Downside protection from a protracted bear market in retirement - your plan

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namajones
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Downside protection from a protracted bear market in retirement - your plan

Post by namajones »

What's your plan (if any) for downside protection from or during a protracted bear market? I don't mean these snap-back bears that we saw in 2008 and more recently in 2020 but rather bear markets that take your stock portfolio down and keep it down for the remainder of your days on this earth--the timeframe that matters the most on a personal basis. A stash of safe assets that will last X years (assuming you have about X left after retirement)? Something else?

Interested to hear people's approaches to this issue. Thanks.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by hvaclorax »

For me, there can only be one answer. Live below your means. And you should start LBYM early on, or right now if you haven’t already. What you are looking at is sequence of returns risk. It’s the luck or lack there of that we can’t fully control. Choose your parents and carefully time when you are born. Seriously, if you can live comfortably or satisfactorily on SS and pension or annuity income then you are doing the best you can. Maybe you could purchase an annuity now with the current run up in stocks. People who draw only 2 or 3% of their portfolio are probably going to do just fine in such a scenario. Also I take comfort in looking at what historical returns have done.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by anon_investor »

namajones wrote: Sun Apr 25, 2021 5:57 am What's your plan (if any) for downside protection from or during a protracted bear market? I don't mean these snap-back bears that we saw in 2008 and more recently in 2020 but rather bear markets that take your stock portfolio down and keep it down for the remainder of your days on this earth--the timeframe that matters the most on a personal basis. A stash of safe assets that will last X years (assuming you have about X left after retirement)? Something else?

Interested to hear people's approaches to this issue. Thanks.
That is why you have some fixed income in your portfolio...
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JoeRetire
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by JoeRetire »

namajones wrote: Sun Apr 25, 2021 5:57 am What's your plan (if any) for downside protection from or during a protracted bear market?
We have enough money overall so that we are protected. We are maximizing our social security benefits and have plenty in fixed income assets so that our floor is good. And we could easily get by on less income should the need arise.

You sacrifice a bit from the upside in order to protect the downside.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by mrc »

Having >35 years of expenses in fixed income funds. As one moves into retirement, asset allocation as a percent of stocks vs bonds matters less to me than an absolute value of bond money, and how long just the bond money will cover expenses. If stocks going down X% and staying there long term wrecks your financial plan, perhaps you must consider some combination of putting more AA in fixed income, saving more/working longer (higher SS?), and being prepared to spend less.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by UpperNwGuy »

Own bonds, and lots of them.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by tibbitts »

hvaclorax wrote: Sun Apr 25, 2021 6:23 am Maybe you could purchase an annuity now with the current run up in stocks.
On the one hand stocks seem to be fully valued at least; on the other hand locking in an annuity in the current interest rate environment doesn't seem like the best idea, especially with almost all annuities not being inflation-adjusted.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by JDave »

The ultimate downside protection would be maintaining the ability to return to work.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Dude2 »

Consider a 50/50 portfolio. During accumulation, buy whatever asset class is doing poorly relative to the other one, i.e. rebalance via new purchases. During retirement, spend from the asset class doing well. In this way, you are always buying low and selling high. Of course, when major drops happens, you've got to have some kind of rebalance plan that you are going to stick to, i.e. rebalancing bands.

To further insulate against sequence of return risk, I'd keep some cash, for example, my credit union favors 7-year CDs (over 5 years like most others). I will have a 7-year CD ladder with an "annual expense amount of money" maturing each year. Therefore, even if stocks and bonds are having a bad time, I can rely on my cash exclusively for 7 years.

