The Worst Years To Retire: The Surprise In The Data

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martincmartin
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The Worst Years To Retire: The Surprise In The Data

Post by martincmartin »

The Great Depression is burned into the national psyche as the worse economic recession in modern U.S. history, and for good reason. As bad as it would be to retire in 1929, there are worse years.

Using Simba's Backtesting Spreadsheet, you can simulate retiring in any year, with a 4% SWR, for 30 years. You can simulate different stock/bond splits, and even different linear glide paths. Then you can pick the one with the least chance of running out of money.

And when you do, which starting year is worst? Drum roll please ... 1966!

1966 - 1985

4% SWR for 30 years requires your portfolio to gain 1.31%/year, 14%/decade. Here's a dollar invested in the S&P 500 over the first 20 years:

Image


Yikes! Not only does it not gain 14% per decade, it doesn't break even, for good, for 17 years, when you're 82 years old! So what if you take 4% out every year?

Image

Half way through your retirement, your nest egg is 76% gone!

But bonds will save us, right? After all, they're the safe, conservative investment to turn to during dark times. Plus, they're supposed to go up when stocks go down.

Image

By 1981, bonds have lost more than stocks -- these are inflation adjusted numbers -- and seem very correlated:
  • 1966 - 1968: move in opposite directions!
  • 1969: both go down
  • 1970 - 1972: both either go up or are flat.
  • 1973 & 1974: both go down.
  • 1975 & 1976: both go up.
  • 1977 & 1978: both go down.
  • 1979 & 1980: they go opposite directions!
  • 1981 - 1985: Both move the same direction.
So, for only 5 years out of 20 do they actually move in opposite directions. Bonds weren't a safe haven or diversifying allocation.

1912 - 1931

The second worst span of 20 years was 1912 - 1931. I'll spare you the graphs, and instead quote the Bureau of Labor Statistics:
The World War I era and its aftermath, 1917–1920, then produced sustained inflation unmatched in the nation anytime since. Prices rose at an 18.5-percent annualized rate from December 1916 to June 1920, increasing more than 80 percent during that period.
Stocks lose 1/3 of purchasing power in 1917 alone. There's a nice rally from 1921 - 1929, but we all know what happened in 1929. 55% of stock purchasing power wiped out in 3 years.

There's a light recession from 1912 - 1914, where stocks go down and bonds go up, so yay for diversification! But during WWI everything goes down. During the roaring '20s everything goes up. Luckily, during the Great Depression, bonds actually go up.

Data: Simba's Backtesting Spreadsheet, tab Data_Series, columns LCB for Large Cap Blend (the S&P 500), and TBM for Total Bond Market. Inflation adjusted real returns.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by David Jay »

You are correct, but 1966 should not be a surprise, it is well known here on BH:

https://www.google.com/search?sitesearc ... etire+1966
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Re: The Worst Years To Retire: The Surprise In The Data

Post by martincmartin »

David Jay wrote: Mon Oct 25, 2021 4:28 pm You are correct, but 1966 should not be a surprise, it is well known here on BH:

https://www.google.com/search?sitesearc ... etire+1966
True. But some people still ask about 1929 instead of 1966. And I was trying to get at the "why", by looking at the correlation between bonds and stocks.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by seajay »

I see 1929 start year as the worst 30 year 4% SWR for all-stock/TSM, that only lasted 21 years before all-spent.

1969 start year was the next worst, lasted 24.25 years.

1966 start year lasted just shy of 30 years.

For those figures I assumed each years income was drawn at the start of each year.

A 65 year old 1929 retiree had greater risk of not living another 21 years. Similar for the 1960's retirees. And those that did outlive their liquid capital might have ended up selling their home to fund care home fees and as such might have had no need for other liquid capital.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by secondopinion »

seajay wrote: Mon Oct 25, 2021 4:55 pm I see 1929 start year as the worst 30 year 4% SWR for all-stock/TSM, that only lasted 21 years before all-spent.
21 years is actually not bad, given how awful the Great Depression was. Then I guess expecting 20 years from it at 4% is very reasonable.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by martincmartin »

seajay wrote: Mon Oct 25, 2021 4:55 pm I see 1929 start year as the worst 30 year 4% SWR for all-stock/TSM, that only lasted 21 years before all-spent.
Agreed, but I don't think anybody is advocating for an all-stock portfolio, especially for a 30 year 4% SWR.

For a fixed stock/bond mix, LCB & TBM, the optimizer finds 53% stocks as optimal, 1966 as worst starting year, ending with -$70k (starting with $1M). For a linear glide path, 35% stocks -> 100% stocks over 30 years. 1966 is again worst starting year, ending with $0.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by seajay »

secondopinion wrote: Mon Oct 25, 2021 5:00 pm
seajay wrote: Mon Oct 25, 2021 4:55 pm I see 1929 start year as the worst 30 year 4% SWR for all-stock/TSM, that only lasted 21 years before all-spent.
21 years is actually not bad, given how awful the Great Depression was. Then I guess expecting 20 years from it at 4% is very reasonable.
UK data viewtopic.php?p=6293055#p6293055 but even TBills worst case was 16 years (average/median case saw TBills last 30+ years). For other asset combinations 20 years worst cases were relatively consistent, didn't really matter if your were 25/75, 50/50, 100/0.

