Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
MrCheapo
Posts: 1468
Joined: Tue Dec 22, 2020 2:43 pm

Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by MrCheapo »

I'm curious how many people feel confident retiring for 40+ years on just savings, i.e. no fixed guaranteed income to speak off.

If you look at the historical valuation of the SP500 (i.e. https://www.forecast-chart.com/historical-sp-500.html) you'll see its a tale of two situations. The one most cited is if you had invested $8000 in 1980 in 2020 it would worth nearly $800,000 (inflation adjusted!). But the other one is if you had invested $1000 in 1960 it would be worth $1300 in 1980 (inflation adjusted).

So clearly there are multiple very different futures depending on when you retire.

Personally, I don't feel confident at all on counting on the market appreciating as it has for the last 20+ years. I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk.

How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
sailaway
Posts: 8215
Joined: Fri May 12, 2017 1:11 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by sailaway »

MrCheapo wrote: Thu Jul 22, 2021 6:22 pm I'm curious how many people feel confident retiring for 40+ years on just savings, i.e. no fixed guaranteed income to speak off.

If you look at the historical valuation of the SP500 (i.e. https://www.forecast-chart.com/historical-sp-500.html) you'll see its a tale of two situations. The one most cited is if you had invested $8000 in 1980 in 2020 it would worth nearly $800,000 (inflation adjusted!). But the other one is if you had invested $1000 in 1960 it would be worth $1300 in 1980 (inflation adjusted).

So clearly there are multiple very different futures depending on when you retire.

Personally, I don't feel confident at all on counting on the market appreciating as it has for the last 20+ years. I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk.

How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
First, the 1970's and 1980's were absolutely not the halcyon days of the US economy as a world power. We had a number of contenders in the field and suffered quite a bit with the oil crisis and inflation. Glad we didn't go the way of Japan or the Soviet Union, but Germany was getting their act together nicely during that period.

The studies that lead to the 4% rule took those time periods into account. However, they only looked at 30 year periods.

FIREcalc and other tools take those time periods into account, and let you play with timelines, as well.

We all look at the same data and decide how comfortable we are moving forward on limited information. That is how we make most of our decisions in life, since we can't see the future and we can't process unlimited data.

In your case, you are looking at a 2.6% withdrawal rate and still searching for a few more guardrails on top of that. Most would say that is extremely conservative. If that is what you are comfortable with, that is fine, but it is based on speculation that the future will be worse than the time periods you are referencing.
Random Poster
Posts: 3314
Joined: Wed Feb 03, 2010 9:17 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by Random Poster »

Here’s what I’m doing (aged mid 40s):

Aim for a 50/50 portfolio (although it is now more like 57/43);

Try not to spend very much—no debt, paid off house, no expensive hobbies;

Aim for a 2.5% or lower withdrawal rate—ideally only spend what I get from dividends and interest from the taxable account and not touch any retirement accounts; and

Hope for the best.
chassis
Posts: 2183
Joined: Tue Mar 24, 2020 4:28 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by chassis »

MrCheapo wrote: Thu Jul 22, 2021 6:22 pm I'm curious how many people feel confident retiring for 40+ years on just savings, i.e. no fixed guaranteed income to speak off.

If you look at the historical valuation of the SP500 (i.e. https://www.forecast-chart.com/historical-sp-500.html) you'll see its a tale of two situations. The one most cited is if you had invested $8000 in 1980 in 2020 it would worth nearly $800,000 (inflation adjusted!). But the other one is if you had invested $1000 in 1960 it would be worth $1300 in 1980 (inflation adjusted).

So clearly there are multiple very different futures depending on when you retire.

Personally, I don't feel confident at all on counting on the market appreciating as it has for the last 20+ years. I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk.

How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
It’s said that one can’t be too rich, or too thin. “Having enough” is subjective in the extreme.

The 4% rule of thumb is as good as any.

