Do you trust the current value of your portfolio?

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flyingaway
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Do you trust the current value of your portfolio?

Post by flyingaway »

I have a number for my retirement. However, the number was reached far faster than I expected. So I am seriously considering to retire at the end of this year or next year (dependent upon my son's employment status).

When I read around (on similar forums), it seems that everyone's portfolio grows a lot in the past few years. In something like "can I retire now?" questions, people post big numbers. Those posts make me think if my portfolio is inflated due to the run-ups of the past few years and should be discounted in making retirement calculations and decisions? (I have a classic 3-fund portfolio, no bitcoin or QQQ or Tesla, etc.)

I would like to hear thoughts and advices from forum members regarding this matter, i.e., do you trust the current value of your portfolio in making your retirement decision? If not, how much do you discount it?
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TomatoTomahto
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Re: Do you trust the current value of your portfolio?

Post by TomatoTomahto »

I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I get the FI part but not the RE part of FIRE.
IowaFarmBoy
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Re: Do you trust the current value of your portfolio?

Post by IowaFarmBoy »

I retired last summer and had similar concerns, maybe not so much about a large run up but concerns about what the pandemic could do since we were only a few months in. I think it is good to think about what the concerns (risks) really are- in my case it was sequence of returns risk and the risk that my portfolio might underperform relative to historical returns. I managed the sequence of returns risk by splitting out a bucket of cash (cds, etc.) to cover several years of expenses by harvesting some gains. I managed the returns risk by making conservative assumptions about withdrawal rates- like using a withdrawal rate that was lower than the classic 4%.

I probably retired a couple of years sooner than my long term plan but once I saw that I could mitigate these risks, I felt much better about it. I think it is very normal to experience some angst about whether you are ready to retire.
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illumination
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Re: Do you trust the current value of your portfolio?

Post by illumination »

I think it's a fair question. I tend to always be cynical, so I'm assuming things are overvalued by around 20%+.

This is the first time I can remember since the dot.com era that things feel overly frothy, with all sorts of other weird bubbles. What I think is disturbing is way back when the NASDAQ crashed by 90%, the broader market just didn't have the same level exposure to "tech" like it does now. Today, 7 out of the top 10 US companies are "tech" and it's something like 25% of the S&P500. So thinking you're safe because you're not in something like QQQ but instead VTI, a big pullback in that sector is going to sting. But for me it's not really actionable as I know it can't really be timed, so I just know I'm going to have to go through it and watch it drop like the stock market always does, but then rebounds. I don't need the funds for living expenses.

I wouldn't make a early retirement decision based on my portfolio hitting a number sooner than I thought after a crazy bull run. If you have a job that you don't hate and can tolerate it, I would work as long as possible to have a comfortable margin above and beyond. I've just seen people retire early and run out to where things are tight. It's just a much different lifestyle drawing down savings versus a regular paycheck unless you're really well off.
Last edited by illumination on Thu Apr 01, 2021 11:39 am, edited 1 time in total.
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gr7070
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Re: Do you trust the current value of your portfolio?

Post by gr7070 »

The reality is no one knows where the markets (or any other variable) are going in the future.

Safe withdrawal rates and other simulators account for variance. No need to overcomplicate any of it.

You either are a worrier or are not. I prefer to not worry; so I don't.
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watchnerd
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Re: Do you trust the current value of your portfolio?

Post by watchnerd »

I don't frame it as "trust" vs "not trust" when it comes to portfolio value.

We have AA gates that we pass through at certain multiples of cost of living.

We passed through one of them earlier this year, so reduced our equity exposure by 10%.

If we pass through the next one before end of year, we'll reduce equity exposure again.

OP, if you're asking this question, maybe you've won the game and want to reduce your risk?
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Normchad
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Re: Do you trust the current value of your portfolio?

Post by Normchad »

I completely hear what you’re saying. I had a long term plan and number in mind for retiring at 65. I reached that number 13 years early, and it was very confusing for a while. It’s weird thinking “I have enough to retire if I’m 65, but it’s not enough at 52. If only I was more geezerly, I’d be all set!”

