HUGE BEAR MARKET: Are you going to withdraw money from your stock market accounts to pay retirement expenses? (55, moving)
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Most everyone I know has most of their retirement money in target funds or balanced mutual funds. A significant amount of these investments is in the stock market. They withdraw their money once a year.
What should they do if the stock market crashes in the months before their annual withdrawal?
Do you have enough cash, money market or bond fund money set aside in separate accounts to cover your expenses in retirement while you wait for the stock market to recover? How much would the stock market have to fall before you access your bonds or money market funds instead of your mutual funds/ETF's that have stock market exposure?
you are losing sight of the fact that even with separate stock , bond and cash funds YOUR OVERALL RETURN IS STILL NEGATIVE IN A DOWNTURN while spending down ...
a balanced fund would be rebalancing not selling stock just like you , they would be buying stocks and using bonds and cash to bring the equity levels back up .. all you are seeing is the actual roi the same as if you took your own stocks , bonds and cash and assigned an overall return and spend down some of it .
you are fixating on a problem that is not a problem because it is no different than you and separate funds .
Last edited by mathjak107; 06-27-2019 at 04:19 AM..
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Quote:
Originally Posted by usual points
Most everyone I know has most of their retirement money in target funds or balanced mutual funds. A significant amount of these investments is in the stock market. They withdraw their money once a year.
What should they do if the stock market crashes in the months before their annual withdrawal?
...
really?
As I used to tell my kids... " You need to find some other friends!"
In your case... some friends who will mentor you in their SUCCESSFUL retirement investing (from their own PROVEN History)
Doubt it that is Market Timing on LARGE one time withdrawals.
Keep an appropriate cash position to tide you over. (Market fluctuations) as well as enough cash equivalent and varied similar investments to allow you to buy periodically (down markets are very good time to buy / add your allocated positions). But truly sticking to your plan, you don't need to worry about 'Market Timing'. EXECUTE according to plan.
Mind your allocations. Usually 4x / yr is adequate.
I much prefer ETF's (for obvious reasons)
Do various tax scenarios (4x / yr)
Don't panic
Don't listen to Financial pundits
Have a plan and stick with it.
DO NOT move 'in-and-out' frequently. (Better to stay ON or OUT!) You just MIGHT get it wrong
Emotions / hype has no business in your 'financial PLAN'.
Listen, be prudent (not impulsive)
as we discussed in another thread , there is really no benefit to even having cash buffers ...
it is a myth and a mental thing more than financial ....
as famed researcher michael kitces points out having years of cash is no different then just taking a 50/50 or 60/40 mix and each year rebalancing to raise cash or just letting a balanced fund do the rebalancing for you and then just raise your cash for spending ..
Executive Summary
For retirees who fear the impact of a market downturn on their spending, an increasingly popular strategy is just to hold several years of cash in a reserve account to accomplish near-term spending goals. As the logic goes, if there are years of spending money already available, the portfolio can avoid selling equities in a down market to raise the required cash, and clients don’t have to sweat where their retirement income distributions will come from while waiting for the markets to recover.
Yet the mathematics of rebalancing reveals in the truth, even clients following a standard rebalancing strategy don’t sell equities in down markets, rendering the cash reserve strategy potentially moot. On the other hand, some benefits still remain – although aside from an indirect short-term tactical bet, the most significant impact of a cash reserve strategy may be more mental than real.
"Executive Summary
As baby boomers continue into their retirement transition, two portfolio-based strategies are increasingly popular to generate retirement income: the systematic withdrawal strategy, and the bucket strategy. While the former is still the most common approach, the latter has become increasingly popular lately, viewed in part as a strategy to help work around difficult and volatile market environments.
Yet while the two strategies approach portfolio construction very differently, the reality is that bucket strategies actually produce asset allocations almost exactly the same as systematic withdrawal strategies; their often-purported differences amount to little more than a mirage! Nonetheless, bucket strategies might actually still be a superior strategy, not because of the differences in portfolio construction, but due to the ways that the client psychologically connects with and understands the strategy!"
as we discussed in another thread , there is really no benefit to even having cash buffers ...
it is a myth and a mental thing more than financial ....
as famed researcher michael kitces points out having years of cash is no different then just taking a 50/50 or 60/40 mix and each year rebalancing to raise cash or just letting a balanced fund do the rebalancing for you and then just raise your cash for spending ..
Executive Summary
For retirees who fear the impact of a market downturn on their spending, an increasingly popular strategy is just to hold several years of cash in a reserve account to accomplish near-term spending goals. As the logic goes, if there are years of spending money already available, the portfolio can avoid selling equities in a down market to raise the required cash, and clients don’t have to sweat where their retirement income distributions will come from while waiting for the markets to recover.