There's around a 33% chance of a 65 year old guy not getting to 80 https://www.hamiltonproject.org/charts/ ... x_and_year. Pick a more volatile choice such as all-stock and the lack of sleep, smoking and drinking with worry, or the hard partying from having done well ... and most likely your money will outlive you :) Or take the SWAN safe approach and end up in a care home being spoon fed. I'm inclined to favor the former choice (biased in having seen older relatives living through the latter).
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Re: The Worst Years To Retire: The Surprise In The Data

Post by dodecahedron »

martincmartin wrote: Mon Oct 25, 2021 4:00 pm 1966 - 1985

4% SWR for 30 years requires your portfolio to gain 1.31%/year, 14%/decade. Here's a dollar invested in the S&P 500 over the first 20 years:

Image


Yikes! Not only does it not gain 14% per decade, it doesn't break even, for good, for 17 years, when you're 82 years old! So what if you take 4% out every year?

Image

Half way through your retirement, your nest egg is 76% gone!

But bonds will save us, right? After all, they're the safe, conservative investment to turn to during dark times. Plus, they're supposed to go up when stocks go down.

Image

By 1981, bonds have lost more than stocks -- these are inflation adjusted numbers -- and seem very correlated:
  • 1966 - 1968: move in opposite directions!
  • 1969: both go down
  • 1970 - 1972: both either go up or are flat.
  • 1973 & 1974: both go down.
  • 1975 & 1976: both go up.
  • 1977 & 1978: both go down.
  • 1979 & 1980: they go opposite directions!
  • 1981 - 1985: Both move the same direction.
So, for only 5 years out of 20 do they actually move in opposite directions. Bonds weren't a safe haven or diversifying allocation.
Also worth noting that there was a ton of tax drag during that period. Retirees in 1966 generally did not have access to tax-advantaged retirement plans, and stocks tended to pay out dividends at much higher rates than they do today and those dividends were fully taxable as ordinary income back then. Also trading costs (commissions) were high during that period.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by secondopinion »

seajay wrote: Mon Oct 25, 2021 5:39 pm
secondopinion wrote: Mon Oct 25, 2021 5:00 pm
seajay wrote: Mon Oct 25, 2021 4:55 pm I see 1929 start year as the worst 30 year 4% SWR for all-stock/TSM, that only lasted 21 years before all-spent.
21 years is actually not bad, given how awful the Great Depression was. Then I guess expecting 20 years from it at 4% is very reasonable.
UK data viewtopic.php?p=6293055#p6293055 but even TBills worst case was 16 years (average/median case saw TBills last 30+ years). For other asset combinations 20 years worst cases were relatively consistent, didn't really matter if your were 25/75, 50/50, 100/0.

There's around a 33% chance of a 65 year old guy not getting to 80 https://www.hamiltonproject.org/charts/ ... x_and_year. Pick a more volatile choice such as all-stock and the lack of sleep, smoking and drinking with worry, or the hard partying from having done well ... and most likely your money will outlive you :) Or take the SWAN safe approach and end up in a care home being spoon fed. I'm inclined to favor the former choice (biased in having seen older relatives living through the latter).
I favor living on my investments than a care home as well. Volatility has normally not worried me; my work, school, and personal circumstances are more stressful. I guess I have a rather high risk tolerance.

But I would have disliked the Great Depression however for how heartbreaking it was for others.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by seajay »

martincmartin wrote: Mon Oct 25, 2021 5:32 pm
seajay wrote: Mon Oct 25, 2021 4:55 pm I see 1929 start year as the worst 30 year 4% SWR for all-stock/TSM, that only lasted 21 years before all-spent.
Agreed, but I don't think anybody is advocating for an all-stock portfolio, especially for a 30 year 4% SWR.

For a fixed stock/bond mix, LCB & TBM, the optimizer finds 53% stocks as optimal, 1966 as worst starting year, ending with -$70k (starting with $1M). For a linear glide path, 35% stocks -> 100% stocks over 30 years. 1966 is again worst starting year, ending with $0.
The 35/65 stock/bonds spending bonds first transitions to 100/0, averages 67.5/32.5 ... in effect costs averages more into stocks over time. Events that might have led to a bad SORR for drawdown might see accumulators having done well. From recent high valuations/low yields that bucket style does have greater appeal over constant weighted 67.5/32.5.

Another factor is if you split the start date, half at the start of year, half at the end of year, along with having saved up a additional 6 months of spending to cover that averaging in, then that might be considered as being two separate running portfolios, 12 months apart, and the average of the two will tend to be better than having lumped all-in at the worst timepoint.

Relative valuations at the start date, PE, Dow/Gold ratio ...etc. type measures can also help reduce the risk of having started at the worst possible time. 1999 and Dow/Gold was up at 40 levels, 1980's and it was down at 1.0 levels ... type assessments. 30 year from peak to troughs can see rewards where you'd have been better off in cash deposits, trough to peaks and the rewards can be fantastic.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by SnowBog »

Isn't the "why" mostly inflation?