This is a simple plan, no annuities, no TIPS LMP. If I had more money, I'd go that route and guarantee myself income. As it is, I need to take risk.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by midareff »

The first protection is have an income floor that allows all your expenses to be paid from a standard months income. When you can pay all your bills from your pension and SS that would be one example. Next, keep your bond duration short. With all this crazy cash around inflation will continue to come, already started, and Fed tightening will surely follow. Lower duration, less downside inflation risk. Next be sure to cover your withdrawal needs with short duration FI. If you have an RMD stash expected life expectancy in ST Bonds for that period. Next get a really good 18 or 21 year old, bottle of Scotch that is, and settle in for the fun. Inside every disaster are boundless opportunities for the prepared.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Rex66 »

tibbitts wrote: Sun Apr 25, 2021 7:21 am
hvaclorax wrote: Sun Apr 25, 2021 6:23 am Maybe you could purchase an annuity now with the current run up in stocks.
On the one hand stocks seem to be fully valued at least; on the other hand locking in an annuity in the current interest rate environment doesn't seem like the best idea, especially with almost all annuities not being inflation-adjusted.
Yep just trading one problem for a bigger problem

That’s not even including risk of insurance company failure
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by rab »

JoeRetire wrote: Sun Apr 25, 2021 6:33 am
namajones wrote: Sun Apr 25, 2021 5:57 am What's your plan (if any) for downside protection from or during a protracted bear market?
We have enough money overall so that we are protected. We are maximizing our social security benefits and have plenty in fixed income assets so that our floor is good. And we could easily get by on less income should the need arise.

You sacrifice a bit from the upside in order to protect the downside.
+1

We have enough in bonds to provide an acceptable income floor (together with rental income) until social security kicks in at age 70. For us, this results in a roughly 55/45 stocks/bonds portfolio. After age 70, all of our expenses should easily be covered by SS, rental income and a couple of small pensions.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by KlangFool »

JDave wrote: Sun Apr 25, 2021 7:24 am The ultimate downside protection would be maintaining the ability to return to work.
How do you go back to work if the employers are out of business?

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Re: Downside protection from a protracted bear market in retirement - your plan

Post by KlangFool »

OP,

Have enough CASH and BOND to bridge me until my social security full retirement age.

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Re: Downside protection from a protracted bear market in retirement - your plan

Post by palaheel »

The flip side of this question is high inflation. If we wind up with long term high inflation, FI assets are going to suffer. It seems to me one should have enough FI to ride out significant periods of lousy markets, and enough stocks to provide growth for significant periods of high inflation.
Nothing to say, really.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Starfox »

Christine Benz recommends 8-10 years of fixed income.

How Much Equity Exposure Is Too Much in Retirement?
Retirees require stocks' growth potential, but they need a cash and bond buffer, too.


https://www.morningstar.com/articles/10 ... retirement
Dziubinski: How can retirees go about figuring out how much stock exposure is the right amount so that they're not derailing their longer-term plans?

Benz: I really like the idea of using their spending horizon, their near-term spending needs to drive how much they hold in safer investments and then, in turn, back into how much to hold in stocks. So, if a retiree is actively drawing upon his or her portfolio, I like the idea of having eight to 10 years' worth of anticipated portfolio withdrawals in cash, in bonds. So, in my model portfolios I typically have two years set aside in cash investments, very low return potential there, but you are able to definitely preserve your purchasing power. Then, with money that retirees might expect to spend in the next, say, five to eight years after that, there they can reasonably hold a high-quality fixed-income portfolio. And then the amount that's leftover is an amount that they can safely have in stocks. And the reason I arrive at that 10 years' worth of spending in safer investments is that we have had these periods where stocks have had kind of a lost decade where they've gone down and stayed down for an extended period of time. The idea of having those more liquid assets set aside is that you could cover yourself. You could cover your spending needs through that period of market weakness.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by JoeRetire »

KlangFool wrote: Sun Apr 25, 2021 7:49 am
JDave wrote: Sun Apr 25, 2021 7:24 am The ultimate downside protection would be maintaining the ability to return to work.
How do you go back to work if the employers are out of business?