After a few months of hard thinking, I’ve got my head on straight now. I will likely retire in the next 12 months. My initial withdrawal rate will be 3%. If the stock side of my portfolio falls 50%, I’ll still be okay.

So, I do trust it. But I’m also looking at what it means for me if it suffers a sudden downturn.
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Bogle7
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I do

Post by Bogle7 »

Plug your data into Fidelity's retirement calculator — https://www.fidelity.com/retirement-planning/overview
You can do it as a guest.

It shows 3 scenari. One is very pessimistic.
That scenario subtracts 20% from our portfolio as a starting point.

Of course, I also used other models: IORP, cFIREsim, etc.
Last edited by Bogle7 on Thu Apr 01, 2021 11:57 am, edited 1 time in total.
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BolderBoy
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Re: Do you trust the current value of your portfolio?

Post by BolderBoy »

flyingaway wrote: Thu Apr 01, 2021 11:18 amI would like to hear thoughts and advices from forum members regarding this matter, i.e., do you trust the current value of your portfolio in making your retirement decision? If not, how much do you discount it?
I trusted the results of firecalc.com and cFireSim.com. After setting up ridiculously pessimistic scenarios and hitting 100% success every time I went ahead and retired into a rising stock market. No regrets.
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Re: Do you trust the current value of your portfolio?

Post by nisiprius »

When I was saving for retirement, in order to gauge progress toward my goal I always calculated a second number in which I divided the value of my stock holdings by two to allow for the possibility of a -50% stock market decline at the time of retirement.

I also formulated this idea: "if you are going to take your brokerage statement total seriously and count on it as if it were dollars, then you'd better liquidate and turn your holdings into that number of dollars."

I do worry seriously that two drawdowns of "about -50%" (-44.82% for 9/2000 through 9/2002, -50.97% for 11/2007 through 2/2009) have lulled us into thinking that -50% is some magic number--typical, or the worst that can happen.
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climber2020
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Re: Do you trust the current value of your portfolio?

Post by climber2020 »

My way of dealing with this is twofold:

1) Keep my core essential expenses low. Over half of my projected annual expenses are discretionary and can be cut to zero if I'm unlucky enough to experience a market crash right after retirement begins.

2) Shift money to bonds as my portfolio grows. This has been psychologically challenging in recent times, but I'm still doing it.
Snuffycuts99
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Re: Do you trust the current value of your portfolio?

Post by Snuffycuts99 »

To me it feels frothy but if I hit my number I would be ok with retiring. Because regardless of where the market is, I will have contingencies built in to my retirement plan in case there is a poor sequence of returns. If you don't feel like you'd be ok with a 50% decline in the first year of retirement, I think you should either keep working or as previous posters have said, decrease your equity exposure in your AA.
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greg24
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Re: Do you trust the current value of your portfolio?

Post by greg24 »

Of course I trust the value of my portfolio. It is what it is. It isn't a mirage.

BUT..... I also understand the stock market could lose 50% of its value at any point.

Some would speculate that a market crash is more likely right now than other times. Maybe. Maybe not.

This is why I have an asset allocation.
denovo
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Re: Do you trust the current value of your portfolio?

Post by denovo »

flyingaway wrote: Thu Apr 01, 2021 11:18 am I have a number for my retirement. However, the number was reached far faster than I expected. So I am seriously considering to retire at the end of this year or next year (dependent upon my son's employment status).

When I read around (on similar forums), it seems that everyone's portfolio grows a lot in the past few years. In something like "can I retire now?" questions, people post big numbers. Those posts make me think if my portfolio is inflated due to the run-ups of the past few years and should be discounted in making retirement calculations and decisions? (I have a classic 3-fund portfolio, no bitcoin or QQQ or Tesla, etc.)

I would like to hear thoughts and advices from forum members regarding this matter, i.e., do you trust the current value of your portfolio in making your retirement decision? If not, how much do you discount it?
What is your stock/bond asset allocation
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sc9182
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Re: Do you trust the current value of your portfolio?

