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Old Yesterday, 05:27 AM
 
Location: Myrtle Creek, Oregon
12,499 posts, read 12,691,379 times
Reputation: 19884

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Just remember that, while gains compound, so do losses. If you take a 30% loss, you have to have a 42% (plus inflation) gain to get back even. If recovery takes 3 years and inflation is 2% per year, you have to have a 48% gain to break even.

There are also lots of ways to lose money. My brother had a bundle in corporate bonds, and was holding WaMu and Chrysler when they went bankrupt. Watch the money disappear. You don't have to hold stocks to take a bath.

The nice thing about recessions is bargain hunting. Real estate is a good bargain during a recession, but it's also a good time to get your house painted or go to auctions. You don't have to buy big to find bargains in a recession. People are hungry and selling all sorts of stuff at a discount to raise cash. It's a great time to get your house updated. Skilled workers are facing unemployment, so the "take it or leave it" bids suddenly become negotiable.

If you are prepping for recession, get out of debt. Making payments on anything will kill you. If your portfolio sinks like a stone, you can always put off that trip to Europe for a couple of years, but if you financed a $48,000 ride, that 0% financing won't look so sweet when you are taking a 30% hit on your retirement savings to make the payments. People do that and leave the money invested, figuring earnings will keep on going. Sometimes they do. Sometimes they don't. In a recession, they don't, and pulling the money out of a depressed market to make the payments means you will never recover.
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Old Yesterday, 05:35 AM
 
72,929 posts, read 72,747,988 times
Reputation: 50441
Quote:
Originally Posted by Larry Caldwell View Post
Just remember that, while gains compound, so do losses. If you take a 30% loss, you have to have a 42% (plus inflation) gain to get back even. If recovery takes 3 years and inflation is 2% per year, you have to have a 48% gain to break even.

There are also lots of ways to lose money. My brother had a bundle in corporate bonds, and was holding WaMu and Chrysler when they went bankrupt. Watch the money disappear. You don't have to hold stocks to take a bath.

The nice thing about recessions is bargain hunting. Real estate is a good bargain during a recession, but it's also a good time to get your house painted or go to auctions. You don't have to buy big to find bargains in a recession. People are hungry and selling all sorts of stuff at a discount to raise cash. It's a great time to get your house updated. Skilled workers are facing unemployment, so the "take it or leave it" bids suddenly become negotiable.

If you are prepping for recession, get out of debt. Making payments on anything will kill you. If your portfolio sinks like a stone, you can always put off that trip to Europe for a couple of years, but if you financed a $48,000 ride, that 0% financing won't look so sweet when you are taking a 30% hit on your retirement savings to make the payments. People do that and leave the money invested, figuring earnings will keep on going. Sometimes they do. Sometimes they don't. In a recession, they don't, and pulling the money out of a depressed market to make the payments means you will never recover.
Markets have no problem with retracement ...retracing where markets were is always easier then making new highs ...

when people buy individual stocks ,individual bonds or individual property there is a big element of speculation going on not investing......

When you buy broad based funds and index funds of broad markets you don’t have the same risks of loss .

Markets have always come back ,that is not true for individual stocks,bonds or property.

When you accept pretty much the same return as markets give you and all similar investors get that is investing...when you try to get way above what markets hand you based on their natural cycles whether up or down , now you are leaving investing and entering speculating...

Speculating is where most get burned .....to date near no one ever lost a penny in any broad based fund if they exhibited good investor behavior and properly matched the funds to the time frame , it would be impossible short of fraud since no fund is lower over any typical accumulation or retirement time frame .... in fact a 50/50 mix never lost money over any 10 or 20 year period .....

So all these loses you hear about are people speculating in individual stocks and bonds or their own bad behavior
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Old Yesterday, 08:50 AM
 
51 posts, read 8,957 times
Reputation: 111
A question to those who survived the 2008 recession in retirement who were in the RMD age group. Those who had RMD's Required Minimum Distributions.

Just for an example.

Say on 12/31/2007 your portfolio was valued at $500,000 but by the time your RMD was taken in 2008 it had fallen to $250,000. The market always fluctuated to a smaller degree but its in a wider band recently. The RMD is based on the prior year ending balance divided by the IRS table for your age at the time the RMD is required.

RMD = $500,000 year end portfolio value / 22.9 age factor = $21,834.06 is what you must take out and report as income in 2008.

So you had to sell off enough to make the required RMD and that required a lot more shares to be sold along with the future loss of dividends vs the 2007 portfolio value.

Was there a special adjustment factor of any kind to deal with a dramatic market loss?
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Old Yesterday, 08:54 AM
 
72,929 posts, read 72,747,988 times
Reputation: 50441
Quote:
Originally Posted by Kentucky62 View Post
A question to those who survived the 2008 recession in retirement who were in the RMD age group. Those who had RMD's Required Minimum Distributions.

Just for an example.

Say on 12/31/2007 your portfolio was valued at $500,000 but by the time your RMD was taken in 2008 it had fallen to $250,000. The market always fluctuated to a smaller degree but its in a wider band recently. The RMD is based on the prior year ending balance divided by the IRS table for your age at the time the RMD is required.

