Timing the recovery for planning purposes

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stocknoob4111
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Timing the recovery for planning purposes

Post by stocknoob4111 »

I know nobody can time the markets and predict the recovery, I get that, but for planning purposes I want to operate off my dividends and cash starting in mid 2024 when I retire. My plan is to accumulate enough cash between now and mid 2024 to live off just my dividends plus saved cash through Jan 2027. After that I will withdraw 4.5% from my taxable for the next 17 years (from age 53-69). Past 70 I have SS that more than fully covers my expenses, but I also have 401k and Roth buckets to tap into to supplement so not too concerned after age 70.

Question - is it reasonable to assume market recovery by Jan 2027 OR do you think it's prudent to defer my retirement date a bit past mid 2024 and accumulate more cash to a future date even past Jan 2027? While I want to plan for the 90th percentile of cases I also don't want to plan for the 98th percentile (i.e. 2% probability)

I am trying to find a "middle ground" date where we could assume a very strong likelihood that the market would have recovered to 4800.
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Re: Timing the recovery for planning purposes

Post by willthrill81 »

No, I don't think that it's prudent to assume a market recovery for a period shorter than 5 years. Recall that U.S. stocks had negative returns from 2000-2009.

Do you have a compelling reason to have a planned retirement date that's at least two years away? Why not just roll with things as they occur?
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Re: Timing the recovery for planning purposes

Post by stocknoob4111 »

willthrill81 wrote: Mon Jul 04, 2022 12:17 pm No, I don't think that it's prudent to assume a market recovery for a period shorter than 5 years. Recall that U.S. stocks had negative returns from 2000-2009.

Do you have a compelling reason to have a planned retirement date that's at least two years away? Why not just roll with things as they occur?
Just the reasons everyone has to retire early - Life is short, may drop dead tomorrow and want to pursue my own personal goals rather than slogging away at some thankless job.

I don't mind working an extra year if the numbers don't work, hence this thread... if there is a 90% probability of success with my assumptions, then I will bail as planned.
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Re: Timing the recovery for planning purposes

Post by willthrill81 »

stocknoob4111 wrote: Mon Jul 04, 2022 12:21 pm
willthrill81 wrote: Mon Jul 04, 2022 12:17 pm No, I don't think that it's prudent to assume a market recovery for a period shorter than 5 years. Recall that U.S. stocks had negative returns from 2000-2009.

Do you have a compelling reason to have a planned retirement date that's at least two years away? Why not just roll with things as they occur?
Just the reasons everyone has to retire early - Life is short, may drop dead tomorrow and want to pursue my own personal goals rather than slogging away at some thankless job.

I don't mind working an extra year if the numbers don't work, hence this thread... if there is a 90% probability of success with my assumptions, then I will bail as planned.
I totally understand not wanting to work longer than necessary as I'm aggressively pursuing FI. But I still don't see why you need a semi-firm date for retirement that's two years away. If stocks recover by then, then it sounds like you'll be good to go. If not, you'll may need to continue working.

What would you do differently now based on when you believe stocks might recover?
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Re: Timing the recovery for planning purposes

Post by TomatoTomahto »

stocknoob4111 wrote: Mon Jul 04, 2022 12:21 pm
willthrill81 wrote: Mon Jul 04, 2022 12:17 pm No, I don't think that it's prudent to assume a market recovery for a period shorter than 5 years. Recall that U.S. stocks had negative returns from 2000-2009.

Do you have a compelling reason to have a planned retirement date that's at least two years away? Why not just roll with things as they occur?
Just the reasons everyone has to retire early - Life is short, may drop dead tomorrow and want to pursue my own personal goals rather than slogging away at some thankless job.