Post by sc9182 »

Save 4-5 years worth of "minimal/survival" amount of monies into short/mid-term Treasuries ;
Ignore the market value of your 3-fund - and continue to go on with life - and rebalance strategically/occasionally as necessary.

Ideally you may want to pay-off home and/or cars or kids-colleges-- as going into retirement -- so that, you can be much more flexible with variable/survival-only minimal withdrawls during severe-downturns ..

During market doing-OK times - go on with your 4-5% withdrawal scenario/lifestyle ..

Being flexible with spending, minimizing fixed-costs, would be super helpful ..
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Re: Do you trust the current value of your portfolio?

Post by LittleMaggieMae »

I, too, have a hard time wrapping my mind around how much my investments have grown in the last 5 years. They've been growing since 2008 (when I started paying attention). So, it's not like growth doesn't happen. The thing that changed was the size of the "growth" - but then the money that was growing is much bigger. I guess I'm talking about the power of compounding. Since my goal back in 2008 was to create as big a Pile O' Money as I could so it could do all the work of growing kind of happened... I contributed/saved alot every year since 2008. That kind of makes me feel better about the balances in my accounts. Some of it was me (contributing money). Some of it is the bull market (I invested in funds that increased dramatically). Some of it is the power of steady compounding (I invested in 'steady stable" things that grow more slowly).

I, too, am hitting my "numbers" a few years earlier than anticipated. I'm viewing it with a little skepticism but continuing to hold the line and stick to my "original" plan i'm not moving anything up or postponing anything. I think if I was hitting my number 10 or 15 years sooner than anticipated - I might still hold the line/stick to the plan for the time being - but maybe I'd revise what my 3/5/7 future year plans were in light of "hitting the numbers" now.
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Re: Do you trust the current value of your portfolio?

Post by Broken Man 1999 »

If I were asking the question, I would frame it a little differently (taking into account we are retired):

Do you trust your current portfolio value to support you in retirement in your desired lifestyle?

For that question I would answer YES.

Our AA and asset level should protect us even in a "frothy market."

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Re: Do you trust the current value of your portfolio?

Post by KlangFool »

OP,

A) I keep 3 years of expense in CASH as my emergency fund and keep it separate from my portfolio.

B) I set a target for my 60/40 portfolio. At this moment, it is 1.65 million.

1) When it reaches the target, I sell 30K and pay down the mortgage. And, I buy about $2,000 worth of physical Gold or Silver.

2) I reset the target to be 30K higher. After harvesting 30K, the portfolio would be 1.62 million and the new target would be 1.68 million.

3) Essentially, for every 60K increases in my portfolio, I take away about 30K and keep 30K in my portfolio.

In summary, I have a plan to harvest the portfolio if it goes too well. And, I have a plan to protect myself if the portfolio crashes.

What is your plan?

If you are worried enough, create a plan to deal with it.

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Re: Do you trust the current value of your portfolio?

Post by Jack FFR1846 »

I am a huge safety net guy. My conservatism is like this:

My AA is 50/50. Of the bonds, 12% is in US Savings bonds, so that value is never going down.

My spending, increased for expected retirement increases (health insurance and travel) comes to $62k per year. 25 times that would be $1.55MM. But I put in a "safety" factor. My portfolio as of today is $3.3MM.

In retirement (later this year or maybe early next), I may also be able to manage where I take spending money from to keep taxes way lower than what I'm paying today.

My plans ignore social security and a small pension that I'll take as a lump sum...about $75k and roll to my tIRA.

So I sort of don't trust a standard 25 times spending number.
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shess
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Re: Do you trust the current value of your portfolio?

Post by shess »

flyingaway wrote: Thu Apr 01, 2021 11:18 am I have a number for my retirement. However, the number was reached far faster than I expected. So I am seriously considering to retire at the end of this year or next year (dependent upon my son's employment status).

