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just to play devils advocate texdav i will point out this:
it would be bad planning rather than bad markets that did someone in during any of our drops.
we all hear about those that lost major chunks of money but we never hear the details of it or their planning that caused it.
lets face it ,if you did nothing but sit in your funds you are at record highs so something they did caused their own financial suicide with few exceptions.
whether they dabbled in individual stocks or market timed by the seat of their pants i bet there is a reason they failed .
it would be smart to have cash to hold you over if you are going to invest in equities. but even if you didn't as long as the drop was not right at the beginning of your retirement you would have done just fine right up to the minute.
you would think going heavy into index funds would be riskier and riskier the more you put in right?
believe it or not 100% of your entire savings in the s&p 500 has passed every rolling 30 year period back to 1926 100% of the time allowing someone to withdraw 4% inflation adjusted each year and never have run out of money or had the income stream disrupted.
yep ,no cash , spending down by selling each year regardless.
while yes volatility is high ,risk of the income stream failing is actually very very low.
the reason it always worked with never an exception so far is because the cushion you develop in the up years without the weight of cash or bonds more than compensates over time for spending in the drops.
falling by 30-40% just rolls you back to levels you never would have even been at if you were not 100% equities.
interesting research , hard to believe but yep so far it has held true for every rolling retirement time frame regardless of events.
the study was called the :
Sustainable Withdrawal Rates: The Historical Evidence on Buffer Zone Strategies" authored in the Journal of Financial Planning by Walter Woerheide and David Nanigan .
i am not advocating doing this but the point is as they say "we have nothing to fear except fear itself" could things be different going forward? sure they could, but we can only go by what we know up to the minute. in fact every rolling group of retirees always thought their group was the one that was going to buck the trend and be different.
but even the time frames including the great depression and two major world wars that destroyed much of the world the outcomes were the same and that income stream continued ..
Anyway very interesting look at that study by michael kitces. michael is one of the foremost researchers today and his work has been adopted over and over by the financial planning community as the basis for many new thoughts and ideas.
believe it or not 100% of your entire savings in the s&p 500 has passed every rolling 30 year period back to 1926 100% of the time allowing someone to withdraw 4% inflation adjusted each year and never have run out of money or had the income stream disrupted.
yep ,no cash , spending down by selling each year regardless.
.....
the study was called the :
Sustainable Withdrawal Rates: The Historical Evidence on Buffer Zone Strategies" authored in the Journal of Financial Planning by Walter Woerheide and David Nanigan .
i am not advocating doing this but the point is as they say "we have nothing to fear except fear itself" could things be different going forward? sure they could, but we can only go by what we know up to the minute. in fact every rolling group of retirees always thought their group was the one that was going to buck the trend and be different.
While I plan to be a little more diversified than the S&P 500, I'm basically following this now and will continue into retirement. I've also thought I'd continue to invest in individual stocks, but realized it was too much like work, so I'm moving to index funds, keeping only the dividend paying stocks for now.
I feel comfortable doing this because I currently have a buffer above my goal, so hopefully, even a downturn shortly after retirement won't cause the plan to fail. It also supports my plan to leave an inheritance, so our kids will have a head start on their retirement savings.
One thing I re-learned from the 2009 downturn was that good companies will recover and holding onto them means you won't lose your money. I also, learned to cut those who had trouble making money even in good times, as they'll take even longer to recover if at all. I think many who lost during this period, got out near the bottom and were too gun shy to get back in, which left them with too little to retire.
Only one caveat about recovery times that Mathjak keeps referring to.
He is a lot younger than some of us.
The older you get the less inclined you are to want to rely on funds you might recover in 10/15years.
Since I am fond of old sayings "A bird in the hand....." is one that fits in here.
if you don't have a long term perspective than that should not be long term money and invested in long term assets .
being 65 or 70 and using funds ear marked to eat 15 to 30 years down the road is plenty of time for equities .
the issue is when people take money that is really for short or intermediate term use and stick it in long term investments hoping to get a better return.
everyones risk tolerance and income needs are going to be different and it is not as much an age thing as you think.
being 80 years old and having a pension may have someone going aggressive if they have the tolerance and the desire and it is still money they won't need in the short term..
the opposite is true too, putting a 25 year old heavy into equities when they have no tolerance for risk and they bail each drop and lose money is wrong too.
unless you have a very very low withdrawal rate the biggest risk is not being invested enough for long term growth and inflation, not the fact you are invested with your longer term money..
Last edited by mathjak107; 07-11-2013 at 03:36 AM..
True and as you know, the attempt to factor in how long a term is 'long' is the tough one.
