7 ms·

Most people don't seem to understand that you don't pull all your retirement out at once, so the market going up or down doesn't really affect that

DevKoala 7y ago
But it is wonderful for headlines: "The man who retired on the week the DOW plunged" https://www.barrons.com/articles/he-retired-the-week-the-dow-slid-13-consider-it-a-wake-up-call-to-check-your-portfolio-51583520161 https://www.barrons.com/articles/he-retired-the-week-the-dow...
brazzy 7y ago
But whether you start your retirement at a time the market is down a lot or up a lot can make a surprisingly big difference on how long your money lasts, if you don't adjust your spending.
- perl4ever 7y ago
  Doc, it hurts when I do this! So...
  - t-writescode 7y ago
    Every medical expense, every food expense has the result of costing more of a percentage of your remaining funds. Many costs can’t be put off.
    - perl4ever 7y ago
      All costs are on a spectrum of urgency. Food can be put off longer than water. A small plumbing problem can be put off longer than a large plumbing problem. A furnace problem can be put off longer if it's not cold. Replacing a car can be put off longer than fixing the brakes. There is no such thing as having all your costs due immediately with equal urgency.
      - solveit 7y ago
        On the one hand, you're absolutely right. On the other hand, if I'm putting off food or even general house/vehicle maintenance because of market conditions, my retirement has already failed from my point of view.
        bluGill 7y ago
        If you are that badly off you couldn't afford to retire. For most of the US you have a big spending problem because SS is enough to provide food and basic house/vehicle maintenance. (I know a few people who opted out of SS and then did bad retirement planning - but most people didn't even had the option to opt out of SS) SS isn't much I'll grant. However it is enough to provide the basics.
        perl4ever 7y ago
        I am counting on social security, and I think all the talk about it "running out" is stupid. It runs year by year on the income from that year, so it's completely up to the political will to pay, and whether the people who are working are willing to keep the retired from starving. I assume they will be, because if not, who gives a shit about anything anyway?
- thekyle 7y ago
  Ideally, shouldn't someone planning to retire have already moved more of their money to bonds? Then they could just withdrawal from the bonds portion of the portfolio (which is likely up right now) while the stock market recovers.
  - OJFord 7y ago
    However you frame it, there's always a time you start withdrawals. And if when you planned to do that coincides with a dip, of course you'll have second thoughts.
    - throwaway743 7y ago
      Did so about a year ago based on SMAs and momentum. Only wish there was a cash option to put have them move everything to for the time being, but only had bonds as an option. Best thing is to watch out for the SMA support levels. Just got through a major death cross and looks to be heading further down
    - bluGill 7y ago
      Though you should have options. Don't retire in a down year. Start moving things to safer investments several years before you retire. Don't spend as much that first year. Still the numbers given are good examples and something to keep in mind.
  - typeformer 7y ago
    Bonds yields are the lowest they have been since the great recession.
    - mactrey 7y ago
      Yields are low because bond prices are high. It's not a bad time to be selling down your bond portfolio right now.
madengr 7y ago
Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. She quit near market peak last year (and began re-investing this week), but say she quit this week? It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time.
- froindt 7y ago
  >Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. What type of a company did your wife work for? I actively learn about personal finance and retirement plans and have never heard of a lockout from a 401k. > It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time. Short of working for a privately traded company, or being a very well compensated executive, the shares owned by an individual employee are almost always negligible compared to daily traded volumes. "Selling at a low to boost their stock" wouldn't even move the needle. Edit: One possibility came to mind after posting. Was your wife's 401k balance under $5,000? If so, the company can force liquidation. And to say doing so would help the stock price would only be meaningfully true on a penny stock.
  - csnover 7y ago
    I’m not the OP, but when I left a company where I had a 401(k) and transferred the balance to my preferred brokerage, the source account was frozen for about that long during the approval and transfer process.
    - madengr 7y ago
      Yes, and I assume they cut a check to your IRA?
      - csnover 7y ago
dntbnmpls 7y ago
The problem is that nothing says markets will go up forever. Take japan's nikkei index. Dropped in the early 90s and is still down 50% 30 years later. Choose the "all" to see the entire chart. https://tradingeconomics.com/japan/stock-market https://tradingeconomics.com/japan/stock-market It isn't a law of nature that the S&P or Dow has to regain its losses in X number of years. S&P can drop and stay down for decades which can absolutely affect retirees.
- semi-extrinsic 7y ago
  This is a key point. Especially if we actually start doing something about CO2 emissions, which will mean reducing energy consumption for the next couple of decades. Stock market growth has historically been tightly linked with energy consumption growth.
  - xvilka 7y ago
    While the point of probability of staying low holds, I don't think there is a tight coupling with the energy consumption. Surely, nature (business ecosystem) will find a way for growth driver even without energy density increase.
    - 205guy 7y ago
      I think nature's growth will be like 1% or less, certainly not the stock market growth people are used to. To me, it is obvious there is a tight coupling: energy does work instead of humans/animals, thus allowing more productivity. When you look at a construction site it's just human directed diesel-energy (with some chemical energy in the concrete). Much of the developed world is transitioning to a service economy that relies less on the fossil fuels, but it still relies on the inputs that do (agriculture, electronics, offshore manufacturing). And we've set up the economy around fuel consumption: long commutes from suburbia, inefficient houses, processed and packaged foods, etc. And what about the travel industry: burning fossil fuels for no productivity (just realized it acts as a mop for the excess capital). If we're lucky, we can use the fossil energy to bootstrap the renewable energy, then we can eat farmed foods, drive electric cars, and work on computers remotely. But there just won't be the energy to drive the economy the way cheap energy does.
MR4D 7y ago
Actually it does, and in a big way. Let me give a simple example using some round numbers just to show the concept. Plug and play any numbers you want to see how the outcome changes... Let’s say you have a million dollars in March of 2000, you just retired, and you need to pull out $100,000 to live on. So, in April, you take out $100,000 and now you have $900,000. So you ended up taking out 10% of your principal. However, the market is falling, and will drop 10% over the next year. So you now have $810,000, and you take out this year’s $100,000 which leaves you with $710,000. Effectively, you took out over 12% of your principal. 2002 is no better, and the market falls a further 13%, and is now down to $618,000. You take out $100,000 for this year’s expenses, leaving you with $518,000. The next year is even worse in the market, and your nest egg falls 23%, which means you now only have $399,000 left. You still take out your $100,000 and are left with only $299,000. Thankfully, the next year the market rises 26%. Hallelujah, your nest egg grew to $376,000. However, you still need to take out your $100,000, leaving you with only $276,000. You think your luck has turned around... The next year the market rises, but only 9%, so your nest egg grows, but only to $301,000. You take out your $100,000, leaving you with only $201,000. Hmmmmm... The next year the market rises again, but barely - only 3%, so your nest egg is now $207,000. You take out your $100,000 again, and only have $107,000 left. Uhhhh... Thankfully, the market moves up 14%, and your $107,000 grows to $122,000. You take out your $100,000, leaving you with only $22,000 left. Finally, in the last year, the market rises 4%, so your nest egg grows to $23,000. You withdraw all of it, and are now broke. This effect is based on real numbers (rounded) from [0], and represent the S&P 500 market returns starting in the year 2000 (aka, the dot com bust). What happened to this poor retiree is called “sequence of returns”, and it is something that any good financial planner uses to test the durability of his or her projections. [0] - https://www.macrotrends.net/2526/sp-500-historical-annual-returns https://www.macrotrends.net/2526/sp-500-historical-annual-re...
- DarmokJalad1701 7y ago
  10% is not really a safe withdrawal rate though.
  - RhodesianHunter 7y ago
    Did you black out during their second sentence?