If you are confident in your portfolio management and satisfy the 4% guideline, you know what to do. If you aren’t confident, keep plugging away.
Topic Author
MrCheapo
Posts: 1468
Joined: Tue Dec 22, 2020 2:43 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by MrCheapo »

Random Poster wrote: Thu Jul 22, 2021 6:38 pm Here’s what I’m doing (aged mid 40s):

Aim for a 50/50 portfolio (although it is now more like 57/43);

Try not to spend very much—no debt, paid off house, no expensive hobbies;

Aim for a 2.5% or lower withdrawal rate—ideally only spend what I get from dividends and interest from the taxable account and not touch any retirement accounts; and

Hope for the best.
Yeah, going for a 50/50 portfolio is not a bad plan. Here is the last 60 years of the T-10 notes https://www.macrotrends.net/2016/10-yea ... ield-chart

You'll see during those very years stocks were performing poorly (1960-1980) the yields on the T-10 notes was huge
Normchad
Posts: 5648
Joined: Thu Mar 03, 2011 6:20 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by Normchad »

I won’t have a pension. I will have SS eventually.

I’ve concluded that I’m completely comfortable with using a fixed 3.6% WR forever.

However it looks like I’ll actually start using something much closer to 3.2%

I’m just not worried about running out of money. I’m not a worrier by nature though.

We all have to make decisions based on incomplete information and uncertainty about the future. I’ve lived 50+ years this way; never knowing the future. And I’ve successfully figured it out as I went along.

I’m more afraid of wasting my remaining good years, than I am of dying broke. Either of those are possible of course. Of the two, I’d rather die broke.
Zeno
Posts: 1042
Joined: Wed Sep 12, 2018 10:44 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by Zeno »

MrCheapo wrote: Thu Jul 22, 2021 6:22 pm How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
Lots to unpack in your Q. My succinct answer though? At age 57 and at 47X, I am continuing to work. Why? I view it as my role — making money is maybe the only thing I know how to do. I feel an obligation to ensure the financial security of loved ones. And I would like to make some charitable contributions on the way out the door.
User avatar
CyclingDuo
Posts: 6009
Joined: Fri Jan 06, 2017 8:07 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by CyclingDuo »

MrCheapo wrote: Thu Jul 22, 2021 6:22 pmHow are others mitigating the risk that their savings may not last as long if we relive 1960-1980?
We'll be too busy going to Beatles, Rolling Stones, Bob Dylan, and Elvis concerts to worry much about anything else.

:sharebeer
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
User avatar
dogagility
Posts: 3237
Joined: Fri Feb 24, 2017 5:41 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by dogagility »

Not retired yet. Should a poor returns arrive early that threaten our portfolio's longevity, we will temporarily reduce spending and/or get jobs.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
rockAction
Posts: 235
Joined: Wed Apr 08, 2020 4:56 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by rockAction »

We have PT jobs which pull in about $20K per year. The extra $20k helps ease my mind, especially in early retirement years when SORR and spending are higher (3 kids still at home). We also review firecalc and the VPW spreadsheet annually, and will make spending adjustments as needed.
40% VT | 20% Global SCV | 20% LTPZ | 10% I-Bonds | 10% Cash
User avatar
galawdawg
Posts: 5231
Joined: Thu Dec 14, 2017 11:59 am
Location: Georgia

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by galawdawg »

There are things in life that one can control and many things in life that are beyond one's control. Don't worry about what one can't control. The best preparation for very poor economic conditions in retirement, such as poor market performance coupled with high inflation, is the same as preparing for retirement in general: have adequate savings, invest those wisely in a appropriate mix of stock and bond index funds, and live within your means.

Even during the period you mentioned, 1960-1980, the S&P 500 returned an average of 7.88% annually or an inflation-adjusted average return of 2.74% annually. Plus, yields on ten year treasury notes during that period ranged from 3.83% to 10.8%.