When I read around (on similar forums), it seems that everyone's portfolio grows a lot in the past few years. In something like "can I retire now?" questions, people post big numbers. Those posts make me think if my portfolio is inflated due to the run-ups of the past few years and should be discounted in making retirement calculations and decisions? (I have a classic 3-fund portfolio, no bitcoin or QQQ or Tesla, etc.)

I would like to hear thoughts and advices from forum members regarding this matter, i.e., do you trust the current value of your portfolio in making your retirement decision? If not, how much do you discount it?
My portfolio has varied a LOT over the past year. It's nervous-making, when you think about it.

In the end, you need to have conservative plans which give you some room to respond, not be conservative with your target. You should have a withdrawal strategy that can tolerate a 20% or 25% drop in the market - that applies regardless of whether the drop happens tomorrow, or in five years. So if you're thinking "I have enough to retire right now! But not if the market drops by 25% this year", then IMHO you aren't ready.

Of course, anyone who sees a 25% drop in their portfolio is going to get nervous! But the goal should be that you can say "Man, I really feel that. OK, let's deal with it", and maybe you decide to take a more-modest vacation for a few years. But you don't want to be in a position where you regret leaving work because you don't know how you'll pay for health insurance and housing, now.
Wanderingwheelz
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Re: Do you trust the current value of your portfolio?

Post by Wanderingwheelz »

There is no reason to risk what you have and need for what you don’t have and don’t need.

Now is a great time to make sure your asset allocation is appropriate. Like watchnerd said earlier in the thread, there’s a misconception that reducing your risk is market timing.
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Re: Do you trust the current value of your portfolio?

Post by stimulacra »

My margin of safety is about 30%. If I really want to be pessimistic, I'll just assume half value.
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Svensk Anga
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Re: Do you trust the current value of your portfolio?

Post by Svensk Anga »

No. I periodically divide my equity allocation by two, then decide if I am okay with the diminished balance. There is enough fixed income that if SS comes through near projections, all is well.

Leading up to my retirement, I did the divide by two exercise in my planning spreadsheet. But then I also boosted the expected future returns to account for the lower starting valuation. Things may not work out this way if whatever knocked stock prices down also impairs future earnings growth. But how pessimistic can you stand to be and still retire? Things work out in the end if those higher expected returns eventually show up and one has enough bonds (preferably inflation indexed), to sustain spending in the interim.
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Re: Do you trust the current value of your portfolio?

Post by Thesaints »

A paradigm-changing proposal:
Asset values are actually quite accurate, especially if those assets only include standard marketable securities.
Why not including whatever safety margin in your financial objectives instead ?
MathWizard
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Re: Do you trust the current value of your portfolio?

Post by MathWizard »

I currently discount the equity portion of my portfolio
by 45% , and plan for retirement using the 4% rule after that.
I also discount estimated SS benefits by 25% based on a number
in the SS governor's report.

This is probably being over conservative, but I'll loosen
up later. It's much easier to correct by withdrawing more
than the other way around.

I do have $30K set aside in cash equivalents so that we can take
some vacations early in retirement (coming soon).
New Providence
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Re: Do you trust the current value of your portfolio?

Post by New Providence »

gr7070 wrote: Thu Apr 01, 2021 11:39 am The reality is no one knows where the markets (or any other variable) are going in the future.

Safe withdrawal rates and other simulators account for variance. No need to overcomplicate any of it.

You either are a worrier or are not. I prefer to not worry; so I don't.

Yes, I agree with this comment.

That's why it is important to build resilience. Roll with the punches as you can't prepare for the unknown.
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flyingaway
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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

watchnerd wrote: Thu Apr 01, 2021 11:42 am I don't frame it as "trust" vs "not trust" when it comes to portfolio value.

We have AA gates that we pass through at certain multiples of cost of living.

We passed through one of them earlier this year, so reduced our equity exposure by 10%.

If we pass through the next one before end of year, we'll reduce equity exposure again.