DevKoala 7y ago

But it is wonderful for headlines: "The man who retired on the week the DOW plunged" https://www.barrons.com/articles/he-retired-the-week-the-dow-slid-13-consider-it-a-wake-up-call-to-check-your-portfolio-51583520161 https://www.barrons.com/articles/he-retired-the-week-the-dow...

brazzy 7y ago

But whether you start your retirement at a time the market is down a lot or up a lot can make a surprisingly big difference on how long your money lasts, if you don't adjust your spending.

perl4ever 7y ago
Doc, it hurts when I do this! So...
- t-writescode 7y ago
  Every medical expense, every food expense has the result of costing more of a percentage of your remaining funds. Many costs can’t be put off.
  - perl4ever 7y ago
    All costs are on a spectrum of urgency. Food can be put off longer than water. A small plumbing problem can be put off longer than a large plumbing problem. A furnace problem can be put off longer if it's not cold. Replacing a car can be put off longer than fixing the brakes. There is no such thing as having all your costs due immediately with equal urgency.
    - solveit 7y ago
      On the one hand, you're absolutely right. On the other hand, if I'm putting off food or even general house/vehicle maintenance because of market conditions, my retirement has already failed from my point of view.
      - bluGill 7y ago
        If you are that badly off you couldn't afford to retire. For most of the US you have a big spending problem because SS is enough to provide food and basic house/vehicle maintenance. (I know a few people who opted out of SS and then did bad retirement planning - but most people didn't even had the option to opt out of SS) SS isn't much I'll grant. However it is enough to provide the basics.
        perl4ever 7y ago
        I am counting on social security, and I think all the talk about it "running out" is stupid. It runs year by year on the income from that year, so it's completely up to the political will to pay, and whether the people who are working are willing to keep the retired from starving. I assume they will be, because if not, who gives a shit about anything anyway?
thekyle 7y ago
Ideally, shouldn't someone planning to retire have already moved more of their money to bonds? Then they could just withdrawal from the bonds portion of the portfolio (which is likely up right now) while the stock market recovers.
- OJFord 7y ago
  However you frame it, there's always a time you start withdrawals. And if when you planned to do that coincides with a dip, of course you'll have second thoughts.
  - throwaway743 7y ago
    Did so about a year ago based on SMAs and momentum. Only wish there was a cash option to put have them move everything to for the time being, but only had bonds as an option. Best thing is to watch out for the SMA support levels. Just got through a major death cross and looks to be heading further down
  - bluGill 7y ago
    Though you should have options. Don't retire in a down year. Start moving things to safer investments several years before you retire. Don't spend as much that first year. Still the numbers given are good examples and something to keep in mind.
- typeformer 7y ago
  Bonds yields are the lowest they have been since the great recession.
  - mactrey 7y ago
    Yields are low because bond prices are high. It's not a bad time to be selling down your bond portfolio right now.