Forget where I heard/read that, but I clearly recall that prolonged inflation is one of - if not the - biggest risk investors face. Not just for the obvious - in that you need more money to buy the same goods/services. But also the impact inflation has to stocks and bonds. (Although current inflation and stock prices seem out of alignment by those measures).
Last edited by SnowBog on Mon Oct 25, 2021 6:13 pm, edited 1 time in total.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by seajay »

dodecahedron wrote: Mon Oct 25, 2021 5:44 pm Also worth noting that there was a ton of tax drag during that period. Retirees in 1966 generally did not have access to tax-advantaged retirement plans, and stocks tended to pay out dividends at much higher rates than they do today and those dividends were fully taxable as ordinary income back then. Also trading costs (commissions) were high during that period.
Therein lies often overlooked risk. Back then regular/basic rate taxpayers were seeing 38% tax rates in the UK, whilst richer individuals were paying 95% rates (or even more). The Stones self exiled from the UK into France due to such, whilst the Beatles sang 'Taxman' ... 19 for you, 1 for me ... in reflection of 95% tax rates. In 1968 there was even a retrospective taxation applied that increased the top rate tax to 130%. A Labour (Democrats equivalent) UK party with irresponsible tax/spend policies. Such governments might suddenly rise at any time and reek havoc.

Old Money, generational wealth favors 'a third, a third, a third' ... land, art, gold. Assets that can be just left to ride through 'bad times' without generating regular taxable income streams such as bond interest/stock dividends.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by secondopinion »

seajay wrote: Mon Oct 25, 2021 6:02 pm Old Money, generational wealth favors 'a third, a third, a third' ... land, art, gold. Assets that can be just left to ride through 'bad times' without generating regular taxable income streams such as bond interest/stock dividends.
Land has property tax now; it is down to two now. :P
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Re: The Worst Years To Retire: The Surprise In The Data

Post by averagedude »

Yeah, I heard that the big dipper was in the 60s and 70s, and the little dipper was the late 20s and 30s. This was what William Bengen's research showed.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Normchad »

Oddly, a lot of folks here talk like they are convinced the worst tear to retire is *right now*. With all the hand wringing over 2% or lower SWRs…..
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Re: The Worst Years To Retire: The Surprise In The Data

Post by seajay »

SnowBog wrote: Mon Oct 25, 2021 6:00 pm Isn't the "why" mostly inflation?

Forget where I heard/read that, but I clearly recall that prolonged inflation is one of - of not the - biggest risk investors face. Not just for the obvious - in that you need more money to buy the same goods/services. But also the impact inflation has to stocks and bonds. (Although current inflation and stock prices seem out of alignment by those measures).
Inflation can be directed. Print/spend money and that devalues all other notes in circulation. Print/buy bonds and bond prices rise, yields decline to below inflation so bond holders/pension funds etc. in effect are being taxed. Persistent negative real yields along with taxation of 'gains' and that taxation rate can become punitively high.

UK debt back pre-2008 financial crisis was around 500Bn costing 5%. That soon was doubled where the central bank (Bank of England) in effect printed money and bought up a large chunk of that debt. Whilst the treasury issued 1Tn of new debt priced at around 2.5% rates. The BoE returns all interest the treasury pay on the treasury bonds it bought back to the treasury. Whilst also printing more to buy some of the new issues as well. i.e. much of the debt was restructured, made more domestic (domestic debt isn't really a issue). That's just one simple example of the gameplay played out around the world. In effect a raid on pensions/savings as with too many chiefs and not enough indians (too many rich enough not having to work) leads to social issues.

Much of 1980 onward good investment gains were a form of compensation for bad 1960's/1970's issues. Forward time is more likely to see a return to the 1960/1970 type era than it is to see a repeat of 1980/1990's great investment gains era.

Inflation bonds aren't any guarantee as rules can be changed, perhaps via changing the taxation of 'gains'. Stocks have tended to ride through OK provided you were accumulating rather than in drawdown. 4% SWR in effect reflects those bad times, in the average case rewards were better. BUT the 4% SWR is more often based on gross figures, during times of economic stress taxes also tend to rise, in some cases considerable so.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by willthrill81 »

SnowBog wrote: Mon Oct 25, 2021 6:00 pm Isn't the "why" mostly inflation?
It seems so. Neither TIPS nor I bonds were around back then, but it's hard to imagine that they wouldn't have been very beneficial, especially when unexpected inflation was roaring in the late 1970s. But for reasons that I very much disagree with, many here still advocate TBM as investors' exclusive bond holding.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by nisiprius »

If I'd been asked to guess without seeing the answer first, I'm pretty sure I'd have said "1966-1982."

I don't think it's a big surprise to anyone who's looked at a chart of stock market real returns. The famous and much-reproduced chart from Siegel's Stocks for the Long Run, for example. If I color in the places where the stock market returns are below Siegel's trend line--which might be characterized where it was performing below expectation--we can see that the magnitude of shortfall in 1966-82 was certainly comparable to 1929-1944, and that it was more sustained and unrelieved, with no letup and no opportunity to recoup shortfalls and rebuild a portfolio shrinking from constant withdrawals.

