Can we please stop talking about recessions being bad in retirement?

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martincmartin
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Can we please stop talking about recessions being bad in retirement?

Post by martincmartin »

Let's agree that:
  • You shouldn't have 100% stocks. Maybe 2/3 stocks, maybe 60/40, maybe even 50/50. So between 1/3 and 1/2 bonds.
  • You rebalance annually.
  • You're not taking out more than 4% of your initial balance every year for living expenses. In other words, even when the stock market is down, you're still keeping > 90% of your funds invested. Call this investing for the long term.
Then during a recession, where stocks later recover to their original value, you may actually do better than if the market were flat the entire time. That's because of rebalancing: you were able to buy stocks when they were down. So a V shaped recession, with rebalancing and without any withdrawals for living expenses, you'll make more money than if there was no recession and stocks had the same beginning and ending values. Withdrawals complicate things, and perhaps you're down a little. But the point is, rebalancing + keeping almost all of your money in the market means recessions are "paper losses", and as long as they recover (a big IF, see Japan), they don't hurt and may even help.

The real threat is inflation, and in particular inflation combined with something else bad, like WWI or a stagnant economy (1970s stagflation).

Recessions are like airplane crashes: rare, dramatic events that grab headlines. Inflation is like car crashes: an ongoing background level that doesn't grab headlines or mind share. More people die in car crashes than plane crashes.

As another analogy: as long as you're staying in the market, recessions are when stocks go on sale. As long as you're not selling at the sale price, but buying, they actually boost your returns.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by T4REngineer »

While I agree most of the talk in the news in simply click bait/attention giving I am not sure I follow along that a recession is a good thing in retirement. I can buy that it could work out just fine and generally speaking has worked out ok in the past. Sure, if the timing is right you could even make money but I don't think I would say given two options: Having a recession during retirement or not - give me the recession. However given the length of most retirements and the frequency of recessions has there ever been a 30yr stretch without a recession? (maybe a dumb question, its been a awhile since I looked at market history in that regard) as always past performance does not dictate future returns or however it goes

Are they something to fear, no - are they something to accept is very likely to happen and have a plan for it and be flexible with the plan as life progresses - sure
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Re: Can we please stop talking about recessions being bad in retirement?

Post by randomguy »

martincmartin wrote: Wed Oct 27, 2021 8:56 am
The real threat is inflation, and in particular inflation combined with something else bad, like WWI or a stagnant economy (1970s stagflation).

Recessions are like airplane crashes: rare, dramatic events that grab headlines. Inflation is like car crashes: an ongoing background level that doesn't grab headlines or mind share. More people die in car crashes than plane crashes.

As another analogy: as long as you're staying in the market, recessions are when stocks go on sale. As long as you're not selling at the sale price, but buying, they actually boost your returns.
So those 1929 people who had deflation had a pleasant retirement experience?:) The risk is lack of real returns and how you get there doesn't matter a ton. The 1929s had low nominal returns and deflation. The 1960s had decent nominal returns and inflation. Neither were good for retirees. And it should be stated the period need to be long. Nobody cares about 2-5 year blips when the markets drop. They just don't matter much. It is when you hit those 10-15 year periods, that portfolios get stressed.

Maybe rebalancing boosts your returns in a stagnant volatile market versus a stagnant flat market. But everyone I know doesn't want to be in either of those cases. They want the rising market... Throw in that a long down period always starts with a short one, I totally understand why people don't like recessions...
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Re: Can we please stop talking about recessions being bad in retirement?

Post by Valuethinker »

martincmartin wrote: Wed Oct 27, 2021 8:56 am Let's agree that:
  • You shouldn't have 100% stocks. Maybe 2/3 stocks, maybe 60/40, maybe even 50/50. So between 1/3 and 1/2 bonds.
  • You rebalance annually.
  • You're not taking out more than 4% of your initial balance every year for living expenses. In other words, even when the stock market is down, you're still keeping > 90% of your funds invested. Call this investing for the long term.
Then during a recession, where stocks later recover to their original value, you may actually do better than if the market were flat the entire time. That's because of rebalancing: you were able to buy stocks when they were down.
Recessions are like airplane crashes: rare, dramatic events that grab headlines.
Or rather, it's a recession when your neighbour loses their job. It's a depression when you lose yours.

Like clockwork, every 10 years of my career, there has been an economic downturn coupled with layoffs in my employer industry - financial services/ IT. I don't view these as "rare, dramatic events"-- we just stagger out of the 2000-03 period and run smack into the Big Short (2007 onwards, really). And here's the trick, as you get a decade older it gets that much harder to get hired again. Financial services, like technology, is a highly ageist industry.
Inflation is like car crashes: an ongoing background level that doesn't grab headlines or mind share. More people die in car crashes than plane crashes.
Isn't that reasoning by false analogy?
As another analogy: as long as you're staying in the market, recessions are when stocks go on sale. As long as you're not selling at the sale price, but buying, they actually boost your returns.
1. If you are in retirement, unless you have access to a Defined Benefit pension, you will most likely be drawing down, not buying stock "on sale"? Or are you arguing for a decent weighting in bonds & thus rebalancing bonus? But you will need to *spend* some of that money, not invest it in shares.