KlangFool
Find a different employer. It is never the case that all employers are out of business.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by JoeRetire »

palaheel wrote: Sun Apr 25, 2021 8:08 am The flip side of this question is high inflation. If we wind up with long term high inflation, FI assets are going to suffer. It seems to me one should have enough FI to ride out significant periods of lousy markets, and enough stocks to provide growth for significant periods of high inflation.
Yup. You need at least some inflation-protected assets.

Maximizing your social security benefits helps in that regard.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by livesoft »

My plan is to not worry about it. I have read and understood the sustained withdrawal rate studies and know that my 60/40 portfolio will do just fine even if there is another Great Depression, Great Recession, or whatever that period in the 1960s was called. Basically, isn't the point of the SWR studies to demonstrate portfolio survivorship?

In particular, there is no need to have a stash of safe assets. One should be rebalancing from bonds to equities all the way to the bottom.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by TheNightsToCome »

Starfox wrote: Sun Apr 25, 2021 8:16 am Christine Benz recommends 8-10 years of fixed income.

How Much Equity Exposure Is Too Much in Retirement?
Retirees require stocks' growth potential, but they need a cash and bond buffer, too.


https://www.morningstar.com/articles/10 ... retirement
Dziubinski: How can retirees go about figuring out how much stock exposure is the right amount so that they're not derailing their longer-term plans?

Benz: I really like the idea of using their spending horizon, their near-term spending needs to drive how much they hold in safer investments and then, in turn, back into how much to hold in stocks. So, if a retiree is actively drawing upon his or her portfolio, I like the idea of having eight to 10 years' worth of anticipated portfolio withdrawals in cash, in bonds. So, in my model portfolios I typically have two years set aside in cash investments, very low return potential there, but you are able to definitely preserve your purchasing power. Then, with money that retirees might expect to spend in the next, say, five to eight years after that, there they can reasonably hold a high-quality fixed-income portfolio. And then the amount that's leftover is an amount that they can safely have in stocks. And the reason I arrive at that 10 years' worth of spending in safer investments is that we have had these periods where stocks have had kind of a lost decade where they've gone down and stayed down for an extended period of time. The idea of having those more liquid assets set aside is that you could cover yourself. You could cover your spending needs through that period of market weakness.
My approach is similar: More than 10 years of expenses in cash and US gov't bonds. I also hold some gold. (Historically, this has increased safe withdrawal rates: https://earlyretirementnow.com/2020/01/ ... s-part-34/)

Savings beyond that horizon can go into riskier assets, foreign equity markets in my case.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by stocknoob4111 »

UpperNwGuy wrote: Sun Apr 25, 2021 7:07 am Own bonds, and lots of them.
Bonds can completely wipe you out if rates head north and since we are at the absolute bottom now there is a HUGE amount of upside risk for interest rates... If rates go up it will be a double whammy as your stocks will get decimated as well as your bonds which means your entire portfolio goes to hell in a handbasket.

Normally I would be OK with Bonds since after the duration you would start getting a greater return due to the rise in rates but current rates are so low compared to historical level that if we have reversion to mean it could mean decades of pain.
Last edited by stocknoob4111 on Sun Apr 25, 2021 8:34 am, edited 2 times in total.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by namajones »

midareff wrote: Sun Apr 25, 2021 7:25 am Next get a really good 18 or 21 year old, bottle of Scotch that is, and settle in for the fun.
:sharebeer

Nice plan.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by namajones »

KlangFool wrote: Sun Apr 25, 2021 7:49 am
JDave wrote: Sun Apr 25, 2021 7:24 am The ultimate downside protection would be maintaining the ability to return to work.
How do you go back to work if the employers are out of business?

KlangFool
Well, also, of course, how do you go back to work when you're 70+ and all the younger people are also out of work?
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by TheNightsToCome »

livesoft wrote: Sun Apr 25, 2021 8:22 am My plan is to not worry about it. I have read and understood the sustained withdrawal rate studies and know that my 60/40 portfolio will do just fine even if there is another Great Depression, Great Recession, or whatever that period in the 1960s was called. Basically, isn't the point of the SWR studies to demonstrate portfolio survivorship?