With $3m saved, if we assume the 1960-1980 inflation-adjusted returns occur again during retirement, you could still withdraw $120k per year for forty years without depleting your portfolio. That doesn't even include social security. And if you can't enjoy a nice retirement on $3m savings, then what about the 98.6% of US households who will retire with less than that amount?? If difficult economic times do befall us for the next three or four decades, you'll still be dining on filet and lobster while most of the US, at least here in the south, will be eating beans and cornbread!
aristotelian
Posts: 12277
Joined: Wed Jan 11, 2017 7:05 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by aristotelian »

It would be pretty tough to accumulate enough wealth to live on investments without having paid into SS or pension at some point. Unless you have some kind of black market job you should have dollars going into one or the other.
Wanderingwheelz
Posts: 3145
Joined: Mon Mar 04, 2019 8:52 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by Wanderingwheelz »

I’ve made it 50 years far outperforming my pears, so I can’t see one plausible scenario how I’d fall short over the next 40-50 years (if I should be so fortunate). My track record is solid. If I see things getting iffy I know enough to adjust.

In other words, if I end up in trouble, Americans in my cohort are in HUGE trouble because I am better prepared than average and I’m also more savvy than average. My wife jokes in a nuclear holocaust it’ll be me and the cockroaches that are left. (I don’t laugh.) According to the figures I’ve seen published online, my wife and I have a net worth that exceeds the typical “well-to-do” 65 year old couple. From what Mr Cheapo published in his post, he does too.

We as a group here exhibit a hard time in keeping things in perspective IMHO. We are going to be just fine. Breathe deep. Enjoy life. It’s summertime.
Being wrong compounds forever.
smitcat
Posts: 13302
Joined: Mon Nov 07, 2016 9:51 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by smitcat »

"I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk."

You are at a about 2.5% withdrawal rate without SS or the coming pension. I do not see how you should be worried unless you spend much more than the $80K.
Topic Author
MrCheapo
Posts: 1468
Joined: Tue Dec 22, 2020 2:43 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by MrCheapo »

smitcat wrote: Fri Jul 23, 2021 10:44 am "I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk."

You are at a about 2.5% withdrawal rate without SS or the coming pension. I do not see how you should be worried unless you spend much more than the $80K.
"I do not see how you should be worried" because as an immigrant I have no family hence safety network here!

My concern is that we get a 60's to 80's scenario where the SP500 grows less than 30% over two decades inflation adjusted. So $3M * 1.3 = $3.9M which is more than 40 * 80K = $3.2M. But it doesn't allow for any road bumps like needing long term health care.
chassis
Posts: 2183
Joined: Tue Mar 24, 2020 4:28 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by chassis »

Well then Mr. Cheapo, you know what to do. If 1960 shows up, be cheap. Scrimp and save and worry.

Or forget about what you can’t control and enjoy your money and time.
smitcat
Posts: 13302
Joined: Mon Nov 07, 2016 9:51 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by smitcat »

MrCheapo wrote: Fri Jul 23, 2021 11:33 am
smitcat wrote: Fri Jul 23, 2021 10:44 am "I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk."

You are at a about 2.5% withdrawal rate without SS or the coming pension. I do not see how you should be worried unless you spend much more than the $80K.
"I do not see how you should be worried" because as an immigrant I have no family hence safety network here!

My concern is that we get a 60's to 80's scenario where the SP500 grows less than 30% over two decades inflation adjusted. So $3M * 1.3 = $3.9M which is more than 40 * 80K = $3.2M. But it doesn't allow for any road bumps like needing long term health care.
We have no family either.
There will always be things to worry about, please do not let the tail wag the dog.
User avatar
LadyGeek
Site Admin
Posts: 95695
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (retirement planning).

To keep the discussion actionable, please focus on your own situation.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
Nestegg_User
Posts: 2112
Joined: Wed Aug 05, 2009 1:26 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by Nestegg_User »

CyclingDuo wrote: Thu Jul 22, 2021 9:57 pm
MrCheapo wrote: Thu Jul 22, 2021 6:22 pmHow are others mitigating the risk that their savings may not last as long if we relive 1960-1980?
We'll be too busy going to Beatles, Rolling Stones, Bob Dylan, and Elvis concerts to worry much about anything else.