2. You are making the assumption you can wait long enough for the market to recover:

- 2020 the downturn in stock market terms only lasted a very few months. Blink and it was over. As long as you didn't manage to die in the interim (many retirees did)
- 2008/09 there was an existential risk - financial markets as we know them could have so frozen (as they were frozen, for a few weeks) that we could have seen the sorts of negative returns we saw in the 1929-33 period
- 2000-03 was a much shallower downturn. Although I knew a lot of Nortel retirees (lost their jobs, stock went to zero, pensions got destroyed). But it was -35% returns and it went on and on and on
- 1966-1981 was not nice for investors (stock or bond)
- early-mid 1970s saw a bear market in the UK where returns were c -80% (inflation was 20%+ so nominal returns were higher than that)
- one always mentions Japan in these threads
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Re: Can we please stop talking about recessions being bad in retirement?

Post by 02nz »

You seem to be conflating a recession (which has to do with economic activity) with a correction / bear market in the stock market (which can happen in a recession but can also happen for any number of other reasons).
Last edited by 02nz on Wed Oct 27, 2021 9:18 am, edited 1 time in total.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by jebmke »

Valuethinker wrote: Wed Oct 27, 2021 9:11 am - 2000-03 was a much shallower downturn. Although I knew a lot of Nortel retirees (lost their jobs, stock went to zero, pensions got destroyed). But it was -35% returns and it went on and on and on
My recollection is the same. It was a long grind down. More than one restructuring exercise in my company. The recovery was actually pretty short before the next down turn. The downturn technically didn't start until 2008 but there were sectors that were flashing serious warning signs in 2007.

Edit: one of the major moves my company did during the 2000-03 recession was to put in place changes that would roll out in the future with respect to retiree medical. They grandfathered many older employees on the plan, signaled that the plan was going to sunset and eventually capped the company contribution for the least older group of employees who were grandfathered. The changes were not implemented suddenly and people had a lot of time to plan accordingly but it did have an impact down the road on retirees.

I also seem to recall that at least one year, the company match on the 401(k) plan was suspended. I was in senior management. The bonus plans and the NQ deferred income plan was suspended.
Last edited by jebmke on Wed Oct 27, 2021 9:23 am, edited 1 time in total.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by Valuethinker »

randomguy wrote: Wed Oct 27, 2021 9:10 am
martincmartin wrote: Wed Oct 27, 2021 8:56 am
The real threat is inflation, and in particular inflation combined with something else bad, like WWI or a stagnant economy (1970s stagflation).

Recessions are like airplane crashes: rare, dramatic events that grab headlines. Inflation is like car crashes: an ongoing background level that doesn't grab headlines or mind share. More people die in car crashes than plane crashes.

As another analogy: as long as you're staying in the market, recessions are when stocks go on sale. As long as you're not selling at the sale price, but buying, they actually boost your returns.
So those 1929 people who had deflation had a pleasant retirement experience?:) The risk is lack of real returns and how you get there doesn't matter a ton. The 1929s had low nominal returns and deflation. The 1960s had decent nominal returns and inflation. Neither were good for retirees. And it should be stated the period need to be long. Nobody cares about 2-5 year blips when the markets drop. They just don't matter much. It is when you hit those 10-15 year periods, that portfolios get stressed.
I would bet you the next 2-5 year stock downturn will matter to a lot of retirees-- more than in the past.

Hitherto, there were Defined Benefit pension schemes. My mother is probably on a larger widows' pension now than when my father died (on the full pension)- -that's what partial inflation indexing does for you if you live into your mid 90s. In the future very few people will be beneficiaries of those.

In the 1930s, most people were not stock market investors. Although things had been nuts in 1929 with public stock speculation, far and away the majority of Americans would not have owned shares, I don't think? If you did make it to retirement, traditionally you relied on your children to look after you (and you lived with them). Some wealthy families were wiped out - but often they also owned rental property, I believe, as an alternative source of income.

Maybe rebalancing boosts your returns in a stagnant volatile market versus a stagnant flat market. But everyone I know doesn't want to be in either of those cases. They want the rising market... Throw in that a long down period always starts with a short one, I totally understand why people don't like recessions...
I agree with this.

The external reasons for the recession are the killer- -unemployment and other economic disruption. Maybe if you are a retiree you are immune. But PBGC only covers smaller private pensions. Public sector bodies have driven through ex post pension cuts on retirees (someone posted here about their father in New Jersey)-- although I think that is fairly rare. If you own a stock portfolio -- as you point out-- you don't know how long this will last, and by definition as a retiree you may not have the time to recover your portfolio value.

A real killer for retirees has been the cuts in income from a portfolio due to very low interest rates for a longer period than any time in recorded history. Whether you annuitize or just try to live off your fixed income, it has been very painful.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by Valuethinker »

jebmke wrote: Wed Oct 27, 2021 9:18 am
Valuethinker wrote: Wed Oct 27, 2021 9:11 am - 2000-03 was a much shallower downturn. Although I knew a lot of Nortel retirees (lost their jobs, stock went to zero, pensions got destroyed). But it was -35% returns and it went on and on and on
My recollection is the same. It was a long grind down. More than one restructuring exercise in my company. The recovery was actually pretty short before the next down turn. The downturn technically didn't start until 2008 but there were sectors that were flashing serious warning signs in 2007.
Since the late 1990s, every organisation I have ever worked for has been in the throes of a restructuring, roughly every 18 months. Either stand-alone or as the result of a merger. 15 years after I left my first full time employer (IT department of an insurance co) many of the people were still there. 18 years after, they had all lost their jobs in a big merger.