RMD = $500,000 year end portfolio value / 22.9 age factor = $21,834.06 is what you must take out and report as income in 2008.

So you had to sell off enough to make the required RMD and that required a lot more shares to be sold along with the future loss of dividends vs the 2007 portfolio value.

Was there a special adjustment factor of any kind to deal with a dramatic market loss?
Your thinking is not quite right for a few reasons....retirees usually have diversified portfolios they spend from to live off ....that is generally bonds and cash instruments not equities.

Any rmds just get a tax status change in effect ....you can sell in the deferred to take the rmd and rebuy the same exact thing again in the taxable account down at the same levels ..basically you are just switching pockets.
There is a mis conception that rmds get spent .. some might under the right circumstances but most of the time the rmds are bigger then you ever want to take .

So it usually just involves mirroring the portfolio you had only with a different tax status.


You are over thinking this
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Old Yesterday, 09:05 AM
 
51 posts, read 8,957 times
Reputation: 111
Quote:
Originally Posted by mathjak107 View Post
Your thinking is not quite right for a few reasons....retirees usually have diversified portfolios they spend from to live off ....that is generally bonds and cash instruments not equities.

Any rmds just get a tax status change in effect ....you can sell in the deferred to take the rmd and rebuy the same exact thing again in the taxable account ..basically you are just switching pockets
Agreed. You can simply repurchase the stocks, the RMD is just the govt finally getting their long delayed payment. I also know a few people who unfortunately kept everything in their company stock for 30+ years

. There are expenses with sell and rebuying and the question was really about in a large market correction have the tables ever had an adjustment factor applied? A friend told me he thought there was an one time adjustment for the recession in 07/08 but he could not remember for certain. I could not find anything about it on the internet
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Old Yesterday, 09:14 AM
 
72,929 posts, read 72,747,988 times
Reputation: 50441
Quote:
Originally Posted by Kentucky62 View Post
Agreed. You can simply repurchase the stocks, the RMD is just the govt finally getting their long delayed payment. I also know a few people who unfortunately kept everything in their company stock for 30+ years

. There are expenses with sell and rebuying and the question was really about in a large market correction have the tables ever had an adjustment factor applied? A friend told me he thought there was an one time adjustment for the recession in 07/08 but he could not remember for certain. I could not find anything about it on the internet
The adjustment factor is built in .rmds are based on each years balance divided by their life expectancy charts. If you are down the rmd is less
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Old Yesterday, 12:05 PM
 
Location: Gilbert, AZ
3,253 posts, read 2,013,469 times
Reputation: 3408
A garden variety recession, or even a severe one like 2008 that recovers quickly, is really not harmful to a retirement. It's the long drawn out periods of poor returns, like the 1930s and the 1970s, that are damaging and even those were survivable with a cautious enough withdrawal rate. Probably the biggest potential risks are the self-inflicted variety. After months, or even years, of listening to the more and more horrible economic news and watching the markets drop, the temptation to take the rest of the chips off the table can become overpowering.

I am long-term positive on U.S. equities, but nonetheless I think it would be foolish to be anywhere close to 100% equities in retirement (assuming one is relying on their portfolio for income). We cannot know the future with absolute certainty, and the market statistics and platitudes that are so often repeated are typically based on less than 100 years of U.S. market history. If the stock market does not recover in a timeframe that helps my own retirement I still want to eat and keep the utilities on.
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Old Yesterday, 12:08 PM
 
Location: Myrtle Creek, Oregon
12,499 posts, read 12,691,379 times
Reputation: 19884
Or you can take your RMD on January 2. The value of your account won't have changed much in only 2 or 3 days.
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Old Yesterday, 12:20 PM
 
1,659 posts, read 328,716 times
Reputation: 1890
Quote:
Originally Posted by hikernut View Post
A garden variety recession, or even a severe one like 2008 that recovers quickly, is really not harmful to a retirement. It's the long drawn out periods of poor returns, like the 1930s and the 1970s, that are damaging and even those were survivable with a cautious enough withdrawal rate. Probably the biggest potential risks are the self-inflicted variety. After months, or even years, of listening to the more and more horrible economic news and watching the markets drop, the temptation to take the rest of the chips off the table can become overpowering.

I am long-term positive on U.S. equities, but nonetheless I think it would be foolish to be anywhere close to 100% equities in retirement (assuming one is relying on their portfolio for income). We cannot know the future with absolute certainty, and the market statistics and platitudes that are so often repeated are typically based on less than 100 years of U.S. market history. If the stock market does not recover in a timeframe that helps my own retirement I still want to eat and keep the utilities on.
Yes, recession can be V, W, U or the dreaded L
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Old Yesterday, 12:23 PM
 
Location: Haiku
4,546 posts, read 2,702,228 times
Reputation: 6629
Quote:
Originally Posted by Larry Caldwell View Post
Or you can take your RMD on January 2. The value of your account won't have changed much in only 2 or 3 days.
If you think the market is going to drop, you can sell the assets Jan 2 and then pay the RMD any time. But doing that is essentially timing the market. I usually sell something in the IRA the same week I pay the RMD, which I usually do around the time I file taxes just so I won't forget.
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