I don't mind working an extra year if the numbers don't work, hence this thread... if there is a 90% probability of success with my assumptions, then I will bail as planned.
Those are valid reasons, but perhaps you should figure that your retirement might not be as “cushy” if the market doesn’t recover on your schedule. Go with the flow.
I get the FI part but not the RE part of FIRE.
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Re: Timing the recovery for planning purposes

Post by Wanderingwheelz »

Is your 4.5% withdrawal rate projected to deplete your best egg over the 17 year period leaving up to age 70?

I’d take a wild guess that as a Boglehead you are projecting having a large sum left untouched. If that’s right, then you don’t need to assume an equity recovery by 2027.
Being wrong compounds forever.
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Re: Timing the recovery for planning purposes

Post by runner3081 »

OP starts with no one able to predict markets, ends with, can I assume recovery by 2027?

Sorry, found that funny.

I was looking at 4 years out to gear down somewhat, but will roll with whatever comes. If no recovery, work full time longer, if there is a recovery, will be well above our target of savings and investments.

Not a thing I can do to change it, so won't waste my time worrying about it.
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Re: Timing the recovery for planning purposes

Post by stocknoob4111 »

Wanderingwheelz wrote: Mon Jul 04, 2022 12:31 pm If that’s right, then you don’t need to assume an equity recovery by 2027.
yeah, I am assuming that my taxable portfolio will not be depleted with a 4.5% WR in 17 years.

As I said I am assuming to run on dividends + cash until Jan 2027, I felt that is a reasonable middle ground. If the market does not recover by then we would've been in a downturn for a full 5 years at that point (2022-2026). That seems awfully grim to me. Could it happen, sure, but should we plan for such a dark scenario, I am not sure.
runner3081 wrote: Mon Jul 04, 2022 12:51 pm I was looking at 4 years out to gear down somewhat, but will roll with whatever comes. If no recovery, work full time longer,
The problem with this philosophy is that every year extra you work you are giving up a year of your life that could be spent in other pursuits. If you love your job and it does not bother you then it's absolutely fine, but otherwise each year is a lost opportunity.

I don't hate my job personally, I actually LOVE the field that I am in, but working for highly dysfunctional companies (which 99% of American companies are) isn't my idea of fun. Working for a job is a lot more than just the specifics of the field, I don't care for all the politics and nonsense that is part of it and it is just ridiculously tiresome. Ok, not going to off topic rant about this :happy
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Re: Timing the recovery for planning purposes

Post by coachd50 »

stocknoob4111 wrote: Mon Jul 04, 2022 1:03 pm

The problem with this philosophy is that every year extra you work you are giving up a year of your life that could be spent in other pursuits. If you love your job and it does not bother you then it's absolutely fine, but otherwise each year is a lost opportunity.

I don't hate my job personally, I actually LOVE the field that I am in, but working for highly dysfunctional companies (which 99% of American companies are) isn't my idea of fun.
True, but what else can one do? You yourself stated that nobody can predict the financial markets, but are now trying to make financial plans based off of a prediction.
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Re: Timing the recovery for planning purposes

Post by KlangFool »

OP,

I keep 3 years of expense in cash as per my emergency fund. I do not count dividend in my planning. I do not assume that to be safe enough. I keep at least another 5 years of expense in fixed income/bond. I plan for 3+5 = 8 years. Beyond that it is no longer a money/financial problem.

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Re: Timing the recovery for planning purposes

Post by stocknoob4111 »

coachd50 wrote: Mon Jul 04, 2022 1:10 pm True, but what else can one do? You yourself stated that nobody can predict the financial markets, but are now trying to make financial plans based off of a prediction.
Everything is a risk... one has to evaluate risk based on probabilities which is what I am trying to do. Making a set of assumptions about the market recovery by a certain date and trying to guage probability of that assumption panning out. The probabilities are based on how previous downturns recovered, current valuations, current economic conditions etc. etc. This isn't a guarantee by any means, just a confidence interval.
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Re: Timing the recovery for planning purposes

Post by runner3081 »

stocknoob4111 wrote: Mon Jul 04, 2022 1:03 pm
Wanderingwheelz wrote: Mon Jul 04, 2022 12:31 pm If that’s right, then you don’t need to assume an equity recovery by 2027.
yeah, I am assuming that my taxable portfolio will not be depleted with a 4.5% WR in 17 years.