Guess what, there is one going on at my organisation right now ;-).
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Re: Can we please stop talking about recessions being bad in retirement?

Post by vanbogle59 »

Valuethinker wrote: Wed Oct 27, 2021 9:11 am
Isn't that reasoning by false analogy?
LOL. Just fully commit to the analogy. Then decide if it's appropriate.
Since recessions are like airplane crashes, the title of the thread becomes:
Can we please stop talking about airplane crashes being bad?

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Re: Can we please stop talking about recessions being bad in retirement?

Post by retiredjg »

02nz wrote: Wed Oct 27, 2021 9:18 am You seem to be conflating a recession (which has to do with economic activity) with a correction / bear market in the stock market (which can happen in a recession but can also happen for any number of other reasons).
Agreed. A market downturn/crash/correction is not the same thing as a recession.

Sometimes these things do happen at the same time (likely the cause of the confusion) and sometimes they do not.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by nisiprius »

The Great Depression isn't a very good model for "retirement" because retirement as we know it didn't exist then.

Many people couldn't and didn't formally retire, but may have been partially supported by family when they couldn't work at their previous job any more.

The concept of "retirement at age 65" was partly a move by the New Deal to get older people out of the labor force to reserve jobs for younger workers.

The 4%-rule stuff is totally a creation of the 401(k) era. That's the first time people contemplated ordinary workers living off personal securities portfolios.

During the period of the Gilded Age very wealthy families had a retirement-like lifestyle, but it wasn't based on index funds and SWR rules. The people within the power structure of a community might have a lot of their wealth tied up in the individual stock of the dominant industry of the community. To the extent that people lived off their portfolios, they (literally) clipped the coupons from (paper) bonds and spent the dividends from a small portfolio of individual "widows-and-orphans" dividend-paying stocks. Not only did they not try to sell stocks to fund expenses, it was said that the goal of the really wealthy families to live on "the interest on the interest."

A lot of those families got very badly hurt when the local rolling mill cut, skipped, or eliminated stock dividend payments.

The fact that stock prices were low did not make it a terrific time to buy stocks, because nobody had money to buy them. Benjamin Roth wrings his hands about this a lot in The Great Depression: A Diary. He felt surrounded by fabulous bargains, both in stocks and real estate, and completely unable to take advantage of them.

In any case, stock buying by the general public was more like buying meme stocks on Robinhood than like 401(k) contributions. The 1924 book by Edgar Lawrence Smith, Common Stocks as Long-Term Investments put the idea of the long term in the air. So did John Jakob Raskob's article, "Everybody Ought to Be Rich" which said that anybody could reach financial independence by putting $15/month into "good" common stocks (his math didn't work if you assumed market index returns, his numbers assumed that by picking "good" stocks you could double the average rate of return). But since Raskob's article appeared in September, 1929 it didn't have a lot of influence, and not many people really did it.

With regard to "having money," one aspect I hadn't known about was that even if your bank didn't fail, there was a good chance that withdrawals would be frozen. There was a regular market in "bankbooks," with rates being printed in the paper. If you had a bankbook showing a balance of $1,000, there were people willing to buy them from you--have you sign it over to them--for fifty cents or twenty-five cents on the dollar, depending on perceived situation of the bank, with the buyer willing to hold them to the indefinite date in the future when the bank might allow withdrawals again.
Last edited by nisiprius on Wed Oct 27, 2021 9:55 am, edited 3 times in total.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by dbr »

In any case the dangers to a retirement are not as simple minded as is sometimes posted.

It is also probably true that no two crashes, or no two recessions are the same, nor either the same as the other. We can also add the damage of bouts of high inflation.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by fortunefavored »

A recession as defined by economists, or a correction, or a "crash" in the stock market are not what I worry about.

I worry about the next 10 or 15 year bear market - which we haven't had in a long time. The slow grind down of declining markets and declining spending power with no end in sight. False recoveries.. double-dips. Right now it appears people think this will never happen again.

There is no doubt a cyclical bear will be "bad" for retirees who haven't blown past their sequence of return period and significantly de-risked.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by Ramjet »

"Can we please stop talking about recessions being bad in retirement?"

I mean they aren't good...However, following the rules you laid out one should be fine
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Re: Can we please stop talking about recessions being bad in retirement?

Post by dbr »

A recession that gives relief from inflation might be a good thing. For people with income from fixed annuities and pensions it would unless the recession somehow damages the pension payer.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by mikejuss »

Confused: if you're retired, you're presumably not adding to your portfolio, so if there's a recession, how are you buying stocks on the cheap?
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Re: Can we please stop talking about recessions being bad in retirement?

Post by NiceUnparticularMan »

So with a bad enough recession (aka depression), or recessionary period with multiple bad recessions in quick succession, all bets are off. Although better to start wealthy than not . . . .

I agree a "normal" recession/recovery cycle, assuming a retiree has the necessary means to follow all that advice, is not necessarily all that dire of a prospect.