OP, if you're asking this question, maybe you've won the game and want to reduce your risk?
Did you mean, for example, if your portfolio reaches $1M, you change the allocation from 70/30 to 60/40?
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flyingaway
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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
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Re: Do you trust the current value of your portfolio?

Post by Thesaints »

flyingaway wrote: Thu Apr 01, 2021 1:56 pm Did you mean, for example, if your portfolio reaches $1M, you change the allocation from 70/30 to 60/40?
Don't you decide your allocation based on current assets, future objectives, and subject to an appropriate risk ?
Clearly, if assets grow and the objective seems to become more safely attainable, one may want to reduce risk. That or revise the objective.
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Re: Do you trust the current value of your portfolio?

Post by Trader Joe »

flyingaway wrote: Thu Apr 01, 2021 11:18 am I have a number for my retirement. However, the number was reached far faster than I expected. So I am seriously considering to retire at the end of this year or next year (dependent upon my son's employment status).

When I read around (on similar forums), it seems that everyone's portfolio grows a lot in the past few years. In something like "can I retire now?" questions, people post big numbers. Those posts make me think if my portfolio is inflated due to the run-ups of the past few years and should be discounted in making retirement calculations and decisions? (I have a classic 3-fund portfolio, no bitcoin or QQQ or Tesla, etc.)

I would like to hear thoughts and advices from forum members regarding this matter, i.e., do you trust the current value of your portfolio in making your retirement decision? If not, how much do you discount it?
Yes I trust it.
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flyingaway
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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

MathWizard wrote: Thu Apr 01, 2021 1:50 pm I currently discount the equity portion of my portfolio
by 45% , and plan for retirement using the 4% rule after that.
I also discount estimated SS benefits by 25% based on a number
in the SS governor's report.

This is probably being over conservative, but I'll loosen
up later. It's much easier to correct by withdrawing more
than the other way around.

I do have $30K set aside in cash equivalents so that we can take
some vacations early in retirement (coming soon).
Fairly enough. Let's assume you have $2M, with 45% discount, it will be viewed as $1.1M. With 4% rule, your budget will be $44k each year.

Now, I would like to ask: is this $44k your baseline (essential) budget or totally comfortable budget (with discretionary spending)?
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Re: Do you trust the current value of your portfolio?

Post by goodenyou »

I discount my portfolio by 1/3 to stress test it. I also discount Social Security and expect to pay a lot of my SS in Medicare fees. I aim for a <2% withdrawal rate for essential spending. Although we have met our goals on paper, we still have a few good years of savings left in us.
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RetiredAL
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Re: Do you trust the current value of your portfolio?

Post by RetiredAL »

TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
+1 to Tomato's thoughts.

When I retired, my withdrawal rate was 2%, so I knew an market drop of 50% would not have me eating dog food.

Today 5 years later, and yes it's be a good run, my investment balances are up 40%, even with my withdrawals.
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Re: Do you trust the current value of your portfolio?

Post by Thesaints »

Being extra prudent has its cost. Therefore, being unnecessarily prudent is tantamount to wasting money.
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flyingaway
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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

RetiredAL wrote: Thu Apr 01, 2021 2:12 pm
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
+1 to Tomato's thoughts.

When I retired, my withdrawal rate was 2%, so I knew an market drop of 50% would not have me eating dog food.

Today 5 years later, and yes it's be a good run, my investment balances are up 40%, even with my withdrawals.
Do you withdraw a high percentage than 2% now?
Dandy
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Re: Do you trust the current value of your portfolio?

Post by Dandy »

A lot depends on your age, investment allocation, and your withdrawal percentage to fund your normal expenses on top of any pension and SS.

e.g. a very high equity allocation, retiring at 55, and need to withdraw 5% is riskier than if you were 65 and had a modest equity allocation and need with withdraw 3% to fund normal expenses.

That is why it sometimes makes sense if you reach your number early with an aggressive allocation you might want to shift to a more asset preservation/moderate allocation.
MathWizard
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Re: Do you trust the current value of your portfolio?