As I said I am assuming to run on dividends + cash until Jan 2027, I felt that is a reasonable middle ground. If the market does not recover by then we would've been in a downturn for a full 5 years at that point (2022-2026). That seems awfully grim to me. Could it happen, sure, but should we plan for such a dark scenario, I am not sure.
runner3081 wrote: Mon Jul 04, 2022 12:51 pm I was looking at 4 years out to gear down somewhat, but will roll with whatever comes. If no recovery, work full time longer,
The problem with this philosophy is that every year extra you work you are giving up a year of your life that could be spent in other pursuits. If you love your job and it does not bother you then it's absolutely fine, but otherwise each year is a lost opportunity.

I don't hate my job personally, I actually LOVE the field that I am in, but working for highly dysfunctional companies (which 99% of American companies are) isn't my idea of fun. Working for a job is a lot more than just the specifics of the field, I don't care for all the politics and nonsense that is part of it and it is just ridiculously tiresome. Ok, not going to off topic rant about this :happy
Potentially a bigger problem is having to go back to work some day by exiting too soon. I would rather work one more year now and feel more comfortable with a nest egg, than go one year early and have some level of stress about it. Of course, I could also die in that one more year and never experience gearing down... it is all an estimated guess.

There are plenty of ways to coast for a year or two, unnoticed and collect a paycheck, if needed :)
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Re: Timing the recovery for planning purposes

Post by willthrill81 »

stocknoob4111 wrote: Mon Jul 04, 2022 1:03 pm
runner3081 wrote: Mon Jul 04, 2022 12:51 pm I was looking at 4 years out to gear down somewhat, but will roll with whatever comes. If no recovery, work full time longer,
The problem with this philosophy is that every year extra you work you are giving up a year of your life that could be spent in other pursuits. If you love your job and it does not bother you then it's absolutely fine, but otherwise each year is a lost opportunity.

I don't hate my job personally, I actually LOVE the field that I am in, but working for highly dysfunctional companies (which 99% of American companies are) isn't my idea of fun. Working for a job is a lot more than just the specifics of the field, I don't care for all the politics and nonsense that is part of it and it is just ridiculously tiresome. Ok, not going to off topic rant about this :happy
So are you wanting to retire BEFORE 'mid 2024'?
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Re: Timing the recovery for planning purposes

Post by rockstar »

Dividend growth is likely to decline or stall out as we go into a recession I wouldn't count on dividends until we're through this recession. This could be a short one, or it could be a long one. We don't know.

But we do know the Fed can't do anything about gas or food prices. And shelter prices are dependent on inventory, which is low given the population. Also, if you have a mortgage in the 2-3% range, do you really want to sell your home and get one closer to 6%? This should limit existing homes for sale.

Your best bet for guaranteed income is treasuries. But even with rates going up, they're still way below inflation. You can buy TIPS, but you can't really sell them as you need the cash due to interest rate risk in the short term. If you're looking 5 years out, then 5 year TIPS can assure you that you keep up with inflation before taxes. This is more of a capital preservation strategy than a growth strategy.
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Re: Timing the recovery for planning purposes

Post by retired@50 »

stocknoob4111 wrote: Mon Jul 04, 2022 12:14 pm
... for planning purposes I want to operate off my dividends and cash starting in mid 2024 when I retire. My plan is to accumulate enough cash between now and mid 2024 to live off just my dividends plus saved cash through Jan 2027...
If you can just save enough cash between now and mid 2024, then you can ignore dividends, and the guessing game of when a recovery might happen.