:sharebeer
nah, I'll be going to the Who, the Animals, and then Fleetwood Mac (and this time I'll be able to go to the live concert instead of having to w@rk like I had to so missed them)
...but I would like to miss the '87 drop (or at least telegraph it so that I can get out just before, then pile in after)...don't have to worry about the early 70 or early 80 recessions since we're already retired but they weren't fun at all

OP
per all of your earlier threads, I thought that you were fairly sure that you were hanging it up at the end of the year or early next year? are you reconsidering?
User avatar
galawdawg
Posts: 5231
Joined: Thu Dec 14, 2017 11:59 am
Location: Georgia

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by galawdawg »

MrCheapo wrote: Fri Jul 23, 2021 11:33 am
smitcat wrote: Fri Jul 23, 2021 10:44 am "I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk."

You are at a about 2.5% withdrawal rate without SS or the coming pension. I do not see how you should be worried unless you spend much more than the $80K.
"I do not see how you should be worried" because as an immigrant I have no family hence safety network here!

My concern is that we get a 60's to 80's scenario where the SP500 grows less than 30% over two decades inflation adjusted. So $3M * 1.3 = $3.9M which is more than 40 * 80K = $3.2M. But it doesn't allow for any road bumps like needing long term health care.
But you mentioned in an earlier thread that even if you retire early, you will receive a $30k annual pension.
MrCheapo wrote: Wed Dec 30, 2020 5:29 pm I am 49.

I will get a $5K a month pension when I turn 55 and 80% of health care OR
$2.5K a month and 50% of health care if I retire at 50.

viewtopic.php?f=1&t=334546
I'd hardly call that "no significant pension" considering that the pension income alone will cover nearly forty percent (40%) of your retirement spending needs. That reduces the amount you need to withdraw from your $3 million portfolio to $50k annually (and that doesn't include social security). Assuming you put all $3 million in cash under your mattress you could spend that $50k annually for forty (40) years and still have $1 million remaining for "road bumps like needing long term health care." Even with the low returns of 1960-1980, with your portfolio invested in an appropriate asset allocation, you'll still have plenty to meet your spending needs adjusted for inflation and have significant "extra" for long-term care and other needs.

When you consider that pension you will receive, you are in the top 1%. No disrespect intended, but if you have a fear of not having enough, it is simply not rational. Your hard work, investing decisions and yes, the market, has paid off. Unless you plan to drive to Vegas tonight and put it all on "black 17"1, I'd suggest that you can be confident of success in retirement and thankful for the position you are in! Just stay the course, keep doing what you've been doing, and you'll be fine! :beer



1Last Holiday (2006)
DetroitRick
Posts: 1488
Joined: Wed Mar 23, 2016 9:28 am
Location: SE Michigan

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by DetroitRick »

While I can relate to not having a significant pension (mine are fairly trivial and didn't shape my decisions at all), it's hard to relate to having no significant SS income. I retired (roughly) at 50, am now age 65. I suppose I would have done a few things differently had I faced the exact situation you described: worked longer, accumulated more investments and savings, and purchased a fixed annuity by this current age. While I didn't retire early based on any single assumption, having "no" future social security would have changed things a bit. Having all my income originate from investments wouldn't bother me all that much, but would take some adjusting. To take an extreme example, I'd prefer $5 million in investments and no social security, over max social security and small investments any day. I understand the longevity insurance aspect of SS income, but I could adapt anyway. Market risk doesn't bother me, within reason.