Post by MathWizard »

flyingaway wrote: Thu Apr 01, 2021 2:03 pm
MathWizard wrote: Thu Apr 01, 2021 1:50 pm I currently discount the equity portion of my portfolio
by 45% , and plan for retirement using the 4% rule after that.
I also discount estimated SS benefits by 25% based on a number
in the SS governor's report.

This is probably being over conservative, but I'll loosen
up later. It's much easier to correct by withdrawing more
than the other way around.

I do have $30K set aside in cash equivalents so that we can take
some vacations early in retirement (coming soon).
Fairly enough. Let's assume you have $2M, with 45% discount, it will be viewed as $1.1M. With 4% rule, your budget will be $44k each year.

Now, I would like to ask: is this $44k your baseline (essential) budget or totally comfortable budget (with discretionary spending)?
My estimated plan as of now allows for discretionary spending of about what we currently spend
(or did before Covid, and when we were paying a mortgage and sending the kids to college.)
By discretionary, I mean after health insurance and taxes.

My current AA is 50/50, and I only discount the more volatile equity portion.

so for $2 Million, this is $1 million in bond funds, $1 million in equities, so I only subtract $450K, not $900K.

This means, I would have $1.55 million.

4% of that is $62K/yr.

So
$62K from portfolio at 4%
$28.3K SS benefits with 75% discount averaging in $0 benefit before age 70 when my wife and I claim.
$ 2.7K small pension my wife has
---------
$93K per year , all figures in real (2021) dollars.

This is not very far off from where I am.

I have also budgeted $100K for some unspecified expense around age 80,
likely moving to a more senior friendly house, and $30K for some big trips
before we get too old.
Last edited by MathWizard on Thu Apr 01, 2021 2:37 pm, edited 1 time in total.
JBTX
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Re: Do you trust the current value of your portfolio?

Post by JBTX »

No I don't "trust" it, but it could easily go up as much as it could go down. Personally at these levels I wouldnt consistently pull for than 3%, maybe even a bit less, but at the same time we would like to have some left over.
simpletone
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Re: Do you trust the current value of your portfolio?

Post by simpletone »

I concur with a variety of other posters in that one's model should account for significant shifts in valuation. Hope for the best, yet plan for the worst. It is interesting to read different perspectives on liquidity during substantial downturns, and the impact of Sequence of Return Risks. Evaluating this and the opportunity cost of potentially sub-optimizing your growth potential in up years is a very personal analysis and decision, that comes down to one's personal comfort level. 3 years is the length of time that I want to protect for significant negative performance and SORR - which can be accomplished with cash, cash alternatives, or very risk averse assets.

FWIW
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corn18
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Re: Do you trust the current value of your portfolio?

Post by corn18 »

I don't see a reason to discount my portfolio. Seems arbitrary.

Having said that, I do stress testing (retired 29 days ago @ age 55, 50/50 portfolio):

1. I can handle a 20% drop in equities followed by 35 years of the worst returns in history
2. I can handle a 50% drop in equities followed by 35 years of 2% real returns

That's without cutting anything from the budget. 25% of my budget is purely discretionary. If I cut that to zero:

1. I can handle a 70% drop in equities followed by 35 years of the worst returns in history
2. I can handle a 100% drop in equities, followed by 35 years of 2% real returns

I also stress test SS reductions and timing, survivor scenarios, 401k conversions, inflation and maybe a few other things.

Withdrawal rates are less useful for my situation because once I hit 70, my COLA military pension + SS more than covers my expenses. So I only need to make withdrawals from my portfolio for 15 years. My initial WR is 4.13%, then goes negative @ 70. I'm good with 4.13% for 15 years.
Consistently sets low goals and fails to achieve them.
Snuffycuts99
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Re: Do you trust the current value of your portfolio?

