstein




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

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by alex123711 » Tue May 14, 2019 10:32 pm

DanMahowny wrote:
Mon May 13, 2019 10:56 am
My portfolio is all cash (since Jan2018) and a large TSLA short.

I would welcome a large decline in the equity markets (50% would be pretty cool).
Why are you all cash?

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by MnD » Tue May 14, 2019 11:22 pm

protagonist wrote:
Tue May 14, 2019 3:30 pm
Silence Dogood wrote:
Tue May 14, 2019 9:10 am
Anyway, which is the greater risk?:

The risk that a 60 year old, entering retirement, ends up running out of money, due to a 30 year stagnation in the stock market.

The risk that a 60 year old, about to enter retirement, but fearing stock market stagnation, works an extra 10 years, but then dies at age 70.

There are no guarantees in life.
Right.
According to this site (FWIW), an "average" 60 y o has a 14.7% chance of dying within the next 10 years. https://www.finder.com/odds-of-dying
( assuming the stats are accurate and for US residents). That number is pretty meaningless to an individual, but certainly less meaningless than any stock market prediction.

No matter what you decide you are taking a risk. Risk of running out of money vs. risk of dying on top of a pile of money you never got to enjoy.
To quote the Incredible String Band paraphrasing Shakespeare: "All the world is but a play. Be thou the joyful player".
And for a 60 year old couple, they have only a 77% chance of both being alive by age 70.
http://eyebonds.info/downloads/pages/Od ... Alive.html
And that's just death - consider also seriously lifestyle-limiting illnesses and disabilities for one or both being more common.

Yet we see folks here hand-wringing and motivated to "save more and work longer" because they are scared to death of not quite having "100% success" from their portfolio for some hypothetical many decades long retirement according to some free Monte Carlo simulator they ran.

Guess what - mortality and morbidity are going to be the very likely spoilers of your hopes of a long, happy and healthy retirement versus some bad sequence in portfolio returns which can be adjusted for. And every year you put off retirement for more financial "safety", is one year closer to the awful diagnosis and/or the grim reaper. And guaranteed one less year of the best healthy/active years and total years of an unknown N till check-out time.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by wootwoot » Tue May 14, 2019 11:41 pm

OP in a word, no. No, my plan wouldn't work.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by willthrill81 » Wed May 15, 2019 12:12 am

MnD wrote:
Tue May 14, 2019 11:22 pm
Guess what - mortality and morbidity are going to be the very likely spoilers of your hopes of a long, happy and healthy retirement versus some bad sequence in portfolio returns which can be adjusted for. And every year you put off retirement for more financial "safety", is one year closer to the awful diagnosis and/or the grim reaper. And guaranteed one less year of the best healthy/active years and total years of an unknown N till check-out time.
"The next decade of your life will be the healthiest one you have left."
- Jonathan Clements
“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: Does your retirement plan work if stocks are flat or in decline for decades?

Post by stocknoob4111 » Wed May 15, 2019 1:13 am

this can't happen without some serious societal mayhem.. for example government pensions would go bankrupt and it would even mean total economic collapse, no productive output in the economy for decades?... I don't plan for it since to me it's too miniscule of a possibility to even consider.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by gmaynardkrebs » Wed May 15, 2019 8:54 am

stocknoob4111 wrote:
Wed May 15, 2019 1:13 am
this can't happen without some serious societal mayhem.. for example government pensions would go bankrupt and it would even mean total economic collapse, no productive output in the economy for decades?... I don't plan for it since to me it's too miniscule of a possibility to even consider.
Not at all. Stocks may simply be overpriced today, and return to less elevated PEs; the ratio of corporate profits to GDP could return to the historic mean; or interest rates could return to normal levels.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by TheTimeLord » Wed May 15, 2019 9:02 am