Regards,
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Re: Timing the recovery for planning purposes

Post by stocknoob4111 »

one of the assumptions that I am making is that IF there is so much carnage in the markets - enough to cause such a protracted hit to dividends and result in an extended depressed market - it would imply that we are in a SEVERE recession. Given that backdrop I can't quite see how prices don't come down - i.e. deflation. How will people be able to afford skyrocketing rents, food and other items? That really makes no sense to me.

What I mean is that if my boat is sinking then so is everyone else's... I am not sinking in isolation, and companies are doing very poorly so there are mass layoffs and general carnage everywhere.

In addition, what I failed to mention is that I plan to leave the US and be nomadic so will use geo-arbitrage to manage costs - this gives me immense flexibility in my budget. I will not be having any fixed costs that are on any long term contracts (mortgages, loans etc.), I can adjust on the fly.
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Re: Timing the recovery for planning purposes

Post by marcopolo »

runner3081 wrote: Mon Jul 04, 2022 1:23 pm
stocknoob4111 wrote: Mon Jul 04, 2022 1:03 pm
Wanderingwheelz wrote: Mon Jul 04, 2022 12:31 pm If that’s right, then you don’t need to assume an equity recovery by 2027.
yeah, I am assuming that my taxable portfolio will not be depleted with a 4.5% WR in 17 years.

As I said I am assuming to run on dividends + cash until Jan 2027, I felt that is a reasonable middle ground. If the market does not recover by then we would've been in a downturn for a full 5 years at that point (2022-2026). That seems awfully grim to me. Could it happen, sure, but should we plan for such a dark scenario, I am not sure.
runner3081 wrote: Mon Jul 04, 2022 12:51 pm I was looking at 4 years out to gear down somewhat, but will roll with whatever comes. If no recovery, work full time longer,
The problem with this philosophy is that every year extra you work you are giving up a year of your life that could be spent in other pursuits. If you love your job and it does not bother you then it's absolutely fine, but otherwise each year is a lost opportunity.

I don't hate my job personally, I actually LOVE the field that I am in, but working for highly dysfunctional companies (which 99% of American companies are) isn't my idea of fun. Working for a job is a lot more than just the specifics of the field, I don't care for all the politics and nonsense that is part of it and it is just ridiculously tiresome. Ok, not going to off topic rant about this :happy
Potentially a bigger problem is having to go back to work some day by exiting too soon. I would rather work one more year now and feel more comfortable with a nest egg, than go one year early and have some level of stress about it. Of course, I could also die in that one more year and never experience gearing down... it is all an estimated guess.

There are plenty of ways to coast for a year or two, unnoticed and collect a paycheck, if needed :)
So, how do you determine when that is no longer true?
Otherwise, I guess the solution is to work until you die?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Timing the recovery for planning purposes

Post by runner3081 »

marcopolo wrote: Mon Jul 04, 2022 2:31 pm
runner3081 wrote: Mon Jul 04, 2022 1:23 pm
stocknoob4111 wrote: Mon Jul 04, 2022 1:03 pm
Wanderingwheelz wrote: Mon Jul 04, 2022 12:31 pm If that’s right, then you don’t need to assume an equity recovery by 2027.
yeah, I am assuming that my taxable portfolio will not be depleted with a 4.5% WR in 17 years.

As I said I am assuming to run on dividends + cash until Jan 2027, I felt that is a reasonable middle ground. If the market does not recover by then we would've been in a downturn for a full 5 years at that point (2022-2026). That seems awfully grim to me. Could it happen, sure, but should we plan for such a dark scenario, I am not sure.
runner3081 wrote: Mon Jul 04, 2022 12:51 pm I was looking at 4 years out to gear down somewhat, but will roll with whatever comes. If no recovery, work full time longer,
The problem with this philosophy is that every year extra you work you are giving up a year of your life that could be spent in other pursuits. If you love your job and it does not bother you then it's absolutely fine, but otherwise each year is a lost opportunity.