In particular, there is no need to have a stash of safe assets. One should be rebalancing from bonds to equities all the way to the bottom.
Past results are no guarantee of future results, but when stock and bond valuations are near historical averages, then one might expect the past to predict the future reasonably well. However, future returns are inversely proportional to starting valuations, and the current combination of high stock and bond valuations is unprecedented (or nearly so). There are few, if any, data points in the historical record germane to our current circumstance.

If we had 120 years of data points similar to today, then the SWR studies would likely show lower safe withdrawal rates.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by RickBoglehead »

Since no one can predict what the equities or bond markets are going to do over the next 35 years, my approach has been to simply analyze our ability to retire over multiple measures.

The first step was to try and forecast retirement expenses, which are an unknown. Is stripped our current expenses of income taxes, mortgage payments, property taxes, etc. to get to "what does it cost us to live day-to-day? I then added back in, with liberal upside rounding, my forecast for costs such as housing , utilities, property taxes, etc. Example - if I saw that houses in our possible retirement area had $3 - $5,000 a year in property taxes, I use $6,000. If electric, gas, and water costs are $650 a month, I used $1,000.

I built a spreadsheet that took this total and rounded up also. I then added in rounded up numbers for income tax, and the projected cost of medical insurance, with an annual increase (I know the 2021 cost). When I was done I added $25,000 a year. I laid in "buy house for $xxx,xxx" (paying cash), and then ~15 years later "sell house for $xxx,xxx (10% profit)". Lastly, I added in Social Security at age 70, with my wife taking it at age 65.

I projected growth of our taxable funds at 2%, and our retirement funds at 6%. Those numbers are historically a no brainer.

Now that I could see the flow of everything, and I know our annual needs, I evaluated those needs based on a few cuts:

1) Using a 3% SWR, is it doable? Answer - yes
2) Firecalc shows a 100% success rate. I then lowered the equity portion of our assets by 40%, and re-ran Firecalc. 95% success rate. And this doesn't include Social Security funding which will cover 48% of our annual spending.
3) I took our 35% bond holdings, and divided them by the spending level until Social Security hits, and verified they would last at least 4.5 years past Social Security. Once Social Security kicks in, they'll last 9 more years, taking us to just under 80 years old, and that ignores the 65% of our portfolio that's equity.

Then I stopped trying to figure out IF we can make it in a downturn, because who can forecast anything? And I stopped reading about this "variable SWR theory of the day" or "John Smith says that retirees should blah, blah, blah.". IMO, too many spend too much time worrying about things. I can't comprehend a situation where we aren't fine. I also ignore the Investing - Theory, News & General overall. :D So enough, time to enjoy retirement.
Last edited by RickBoglehead on Sun Apr 25, 2021 8:38 am, edited 1 time in total.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by RickBoglehead »

livesoft wrote: Sun Apr 25, 2021 8:22 am My plan is to not worry about it. I have read and understood the sustained withdrawal rate studies and know that my 60/40 portfolio will do just fine even if there is another Great Depression, Great Recession, or whatever that period in the 1960s was called. Basically, isn't the point of the SWR studies to demonstrate portfolio survivorship?

In particular, there is no need to have a stash of safe assets. One should be rebalancing from bonds to equities all the way to the bottom.
This ^^^
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by MrCheapo »

namajones wrote: Sun Apr 25, 2021 5:57 am What's your plan (if any) for downside protection from or during a protracted bear market? I don't mean these snap-back bears that we saw in 2008 and more recently in 2020 but rather bear markets that take your stock portfolio down and keep it down for the remainder of your days on this earth--the timeframe that matters the most on a personal basis. A stash of safe assets that will last X years (assuming you have about X left after retirement)? Something else?