gmaynardkrebs wrote:
Wed May 15, 2019 8:54 am
stocknoob4111 wrote:
Wed May 15, 2019 1:13 am
this can't happen without some serious societal mayhem.. for example government pensions would go bankrupt and it would even mean total economic collapse, no productive output in the economy for decades?... I don't plan for it since to me it's too miniscule of a possibility to even consider.
Not at all. Stocks may simply be overpriced today, and return to less elevated PEs; the ratio of corporate profits to GDP could return to the historic mean; or interest rates could return to normal levels.
That would seem to be the most likely cause of PE compression and increased borrowing costs would pressure cash flow. If it played out over several years instead of a crisis I could see it suppressing gains in equities for a long period.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Admiral » Wed May 15, 2019 9:18 am

gmaynardkrebs wrote:
Wed May 15, 2019 8:54 am
stocknoob4111 wrote:
Wed May 15, 2019 1:13 am
this can't happen without some serious societal mayhem.. for example government pensions would go bankrupt and it would even mean total economic collapse, no productive output in the economy for decades?... I don't plan for it since to me it's too miniscule of a possibility to even consider.
Not at all. Stocks may simply be overpriced today, and return to less elevated PEs; the ratio of corporate profits to GDP could return to the historic mean; or interest rates could return to normal levels.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.

If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by gmaynardkrebs » Wed May 15, 2019 9:57 am

Admiral wrote:
Wed May 15, 2019 9:18 am
gmaynardkrebs wrote:
Wed May 15, 2019 8:54 am
stocknoob4111 wrote:
Wed May 15, 2019 1:13 am
this can't happen without some serious societal mayhem.. for example government pensions would go bankrupt and it would even mean total economic collapse, no productive output in the economy for decades?... I don't plan for it since to me it's too miniscule of a possibility to even consider.
Not at all. Stocks may simply be overpriced today, and return to less elevated PEs; the ratio of corporate profits to GDP could return to the historic mean; or interest rates could return to normal levels.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.
If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.
The low discount rate has been highly supportive of today's valuations. So, the following part of your comment comment surprises me. Are you referring to the Greenspan era? I believe the market is at much higher levels today, even in real terms.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.
Not sure I understand the following comment; please explain.
If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.
My point is that it may not be sustainable at high interest rates. Low rates boost both NGDP and stock prices.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Admiral » Wed May 15, 2019 10:05 am

gmaynardkrebs wrote:
Wed May 15, 2019 9:57 am
Admiral wrote:
Wed May 15, 2019 9:18 am
gmaynardkrebs wrote:
Wed May 15, 2019 8:54 am
stocknoob4111 wrote:
Wed May 15, 2019 1:13 am
this can't happen without some serious societal mayhem.. for example government pensions would go bankrupt and it would even mean total economic collapse, no productive output in the economy for decades?... I don't plan for it since to me it's too miniscule of a possibility to even consider.
Not at all. Stocks may simply be overpriced today, and return to less elevated PEs; the ratio of corporate profits to GDP could return to the historic mean; or interest rates could return to normal levels.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.
If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.
The low discount rate has been highly supportive of today's valuations. So, the following part of your comment comment surprises me. Are you referring to the Greenspan era? I believe the market is at much higher levels today, even in real terms.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.
Not sure I understand the following comment; please explain.
If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.
My point is that it may not be sustainable at high interest rates. Low rates boost both NGDP and stock prices.
Well you seemed to be implying (unless I misunderstood) that the market could have a long (decades) period of depressed pricing/returns if interests rates rise to previous levels? Wasn't that your point? And I said that rates had already risen considerably (which they have) from the QE era and the market is not depressed, by any stretch.