Long-term growth forecasts, general market and economic forecasts mean virtually nothing to me. Somebody is always projecting some calamity.
Sometimes I benefit by looking at and understanding those forecast inputs, but regardless of the skill of the economist or financial expert, I don't find them to be valuable in creating accurate and actionable future forecasts. I wouldn't base something as important as retirement on somebody's dubious ability to predict the future. Growth/value, domestic/international, equity/fixed income - just part of portfolio diversification. Still, I do ground my plans to reality by doing some best case/worst case planning. In extreme situations - I'll just adapt, as always. Tuck and roll....
helloeveryone
Posts: 1285
Joined: Sun Sep 04, 2016 5:16 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by helloeveryone »

MrCheapo wrote: Thu Jul 22, 2021 6:22 pm I'm curious how many people feel confident retiring for 40+ years on just savings, i.e. no fixed guaranteed income to speak off.

If you look at the historical valuation of the SP500 (i.e. https://www.forecast-chart.com/historical-sp-500.html) you'll see its a tale of two situations. The one most cited is if you had invested $8000 in 1980 in 2020 it would worth nearly $800,000 (inflation adjusted!). But the other one is if you had invested $1000 in 1960 it would be worth $1300 in 1980 (inflation adjusted).

So clearly there are multiple very different futures depending on when you retire.

Personally, I don't feel confident at all on counting on the market appreciating as it has for the last 20+ years. I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk.

How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
I am not nearly there but would feel comfortable (contemplating early retirement at 55 or between 50 and 55 - not sure if I would have 40+ years of retirement - likely more like 25-30 before my "time is up") if I have saved enough for a safe withdrawal rate of somewhere between 3-4%

Although Social is a pension of sorts, not sure how much of it will be guaranteed but between my own savings and social I would feel very comfortable
59Gibson
Posts: 1386
Joined: Mon Dec 07, 2020 7:41 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by 59Gibson »

smitcat wrote: Fri Jul 23, 2021 12:48 pm
MrCheapo wrote: Fri Jul 23, 2021 11:33 am
smitcat wrote: Fri Jul 23, 2021 10:44 am "I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk."

You are at a about 2.5% withdrawal rate without SS or the coming pension. I do not see how you should be worried unless you spend much more than the $80K.
"I do not see how you should be worried" because as an immigrant I have no family hence safety network here!

My concern is that we get a 60's to 80's scenario where the SP500 grows less than 30% over two decades inflation adjusted. So $3M * 1.3 = $3.9M which is more than 40 * 80K = $3.2M. But it doesn't allow for any road bumps like needing long term health care.
We have no family either.
There will always be things to worry about, please do not let the tail wag the dog.
+1 What ifs never end..what if 1960, 1929 what if 1775?? You've done well for yourself so far w/ 3 million, have confidence you can handle whatever. No one here can tell you what will happen and how that'll effect your retirement, btw no one says you have to spend $80k/yr. If everything goes to hell in a hand basket $40k may be living like royalty!
esteen
Posts: 439
Joined: Thu May 23, 2019 12:31 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by esteen »

If you don't have any annuity via a pension or SS, you can buy an annuity, like a SPIA, to cover part or all of your basic necessities. Then manage withdrawals on a smaller market portfolio for the expense gap.

The problem is any good value annuity product nowadays doesn't have inflation adjustment, so your income will eventually get chipped away by inflation. But a small SPIA for base needs is still how I might tackle it if I didn't have any other annuitized part of my financial picture.
This post is for entertainment or information only, and should not be construed as professional financial advice. | | "Invest your money passively and your time actively" -Michael LeBoeuf
Chuckles960
Posts: 920
Joined: Thu May 13, 2021 12:09 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by Chuckles960 »

Yes, annuities are good for peace of mind, i.e. as insurance against the sort of thing the OP is worried about.

I did not know that inflation-adjusted (or rather adjusted by a fixed percentage per year) annuities are not "good value". I have not shopped around, however. Of course annuities are never good value, but are annuities with an "inflation" adjustment even worse value in terms of (say) PV?

In general, the OP's worries are reasonable. Those who are primarily depending on 401(k)/403(b) are in the same boat, since these are also "savings" like the OP's. SS helps (and is an inflation-adjusted annuity) but for many it is not close to enough.