Interested to hear people's approaches to this issue. Thanks.
What a great question. I guess a related question is what are the chances of such a bear market occurring? After all, if there is less than say 5% why bother to change your AA.

Historically the SP500 was effectively FLAT for all of the 1930's and the 1940's
Then from the 1950's to the end of the 70's it eventually TRIPLED
Then during the 80's it effectively HALVED from the end of the 70's value
And for the last 40 years it's been one big bull run going up more then TENFOLD.

The USA is the last super-power and money pours into the our stock markets because of that. So maybe its sustainable?
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Starfox »

stocknoob4111 wrote: Sun Apr 25, 2021 8:30 am
UpperNwGuy wrote: Sun Apr 25, 2021 7:07 am Own bonds, and lots of them.
Bonds can completely wipe you out if rates head north and since we are at the absolute bottom now there is a HUGE amount of upside risk for interest rates... If rates go up it will be a double whammy as your stocks will get decimated as well as your bonds which means your entire portfolio goes to hell in a handbasket.
I think t-bills thru 2 year treasuries would have no wipe out. All these ultra short to short-term treasury ETF's (SGOV, SHV, BIL, GBIL, VGSH) all have low expense ratios and are excellent if you have more money than typical FDIC levels. I don't want a brokered CD, or relationships at 4 banks. Having several years, even several million dollars in any of these ultra-short to short-term treasury funds, even 8 years of spending in them, and the rest in VOO/VTI/VXUS/VT, etc. is a good plan I think.

https://www.etfstrategy.com/blackrock-e ... etf-95487/
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by MrCheapo »

stocknoob4111 wrote: Sun Apr 25, 2021 8:30 am
UpperNwGuy wrote: Sun Apr 25, 2021 7:07 am Own bonds, and lots of them.
Bonds can completely wipe you out if rates head north and since we are at the absolute bottom now there is a HUGE amount of upside risk for interest rates... If rates go up it will be a double whammy as your stocks will get decimated as well as your bonds which means your entire portfolio goes to hell in a handbasket.

Normally I would be OK with Bonds since after the duration you would start getting a greater return due to the rise in rates but current rates are so low compared to historical level that if we have reversion to mean it could mean decades of pain.
To be clear you mean bond FUNDS. Actually holding a bond until maturity would be a good strategy as the rate is guaranteed.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Dude2 »

stocknoob4111 wrote: Sun Apr 25, 2021 8:30 am
UpperNwGuy wrote: Sun Apr 25, 2021 7:07 am Own bonds, and lots of them.
Bonds can completely wipe you out if rates head north and since we are at the absolute bottom now there is a HUGE amount of upside risk for interest rates... If rates go up it will be a double whammy as your stocks will get decimated as well as your bonds which means your entire portfolio goes to hell in a handbasket.

Normally I would be OK with Bonds since after the duration you would start getting a positive return but the rates are so low compared to historical level that if we have reversion to mean it could mean decades of pain.
What is this nonsense? Bonds are the most predictable of the asset classes. They obey a formula. Interest rate risk can be mitigated by holding until the specified duration. Inflation risk can be mitigated by holding TIPS. Credit risk can be mitigated by holding high quality. If you don't understand the concept of bonds, what foundation do you base your understanding of anything financially related? In your mind, what is the value of a dollar? Is it related to stock price? Bitcoin? Gold? Wheat futures? Bonds are fundamentally less risky than stocks by ALOT. It may be true that bonds are having a bad time right now relative to stocks. This will change.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by KlangFool »

JoeRetire wrote: Sun Apr 25, 2021 8:17 am
KlangFool wrote: Sun Apr 25, 2021 7:49 am
JDave wrote: Sun Apr 25, 2021 7:24 am The ultimate downside protection would be maintaining the ability to return to work.
How do you go back to work if the employers are out of business?

KlangFool
Find a different employer. It is never the case that all employers are out of business.
1) Have you experienced Asian Currency Crisis in Asia? I did. I moved to another country half way around the world in order to find new employment.