I also don't necessarily see any direct correlation between higher interest rates (meaning average, not late 70s-style inflation) and lower stock returns. I think it would depend on how such borrowing costs impact businesses.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by gmaynardkrebs » Wed May 15, 2019 10:19 am

Admiral wrote:
Wed May 15, 2019 10:05 am
gmaynardkrebs wrote:
Wed May 15, 2019 9:57 am
Admiral wrote:
Wed May 15, 2019 9:18 am
gmaynardkrebs wrote:
Wed May 15, 2019 8:54 am
stocknoob4111 wrote:
Wed May 15, 2019 1:13 am
this can't happen without some serious societal mayhem.. for example government pensions would go bankrupt and it would even mean total economic collapse, no productive output in the economy for decades?... I don't plan for it since to me it's too miniscule of a possibility to even consider.
Not at all. Stocks may simply be overpriced today, and return to less elevated PEs; the ratio of corporate profits to GDP could return to the historic mean; or interest rates could return to normal levels.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.
If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.
The low discount rate has been highly supportive of today's valuations. So, the following part of your comment comment surprises me. Are you referring to the Greenspan era? I believe the market is at much higher levels today, even in real terms.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.
Not sure I understand the following comment; please explain.
If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.
My point is that it may not be sustainable at high interest rates. Low rates boost both NGDP and stock prices.
Well you seemed to be implying (unless I misunderstood) that the market could have a long (decades) period of depressed pricing/returns if interests rates rise to previous levels? Wasn't that your point? And I said that rates had already risen considerably (which they have) from the QE era and the market is not depressed, by any stretch.

I also don't necessarily see any direct correlation between higher interest rates (meaning average, not late 70s-style inflation) and lower stock returns. I think it would depend on how such borrowing costs impact businesses.
Thank you for the reply. The market was tanking in Nov/Dec 2018 until the Fed's abrupt turnaround on rate increases, and before that was the "temper tantrum" when Bernanke talked about winding down QE. So, I think that higher rates would precipitate a major crisis, at least today. That could change in the future, however, if the world economy is really humming.

There's a direct connection between interest rates and valuation under the Gordon equation. Higher rates raise the discount on future earnings, which lowers valuation.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Admiral » Wed May 15, 2019 10:27 am

gmaynardkrebs wrote:
Wed May 15, 2019 10:19 am
Admiral wrote:
Wed May 15, 2019 10:05 am
gmaynardkrebs wrote:
Wed May 15, 2019 9:57 am
Admiral wrote:
Wed May 15, 2019 9:18 am
gmaynardkrebs wrote:
Wed May 15, 2019 8:54 am
Not at all. Stocks may simply be overpriced today, and return to less elevated PEs; the ratio of corporate profits to GDP could return to the historic mean; or interest rates could return to normal levels.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.
If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.
The low discount rate has been highly supportive of today's valuations. So, the following part of your comment comment surprises me. Are you referring to the Greenspan era? I believe the market is at much higher levels today, even in real terms.
What do you consider "normal levels"? The long term effective fed fund rate is 4.8%. If (as appears to be the case) we creep back close to that, over time, I don't see how that depresses the market.
Not sure I understand the following comment; please explain.
If, OTOH, the global economy has changed such that higher GDP can exist alongside low interest rates and low unemployment...well, I don't see that depressing markets either, since that's what we've had for a number of years now and the markets are in record territory.
My point is that it may not be sustainable at high interest rates. Low rates boost both NGDP and stock prices.
Well you seemed to be implying (unless I misunderstood) that the market could have a long (decades) period of depressed pricing/returns if interests rates rise to previous levels? Wasn't that your point? And I said that rates had already risen considerably (which they have) from the QE era and the market is not depressed, by any stretch.

I also don't necessarily see any direct correlation between higher interest rates (meaning average, not late 70s-style inflation) and lower stock returns. I think it would depend on how such borrowing costs impact businesses.
Thank you for the reply. The market was tanking in Nov/Dec 2018 until the Fed's abrupt turnaround on rate increases, and before that was the "temper tantrum" when Bernanke talked about winding down QE. So, I think that higher rates would precipitate a major crisis, at least today. That could change in the future, however, if the world economy is really humming.

There's a direct connection between interest rates and valuation under the Gordon equation. Higher rates raise the discount on future earnings, which lowers valuation.
I don't think anything happening with the markets and interest rates under the current regime should be considered A) normal B) constructive and well managed/executed or C) predictive of the future.