madengr 7y ago

Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. She quit near market peak last year (and began re-investing this week), but say she quit this week? It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time.

froindt 7y ago
>Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. What type of a company did your wife work for? I actively learn about personal finance and retirement plans and have never heard of a lockout from a 401k. > It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time. Short of working for a privately traded company, or being a very well compensated executive, the shares owned by an individual employee are almost always negligible compared to daily traded volumes. "Selling at a low to boost their stock" wouldn't even move the needle. Edit: One possibility came to mind after posting. Was your wife's 401k balance under $5,000? If so, the company can force liquidation. And to say doing so would help the stock price would only be meaningfully true on a penny stock.
- csnover 7y ago
  I’m not the OP, but when I left a company where I had a 401(k) and transferred the balance to my preferred brokerage, the source account was frozen for about that long during the approval and transfer process.
  - madengr 7y ago
    Yes, and I assume they cut a check to your IRA?
    - csnover 7y ago

dntbnmpls 7y ago

The problem is that nothing says markets will go up forever. Take japan's nikkei index. Dropped in the early 90s and is still down 50% 30 years later. Choose the "all" to see the entire chart. https://tradingeconomics.com/japan/stock-market https://tradingeconomics.com/japan/stock-market It isn't a law of nature that the S&P or Dow has to regain its losses in X number of years. S&P can drop and stay down for decades which can absolutely affect retirees.

semi-extrinsic 7y ago
This is a key point. Especially if we actually start doing something about CO2 emissions, which will mean reducing energy consumption for the next couple of decades. Stock market growth has historically been tightly linked with energy consumption growth.
- xvilka 7y ago
  While the point of probability of staying low holds, I don't think there is a tight coupling with the energy consumption. Surely, nature (business ecosystem) will find a way for growth driver even without energy density increase.
  - 205guy 7y ago
    I think nature's growth will be like 1% or less, certainly not the stock market growth people are used to. To me, it is obvious there is a tight coupling: energy does work instead of humans/animals, thus allowing more productivity. When you look at a construction site it's just human directed diesel-energy (with some chemical energy in the concrete). Much of the developed world is transitioning to a service economy that relies less on the fossil fuels, but it still relies on the inputs that do (agriculture, electronics, offshore manufacturing). And we've set up the economy around fuel consumption: long commutes from suburbia, inefficient houses, processed and packaged foods, etc. And what about the travel industry: burning fossil fuels for no productivity (just realized it acts as a mop for the excess capital). If we're lucky, we can use the fossil energy to bootstrap the renewable energy, then we can eat farmed foods, drive electric cars, and work on computers remotely. But there just won't be the energy to drive the economy the way cheap energy does.

MR4D 7y ago

Actually it does, and in a big way. Let me give a simple example using some round numbers just to show the concept. Plug and play any numbers you want to see how the outcome changes... Let’s say you have a million dollars in March of 2000, you just retired, and you need to pull out $100,000 to live on. So, in April, you take out $100,000 and now you have $900,000. So you ended up taking out 10% of your principal. However, the market is falling, and will drop 10% over the next year. So you now have $810,000, and you take out this year’s $100,000 which leaves you with $710,000. Effectively, you took out over 12% of your principal. 2002 is no better, and the market falls a further 13%, and is now down to $618,000. You take out $100,000 for this year’s expenses, leaving you with $518,000. The next year is even worse in the market, and your nest egg falls 23%, which means you now only have $399,000 left. You still take out your $100,000 and are left with only $299,000. Thankfully, the next year the market rises 26%. Hallelujah, your nest egg grew to $376,000. However, you still need to take out your $100,000, leaving you with only $276,000. You think your luck has turned around... The next year the market rises, but only 9%, so your nest egg grows, but only to $301,000. You take out your $100,000, leaving you with only $201,000. Hmmmmm... The next year the market rises again, but barely - only 3%, so your nest egg is now $207,000. You take out your $100,000 again, and only have $107,000 left. Uhhhh... Thankfully, the market moves up 14%, and your $107,000 grows to $122,000. You take out your $100,000, leaving you with only $22,000 left. Finally, in the last year, the market rises 4%, so your nest egg grows to $23,000. You withdraw all of it, and are now broke. This effect is based on real numbers (rounded) from [0], and represent the S&P 500 market returns starting in the year 2000 (aka, the dot com bust). What happened to this poor retiree is called “sequence of returns”, and it is something that any good financial planner uses to test the durability of his or her projections. [0] - https://www.macrotrends.net/2526/sp-500-historical-annual-returns https://www.macrotrends.net/2526/sp-500-historical-annual-re...

DarmokJalad1701 7y ago
10% is not really a safe withdrawal rate though.
- RhodesianHunter 7y ago
  Did you black out during their second sentence?