2) Have you experienced the collapse of the whole industry like Telecom Bust as an Telecom Engineer? I did. Or Oil & Gas person in an Oil Bust?

3) It does not take all employers to be out of business for us to be unemployable. It just take a fair amount of them.

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Re: Downside protection from a protracted bear market in retirement - your plan

Post by surfstar »

Be wary of owning too many bonds/FI: viewtopic.php?f=2&t=347135
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Dude2 »

surfstar wrote: Sun Apr 25, 2021 8:50 am Be wary of owning too many bonds/FI: viewtopic.php?f=2&t=347135
Ha ha ha ha ha. I was a bond investor, but after reading that thread I've learned my lesson now.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by New Providence »

JoeRetire wrote: Sun Apr 25, 2021 8:17 am
KlangFool wrote: Sun Apr 25, 2021 7:49 am
JDave wrote: Sun Apr 25, 2021 7:24 am The ultimate downside protection would be maintaining the ability to return to work.
How do you go back to work if the employers are out of business?

KlangFool
Find a different employer. It is never the case that all employers are out of business.
I think OP's question is precisely how to protect a retirement portfolio during retirement to avoid having to return to work. "Find a job" is not an answer to the question.

It is also unrealistic for a 80 or 90 yrs old.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by UpperNwGuy »

surfstar wrote: Sun Apr 25, 2021 8:50 am Be wary of owning too many bonds/FI: viewtopic.php?f=2&t=347135
Also be wary of having too few bonds.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Soon2BXProgrammer »

namajones wrote: Sun Apr 25, 2021 5:57 am What's your plan (if any) for downside protection from or during a protracted bear market? I don't mean these snap-back bears that we saw in 2008 and more recently in 2020 but rather bear markets that take your stock portfolio down and keep it down for the remainder of your days on this earth--the timeframe that matters the most on a personal basis. A stash of safe assets that will last X years (assuming you have about X left after retirement)? Something else?

Interested to hear people's approaches to this issue. Thanks.
A low enough withdrawal rate that it doesn't matter.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
Ron
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Ron »

namajones wrote: Sun Apr 25, 2021 8:34 amWell, also, of course, how do you go back to work when you're 70+ and all the younger people are also out of work?
The advantage of a 70-year old is that they don't have to financially plan for as many years 😋 ... (BTW, I'm 73)...

- Ron
Ed 2
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Ed 2 »

Saving a lot,Staying the course , never reacting on headlines, never listen “ market all time high “ hysteria, having portfolio large enough and always expecting that any point I can “ lose “ on paper 50% of my portfolio oh ya, and last having enough cash for up to a year to pay bills and to buy more equity. Disclosure: I am already 51. A friend of mine is 75 , he does the same what I do , He has multimillion portfolio and he never “ mitigate “. The guy thinks about multigenerational legacy
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MathWizard
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by MathWizard »

Delay SS benefits to age 70 for myself.
Plan assuming
50% drop in the market the day after I retire
SS benefits only 75% of estimated
Assume 4% real return after that.

Plan for $10 to $20 K in discretionary spending each year,
and cut back during a crash.

For the crash year, do not do a COL adjustment for portfolio withdrawals, just depend on SS for a COLA.

Have sufficient bonds to withstand multiple years with no market gains.
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Artful Dodger
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Artful Dodger »

Age 66, spouse 68.

What we did.

As we approached age 65, transitioned from 60/40 AA to 50/50.
I continue to work (though about 3/4 time).
Plan to delay both of our social security benefits to age 70.
Mortgage (by far our biggest expense) will be paid off this October.
SS and a small pension will cover all necessary expenses.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by MrCheapo »

Dude2 wrote: Sun Apr 25, 2021 8:43 am
stocknoob4111 wrote: Sun Apr 25, 2021 8:30 am
UpperNwGuy wrote: Sun Apr 25, 2021 7:07 am Own bonds, and lots of them.
Bonds can completely wipe you out if rates head north and since we are at the absolute bottom now there is a HUGE amount of upside risk for interest rates... If rates go up it will be a double whammy as your stocks will get decimated as well as your bonds which means your entire portfolio goes to hell in a handbasket.