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Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by GAAP » Wed May 15, 2019 6:55 pm

TheTimeLord wrote:
Mon May 13, 2019 9:36 am
Or another way to put it does your retirement plan have a contingency for stocks being flat or declining throughout your retirement?
Not "throughout" unless I die a lot earlier than expected.

Extended periods of bad stock returns, yes. Long term negative returns (as-in much longer than any drop we've seen) -- probably not.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

Silence Dogood
Posts: 850
Joined: Tue Feb 01, 2011 9:22 pm

Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by Silence Dogood » Wed May 15, 2019 7:41 pm

mariezzz wrote:
Tue May 14, 2019 4:42 pm
Silence Dogood wrote:
Tue May 14, 2019 9:10 am
I'm guessing the market has gone down lately?

I don't bother checking, but I can always get a good idea based on the most recent threads (for example, "100% stocks" threads when the market is doing really well).

Anyway, which is the greater risk?:

The risk that a 60 year old, entering retirement, ends up running out of money, due to a 30 year stagnation in the stock market.

The risk that a 60 year old, about to enter retirement, but fearing stock market stagnation, works an extra 10 years, but then dies at age 70.

There are no guarantees in life.
Or, more likely for people following the BH approach, the risk that a 60 year old, entering retirement at the beginning of a 30 year stagnation in the stock market, cognizant of SWR issues, decreases spending by cutting out unnecessary spending on consumer goods, travel, and restaurant, and dies at age 92 with money in the bank.

There's risk in worrying unnecessarily. People with such anxiety may find ways to rationalize it, but allowing anxiety about a highly unlikely (<.1%) scenario to substantially affect one's financial decisions is far more likely to cause people to run out of money in retirement (this is the reason why a 20/80 AA isn't recommended for people in the accumulation phase).
I completely agree!

What is the point of this thread?

I'm not saying that long-term stagnation couldn't happen, but what are we going to do about it even if it does?

We can't plan our lives based on the potential for unlikely events when it comes at great expense to likely events.

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gmaynardkrebs
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Joined: Sun Feb 10, 2008 11:48 am

Re: Does your retirement plan work if stocks are flat or in decline for decades?

Post by gmaynardkrebs » Wed May 15, 2019 8:51 pm

Silence Dogood wrote:
Wed May 15, 2019 7:41 pm
mariezzz wrote:
Tue May 14, 2019 4:42 pm
Silence Dogood wrote:
Tue May 14, 2019 9:10 am
I'm guessing the market has gone down lately?

I don't bother checking, but I can always get a good idea based on the most recent threads (for example, "100% stocks" threads when the market is doing really well).

Anyway, which is the greater risk?:

The risk that a 60 year old, entering retirement, ends up running out of money, due to a 30 year stagnation in the stock market.

The risk that a 60 year old, about to enter retirement, but fearing stock market stagnation, works an extra 10 years, but then dies at age 70.

There are no guarantees in life.
Or, more likely for people following the BH approach, the risk that a 60 year old, entering retirement at the beginning of a 30 year stagnation in the stock market, cognizant of SWR issues, decreases spending by cutting out unnecessary spending on consumer goods, travel, and restaurant, and dies at age 92 with money in the bank.

There's risk in worrying unnecessarily. People with such anxiety may find ways to rationalize it, but allowing anxiety about a highly unlikely (<.1%) scenario to substantially affect one's financial decisions is far more likely to cause people to run out of money in retirement (this is the reason why a 20/80 AA isn't recommended for people in the accumulation phase).
I completely agree!

What is the point of this thread?

I'm not saying that long-term stagnation couldn't happen, but what are we going to do about it even if it does?

We can't plan our lives based on the potential for unlikely events when it comes at great expense to likely events.
If you mean extremely unlikely events, (eg, the fall of the US gov; an asteroid strike, etc,) that's one thing, However, thirty or more years of flat real returns in the stock market is not that IMO. It can and should be planned for, as many people here do via diversification, high savings rates, and common sense.

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