Yet the mathematics of rebalancing reveals in the truth, even clients following a standard rebalancing strategy don’t sell equities in down markets, rendering the cash reserve strategy potentially moot. On the other hand, some benefits still remain – although aside from an indirect short-term tactical bet, the most significant impact of a cash reserve strategy may be more mental than real.
"Executive Summary
As baby boomers continue into their retirement transition, two portfolio-based strategies are increasingly popular to generate retirement income: the systematic withdrawal strategy, and the bucket strategy. While the former is still the most common approach, the latter has become increasingly popular lately, viewed in part as a strategy to help work around difficult and volatile market environments.
Yet while the two strategies approach portfolio construction very differently, the reality is that bucket strategies actually produce asset allocations almost exactly the same as systematic withdrawal strategies; their often-purported differences amount to little more than a mirage! Nonetheless, bucket strategies might actually still be a superior strategy, not because of the differences in portfolio construction, but due to the ways that the client psychologically connects with and understands the strategy!"
Thanks for the great research! I love seeing that more than just opinions.
Frankly the whole complicated buckets and moving stuff around all the time seemed so complicated - perhaps all just psychological to feel like you're DOING something to keep your money safe? Personally I go with the stats over the psychological, any day! I don't have THAT much money that I can keep years worth of expenses out in cash - that money has to work for me over the long term.
Most everyone I know has most of their retirement money in target funds or balanced mutual funds. A significant amount of these investments is in the stock market. They withdraw their money once a year.
What should they do if the stock market crashes in the months before their annual withdrawal?
Do you have enough cash, money market or bond fund money set aside in separate accounts to cover your expenses in retirement while you wait for the stock market to recover? How much would the stock market have to fall before you access your bonds or money market funds instead of your mutual funds/ETF's that have stock market exposure?
If you set up your life to where you have to draw on your 401K to live, then yes. We have significant 401K moneys and I haven't withdrawn any yet but it's there in case we need it but otherwise hope it's going to be a pass through to our kids when we die...we hope not to need it but might need some for emergency or as a fund to use before I start taking social security.
Thanks for the great research! I love seeing that more than just opinions.
Frankly the whole complicated buckets and moving stuff around all the time seemed so complicated - perhaps all just psychological to feel like you're DOING something to keep your money safe? Personally I go with the stats over the psychological, any day! I don't have THAT much money that I can keep years worth of expenses out in cash - that money has to work for me over the long term.
opinions here are usually based more on myth and old wives tales then actual facts and data.
you can see a whole lot of mistakes in logic in this thread , including thinking somehow a balanced fund is not re-balancing bonds and cash in to equities like you would be doing in a down market .. then any spending is just done keeping the same proportion you would be doing with separate funds on your own .
the 2nd myth is that spending down in good and bad times from high equity levels is harmful in retirement ... it really isn't . the data and facts show because your up years are much more powerful so they end up cushioning the down years .
you are talking about a 93% success rate over 119 30 year periods for 100% equities vs 95% for 50/50. go out longer than 30 years and 100% is actually the safer bet .
mentally high equity levels can be a wild ride in retirement but performance wise no problem .
almost all but two of the 119 30 year cycles that failed , failed the same with 100% equities as it did with 50/50
i keep my current year and one year back up in cash for the record ...i find mentally i like compartmentalizing my money .... i actually run a short term / intermediate term portfolio and a long term one .......but taken as a whole i am 40-50% equities and about 10% cash with the rest in assorted bond funds and at times gold and long term treasuries
Last edited by mathjak107; 06-27-2019 at 07:14 AM..
I'd still have to sell as I needed money, but would probably withdraw significantly less.
I think the problem comes when you HAVE to withdraw $X,000 every year to meet basic expenses and $X,000 has become, say, 10% of your current assets. In an extended bear market that's a disaster and that's how people "lose all their savings" in a bear market.
Forty percent of my spending is travel and charity. I could cut back on both if needed. I hope I never have to.
We're at a point now that we don't have to withdraw from our IRAs to pay the bills. We do it for big projects (which should be done in another three or four years) and for splurges. There's a lot we could cut if necessary.
I'm the financial planner in our household and I only keep a year's spending in our cash accounts when I take our withdrawal for the year. I leave most of the money in our investment accounts to keep it working for us. If I need to take a second disbursement late in the year, I just take it. That's only happened one year (higher than expected medical bills that year) out of the five, almost six, we haven't been working.
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