Image

1832-1850 looks worse than either. I don't think Simba's data goes back that far, though?
Last edited by nisiprius on Mon Oct 25, 2021 6:32 pm, edited 3 times in total.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Northern Flicker »

averagedude wrote: Mon Oct 25, 2021 6:09 pm Yeah, I heard that the big dipper was in the 60s and 70s, and the little dipper was the late 20s and 30s. This was what William Bengen's research showed.
Bengen used the name Big Dipper for 1929-1932. Little Dipper was the name he gave to the double-dip depression that started in 1937. The inflation of the 1970's was the most challenging for his allocation of 50% large cap US equities, 50% US treasuries. His name for that period was The Big Bang.

The incorporation of TIPS and I bonds into the bond portfolio would shift the risk some away from inflation risk to market risk. Ditto for non-US equities.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by grabiner »

nisiprius wrote: Mon Oct 25, 2021 6:24 pm If I'd been asked to guess without seeing the answer first, I'm pretty sure I'd have said "1966-1982."
And so would I. This is the longest period in which the US stock market didn't keep up with inflation, and thus the worst time to retire with a stock-heavy portfolio.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by tooluser »

grabiner wrote: Mon Oct 25, 2021 7:13 pm
nisiprius wrote: Mon Oct 25, 2021 6:24 pm If I'd been asked to guess without seeing the answer first, I'm pretty sure I'd have said "1966-1982."
And so would I. This is the longest period in which the US stock market didn't keep up with inflation, and thus the worst time to retire with a stock-heavy portfolio.
The prime working years of my parents, and yet they retired early (though of course, later). Hmm. :?:
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Independent George »

What's unique about retiring in 1929 is that you lived through a significant deflationary period. Bad for your portfolio, good for your cash and consumption levels.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Nestegg_User »

I'm gonna still say that the ~1905 retiree was a decent second place....the 1907 recession was just ahead...massive inflation in the ww1/twenties years ....and yeah, that thing called the income tax arrived shortly after they retired...and of course they ended with the great depression
(of course they first had to get to a point to be able to retire... and if we look at the economic history of the prior ~50 years...it would have been "challenging")
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Re: The Worst Years To Retire: The Surprise In The Data

Post by snackdog »

Most of us had relatives who were retired during the worst runs for stocks, bonds and stagflation. But they did not care. 99% of our BH relatives either never retired or got a nice pension or lived solely on SS. If they owned any securities it was US savings bonds they passed on in their will.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by BernardShakey »

Nestegg_User wrote: Mon Oct 25, 2021 9:21 pm I'm gonna still say that the ~1905 retiree was a decent second place....the 1907 recession was just ahead...massive inflation in the ww1/twenties years ....and yeah, that thing called the income tax arrived shortly after they retired...and of course they ended with the great depression
(of course they first had to get to a point to be able to retire... and if we look at the economic history of the prior ~50 years...it would have been "challenging")
Agree, except a 1905 retiree would very likely have been dead by the 1929 crash given life expectancy at that time.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by dodecahedron »

tooluser wrote: Mon Oct 25, 2021 8:43 pm
grabiner wrote: Mon Oct 25, 2021 7:13 pm
nisiprius wrote: Mon Oct 25, 2021 6:24 pm If I'd been asked to guess without seeing the answer first, I'm pretty sure I'd have said "1966-1982."
And so would I. This is the longest period in which the US stock market didn't keep up with inflation, and thus the worst time to retire with a stock-heavy portfolio.
The prime working years of my parents, and yet they retired early (though of course, later). Hmm. :?:
The exact same decades that are terrible for retirees are generally GREAT for workers accumulating.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by rocket354 »

dodecahedron wrote: Mon Oct 25, 2021 9:57 pm
tooluser wrote: Mon Oct 25, 2021 8:43 pm
grabiner wrote: Mon Oct 25, 2021 7:13 pm
nisiprius wrote: Mon Oct 25, 2021 6:24 pm If I'd been asked to guess without seeing the answer first, I'm pretty sure I'd have said "1966-1982."
And so would I. This is the longest period in which the US stock market didn't keep up with inflation, and thus the worst time to retire with a stock-heavy portfolio.
The prime working years of my parents, and yet they retired early (though of course, later). Hmm. :?:
The exact same decades that are terrible for retirees are generally GREAT for workers accumulating.
Indeed. According to the DQYDJ calculator, from Jan, 1966 - Dec, 1999, the S&P saw 6.9% CAGR. However, from 1966 - 1982, it was actually slightly negative, and from 1982 - 1999 it was 14.8%. Someone working and saving the first half of that time frame got to see all their investments take off after that. Whereas, someone who retired in 1966, depending on asset allocation, might very well have run out of money in that timeframe, despite an almost-7% annualized real return. SORR for sure.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Zeno »

martincmartin wrote: Mon Oct 25, 2021 4:00 pm The Great Depression is burned into the national psyche as the worse economic recession in modern U.S. history, and for good reason. As bad as it would be to retire in 1929, there are worse years.