And all that historical analysis that people here love to do tells us absolutely nothing about the future that one can take to the bank. (OK, we'll be taking from the bank, but same idea.) What if it ends up like Germany after WW1? It's a leap into the unknown.
EddyB
Posts: 2431
Joined: Fri May 24, 2013 3:43 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by EddyB »

WyomingFIRE wrote: Thu Jul 22, 2021 7:53 pm
MrCheapo wrote: Thu Jul 22, 2021 6:22 pm How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
Lots to unpack in your Q. My succinct answer though? At age 57 and at 47X, I am continuing to work. Why? I view it as my role — making money is maybe the only thing I know how to do. I feel an obligation to ensure the financial security of loved ones. And I would like to make some charitable contributions on the way out the door.
1) I bet you have other value to those loved ones, and I hope you’ll consider whether working is still they way to give them the most you can. 2) You’re really saying that you, personally, don’t have to wrestle with the issue in the OP, because you have different motives.
User avatar
JDCarpenter
Posts: 1800
Joined: Tue Sep 09, 2014 2:42 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by JDCarpenter »

We retired planning for Spouse to have 50 year retirement. (More likely to be 40 year, as she was 56, albeit checking all the boxes for living a really long time).

We had bigger portfolio than you are talking, and if social security is available for us, those sums would be high for that system (DW nearly max; me easily past second bend point).

We were fairly conservative in pulling the trigger--ignored social, ignored likely inheritance of a few hundred thousand, ignored the likelihood of reaping another few hundred thousand net of selling our acreage to a developer and buying house in the city. Then, we waited until our portfolio assets were 33x our reasonable low spending estimate. (So not quite as conservative as you!)

But, per plan, we spend 4.5% of portfolio each year. Majority of our after-tax spending is discretionary (travel ~6 months of the year, which is 50% or more of non-tax spending, and at some point that will decrease as we age). Our mitigation of market risks now that we are retired is to have short term bond investments (33% of our portfolio, with remainder in equities). That non-equity position doesn't fluctuate much and, as of now, would cover 18 years of our hypothetical reasonable spending--albeit with maybe just a month of travel each year.
Our personal blog (no ads) of why we saved/invested: https://www.lisajtravels.com/
student
Posts: 10763
Joined: Fri Apr 03, 2015 6:58 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by student »

Wanderingwheelz wrote: Fri Jul 23, 2021 6:53 am In other words, if I end up in trouble, Americans in my cohort are in HUGE trouble because I am better prepared than average and I’m also more savvy than average. My wife jokes in a nuclear holocaust it’ll be me and the cockroaches that are left. (I don’t laugh.)
This is so funny.
pasadena
Posts: 2337
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by pasadena »

Wanderingwheelz wrote: Fri Jul 23, 2021 6:53 am In other words, if I end up in trouble, Americans in my cohort are in HUGE trouble because I am better prepared than average and I’m also more savvy than average. My wife jokes in a nuclear holocaust it’ll be me and the cockroaches that are left. (I don’t laugh.)
She forgets Keith Richards. If there's a nuclear holocaust, it will be you, Keith Richards and the cockroaches that are left.
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by Nathan Drake »

1. Reduce bond exposure (20% or so)
2. Increase diversification (don't be all in on VTSAX; invest internationally, invest in sources of risk premium such as Small Cap Value)
3. Reduce your SWR to ~3%

I think you'll have a fine outcome
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Wanderingwheelz
Posts: 3145
Joined: Mon Mar 04, 2019 8:52 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by Wanderingwheelz »

pasadena wrote: Fri Jul 23, 2021 10:00 pm
Wanderingwheelz wrote: Fri Jul 23, 2021 6:53 am In other words, if I end up in trouble, Americans in my cohort are in HUGE trouble because I am better prepared than average and I’m also more savvy than average. My wife jokes in a nuclear holocaust it’ll be me and the cockroaches that are left. (I don’t laugh.)
She forgets Keith Richards. If there's a nuclear holocaust, it will be you, Keith Richards and the cockroaches that are left.
Lol.