The older you are .....and the less affluent....the tougher it is to 'lose' anything even if the urge is to want to keep on earning....and, the less you have the more you want to increase it!
Of course, people of any age have no assurance of living past tomorrow but the odds change with every birthday.
It's a conundrum.
so far 15 years has been about right for retirees , anything less than that can be iffy. historically 15 years has been safe for more than 146 years of retiree time frames .
there has always been a point in every 15 year plus period where a retiree could have moved money from long term to intermediate term investments at a profit.
once you do not have 15 years left move that portion down to intermediate term investments.
this has nothing to do with amounts of money you have. dividing a projected bucket of withdrawls up over a time frame is unique to your own amount.
many plans use 15 years worth of withdrawls in safe secure consistant cash instruments and annuities, another 15 years in bonds ,bond funds ,reit income funds etc., the rest is long term money and that is all based on your own nest egg.
if you are looking to withdraw 3% or less inflation adjusted bill bernstein seems to feel short term bonds, tips and annuities can pull you through with no equities.
be aware each 1% change in withdrawl rate is a 25% change in income. pulling 3% a year vs 4% a year does not sound like much but it represents a 25% increase in spending money a year plus inflation adjustments up or down. the difference is very substantial and how you invest and allocate is a key component to how much can i safely withdraw..
life is filled with unexpected expenditures so drawing a conservative amount if you are living off your savings is always a good idea.
sure you may leave to much money on the table unspent the day you die but the alternative is much worse.
up until now most plans for withdrawing and allocating have been critized for being to conservative in the amount that could have been withdrawn and leaving in most cases more than you even started with left over.
only you can decide the comfort level and slack you want built into your plan.
Last edited by mathjak107; 07-11-2013 at 03:52 AM..
believe it or not 100% of your entire savings in the s&p 500 has passed every rolling 30 year period back to 1926 100% of the time allowing someone to withdraw 4% inflation adjusted each year and never have run out of money or had the income stream disrupted.
the reason it always worked with never an exception so far is because the cushion you develop in the up years without the weight of cash or bonds more than compensates over time for spending in the drops.
falling by 30-40% just rolls you back to levels you never would have even been at if you were not 100% equities.
interesting research , hard to believe but yep so far it has held true for every rolling retirement time frame regardless of events.
the study was called the :
Sustainable Withdrawal Rates: The Historical Evidence on Buffer Zone Strategies" authored in the Journal of Financial Planning by Walter Woerheide and David Nanigan .
I'd say this is one of the best nuggets of info/insight I've read on any forum anywhere so I appreciate your input here. I always thought this was the case in my subconscious but thanks for verbalizing it. I had been planning to reallocate my 401K more to bonds as I got nearer to retirement age but based on what I've read (I know you're not advocating, thanks) and observed firsthand through the worst decade for stocks in history from 2000 to 2010 I've decided to keep my 401K completely in lowcost stock ETFs the way it's been since I started, pretty much no matter what happens.
there was an interesting show on consuelo mac last week.
it pertained to the retirement planning of women.
study after study seems to show that women and their money seem to have different needs then men do.
because women tend to live on average 5 years longer then men and many more tend to be single their biggest concern is how long will my money last.
men seem to be more pre-occupied with the returns they are getting on their money.
the point of the show was that financial planners really have to understand they are dealing with 2 very different wants and needs.
women want their money to last but they also seem to fear investing more then men.
men will take more risk for higher returns.
women like money they can count on and the feeling of security like annuity products. men shy away from those products and want to do it on their own.
the financial planners need to recognize this fact and not paint everyone with the same brush like they do.
men by nature are the hunters and gatherers , women like safe , secure and consistant, and the two are very opposite.
I think that the original post talks about planners painting everyone with the same brush then first paints all men with one brush, and then all women with a second brush. It's not so much sexist as just a very broad generalization and, as usual, there will always be plenty of exceptions to the rule. I always chuckle when I read how "women do this" and "men do that", because I usually am doing the opposite.
DH and I are definitely exceptions. DH has NO risk tolerance. He knows and understands the concepts of waiting out the market and not pulling out money every time it dips, but he hasn't got the stomach for it. He has his money invested in a rental home. I, on the other hand, am completely invested in various mutual funds and am far more willing to risk the vagaries of the market. We each handle our own nest eggs (we were married only 8 years ago, though together for 16 years). We each have pensions (with COLA's) and took the survivor benefit option, so our basic needs will always be covered, whichever of us kicks it first. I have LTC insurance for me. Since women typically live longer and he is 5 years older, I am assuming that I may be left alone, and since I have no kids I will probably need LTC some day.
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