Using Simba's Backtesting Spreadsheet, you can simulate retiring in any year, with a 4% SWR, for 30 years. You can simulate different stock/bond splits, and even different linear glide paths. Then you can pick the one with the least chance of running out of money.

And when you do, which starting year is worst? Drum roll please ... 1966!

1966 - 1985

4% SWR for 30 years requires your portfolio to gain 1.31%/year, 14%/decade. Here's a dollar invested in the S&P 500 over the first 20 years:

Image


Yikes! Not only does it not gain 14% per decade, it doesn't break even, for good, for 17 years, when you're 82 years old! So what if you take 4% out every year?

Image

Half way through your retirement, your nest egg is 76% gone!

But bonds will save us, right? After all, they're the safe, conservative investment to turn to during dark times. Plus, they're supposed to go up when stocks go down.

Image

By 1981, bonds have lost more than stocks -- these are inflation adjusted numbers -- and seem very correlated:
  • 1966 - 1968: move in opposite directions!
  • 1969: both go down
  • 1970 - 1972: both either go up or are flat.
  • 1973 & 1974: both go down.
  • 1975 & 1976: both go up.
  • 1977 & 1978: both go down.
  • 1979 & 1980: they go opposite directions!
  • 1981 - 1985: Both move the same direction.
So, for only 5 years out of 20 do they actually move in opposite directions. Bonds weren't a safe haven or diversifying allocation.

1912 - 1931

The second worst span of 20 years was 1912 - 1931. I'll spare you the graphs, and instead quote the Bureau of Labor Statistics:
The World War I era and its aftermath, 1917–1920, then produced sustained inflation unmatched in the nation anytime since. Prices rose at an 18.5-percent annualized rate from December 1916 to June 1920, increasing more than 80 percent during that period.
Stocks lose 1/3 of purchasing power in 1917 alone. There's a nice rally from 1921 - 1929, but we all know what happened in 1929. 55% of stock purchasing power wiped out in 3 years.

There's a light recession from 1912 - 1914, where stocks go down and bonds go up, so yay for diversification! But during WWI everything goes down. During the roaring '20s everything goes up. Luckily, during the Great Depression, bonds actually go up.

Data: Simba's Backtesting Spreadsheet, tab Data_Series, columns LCB for Large Cap Blend (the S&P 500), and TBM for Total Bond Market. Inflation adjusted real returns.
Is there an investment recommendation lurking somewhere in here for folks on the cusp of retirement such as myself? What is the lesson? And what if the future is worst than the past?

I’m at 47x. Is that not enough? Should I keep scratching in the dirt until I keel over?

My grandfather fought with the US Marines in WWI. He came back scarred (literally) from the experience, but I am guessing inflation and the like didn’t bother him. His education topped out in high school. He and my grandmother lived out their existence on this insignificant rock we call Earth, but they weren’t impoverished.
Last edited by Zeno on Tue Oct 26, 2021 3:39 am, edited 1 time in total.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by SnowBog »

WyomingFIRE wrote: Mon Oct 25, 2021 11:06 pm Is there an investment recommendation lurking somewhere in here for folks on the cusp of retirement such as myself? What is the lesson? And what if the future is worst than the past?
I think there's an observation that many of the prior generations likely had pensions (and social security) to draw on, whereas many of us won't...

As for "lesson", again my working theory is inflation is the underlying cause of some of these worse periods. If that's true, that seems like potential rationale to include inflation adjusted assets like I Bonds and/or TIPS. In what amounts - I don't know... But I'm buying as much I Bonds as I can in my remaining working years, and have moved a small amount of my 401k bonds to a TIPS fund, and likely will move more as we get closer to retirement.

That said, I don't know if these would have made a material positive impact over the time periods. I know when I've looked at portfolio visualizer the data for TIPS didn't go back very far. So I'm not sure how these hold up in practice vs. theory. (Would love the insights of others who've liked at this closer!) It might be these are more "feel good", or are of limited value (assuming an equity heavy AA which means limited TIPS), and on their own can't offset enough of the destructive nature of inflation.

Which maybe reminds us of a 2nd lesson, remain adaptable. If inflation is running rampant, the ability to reduce expenses and/or pickup some side income could be the most meaningful to long term plans. But then again, I've never been a fan of SWR models with "blind" withdrawals that don't take into account changes that might be occurring.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Northern Flicker »

grabiner wrote: Mon Oct 25, 2021 7:13 pm
nisiprius wrote: Mon Oct 25, 2021 6:24 pm If I'd been asked to guess without seeing the answer first, I'm pretty sure I'd have said "1966-1982."
And so would I. This is the longest period in which the US stock market didn't keep up with inflation, and thus the worst time to retire with a stock-heavy portfolio.
US large cap stocks kept up with inflation, but no more. The real return was zero. Add meaningful int'l diversification, and stocks did fine in the 1970's, but 1929 and 1937 would have become more challenging.