I don't hate my job personally, I actually LOVE the field that I am in, but working for highly dysfunctional companies (which 99% of American companies are) isn't my idea of fun. Working for a job is a lot more than just the specifics of the field, I don't care for all the politics and nonsense that is part of it and it is just ridiculously tiresome. Ok, not going to off topic rant about this :happy
Potentially a bigger problem is having to go back to work some day by exiting too soon. I would rather work one more year now and feel more comfortable with a nest egg, than go one year early and have some level of stress about it. Of course, I could also die in that one more year and never experience gearing down... it is all an estimated guess.

There are plenty of ways to coast for a year or two, unnoticed and collect a paycheck, if needed :)
So, how do you determine when that is no longer true?
Otherwise, I guess the solution is to work until you die?
Calculation based on current spending (with future inflation), added cost for healthcare insurance, less pension and SS estimates based on death at 90 (also accounting for lumpy expenses like cars, college and house repairs).

One thing to note, my "gear down" date is well, well (FIRE) before any traditional retirement age, thus less stress around working one more year.
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Re: Timing the recovery for planning purposes

Post by KlangFool »

stocknoob4111 wrote: Mon Jul 04, 2022 1:56 pm
What I mean is that if my boat is sinking then so is everyone else's... I am not sinking in isolation, and companies are doing very poorly so there are mass layoffs and general carnage everywhere.
stocknoob4111,

How does that helps you to survive?

It does not. Either you are prepared and you can survive long enough until recovery or you don't. What others choose to do or not do is not your problem.

I have been through many recessions and economy crisis. It is not the end of the world. But, many unprepared folks do not survive financially.

It is very simple.

You should keep more cash. There is no reason why you should count on dividend as part of your plan.

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Re: Timing the recovery for planning purposes

Post by marcopolo »

runner3081 wrote: Mon Jul 04, 2022 2:39 pm
marcopolo wrote: Mon Jul 04, 2022 2:31 pm
runner3081 wrote: Mon Jul 04, 2022 1:23 pm
stocknoob4111 wrote: Mon Jul 04, 2022 1:03 pm
Wanderingwheelz wrote: Mon Jul 04, 2022 12:31 pm If that’s right, then you don’t need to assume an equity recovery by 2027.
yeah, I am assuming that my taxable portfolio will not be depleted with a 4.5% WR in 17 years.

As I said I am assuming to run on dividends + cash until Jan 2027, I felt that is a reasonable middle ground. If the market does not recover by then we would've been in a downturn for a full 5 years at that point (2022-2026). That seems awfully grim to me. Could it happen, sure, but should we plan for such a dark scenario, I am not sure.
runner3081 wrote: Mon Jul 04, 2022 12:51 pm I was looking at 4 years out to gear down somewhat, but will roll with whatever comes. If no recovery, work full time longer,
The problem with this philosophy is that every year extra you work you are giving up a year of your life that could be spent in other pursuits. If you love your job and it does not bother you then it's absolutely fine, but otherwise each year is a lost opportunity.

I don't hate my job personally, I actually LOVE the field that I am in, but working for highly dysfunctional companies (which 99% of American companies are) isn't my idea of fun. Working for a job is a lot more than just the specifics of the field, I don't care for all the politics and nonsense that is part of it and it is just ridiculously tiresome. Ok, not going to off topic rant about this :happy
Potentially a bigger problem is having to go back to work some day by exiting too soon. I would rather work one more year now and feel more comfortable with a nest egg, than go one year early and have some level of stress about it. Of course, I could also die in that one more year and never experience gearing down... it is all an estimated guess.

There are plenty of ways to coast for a year or two, unnoticed and collect a paycheck, if needed :)
So, how do you determine when that is no longer true?
Otherwise, I guess the solution is to work until you die?
Calculation based on current spending (with future inflation), added cost for healthcare insurance, less pension and SS estimates based on death at 90 (also accounting for lumpy expenses like cars, college and house repairs).