However, a third possible scenario is what is sometimes called a malaise, which might involve one or more recessions at times, but generally is just an extended period of disappointingly weak real macroeconomic growth on net.

I think a malaise is a scenario worth being concerned about as a retiree. Particularly if you are entering into it with a portfolio's whose apparent value pre-malaise was dependent on relatively high valuations, even more particularly if both stocks and bonds had relatively high valuations. A malaise under such conditions could make even the long-term real returns on your portfolio very low, and make it impossible to sustain a real withdrawal rate that was set based on assumptions involving that initial portfolio value.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by tibbitts »

martincmartin wrote: Wed Oct 27, 2021 8:56 am Let's agree that:
...
Sorry, I don't agree with almost anything you've said, based on experience in previous downturns. Real life just doesn't work the way you say, with the exception being if you're wealthy "enough." I'm not sure what "enough" is, I just know that doesn't apply to me.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by jebmke »

mikejuss wrote: Wed Oct 27, 2021 10:01 am Confused: if you're retired, you're presumably not adding to your portfolio, so if there's a recession, how are you buying stocks on the cheap?
sell bonds
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Re: Can we please stop talking about recessions being bad in retirement?

Post by mikejuss »

jebmke wrote: Wed Oct 27, 2021 10:20 am
mikejuss wrote: Wed Oct 27, 2021 10:01 am Confused: if you're retired, you're presumably not adding to your portfolio, so if there's a recession, how are you buying stocks on the cheap?
sell bonds
What if you sell into multiple dips? It's not at all clear to me how a recession is necessarily good for a retiree.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by jebmke »

I didn't say it was good. I only answered your question.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by willthrill81 »

Recessions can most certainly be bad in retirement.

15 years into retirement, year 2000 retirees with a 60/40 AA who were implementing the '4% rule' had 66% of their inflation-adjusted starting balance remaining.

By comparison, year 1995 retirees with the same portfolio and withdrawal amount had 164% of their inflation-adjusted starting balance remaining after 15 years of withdrawals. And year 2005 retirees had 130% remaining after 15 years of withdrawals.

Yes, retiring right before a recession can be quite bad in retirement.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by dodecahedron »

willthrill81 wrote: Wed Oct 27, 2021 10:40 am Recessions can most certainly be bad in retirement.
Indeed. Recessions are bad in general because they cause pain and economic scarring in the surrounding society and possibly among family members, even if the retiree is personally financially insulated from that pain.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by jebmke »

We seem to all agree that recessions are bad. :wink: :beer
Last edited by jebmke on Wed Oct 27, 2021 10:57 am, edited 1 time in total.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by cflannagan »

willthrill81 wrote: Wed Oct 27, 2021 10:40 am Recessions can most certainly be bad in retirement.

15 years into retirement, year 2000 retirees with a 60/40 AA who were implementing the '4% rule' had 66% of their inflation-adjusted starting balance remaining.

By comparison, year 1995 retirees with the same portfolio and withdrawal amount had 164% of their inflation-adjusted starting balance remaining after 15 years of withdrawals. And year 2005 retirees had 130% remaining after 15 years of withdrawals.

Yes, retiring right before a recession can be quite bad in retirement.
I do believe those numbers (especially for 60/40 AA's) but curious, with those numbers, how often was the rebalancing done?
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Re: Can we please stop talking about recessions being bad in retirement?

Post by willthrill81 »

cflannagan wrote: Wed Oct 27, 2021 10:57 am
willthrill81 wrote: Wed Oct 27, 2021 10:40 am Recessions can most certainly be bad in retirement.

15 years into retirement, year 2000 retirees with a 60/40 AA who were implementing the '4% rule' had 66% of their inflation-adjusted starting balance remaining.

By comparison, year 1995 retirees with the same portfolio and withdrawal amount had 164% of their inflation-adjusted starting balance remaining after 15 years of withdrawals. And year 2005 retirees had 130% remaining after 15 years of withdrawals.

Yes, retiring right before a recession can be quite bad in retirement.
I do believe those numbers (especially for 60/40 AA's) but curious, with those numbers, how often was the rebalancing done?
Annually. More frequent rebalancing did not materially change the outcomes.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by dbr »

What this discussion may be more about is not a debate that something bad is indeed bad but rather whether or not some special plan should be made for the occurrence of a recession. Since such occurrence has to be assumed, even more that once, the possibility should be a natural part of planning and not something special.

There tends to be a lot of planning by anecdote such as "I am doing this because if this happens I will be able to do that." The plan should be balanced across the range of possibilities and not just provide against one or two possible events.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by CyclingDuo »

martincmartin wrote: Wed Oct 27, 2021 8:56 am Let's agree that:
  • You shouldn't have 100% stocks. Maybe 2/3 stocks, maybe 60/40, maybe even 50/50. So between 1/3 and 1/2 bonds.
  • You rebalance annually.
  • You're not taking out more than 4% of your initial balance every year for living expenses. In other words, even when the stock market is down, you're still keeping > 90% of your funds invested. Call this investing for the long term.
Then during a recession, where stocks later recover to their original value, you may actually do better than if the market were flat the entire time. That's because of rebalancing: you were able to buy stocks when they were down. So a V shaped recession, with rebalancing and without any withdrawals for living expenses, you'll make more money than if there was no recession and stocks had the same beginning and ending values. Withdrawals complicate things, and perhaps you're down a little. But the point is, rebalancing + keeping almost all of your money in the market means recessions are "paper losses", and as long as they recover (a big IF, see Japan), they don't hurt and may even help.