Post by Snuffycuts99 »

simpletone wrote: Thu Apr 01, 2021 2:45 pm I concur with a variety of other posters in that one's model should account for significant shifts in valuation. Hope for the best, yet plan for the worst. It is interesting to read different perspectives on liquidity during substantial downturns, and the impact of Sequence of Return Risks. Evaluating this and the opportunity cost of potentially sub-optimizing your growth potential in up years is a very personal analysis and decision, that comes down to one's personal comfort level. 3 years is the length of time that I want to protect for significant negative performance and SORR - which can be accomplished with cash, cash alternatives, or very risk averse assets.

FWIW
As of right now, that's my plan as well. I'll feel comfortable with 10x expenses in fixed income, 3 of which are in cash.
afan
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Re: Do you trust the current value of your portfolio?

Post by afan »

I assume stocks are about double a reasonable valuation.

So I model a 50% drop in the stock portion of my portfolio. Still OK.

In the Great Depression, there was a 90%, approximately, drop in stocks. I model that as well. It would be very anxiety provoking but we would not have to change our lifestyle. I have not modeled deflation associated with a 90% drop because I don't have a good figure of how much to assume.

As time goes by, I get older and the number of years of retirement goes down. That means our assets don't have to last as long and we can take more risk. As assets grow, I also view much of the money as for my heirs, not for me. They are much younger and therefore have a very long time horizon.
For these reasons, we are gradually increasing the stock allocation.

If we were just slightly above what we need, I suspect I would reduce the risk of the portfolio as we get closer to retirement. We are fortunate not to be in that situation.

I am with corn18 in modelling a series of progressively worse market returns and loss of SS.

Since I don't plan to retire as soon as I can afford it, I am happy to do pessimistic modeling.

My base models assume 1% real returns on a 70/30 portfolio. I use that with current portfolio and after a 50% drop in the portfolio value.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
corp_sharecropper
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Re: Do you trust the current value of your portfolio?

Post by corp_sharecropper »

If you've slightly overshot your number due to bull market or concerned about an unlucky drawdown in the first year or two, why not do a bond tent or carry a left tail hedge for a year (yes, I'm serious, especially if you have slightly more than your number)? Seems the whole point of having a number is for it to define some point in which it is "mission accomplished". At that point you enter into the next, most dangerous, stage where you need to protect your money in the early stages of retirement.
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Scott S
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Re: Do you trust the current value of your portfolio?

Post by Scott S »

flyingaway wrote: Thu Apr 01, 2021 11:18 amI have a number for my retirement. However, the number was reached far faster than I expected. So I am seriously considering to retire at the end of this year or next year (dependent upon my son's employment status).

When I read around (on similar forums), it seems that everyone's portfolio grows a lot in the past few years. In something like "can I retire now?" questions, people post big numbers. Those posts make me think if my portfolio is inflated due to the run-ups of the past few years and should be discounted in making retirement calculations and decisions? (I have a classic 3-fund portfolio, no bitcoin or QQQ or Tesla, etc.)

I would like to hear thoughts and advices from forum members regarding this matter, i.e., do you trust the current value of your portfolio in making your retirement decision? If not, how much do you discount it?
EarlyRetirementNow had a really good post about retiring as soon as a bull market takes you up to your number: https://earlyretirementnow.com/2017/12/ ... nt-timing/

One key takeaway is that it never gives you the highest SWR, since those are set at the very bottom of a bear market, when few of us would choose to retire. But if you are already planning conservatively (like a 3.5% WR) then it's not really something to worry about. The market spends a lot of time at all-time-highs, after all. :)
Last edited by Scott S on Thu Apr 01, 2021 4:24 pm, edited 1 time in total.
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MAKsdad
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Re: Do you trust the current value of your portfolio?

Post by MAKsdad »

My perspective:

1) I am choosing to use a 3% WR for planning purposes at a 60/40 allocation.
2) I want 3 years of expenses in cash at the time of retirement.
3) My retirement plans do not contemplate or rely on receiving SS.

This is unnecessarily conservative, so I don't feel the need to also haircut my portfolio value. That being said, I 'trust' the number. It is a fact, it's not an estimate.
RetiredAL
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Re: Do you trust the current value of your portfolio?