Normally I would be OK with Bonds since after the duration you would start getting a positive return but the rates are so low compared to historical level that if we have reversion to mean it could mean decades of pain.
What is this nonsense? Bonds are the most predictable of the asset classes. They obey a formula. Interest rate risk can be mitigated by holding until the specified duration. Inflation risk can be mitigated by holding TIPS. Credit risk can be mitigated by holding high quality. If you don't understand the concept of bonds, what foundation do you base your understanding of anything financially related? In your mind, what is the value of a dollar? Is it related to stock price? Bitcoin? Gold? Wheat futures? Bonds are fundamentally less risky than stocks by ALOT. It may be true that bonds are having a bad time right now relative to stocks. This will change.
I think they means bond FUNDs. If the fund is based on bonds yielding 2% and interest rates rise and new bond issued earn 4% then the fund's price will go down.This is particularly true for long term bond funds. Vanguards Long Term bond fund is down over 15% for the past year.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by Marseille07 »

livesoft wrote: Sun Apr 25, 2021 8:22 am My plan is to not worry about it. I have read and understood the sustained withdrawal rate studies and know that my 60/40 portfolio will do just fine even if there is another Great Depression, Great Recession, or whatever that period in the 1960s was called. Basically, isn't the point of the SWR studies to demonstrate portfolio survivorship?

In particular, there is no need to have a stash of safe assets. One should be rebalancing from bonds to equities all the way to the bottom.
Are you sure about this? Last I checked, 60/40 didn't do that well for 1960s retirees walking into Stagflation of the 70s. It was far from "just fine" in my opinion.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by surfstar »

UpperNwGuy wrote: Sun Apr 25, 2021 8:58 am
surfstar wrote: Sun Apr 25, 2021 8:50 am Be wary of owning too many bonds/FI: viewtopic.php?f=2&t=347135
Also be wary of having too few bonds.
Agreed. Goldilocks portfolio - the just right mix of stocks:bonds.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by afan »

Holding individual bonds to maturity protects the nominal value of the payments. It does not protect from inflation at all. The nominal returns are worth less each year as inflation eats away at the real value of each payment. This is the same problem as with annuities. Fixed nominal payments decline in value with inflation.

To the extent that one has fixed nominal expenses, individual bonds and annuities can be part of a solution. Unfortunately, for most retirees almost all of their expenses go up with inflation.

Short to intermediate term bond funds will have their interest rates increase as inflation kicks in. The shorter the duration the lesser the drop in value.

Unpopular, but another way to limit risk is to work longer. This is more realistic than finding a decent job years after retiring. It both increases savings and reduces the number of years those savings need to last.
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
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by hudson »

livesoft wrote: Sun Apr 25, 2021 8:22 am My plan is to not worry about it. I have read and understood the sustained withdrawal rate studies and know that my 60/40 portfolio will do just fine even if there is another Great Depression, Great Recession, or whatever that period in the 1960s was called. Basically, isn't the point of the SWR studies to demonstrate portfolio survivorship?

In particular, there is no need to have a stash of safe assets. One should be rebalancing from bonds to equities all the way to the bottom.
Yes! Mostly the correct and optimal answer.
I'm a fraidycat so that won't work for me.
I also don't worry about it. If it happened, I would likely do like my grandparents did in the 30s and go frugal.
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JoeRetire
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by JoeRetire »

KlangFool wrote: Sun Apr 25, 2021 8:45 am
JoeRetire wrote: Sun Apr 25, 2021 8:17 am
KlangFool wrote: Sun Apr 25, 2021 7:49 am
JDave wrote: Sun Apr 25, 2021 7:24 am The ultimate downside protection would be maintaining the ability to return to work.
How do you go back to work if the employers are out of business?