In the 1970's long-term and moderately long-term bonds had a negative real return. US small and small value stocks had a positive real return, thanks to the period 1977-1983.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by seajay »

rocket354 wrote: Mon Oct 25, 2021 10:18 pm
dodecahedron wrote: Mon Oct 25, 2021 9:57 pm
tooluser wrote: Mon Oct 25, 2021 8:43 pm
grabiner wrote: Mon Oct 25, 2021 7:13 pm
nisiprius wrote: Mon Oct 25, 2021 6:24 pm If I'd been asked to guess without seeing the answer first, I'm pretty sure I'd have said "1966-1982."
And so would I. This is the longest period in which the US stock market didn't keep up with inflation, and thus the worst time to retire with a stock-heavy portfolio.
The prime working years of my parents, and yet they retired early (though of course, later). Hmm. :?:
The exact same decades that are terrible for retirees are generally GREAT for workers accumulating.
Indeed. According to the DQYDJ calculator, from Jan, 1966 - Dec, 1999, the S&P saw 6.9% CAGR. However, from 1966 - 1982, it was actually slightly negative, and from 1982 - 1999 it was 14.8%. Someone working and saving the first half of that time frame got to see all their investments take off after that. Whereas, someone who retired in 1966, depending on asset allocation, might very well have run out of money in that timeframe, despite an almost-7% annualized real return. SORR for sure.
UK data indicates that for a 1915 start date year 50/50 stock/TBills 4% SWR lasted 21 years. If considered as two separate buckets, 8% SWR applied to T-Bills, stocks left to accumulate then that might be considered as being both in drawdown and still accumulating. When so for that 1915 start year the bonds lasted just 8 years. Once bonds had been spent inflation and stock performance were such that a 11% SWR had to be applied to the remainder stock value to maintain the same inflation adjusted withdrawals ... and that continued on to support income production for a combined total of 24 years, three years more than had 4% SWR been applied to 50/50 yearly rebalanced.

That is just one example of where a bucket approach worked better than constant weighted, in other cases it swings the other way around and CW > buckets. Broadly from low valuations you'll more likely to better with CW whilst from high valuations buckets likely works out better.

Valuations also matter. Whilst 1966 and 1969 S&P500 PE's were up, they weren't excessively high, weren't particularly flagging a big red flag. Dow/Gold ratio however was pretty much waving a red flag, somewhat saying don't forget me, I'm here and at good value. Similar to the late 1990's when Dow/Gold was up at 40 levels. At other times such as the early 1980's Dow/Gold was down at 1.0 levels, saying forget me I'm way overvalued compared to stocks.

One broad asset allocation to fit all of times is inclined to have a lower SWR than for asset allocations based on relative valuations at the time. Recent S&P500 PE up at 38 levels, Dow/Gold at 20 levels is somewhat suggesting that today wouldn't be the best of times to transition over from accumulation to retirement, is at risk of perhaps seeing below average withdrawals. Or that you might be better served using a bucket approach, perhaps start with 33% stock, 67% bonds and spend bonds first such that it transitions over to 100/0 after x years and averaged 67/33 over those years, rather than just constant weighting 67/33 from the get-go.
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Re: The Worst Years To Retire: The Surprise In The Data

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Re: The Worst Years To Retire: The Surprise In The Data

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The above assumptions are that investors remains with US only acclamation. A more diversified international investor would do better.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by andypanda »

They also assume that a retired person stays retired. I know some folks in the '60s went back to work, either in their old line of work or they started a new career.

My grandparents and my parents, aunts, uncles, etc. all lived through the Depression. You couldn't just go get a job. You probably couldn't get a job even if you looked all year. You might find a day's work here or there. The highest national unemployment rate I've seen reported was 25%.

They were all still alive in 1966 and I was a high school junior. In 1966 the national unemployment rate was 3.8% and jobs were easy to get, at least in the medium and large population centers.

And anyhow, there weren't large numbers of people retiring on their investments. They had a pension or they kept working.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by nigel_ht »

1929 may be more catastrophic because in 3 years you lost 89%.

If you didn’t downshift lifestyle fast enough the damage was going to be quickly unrecoverable.

Say it repeated again starting yesterday.

Folks conditioned to buy the dip and the market always goes up may stay with 4% for 2022 (aka 1930) especially since there is a rally, travel is less of a pain, etc. You might not drop spending until 2023.

I’m on my phone but maybe someone can backtest outcomes for 1929 downshifting to 3% after 2 years vs 1966 downshifting to 3% after say 3-4 years.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by nigel_ht »

Blue456 wrote: Tue Oct 26, 2021 5:14 am The above assumptions are that investors remains with US only acclamation. A more diversified international investor would do better.
Today, with a correlation of 0.8, I don’t think that VT would fare that much better than VTI in a 1929/Great Depression scenario…
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Re: The Worst Years To Retire: The Surprise In The Data