The real threat is inflation, and in particular inflation combined with something else bad, like WWI or a stagnant economy (1970s stagflation).

Recessions are like airplane crashes: rare, dramatic events that grab headlines. Inflation is like car crashes: an ongoing background level that doesn't grab headlines or mind share. More people die in car crashes than plane crashes.

As another analogy: as long as you're staying in the market, recessions are when stocks go on sale. As long as you're not selling at the sale price, but buying, they actually boost your returns.
Some people love fear. Some people love Schadenfreude. Some people love to only bring up the negatives.

• You buy a puppy and some family member immediately points out that in 12 years you are going to have to put it down.

• On average, we know that every 18 years there is a bear market which people love to point out.

• The business cycle is part of our investing both during the accumulation years as well as the decumulation years. People love to point out the low point of the cycle.

• People love to point out Japan.

• People love to point out 1929/Depression/WWII.

• Cheech and Chong loved to point out dog poop.

Hey, "it happens" is what they said.

The good news is, that throughout one's 30-40+ years of working you have invested and created income streams that will fund your retirement no matter where we are in the business cycle (pension, Social Security, risk portfolio, royalties, real estate, etc...).

Odds are that if you retire at age 65 and a bear market due to recession occurs - on average - once every 18 years, that somewhere between age 65 and age 83 each retiree will live through one, or part of one during their retirement years. Some may even get to experience more than one.

Regarding a recession in retirement. "It happens" in the words of Cheech and Chong is going to be a given...

Image

Bull and Bear markets happen. They will in retirement just as they have during the working/accumulation years. It happened to all of our parents. It happened to all of our grandparents. And it will happen to all of us. Correct preparation with your income streams, asset allocation, and decades of saving has the potential to make a recession during retirement more of a non-event than all those who love to talk about it might want to admit.

Image

1 out of every 3 investors age 65 and older sold 100% of their equities during the Covid 2020 sell off. 18% of all investors did the same.
https://reversemortgagedaily.com/2020/0 ... s-in-2020/

That is the type of capitulation these forums and exchange of ideas hopefully could help prevent. I guess I would be in the camp of trying to prepare both in one's planning as well as preparing to avoid behavioral mistakes with one's finance's during a recession in retirement.

That and enjoying our household companions for the 12 years we have them before the day comes to put them down (according to our one family member who continually points that out).

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Re: Can we please stop talking about recessions being bad in retirement?

Post by andypanda »

"In the 1930s, most people were not stock market investors."

True, and for the 1950s, and probably the '60s as I remember them.

"According to the first share owner census undertaken by the New York Stock Exchange (NYSE) in 1952, only 6.5 million Americans owned common stock (about 4.2% of the U.S. population). With a generation scarred by the market crash of 1929 and the Great Depression of the 1930s, most people in the 1950s stayed away from stocks. In fact, it was only in 1954 that the Dow Jones Industrial Average (DJIA) surpassed its 1929 peak, a full 25 years after the crash."

- www.investopedia.com/articles/stocks/09 ... -1970s.asp

It took 25 years for the DJIA to surpass the '29 peak. Scary. Be Prepared.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by dbr »

CyclingDuo wrote: Wed Oct 27, 2021 11:08 am
1 out of every 3 investors age 65 and older sold 100% of their equities during the Covid 2020 sell off. 18% of all investors did the same.
https://reversemortgagedaily.com/2020/0 ... s-in-2020/
This is one of the most astonishing things I have seen posted in the financial news.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by cflannagan »

dbr wrote: Wed Oct 27, 2021 11:19 am
CyclingDuo wrote: Wed Oct 27, 2021 11:08 am
1 out of every 3 investors age 65 and older sold 100% of their equities during the Covid 2020 sell off. 18% of all investors did the same.
https://reversemortgagedaily.com/2020/0 ... s-in-2020/
This is one of the most astonishing things I have seen posted in the financial news.
That is just bleeping sad. The absolute worst thing to do, selling at the bottom, especially ALL of it (the equities).

Wondering if we saw similar behavior during the 2008-2009 housing crash and the 2000 dotcom crash (I'm guessing, probably yes).
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Re: Can we please stop talking about recessions being bad in retirement?

Post by andypanda »

"1 out of every 3 investors age 65 and older sold 100% of their equities during the Covid 2020 sell off."

I thought about running for cover during a short commercial break while watching a tv movie early in the sell off. It was the prospect of paying fed and state taxes on over $1,000,000 of LTCG that brought me to my senses. Why lock in a 25% or so loss. My record is still perfect: since I began buying stock in the mid-60s I've never bailed out. I don't claim to be smart, just reliably lazy. :happy
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Re: Can we please stop talking about recessions being bad in retirement?