One thing to note, my "gear down" date is well, well (FIRE) before any traditional retirement age, thus less stress around working one more year.
But, if you worked one more year you would be more comfortable, as you said. How do you know what inflation will be? Or what healthcare might cost? How about LTC costs? etc., etc....

The point I was making is that your statement about working one more year to feel safer rather than risk having to go back to work later will ALWAYS be true. So, one has to consider the relative risks and make trade-offset, which is what the OP is doing. So, not sure how what you are planning is any different to warrant your suggestion to work longer.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Timing the recovery for planning purposes

Post by Nowizard »

I suspect the best you could contemplate is to accept your own comment that market timing is not predictable and, at best, place portions of your total investment in the market at times when you were more confident of your assessment of an upcoming recovery rather than lump summing.

Tim
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Re: Timing the recovery for planning purposes

Post by GAAP »

In the absence of other better information, planning should be based upon the current situation. Since you are asking about the future of the market, there is no other better information.

Plan based upon what you know -- and then adjust the plan as the situation changes.
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Re: Timing the recovery for planning purposes

Post by Fallible »

stocknoob4111 wrote: Mon Jul 04, 2022 12:14 pm I know nobody can time the markets and predict the recovery, I get that, but for planning purposes I want to operate off my dividends and cash starting in mid 2024 when I retire. ...

Question - is it reasonable to assume market recovery by Jan 2027 OR do you think it's prudent to defer my retirement date a bit past mid 2024 and accumulate more cash to a future date even past Jan 2027? ...

I am trying to find a "middle ground" date where we could assume a very strong likelihood that the market would have recovered to 4800.
You know the market can't be timed or the recovery predicted, yet you ask for help with both based on assumptions. I think you (and all investors) will be further along in your decisions when you fully accept your own words that the market can't be timed or recovery predicted.

The replies here can provide information that may help you decide which routes to take, but nobody can be certain of anything other than not knowing the future is probably the biggest risk we take when we invest.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: Timing the recovery for planning purposes

Post by runner3081 »

marcopolo wrote: Mon Jul 04, 2022 4:05 pm
runner3081 wrote: Mon Jul 04, 2022 2:39 pm
marcopolo wrote: Mon Jul 04, 2022 2:31 pm
runner3081 wrote: Mon Jul 04, 2022 1:23 pm
stocknoob4111 wrote: Mon Jul 04, 2022 1:03 pm

yeah, I am assuming that my taxable portfolio will not be depleted with a 4.5% WR in 17 years.

As I said I am assuming to run on dividends + cash until Jan 2027, I felt that is a reasonable middle ground. If the market does not recover by then we would've been in a downturn for a full 5 years at that point (2022-2026). That seems awfully grim to me. Could it happen, sure, but should we plan for such a dark scenario, I am not sure.



The problem with this philosophy is that every year extra you work you are giving up a year of your life that could be spent in other pursuits. If you love your job and it does not bother you then it's absolutely fine, but otherwise each year is a lost opportunity.

I don't hate my job personally, I actually LOVE the field that I am in, but working for highly dysfunctional companies (which 99% of American companies are) isn't my idea of fun. Working for a job is a lot more than just the specifics of the field, I don't care for all the politics and nonsense that is part of it and it is just ridiculously tiresome. Ok, not going to off topic rant about this :happy
Potentially a bigger problem is having to go back to work some day by exiting too soon. I would rather work one more year now and feel more comfortable with a nest egg, than go one year early and have some level of stress about it. Of course, I could also die in that one more year and never experience gearing down... it is all an estimated guess.


There are plenty of ways to coast for a year or two, unnoticed and collect a paycheck, if needed :)
So, how do you determine when that is no longer true?
Otherwise, I guess the solution is to work until you die?
Calculation based on current spending (with future inflation), added cost for healthcare insurance, less pension and SS estimates based on death at 90 (also accounting for lumpy expenses like cars, college and house repairs).

