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39 months is if you don’t account for inflation ..inflation adjusted 2000 took 13 years ,,,1964 to 1984 took almost 20 years to hit another high.. I doubt I even have 20 years left
You literally post this same thing about the 2000 bear market every time someone mentions length of bear markets, even when they add that it can take years afterwards for the effects to subside.
The solution is: if someone doesn't have enough of a time horizon to take on risk, then don't have a portfolio that assumes a lifespan that makes the assumption of a lifespan longer than a decade or so. Matching a portfolio to a retirement horizon AND taking into account how much risk and volatility the person is willing to take on is an important part of a portfolio construction.
You missed the point ..the point is hoping for bear markets so relatively smaller amounts of money can go in can be self defeating if it is an extended bear market .which can be far longer than your 39 months
Please show me where I said anything about "hoping" for a bear market? I certainly didn't. I've been through lots of bad markets during my investing horizon of 32 years. Some people look forward to such a thing, but I'm not one of them.
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 We have significant 401K moneys and I haven't withdrawn any yet but it's there in case we need it but otherwise hope it's going to be a pass through to our kids when we die...we hope not to need it but might need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.
Take a look at the RMD - required minimum distribution you will have to take. Might consider to taking money out now to keep tax bracket lower or moving money to a ROTH.
Remember 401k money is taxed at your regular income tax rates but tax rates on investments can be lower depending on you income so investments outside of a 401k maybe better. Also at your death you get a step up in basis on the assets outside of your 401k but your children will have ordinary income taxes on the 401k money.
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?
The best thing about a Bear Market is that you have all kinds of opportunities to buy low. The last crash caused me to have the opportunity to buy Sirius at $0.06/share and Ford at $1.15/share and JetBlue at ~$4/share. For index funds, it allows you to buy more shares than before and the recovery will then benefit you far more. Keep contributing on the way down (because history shows consistent investment is vastly superior of a strategy than trying to time a market) because it's hard to know when the bottom is there. March 11, 2009 represented the bouncepoint for a lot of funds and stocks, but most people missed out on that because they were on the sidelines waiting for the market to bounce back.
Regarding a cash cushion, has anyone considered and/or seen a study or analysis of this approach:
Start retirement with a three year cash cushion and everything else invested according to one's asset allocation. For the first three years spend the cash cushion, don't replenish the cash cushion, and don't touch the rest. After the three years, when the cash cushion has been depleted, starting selling and withdrawing assets as needed to meet one's expenses. The cash would be a drag on overall performance during the first three years, but it would also avoid having to draw from the other investments during those critical first years of retirement and given them a nice head start.
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?
I've thought about this exactly. It's a zero sum equation:
- Money you have in cash earns little to no returns
- Money you have in the market can cost more to use than cash if you access it in a downturn
So my solution (for now) is 20% to investments, 10% to cash.
I have different goals than are recommended by countless retirement articles. I feel like 1 year's expenses just isn't enough. I want to continue contributing to cash until I have 2 full years of top-line income. Only then, will I adjust maybe 25% to retirement and 5-10% towards more short term investments. I'll only continue putting cash in to hedge against inflation.
I don't have a retirement age. I have a range of about 10 years in which I could plausibly retire. I don't want to begin withdrawing when the market is down. Hence the cash on hand. If I am a year into it and the market is still up, replenish that year's money. If I am a year into it and the market has corrected, spend another year of cash and wait it out.
I'm guesstimating 1 year's top-line will equate to 2 years' expenses. This stale cash won't matter because I never took that money away from my 20%-to-retirement, and will have been trickling in contributions to adjust.
In the end, yes, I'm socking away 30-35% of my earnings, but my effective tax rate is 17%, and I have low enough expenses to make it work.
Please show me where I said anything about "hoping" for a bear market? I certainly didn't. I've been through lots of bad markets during my investing horizon of 32 years. Some people look forward to such a thing, but I'm not one of them.
Quote:
Originally Posted by BOBNCHI
Bear market? I can't wait for the next buying opportunity!
you didn't but others do , and did so here ....but you always quote 39 months and that is only true if you don't allow for inflation ... so it can be misleading to others that bear markets are always over in a snap ...
the reality is they can take a long time , which is not a problem for a long term investor .
but for someone with a sizable sum , hoping for a bear market so they can inject some money may be a very poor wish .. having a sizable amount stall out for a decade or more may be very counter productive ...if you are going to hope for something you may be much better off hoping for the best not the worst ....
Regarding a cash cushion, has anyone considered and/or seen a study or analysis of this approach:
Start retirement with a three year cash cushion and everything else invested according to one's asset allocation. For the first three years spend the cash cushion, don't replenish the cash cushion, and don't touch the rest. After the three years, when the cash cushion has been depleted, starting selling and withdrawing assets as needed to meet one's expenses. The cash would be a drag on overall performance during the first three years, but it would also avoid having to draw from the other investments during those critical first years of retirement and given them a nice head start.
kitces has done it many times , all with the same conclusion , no benefit .
Executive Summary
Cash reserve strategies that hold aside several years of spending to avoid liquidations during bear markets are a popular way to manage withdrawals for retirees. In theory, the strategy is presumed to enhance risk-adjusted returns by allowing retirees to spend down their cash during market declines and then replenish it after the recovery. Yet recent research in the Journal of Financial Planning reveals that the strategy actually results in more harm than good; while in some scenarios the cash reserves effectively allow the retiree to “time” the market by avoiding an untimely liquidation, more often the retiree simply ends out with less money due to the ongoing return drag of a significant portfolio position in cash. As a result, the superior strategy for those who want to alter their asset allocation through market volatility (the effective result of spending down cash in declines and replenishing it later) appears to be simply tactically altering asset allocation directly, without the adverse impact of a cash return drag. Nonetheless, this still fails to account for the psychological benefits the client enjoys by having a clearly identifiable cash reserve to manage spending through volatility – even though the reality is that it results in less retirement income, not more.
he looked at bucket strategy's too , no benefit over just rebalancing and keeping a constant allocation .
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!
Last edited by mathjak107; 06-27-2019 at 01:48 PM..
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