Excellent point.
Being wrong compounds forever.
heyyou
Posts: 4461
Joined: Tue Feb 20, 2007 3:58 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by heyyou »

Consider steadily adapting your annual spending to your remaining portfolio value. That is the equivalent of re-retiring each year, on each recent portfolio value. I gladly accept some income variation during my retirement, for better portfolio longevity.

Next is the question of what % to withdraw each year? At Boston College's Center for Retirement Research, professors Sun and Webb looked into using the RMD percentages as age based withdrawal rates, so the numbers are lower than 4% in early retirement, rising past 4% after age 72.

Yes, there are percentages for all ages, since inherited IRAs have to be spent down so the gov't can get its long deferred taxes. Sun and Webb compared their method to other retirement spending methods, then added the annual spending of the portfolio's interest and dividends, which helped to boost the amount since the % was under 4% for so many years.

In the research paper, there are often comparisons to the ideal standard, which begs the question of why not just use that ideal method? The ideal method turns out to be if the retiree knew each of the next 30 years' stock returns before starting retirement.

Here is the link to the brief which is good since the detailed research is full of statistics' jargon:
https://crr.bc.edu/wp-content/uploads/2 ... 9-508.pdf
Some of the WD percentages are buried on page 7 in the Appendix, but you can find more at the IRS website where the RMD number is expressed as a divisor--4% is listed as 25, 5% is 20, etc.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by marcopolo »

MrCheapo wrote: Thu Jul 22, 2021 6:22 pm I'm curious how many people feel confident retiring for 40+ years on just savings, i.e. no fixed guaranteed income to speak off.

If you look at the historical valuation of the SP500 (i.e. https://www.forecast-chart.com/historical-sp-500.html) you'll see its a tale of two situations. The one most cited is if you had invested $8000 in 1980 in 2020 it would worth nearly $800,000 (inflation adjusted!). But the other one is if you had invested $1000 in 1960 it would be worth $1300 in 1980 (inflation adjusted).

So clearly there are multiple very different futures depending on when you retire.

Personally, I don't feel confident at all on counting on the market appreciating as it has for the last 20+ years. I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk.

How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
$80k spending with $3M portfolio is 2.67% WR.
4% WR worked during the 60s, as well as the great depression.

Let say things are much worse, and we get a 50% crash in equities before another great depression starts!

With a reasonable asset allocation of say 50/50, your portfolio would reduce down to $2.25m, making your WR 3.55%. You would still make it through the great depression (or the 60s) to come.

You have enough money to with stand a 50% crash which is then followed by the great depression! But, who knows the future could be even worse than that I suppose.

But, I suspect you know all this already. Based on the numerous threads you have started, I suspect there is no amount of money that will ease your mind. You will either have to get used to living with uncertainty, or keep working for a while, or forever.
Once in a while you get shown the light, in the strangest of places if you look at it right.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by michaeljc70 »

MrCheapo wrote: Thu Jul 22, 2021 6:22 pm I'm curious how many people feel confident retiring for 40+ years on just savings, i.e. no fixed guaranteed income to speak off.

If you look at the historical valuation of the SP500 (i.e. https://www.forecast-chart.com/historical-sp-500.html) you'll see its a tale of two situations. The one most cited is if you had invested $8000 in 1980 in 2020 it would worth nearly $800,000 (inflation adjusted!). But the other one is if you had invested $1000 in 1960 it would be worth $1300 in 1980 (inflation adjusted).

So clearly there are multiple very different futures depending on when you retire.

Personally, I don't feel confident at all on counting on the market appreciating as it has for the last 20+ years. I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk.

How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
Don't put all your money in the S&P 500 if you are retired and have no other income streams. Problem solved. That is what I am doing (though I will collect SS after being retired 23 years). Cherry picking years the stock market performed poorly and working forever is not my plan. The average bear market is 10 months and I have 8 years of expenses in fixed income.
zuma
Posts: 641
Joined: Thu Dec 29, 2016 11:15 am

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by zuma »

michaeljc70 wrote: Sat Jul 24, 2021 8:01 am
MrCheapo wrote: Thu Jul 22, 2021 6:22 pm I'm curious how many people feel confident retiring for 40+ years on just savings, i.e. no fixed guaranteed income to speak off.

