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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.
My fault here . I was not making myself clear before. Or I'm being thick headed. Both I think.
I was trying to discover if there was ever an action on the part of the govt or a formula linked to the RMD rules that takes into account a significant drop in valuation after the year end valuation stake in the ground is set and the required distribution is triggered to satisfy the RMD.
I know its an extreme example and the majority of people at 70 would not hold everything in equities and certainly never in one stock, but there are still some people who have everything in one company basket going into retirement. Widows who's husbands kept all the financials to them selves and kept the wife on an allowance are an example. Yes there are still some of these women out there. I have worked with them. None had RMD issues, they were living on small pensions and husbands SS but were kept in the dark by hubby and when he passed they had to learn a lot quickly. But that is a different story.
So lets take the extreme example.
RMD = $500,000 year end 2007 portfolio value / 22.9 normal IRS table age factor = $21,834.06 what you must take out and report as income in 2008.
However lets just say between 12.31.2007 and & 01.02. 2008 the market for your single company stock tumbles to $1 a share and your entire portfolio is now worth $20,000 probably staying there for several months while they sort out the mess. Maybe the value will come back maybe it won't.
Do you still owe the $21,834.06 and will have to liquidate your entire portfolio valued now at $20,000 and find the $1,834.06 on the side to meet the RMD? Or is there something in the RMD rules that says in extreme cases of portfolio loss in this limited window do X.
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.
in dollar terms the great depression recovered in 4-1/2 years ... not bad but it still ended up being one of the worst outcomes ...the two worst were 1965/1966 and they went on in a slump for 19 years .
in dollar terms the great depression recovered in 4-1/2 years ... not bad but it still ended up being one of the worst outcomes .
Of course it's easy to quote numbers today, long after the fact, and say that it all worked out. I cannot envision the despair that must have permeated the lives of people during that era. Most did not own shares, but for the ones that were in the market... they saw a bear lasting nearly four years with the broad averages losing about 90% of peak value. If something like that happened today I expect there are vanishingly few who would stay the course.
Recessions can affect retirees who apply for benefits.
The people who applied for Social Security retirement benefits in 2011 got totally screwed, because they receive significantly less in benefits than the people who applied in 2010 or 2012.
Why? Because the Wage Index for 2009 decreased due to the recession......
Anyway, if job losses are severe enough to impact the Wage Index, you may want to apply for Social Security a year earlier than you planned, or delay by a year, so you don't lose money.
Just keep that in mind.
Question: Does this affect the maximum Social Security Benefit? Or only the levels below the maximum SS benefit?
Of course it's easy to quote numbers today, long after the fact, and say that it all worked out. I cannot envision the despair that must have permeated the lives of people during that era. Most did not own shares, but for the ones that were in the market... they saw a bear lasting nearly four years with the broad averages losing about 90% of peak value. If something like that happened today I expect there are vanishingly few who would stay the course.
it certainly would have tested ones fortitude thats for sure ....
As for currently, I am going to try to put my home on the market to sell early 2020, which I think may be the last opportunity to sell for a few years, if a recession hits.
I'm also going to sell a few of my riskier stock holdings. With my savings, my SS benefits, and dividends, I should be okay to withstand a several year recession without having to sell investments at a low point.
You describe the strategy my neighbor employed in 2006 or 2007 (I don't recall exactly which year.) At the time, I thought he was nuts. But he most definitely had the last laugh.
You describe the strategy my neighbor employed in 2006 or 2007 (I don't recall exactly which year.) At the time, I thought he was nuts. But he most definitely had the last laugh.
Early 2020 might be too late. Already in my city the market has slowed to an almost stop. In my building a unit that sold for 245k just two months ago a similar unit has dropped to 220k and is not moving. I think many are already fearing a recession and not buying.
Good luck hope I’m wrong. I was thinking of selling and moving in late 2020 but who knows how the markets would be then. As someone said you would get less for your sake but might get help on the buying end.
While recession are not fun ,retirees have had to deal with them forever ..... many here retired in 2008 and 2009 and no one lost a penny . If people lost money it was their own bad behavior not markets ...and it certainly did not take long For portfolios to comeback .
So a lot of this 2008 hoopla about retirement portfolios being devastated is either false stories parroted or poor investor behavior but it certainly was not stock and bond markets and any form of extended downturn
a typical 60/40 portfolio was down in the 30% range in 2008 and up almost 30% in 2009 ......
My own was down 33% in 2008 and up 28% in 2009 and up 12% in 2010 .....in the end portfolio wise it was pretty much ado about nothing..
Typical retiree portfolios ranging from 40-60% equities were only an issue for one year ,2008.
Today the 2008 retiree is no different then any other average retiree group in our history
And, you should be able to “stress-test“ your portfolio with or without a financial planner.
We are moving partially in response to a recession but also to eliminate the mortgage. Power is out frequently now for 8-10 hr stints. The utility co. charged DOUBLE saying we used 2x that of normal. They send us numerous messages reminding us it will be this way for now on. We actually had to leave a few days as the live wires were unsafe so the County closed our road due to a down power pole on our property. We only use this power for our Fridge, lights and washer.
Our new house will be completed within a month affording us no house payment. Solar Power, Hydro power, & free water. No worries the grid will go down since we'd have our own grid. A large famous river within walking distance. We've already collected the rocks to create a duck pond to raise Trout, Mosquito fish (to feed the trout) frogs & ducks. We are planning for anything that hits us- recession, second coming (3.5 yrs), etc. The plan is to hunker down for a little over 3.5 yrs able to sustain ourselves. Beyond that timeframe there will be no preparations
Early 2020 might be too late. Already in my city the market has slowed to an almost stop. In my building a unit that sold for 245k just two months ago a similar unit has dropped to 220k and is not moving. I think many are already fearing a recession and not buying.
Good luck hope I’m wrong. I was thinking of selling and moving in late 2020 but who knows how the markets would be then. As someone said you would get less for your sake but might get help on the buying end.
Wish it was like that here. A family member has already sold and is trying to find something to buy. We had a 10% price fall the past two years and now there is a stock shortage in Sydney, hundreds of people turning up at some open houses, properties selling at at least 10% above price guides.
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