Post by RetiredAL »

flyingaway wrote: Thu Apr 01, 2021 2:27 pm
RetiredAL wrote: Thu Apr 01, 2021 2:12 pm
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
+1 to Tomato's thoughts.

When I retired, my withdrawal rate was 2%, so I knew an market drop of 50% would not have me eating dog food.

Today 5 years later, and yes it's be a good run, my investment balances are up 40%, even with my withdrawals.
Do you withdraw a high percentage than 2% now?
Still holding around 2%.

It does fluctuate around over the course of a year as balances go up and down and as to when I withdraw. Historically I've withdrawn monthly from my "pension" IRA, but last year I withdrew a lump amount, and a minimal amount the rest of the year from my 401K IRA. That lump's effect on my checking balance is such that to date, I have not withdrawn any from my "pension" IRA for the past 12 months, so YTD this year so far my withdrawal has only been .1%. I still have 4-5 months extra in checking. When Covid clears out, I expect our expenses will return to historical normal and hence back to steady withdrawals. At today's balances, that normal withdrawal $ equates to 1.6%.

So far, inflation has not a factor, so the normal withdrawal $ has not changed.

When I retired, I set the withdrawals such that our SS (DW and I) + withdrawals = working-take-home pay - our Roth contributions. That estimate has worked out quite well overall with a few bumps like the roofing replacement being higher than the set-aside reserve.

Instead of taking the company retirement annuity, I took a lump sum, and I withdraw what the annuity would have paid. Today, even with a 6.25% withdrawal rate from that one account, its balance about 5% higher than I started at 5 years ago. That retirement IRA withdrawal is 80% of our normal withdrawals.
Zillions
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Re: Do you trust the current value of your portfolio?

Post by Zillions »

flyingaway wrote: Thu Apr 01, 2021 11:18 am I would like to hear thoughts and advices from forum members regarding this matter, i.e., do you trust the current value of your portfolio in making your retirement decision? If not, how much do you discount it?
I had TSLA in my portfolio and despite the small size of my nest egg (we're no millionaires), I saw my portfolio take a "paper loss" of 200K from the last week of January to mid-March. I would not trust the current value of our "portfolio" even though it massages my ego and makes it think that we, too, can make it to the two comma club. Maybe in 20 years, but not right now.
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corn18
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Re: Do you trust the current value of your portfolio?

Post by corn18 »

MAKsdad wrote: Thu Apr 01, 2021 3:37 pm My perspective:

1) I am choosing to use a 3% WR for planning purposes at a 60/40 allocation.
2) I want 3 years of expenses in cash at the time of retirement.
3) My retirement plans do not contemplate or rely on receiving SS.

This is unnecessarily conservative, so I don't feel the need to also haircut my portfolio value. That being said, I 'trust' the number. It is a fact, it's not an estimate.
As you get closer to retiring, you will want to consider including SS in some fashion. I would have had to work another 5 years if I did not include SS. That seemed silly to me just because of an arbitrary zeroing of SS in my model.
Consistently sets low goals and fails to achieve them.
cdc
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Re: Do you trust the current value of your portfolio?

Post by cdc »

I’m retiring this year with a 50-50 allocation. My draws on my portfolio should be negligible for the first two years of retirement. If my portfolio does not grow over the next two years, I should be at 32x expenses when I start drawing in 2023. If stocks fall by 30% over the next two years, I’m still at 26x. These scenarios are where I take my comfort.
Chico78
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Re: Do you trust the current value of your portfolio?

Post by Chico78 »

OP- Retired 3yrs ago. No I didn’t discount my portfolio. I did however use every calculator I could find to try to answer the magical question-How much is enough? I was looking for some dollar amount, what I found was a lot of high 90s % chance of success. It became a kind of philosophical question and I finally figured I had what Heller had -enough. So I pulled the plug.
So much for he philosophical and theoretical. In March of last year reality hit:I was down 26% and all I heard was “this time it’s different” and “How low will it go? I reevaluated and still figured I had enough. YMMV.
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