Post by martincmartin »

randomguy wrote: Wed Oct 27, 2021 9:10 am So those 1929 people who had deflation had a pleasant retirement experience?:)
Yes, exactly. For someone who retired Jan 1 1929 with $1M, and $40k expenses, 67% TSM / 33% ITT, by the end of 1936 they had $989k in inflation adjusted (1929) dollars in the bank. That's after taking out a total of $320k in 1929 dollars. They did even better with STT or 50/50.

Deflation is good news in retirement. In nominal terms, your expenses go down but your fixed income keeps its value. In real terms, expenses stay the same and fixed income grows.
The 1929s had low nominal returns and deflation. The 1960s had decent nominal returns and inflation. Neither were good for retirees. ​And it should be stated the period need to be long. Nobody cares about 2-5 year blips when the markets drop. They just don't matter much. It is when you hit those 10-15 year periods, that portfolios get stressed.
The 1929s decline lasted 3 years, and regained its previous value 3.5 years after that. The 1929s was one of those 2-5 year blips.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by sycamore »

cflannagan wrote: Wed Oct 27, 2021 11:27 am
dbr wrote: Wed Oct 27, 2021 11:19 am
CyclingDuo wrote: Wed Oct 27, 2021 11:08 am
1 out of every 3 investors age 65 and older sold 100% of their equities during the Covid 2020 sell off. 18% of all investors did the same.
https://reversemortgagedaily.com/2020/0 ... s-in-2020/
This is one of the most astonishing things I have seen posted in the financial news.
That is just bleeping sad. The absolute worst thing to do, selling at the bottom, especially ALL of it (the equities).

Wondering if we saw similar behavior during the 2008-2009 housing crash and the 2000 dotcom crash (I'm guessing, probably yes).
I wonder how accurate that claim is. The article says the claim comes from an LPL Financial analyst using data from Fidelity.

By contrast a few months after the March 2020 drop, Vanguard provided a retrospective snapshot that links to a PDF with data on Vanguard investors:
...the overwhelming majority stayed invested through the recent volatility. Less than 0.5% of investors abandoned their portfolios and moved entirely to cash.
There's no breakdown by age, but unless Vanguard's "senior investors" constitute 1.5% of their total, that 0.5% who moved to cash is nowhere near 1/3.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by martincmartin »

Valuethinker wrote: Wed Oct 27, 2021 9:11 am
Recessions are like airplane crashes: rare, dramatic events that grab headlines.
Or rather, it's a recession when your neighbour loses their job. It's a depression when you lose yours.
Here, we're talking about when you're already retired and don't have a job to lose. You have enough savings to last you the rest of your life and don't have to work again.
1. If you are in retirement, unless you have access to a Defined Benefit pension, you will most likely be drawing down, not buying stock "on sale"? Or are you arguing for a decent weighting in bonds & thus rebalancing bonus? But you will need to *spend* some of that money, not invest it in shares.
Yes, rebalancing bonus.

You retire Jan 1, 1929 with $1M, and have $40k expenses, adjusted for inflation. By Jan 1, 1931, after removing your $40k, you have $733k. You put 1/3 ($244k) in bonds, 2/3 ($489k) in stocks. By the end of that year, your bonds have grown to $266k (in 1929 dollars), your stocks to $304k. So you rebalance: you sell $76k worth of bonds, keep $40k for your living expenses for next year, and buy $36k worth of stocks. In 1932, stocks are even but bonds grow by 24.44%, so again you sell bonds and buy stocks. In 1933, stocks grow by 53.62%.

Swings of -37.87% and +53.62% are much bigger than your SWR of 4%.
2. You are making the assumption you can wait long enough for the market to recover:

- 2020 the downturn in stock market terms only lasted a very few months. Blink and it was over. As long as you didn't manage to die in the interim (many retirees did)
- 2008/09 there was an existential risk - financial markets as we know them could have so frozen (as they were frozen, for a few weeks) that we could have seen the sorts of negative returns we saw in the 1929-33 period
- 2000-03 was a much shallower downturn. Although I knew a lot of Nortel retirees (lost their jobs, stock went to zero, pensions got destroyed). But it was -35% returns and it went on and on and on
- 1966-1981 was not nice for investors (stock or bond)
- early-mid 1970s saw a bear market in the UK where returns were c -80% (inflation was 20%+ so nominal returns were higher than that)
- one always mentions Japan in these threads
I think we're agreeing. I'm assuming a <= 4% SWR, so yes, I'm absolutely assuming you can wait long enough for the market to recover.
  • Agree that 2020 isn't relevant.
  • The 2008 recession lasted a single year. Withdrawing 4% means keeping 96% in the market. -37% in 2008, then +25% in 2009. You saw the value of your brokerage account tank and then recover, but that's just a number on a screen. You're keeping the vast majority (96%) in the market, only withdrawing a tiny portion (4%).
  • 2000-2003 lasted for 3 years. Your retirement horizon is 30 years. We're assuming 1/3-1/2 ITT (or TBM), and the rest in TSM (or LCB). I feel bad for the Nortel retirees, but we're considering a Bogleheads diversified portfolio here.
  • 1966-1981 wasn't a recession, it was grinding inflation with stagnation and a few recessions and recoveries. I explicitly call this out as what we should worry about, not 1929-1932, 2000-2003, 2008-2009, etc. So I think we're agreeing on this bullet.
  • I explicitly call out Japan as a counter example.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by tibbitts »

sycamore wrote: Wed Oct 27, 2021 11:47 am There's no breakdown by age, but unless Vanguard's "senior investors" constitute 1.5% of their total, that 0.5% who moved to cash is nowhere near 1/3.
According to reports we keep seeing here, maybe the rest of them would have moved to cash, but couldn't get through on the phone.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by martincmartin »

nisiprius wrote: Wed Oct 27, 2021 9:41 am The Great Depression isn't a very good model for "retirement" because retirement as we know it didn't exist then.
I totally agree. I'm approaching retirement, and my goal is to decide on things like SWR and stock/bond mix and glide path during retirement. So I'm back testing, that is, using historical returns to help understand what might happen in the future, and how my glide path over the next 40 years might fare.