If you look at the historical valuation of the SP500 (i.e. https://www.forecast-chart.com/historical-sp-500.html) you'll see its a tale of two situations. The one most cited is if you had invested $8000 in 1980 in 2020 it would worth nearly $800,000 (inflation adjusted!). But the other one is if you had invested $1000 in 1960 it would be worth $1300 in 1980 (inflation adjusted).

So clearly there are multiple very different futures depending on when you retire.

Personally, I don't feel confident at all on counting on the market appreciating as it has for the last 20+ years. I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk.

How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
Don't put all your money in the S&P 500 if you are retired and have no other income streams. Problem solved. That is what I am doing (though I will collect SS after being retired 23 years). Cherry picking years the stock market performed poorly and working forever is not my plan. The average bear market is 10 months and I have 8 years of expenses in fixed income.
10 months? Got a source for that?

According to Goldman Sachs:

S&P 500 - Bear Market
Average length: 28 months
Median length: 18 months
[pdf]
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by michaeljc70 »

zuma wrote: Sat Jul 24, 2021 8:57 am
michaeljc70 wrote: Sat Jul 24, 2021 8:01 am
MrCheapo wrote: Thu Jul 22, 2021 6:22 pm I'm curious how many people feel confident retiring for 40+ years on just savings, i.e. no fixed guaranteed income to speak off.

If you look at the historical valuation of the SP500 (i.e. https://www.forecast-chart.com/historical-sp-500.html) you'll see its a tale of two situations. The one most cited is if you had invested $8000 in 1980 in 2020 it would worth nearly $800,000 (inflation adjusted!). But the other one is if you had invested $1000 in 1960 it would be worth $1300 in 1980 (inflation adjusted).

So clearly there are multiple very different futures depending on when you retire.

Personally, I don't feel confident at all on counting on the market appreciating as it has for the last 20+ years. I have nearly $3M in investments and need just $80K a year to live on so it should last 40+ years. But I'm holding on for a pension and higher SS just in case to mitigate the risk.

How are others mitigating the risk that their savings may not last as long if we relive 1960-1980? Maybe some economists could chime in how the 1960's to 1980's style growth will never happen again but I thought those were the halcyon days of the US economy as an world power.
Don't put all your money in the S&P 500 if you are retired and have no other income streams. Problem solved. That is what I am doing (though I will collect SS after being retired 23 years). Cherry picking years the stock market performed poorly and working forever is not my plan. The average bear market is 10 months and I have 8 years of expenses in fixed income.
10 months? Got a source for that?

According to Goldman Sachs:

S&P 500 - Bear Market
Average length: 28 months
Median length: 18 months
[pdf]
https://www.hartfordfunds.com/dam/en/do ... CWP045.pdf

That links lists all of them since 1929 in a chart.

https://www.forbes.com/advisor/investin ... 1%20months.

That also lists it as 10 months.

Other sites list the average as somewhat longer. I suspect it has to do with what history (some are only 1929+, some post WWII, some longer) they are looking at and what index. I see 14 months used a lot as the average. The overall point is that they are relatively short and shorter than the average bull market.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: Retiring Early Just on Savings (i.e. No Significant Pension or SS) mitigating market risks

Post by michaeljc70 »

OP, if you use a tool like Firecalc it will run your numbers through every historical situation and tell you how you did. If you are not familiar with it, Firecalc (there are also other similar tools) will pretend you retired in each historical year and see if your money lasted or not. So, for example, if you are going to be retired 50 years it will run 1929-1978, 1930-1979, 1931-1980, etc. and say you succeeded x% of the runs. A lot of people think if they succeed 95% of the time they are good, especially if you have a little flexibility in spending. There are whole threads on that though. I believe the actual data starts in 1871.
Post Reply