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Blue456 wrote: Tue Oct 26, 2021 5:14 am The above assumptions are that investors remains with US only acclamation. A more diversified international investor would do better.
Might do better. Or worse.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by jj45 »

willthrill81 wrote: Mon Oct 25, 2021 6:24 pm
SnowBog wrote: Mon Oct 25, 2021 6:00 pm Isn't the "why" mostly inflation?
It seems so. Neither TIPS nor I bonds were around back then, but it's hard to imagine that they wouldn't have been very beneficial, especially when unexpected inflation was roaring in the late 1970s. But for reasons that I very much disagree with, many here still advocate TBM as investors' exclusive bond holding.
Is it possible to create synthetic TIPS, based on today's rules, and backtest how a portfolio with TIPS would have fared?
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Re: The Worst Years To Retire: The Surprise In The Data

Post by willthrill81 »

jj45 wrote: Tue Oct 26, 2021 10:10 am
willthrill81 wrote: Mon Oct 25, 2021 6:24 pm
SnowBog wrote: Mon Oct 25, 2021 6:00 pm Isn't the "why" mostly inflation?
It seems so. Neither TIPS nor I bonds were around back then, but it's hard to imagine that they wouldn't have been very beneficial, especially when unexpected inflation was roaring in the late 1970s. But for reasons that I very much disagree with, many here still advocate TBM as investors' exclusive bond holding.
Is it possible to create synthetic TIPS, based on today's rules, and backtest how a portfolio with TIPS would have fared?
I believe that some have attempted to do that, but I'm skeptical as to how much confidence we can place in 'synthetic' assets.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Gnomon »

I'm not sure these comparisons of periods from the past are entirely fair or representative. Up until the 1990's(?) or so, the cash position in a portfolio had a significant role. "Cash" in savings accounts or in CDs (at least, since CDs first became available in the 1960's) was earning meaningful interest. It was up to double-digit yields in the early 80's.

So I think these comparison graphs would take on a very different look if they included the typical portfolio cash positions of the time, and the yields available for "cash" accounts at the time. My recollection is that people just didn't have 60/40/0 (stock/bond/cash) portfolios back then, even if it's common or encouraged by TV talking heads now. Maybe someone can find some historic data to point to, but I think it wasn't uncommon for a portfolio to have a 30% cash position, or even higher.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by alfaspider »

BernardShakey wrote: Mon Oct 25, 2021 9:50 pm
Nestegg_User wrote: Mon Oct 25, 2021 9:21 pm I'm gonna still say that the ~1905 retiree was a decent second place....the 1907 recession was just ahead...massive inflation in the ww1/twenties years ....and yeah, that thing called the income tax arrived shortly after they retired...and of course they ended with the great depression
(of course they first had to get to a point to be able to retire... and if we look at the economic history of the prior ~50 years...it would have been "challenging")
Agree, except a 1905 retiree would very likely have been dead by the 1929 crash given life expectancy at that time.
Life expectancy changes have largely come through improvements in infant mortality. You were more likely to keel over unexpectedly from a heart attack in old age, but it wasn't unusual to make it to 80 even in that era.

However, I would say that "retirement" as we know it is a relatively recent invention. For most of human history, you worked until you were unable to do so. Not-working at all for long periods of time was generally a luxury of the aristocracy, although they often participated in activities that today might be considered "work" (i.e. office-type administrative tasks). In 1905, "retiring" just because you could was still not an expectation. They were still decades away from the creation of social security, which helped cement the idea amongst the general populace that one would have a long-term period of idleness not mandated by infirmity.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Blue456 »

nigel_ht wrote: Tue Oct 26, 2021 8:00 am
Blue456 wrote: Tue Oct 26, 2021 5:14 am The above assumptions are that investors remains with US only acclamation. A more diversified international investor would do better.
Today, with a correlation of 0.8, I don’t think that VT would fare that much better than VTI in a 1929/Great Depression scenario…
Todays correlation doesn’t mean that future one will be the same.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by namajones »

Assume that the worst year to retire will be the year you retire. Configure your portfolio accordingly.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by finite_difference »

willthrill81 wrote: Mon Oct 25, 2021 6:24 pm
SnowBog wrote: Mon Oct 25, 2021 6:00 pm Isn't the "why" mostly inflation?
It seems so. Neither TIPS nor I bonds were around back then, but it's hard to imagine that they wouldn't have been very beneficial, especially when unexpected inflation was roaring in the late 1970s. But for reasons that I very much disagree with, many here still advocate TBM as investors' exclusive bond holding.
How much better have we gotten at predicting and controlling inflation over the last 50 years, though?

The worse we are at predicting and controlling inflation, the more valuable TIPS becomes.

I would hope we’ve gotten better over the past 50 years, but maybe that’s hubris?
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Re: The Worst Years To Retire: The Surprise In The Data

Post by HomerJ »

nigel_ht wrote: Tue Oct 26, 2021 7:44 am 1929 may be more catastrophic because in 3 years you lost 89%.

If you didn’t downshift lifestyle fast enough the damage was going to be quickly unrecoverable.
This is true if you were 100% stocks in retirement, which no one here advocates. Bonds did quite well during this time, even cash, because there was deflation.

What killed bonds in the 1966-1982 years was inflation. Bond funds are not destroyed by rising interest rates. Inflation is the real danger.