I agree that the 1920s was a very different time, the average person didn't hold stocks, there wasn't as much financial engineering, no 401(k)s, etc. Still, I think it's a useful thought experiment to say "if we had those same returns going forward, how would we handle it?" and "what stock/bond mix handles all past sequences of returns?"
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Re: Can we please stop talking about recessions being bad in retirement?

Post by sycamore »

tibbitts wrote: Wed Oct 27, 2021 12:02 pm
sycamore wrote: Wed Oct 27, 2021 11:47 am There's no breakdown by age, but unless Vanguard's "senior investors" constitute 1.5% of their total, that 0.5% who moved to cash is nowhere near 1/3.
According to reports we keep seeing here, maybe the rest of them would have moved to cash, but couldn't get through on the phone.
So that's a feature, not a bug ? :-)
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Re: Can we please stop talking about recessions being bad in retirement?

Post by martincmartin »

fortunefavored wrote: Wed Oct 27, 2021 9:42 am A recession as defined by economists, or a correction, or a "crash" in the stock market are not what I worry about.

I worry about the next 10 or 15 year bear market - which we haven't had in a long time. The slow grind down of declining markets and declining spending power with no end in sight. False recoveries.. double-dips. Right now it appears people think this will never happen again.

There is no doubt a cyclical bear will be "bad" for retirees who haven't blown past their sequence of return period and significantly de-risked.
Exactly, this is exactly my point. Stocks going down for 1-3 years, then recovering over the next 1-4 years, doesn't affect someone who is withdrawing 4% with a 30 year time horizon.

A 10 - 15 year bear market, measured in real terms, the slow grind. My point is, when choosing between STT and ITT and other stress testing and decision making for a retirement portfolio, we should focus on the long bear market, not the crash followed by recovery, since most of our funds will ride out the crash + recovery, and thanks to the rebalancing bonus, we may even come out a little ahead.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by NiceUnparticularMan »

sycamore wrote: Wed Oct 27, 2021 12:10 pm
tibbitts wrote: Wed Oct 27, 2021 12:02 pm
sycamore wrote: Wed Oct 27, 2021 11:47 am There's no breakdown by age, but unless Vanguard's "senior investors" constitute 1.5% of their total, that 0.5% who moved to cash is nowhere near 1/3.
According to reports we keep seeing here, maybe the rest of them would have moved to cash, but couldn't get through on the phone.
So that's a feature, not a bug ? :-)
Our poor customer service is your avoidance of behavioral risk!
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Re: Can we please stop talking about recessions being bad in retirement?

Post by martincmartin »

mikejuss wrote: Wed Oct 27, 2021 10:01 am Confused: if you're retired, you're presumably not adding to your portfolio, so if there's a recession, how are you buying stocks on the cheap?
Annual rebalancing.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by Nowizard »

The issues we consider is defining what is the "Long term" when thinking that the market does recover in that context, and that a recession near the time of retirement for those making necessary withdrawals for expenses can be very challenging. We are well past the first but consider investments in terms of the first issue at times with specific purchases.

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Re: Can we please stop talking about recessions being bad in retirement?

Post by martincmartin »

mikejuss wrote: Wed Oct 27, 2021 10:27 am
jebmke wrote: Wed Oct 27, 2021 10:20 am
mikejuss wrote: Wed Oct 27, 2021 10:01 am Confused: if you're retired, you're presumably not adding to your portfolio, so if there's a recession, how are you buying stocks on the cheap?
sell bonds
What if you sell into multiple dips? It's not at all clear to me how a recession is necessarily good for a retiree.
Real returns of Total Stock Market in 1929-1936:

Code: Select all

1929  -11.29
1930  -22.94
1931  -37.87
1932    1.26
1933   53.62
1934   -0.70
1935   44.18
1936   30.79
So yes, you sell into the dip 3 times. But you also sell into the rise 3 times.

Bill Bernstein talks about how annual rebalancing is probably a little too frequent, should be done every few years, although finding the exact timing is hard.

But even annual rebalancing works well in this scenario.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by KlangFool »

OP,

"Can we please stop talking about recessions being bad in retirement?"

The correct answer to most questions is "it depends".

If the market recovers before the retirees are wiped out, then, it is not necessary bad. If the retirees are wiped out due their portfolio size and/or asset allocation and/or withdrawal strategy, it is a disaster.

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Re: Can we please stop talking about recessions being bad in retirement?