KlangFool
Find a different employer. It is never the case that all employers are out of business.
1) Have you experienced Asian Currency Crisis in Asia? I did. I moved to another country half way around the world in order to find new employment.
No. I haven't lived in Asia. As far as I can tell, even during the Asian Currency Crisis it was not true that all employers were out of business.

So you are saying you did find employment. Presumably your new employer was not out of business. Okay.
2) Have you experienced the collapse of the whole industry like Telecom Bust as an Telecom Engineer? I did. Or Oil & Gas person in an Oil Bust?
I have seen many industries collapse.
There are always other industries, and always other employers.
3) It does not take all employers to be out of business for us to be unemployable. It just take a fair amount of them.
While that's a change from your original question, I still disagree.
Lots of employers can go out of business. But there are always other employers. Always.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by UpperNwGuy »

JoeRetire wrote: Sun Apr 25, 2021 10:10 am Lots of employers can go out of business. But there are always other employers. Always.
That's simply not true. If it were true, we would never have high unemployment statistics, yet we do. Are you saying that anyone who wants to work can always find a job, and if they don't it's because they don't want to work?
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JoeRetire
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by JoeRetire »

UpperNwGuy wrote: Sun Apr 25, 2021 11:01 am
JoeRetire wrote: Sun Apr 25, 2021 10:10 am Lots of employers can go out of business. But there are always other employers. Always.
That's simply not true. If it were true, we would never have high unemployment statistics, yet we do.
The current national unemployment rate is 6.0 percent. Do you consider that high?
Do you believe that there are currently no other employers? In my locale, there are Help Wanted signs everywhere.
Are you saying that anyone who wants to work can always find a job, and if they don't it's because they don't want to work?
That isn't what I said. I said "there are always other employers". That is obviously true. Your previous employer may not be hiring. And some employers in your field may not be hiring. And it may be temporarily difficult to find a desirable job in your immediate area willing to pay you what you want to earn.

But there are always employers that are hiring. It is never the case that there are no jobs anywhere.
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by fortunefavored »

UpperNwGuy wrote: Sun Apr 25, 2021 11:01 am
JoeRetire wrote: Sun Apr 25, 2021 10:10 am Lots of employers can go out of business. But there are always other employers. Always.
That's simply not true. If it were true, we would never have high unemployment statistics, yet we do. Are you saying that anyone who wants to work can always find a job, and if they don't it's because they don't want to work?
There's also a difference between "a job similar to my previous career" and "any random work to lower portfolio draw down"

From an early (late 40s) retiree:

Starting with 35X expenses so there's some buffer
Expenses have 25% optional spending that could be cut
70/30 with half the fixed income (bonds/munis/cash) in taxable for easy spending
Spouse is working for a few more years to mitigate sequence of returns risk

If things tank in the next 3-5 years, I'd probably go back to work in some fashion while cutting expenses.

If things tank in 5+ years, I'd hope we've blown past SORR and we're into 40 or 50x expenses and it won't matter even if we're in a 10+ year bear.
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JoeRetire
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Re: Downside protection from a protracted bear market in retirement - your plan

Post by JoeRetire »

fortunefavored wrote: Sun Apr 25, 2021 11:17 am
UpperNwGuy wrote: Sun Apr 25, 2021 11:01 am
JoeRetire wrote: Sun Apr 25, 2021 10:10 am Lots of employers can go out of business. But there are always other employers. Always.
That's simply not true. If it were true, we would never have high unemployment statistics, yet we do. Are you saying that anyone who wants to work can always find a job, and if they don't it's because they don't want to work?
There's also a difference between "a job similar to my previous career" and "any random work to lower portfolio draw down"
Of course! Most folks can protect the downside with a job other than their current job.
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