Luckily Social Security is inflation-indexed, and we have I-bonds and TIPs nowadays.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by Valuethinker »

alfaspider wrote: Tue Oct 26, 2021 10:52 am
BernardShakey wrote: Mon Oct 25, 2021 9:50 pm
Nestegg_User wrote: Mon Oct 25, 2021 9:21 pm I'm gonna still say that the ~1905 retiree was a decent second place....the 1907 recession was just ahead...massive inflation in the ww1/twenties years ....and yeah, that thing called the income tax arrived shortly after they retired...and of course they ended with the great depression
(of course they first had to get to a point to be able to retire... and if we look at the economic history of the prior ~50 years...it would have been "challenging")
Agree, except a 1905 retiree would very likely have been dead by the 1929 crash given life expectancy at that time.
Life expectancy changes have largely come through improvements in infant mortality. You were more likely to keel over unexpectedly from a heart attack in old age, but it wasn't unusual to make it to 80 even in that era.
That's what I had understood. But then I watched this series (PBS/ BBC):

https://www.pbs.org/about/about-pbs/blo ... ic-health/

the effect of antibiotics cannot be understated. Surgery was a very high risk activity before the invention of modern antibiotics. Plus a whole set of dread diseases (like smallpox) that were floating around.
However, I would say that "retirement" as we know it is a relatively recent invention. For most of human history, you worked until you were unable to do so. Not-working at all for long periods of time was generally a luxury of the aristocracy, although they often participated in activities that today might be considered "work" (i.e. office-type administrative tasks). In 1905, "retiring" just because you could was still not an expectation. They were still decades away from the creation of social security, which helped cement the idea amongst the general populace that one would have a long-term period of idleness not mandated by infirmity.
I think when the retirement pension was brought in by the Liberal government in the UK (1904 from memory) it was set at age 65 for men, and the average retired life expectancy at age 65 was only a couple of years longer than that.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by willthrill81 »

finite_difference wrote: Tue Oct 26, 2021 12:01 pm
willthrill81 wrote: Mon Oct 25, 2021 6:24 pm
SnowBog wrote: Mon Oct 25, 2021 6:00 pm Isn't the "why" mostly inflation?
It seems so. Neither TIPS nor I bonds were around back then, but it's hard to imagine that they wouldn't have been very beneficial, especially when unexpected inflation was roaring in the late 1970s. But for reasons that I very much disagree with, many here still advocate TBM as investors' exclusive bond holding.
How much better have we gotten at predicting and controlling inflation over the last 50 years, though?
I don't know that we've gotten any better at predicting inflation, but it seems that the Fed has gotten much better at controlling inflation.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by nigel_ht »

Blue456 wrote: Tue Oct 26, 2021 11:54 am
nigel_ht wrote: Tue Oct 26, 2021 8:00 am
Blue456 wrote: Tue Oct 26, 2021 5:14 am The above assumptions are that investors remains with US only acclamation. A more diversified international investor would do better.
Today, with a correlation of 0.8, I don’t think that VT would fare that much better than VTI in a 1929/Great Depression scenario…
Todays correlation doesn’t mean that future one will be the same.
True but it’s not a given that international large cap is actually useful diversification.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by finite_difference »

willthrill81 wrote: Tue Oct 26, 2021 12:54 pm
finite_difference wrote: Tue Oct 26, 2021 12:01 pm
willthrill81 wrote: Mon Oct 25, 2021 6:24 pm
SnowBog wrote: Mon Oct 25, 2021 6:00 pm Isn't the "why" mostly inflation?
It seems so. Neither TIPS nor I bonds were around back then, but it's hard to imagine that they wouldn't have been very beneficial, especially when unexpected inflation was roaring in the late 1970s. But for reasons that I very much disagree with, many here still advocate TBM as investors' exclusive bond holding.
How much better have we gotten at predicting and controlling inflation over the last 50 years, though?
I don't know that we've gotten any better at predicting inflation, but it seems that the Fed has gotten much better at controlling inflation.
I would argue that if something is under control (orderly), it is much easier to predict than something that is not under control (chaotic). So I think the two are connected to each other.
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Re: The Worst Years To Retire: The Surprise In The Data

Post by SnowBog »

finite_difference wrote: Tue Oct 26, 2021 3:53 pm
willthrill81 wrote: Tue Oct 26, 2021 12:54 pm
finite_difference wrote: Tue Oct 26, 2021 12:01 pm
willthrill81 wrote: Mon Oct 25, 2021 6:24 pm
SnowBog wrote: Mon Oct 25, 2021 6:00 pm Isn't the "why" mostly inflation?
It seems so. Neither TIPS nor I bonds were around back then, but it's hard to imagine that they wouldn't have been very beneficial, especially when unexpected inflation was roaring in the late 1970s. But for reasons that I very much disagree with, many here still advocate TBM as investors' exclusive bond holding.
How much better have we gotten at predicting and controlling inflation over the last 50 years, though?
I don't know that we've gotten any better at predicting inflation, but it seems that the Fed has gotten much better at controlling inflation.
I would argue that if something is under control (orderly), it is much easier to predict than something that is not under control (chaotic). So I think the two are connected to each other.
In theory, I'd agree with that...

But in this case, we have to account for politics which don't always operate on logic.
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