Post by martincmartin »

dbr wrote: Wed Oct 27, 2021 11:04 am What this discussion may be more about is not a debate that something bad is indeed bad but rather whether or not some special plan should be made for the occurrence of a recession. Since such occurrence has to be assumed, even more that once, the possibility should be a natural part of planning and not something special.

There tends to be a lot of planning by anecdote such as "I am doing this because if this happens I will be able to do that." The plan should be balanced across the range of possibilities and not just provide against one or two possible events.
True, I kind of posted quickly out of frustration, and didn't take time to carefully craft what I was trying to say. :)

I'm trying to say, the range of possibilities should be weighted towards 10 - 15 year grinding bear markets, not the Great Depression or Great Recession. And also a Japanese style lost decade. 1-3 year downturns, which recover fully in 1-4 years, actually don't end up having a big impact on things like composition of fixed income or equity glide path.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by fortunefavored »

martincmartin wrote: Wed Oct 27, 2021 12:15 pm <snip>
we should focus on the long bear market, not the crash followed by recovery, since most of our funds will ride out the crash + recovery, and thanks to the rebalancing bonus, we may even come out a little ahead.
1000% agreed. I see endless "oh I can be 100% stock because markets always come back real quick." I suppose it is possible we'll never see another cyclical bear market in our lifetimes.. but I'm thinking that's probably unlikely.

Another poster mentioned varying definitions of "long term" too - to me, long term is 10 or 20 years. To many people it's a year or two, maybe 3. If you couldn't live with your AA with a flat/down stock market for 10+ years with no end in sight, your AA is probably wrong.

It will be interesting what the forum will look like when we get 5+ years into a down market. Probably less fun. :)
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Re: Can we please stop talking about recessions being bad in retirement?

Post by redmaw »

martincmartin wrote: Wed Oct 27, 2021 12:15 pm
fortunefavored wrote: Wed Oct 27, 2021 9:42 am A recession as defined by economists, or a correction, or a "crash" in the stock market are not what I worry about.

I worry about the next 10 or 15 year bear market - which we haven't had in a long time. The slow grind down of declining markets and declining spending power with no end in sight. False recoveries.. double-dips. Right now it appears people think this will never happen again.

There is no doubt a cyclical bear will be "bad" for retirees who haven't blown past their sequence of return period and significantly de-risked.
Exactly, this is exactly my point. Stocks going down for 1-3 years, then recovering over the next 1-4 years, doesn't affect someone who is withdrawing 4% with a 30 year time horizon.
Where did 4% come from? Ohhh, that's right, a historical study using past returns to determine what allows a portfolio to survive. Now the real question, if recessions actually weren't bad for your retirement why isn't this number much higher? If you don't account for the effect of recessions shouldn't you expect to be able to take out closer to say 5 or 6% (expected returns) while maintaining the balance? Instead we see that in reality where recessions and worse happen, taking out 4% allows you to just barely squeak out 30 years before you run out of money (in some cases). This is a big deal, likely one of the largest problems with retirement planning, and therefore you will continue to see people talk about recessions being bad for retirement.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by steve r »

Valuethinker wrote: Wed Oct 27, 2021 9:11 am are you arguing for a decent weighting in bonds & thus rebalancing bonus? But you will need to *spend* some of that money, not invest it in shares.
I am just reminded of a BH blog/study that calls the rebalancing bonus "elusive," on average less than 0.1 over an extended period of time. Some strategies have negative results!

https://www.bogleheads.org/blog/2020/08 ... s-part-2/

In March 2020, for example, some rebalancing strategies (based on a calendar) missed out. Other times, rebalancing based on bands is akin to catching a falling knife. Any rebalancing strategies means some assets have less time in the market. This offsets any good fortune one may have with the timing rebalancing strategy. Theoretically, it is a wash.

To my way of thinking, (a belief among many but not all BHs) is that rebalancing is primarily to manage risk. In this context a recession with strategies to manage risk is akin to having a car wreck with insurance. I will pass.
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Re: Can we please stop talking about recessions being bad in retirement?

Post by nisiprius »

martincmartin wrote: Wed Oct 27, 2021 11:32 am...The 1929s decline lasted 3 years, and regained its previous value 3.5 years after that. The 1929s was one of those 2-5 year blips...
This is tendentious.

In the past everyone scored the length of a bear market as the time until it was over. Recently people have only been counting the number of years of the decline. But just because you're past the bottom doesn't mean there has been recovery. (After 2009 debates went on for several years about whether or not there were "green shoots," whether there was a "dead cat bounce" and a "value trap," and whether it would be "an L-shaped recovery or a V-shaped recovery."

But what is more important about the Great Depression is that immediately after 1929-1936, there was a second crash. It only escapes notice because the 1929 crash was so much worse. However, the 1937 decline was fully comparable to 2008-2009, involving about a -50% drawdown.

By most measures, the market had gotten slightly above even by the end of 1936, so it's fair to tabulate them as two separate bear markets. But in the Great Depression, the stock market crash was not a "2-5 year blip," it was two 7-year bear markets separated by only three months.

These aren't my own dates, my umpire for scoring dates and drawdowns is Morningstar.

Source

Image
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Re: Can we please stop talking about recessions being bad in retirement?

Post by steve r »

Ah, who can forget the Barring Brother's crisis of 1891. :beer
Good stuff though.
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