One thing to note, my "gear down" date is well, well (FIRE) before any traditional retirement age, thus less stress around working one more year.
But, if you worked one more year you would be more comfortable, as you said. How do you know what inflation will be? Or what healthcare might cost? How about LTC costs? etc., etc....

The point I was making is that your statement about working one more year to feel safer rather than risk having to go back to work later will ALWAYS be true. So, one has to consider the relative risks and make trade-offset, which is what the OP is doing. So, not sure how what you are planning is any different to warrant your suggestion to work longer.
We each have own level of comfort with the numbers and assumptions. OP seemed to be basing his plan on a recover by 2027, 50% chance of that... it either happens or not. There are plenty of ways to look at it and then come to a conclusion. Like you said, all comes down to trade-offs/risks, don't disagree with you there.

Just a simple math problem with 1-2 of hundreds or thousands of unknown variables :)

People would laugh if they saw the buffer we are building in (overall). RE: Healthcare costs, with low spending - thus low income needed, just planning for the OOP max each year + practically free premiums... but, again, based on on current ACA premium laws. No one knows if those will get better or worse.

That is the fun with personal finance. Some people here wonder if they can retire at age 60 with $10 million, while the next person wants to retire at 35 with $650K :)

Appreciate the convo, have a good day!
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Re: Timing the recovery for planning purposes

Post by Svensk Anga »

It used to be that the business cycle was approximately 4 years, though it has been running longer more recently. If so, you have time for recession, recovery, and crash again by 2027. Even if things look peachy on your chosen date, nothing says that a week later we can’t have the mother of all crashes which upends your careful planning.

Bill Bernstein counsels to count only only half your dividends in real terms since that is as bad as it got in the Great Depression. (Real dividend payouts held up due to deflation.). I think that is a bit pessimistic since currently there is so much cash going to buybacks, which seem susceptible to being cut back before dividends. Pick your number, but probably not 100% of current dividend payouts if we get a bad downturn.
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Re: Timing the recovery for planning purposes

Post by AlwaysLearningMore »

"The market timer's Hall of Fame is an empty room." (Jane Bryant Quinn, author, columnist), from Taylor Larimore's market timing quotes
https://www.bogleheads.org/wiki/Taylor_ ... ing_quotes

Would consider keeping at least 3 years of basic living expenses in cash equivalent in reserve to help weather a bear market.
As has been noted, dividends are not guaranteed to increase, nor remain stable.
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Re: Timing the recovery for planning purposes

Post by JoeRetire »

stocknoob4111 wrote: Mon Jul 04, 2022 12:14 pm Question - is it reasonable to assume market recovery by Jan 2027 OR do you think it's prudent to defer my retirement date a bit past mid 2024 and accumulate more cash to a future date even past Jan 2027?
Nobody knows when the market will "recover". If your plan requires knowing that date, then you need a new plan.

Defer your retirement until you are confident in it's success. You get to decide what "confident" means to you.
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Re: Timing the recovery for planning purposes

Post by JoeRetire »

stocknoob4111 wrote: Mon Jul 04, 2022 12:21 pm I don't mind working an extra year if the numbers don't work, hence this thread... if there is a 90% probability of success with my assumptions, then I will bail as planned.
You aren't going to find a number like "90% probability". Those numbers don't exist.

You will just need to decide when you have reached "good enough".
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Re: Timing the recovery for planning purposes

Post by ResearchMed »

stocknoob4111 wrote: Mon Jul 04, 2022 12:14 pm I know nobody can time the markets and predict the recovery, I get that, but for planning purposes I want to operate off my dividends and cash starting in mid 2024 when I retire. My plan is to accumulate enough cash between now and mid 2024 to live off just my dividends plus saved cash through Jan 2027. After that I will withdraw 4.5% from my taxable for the next 17 years (from age 53-69). Past 70 I have SS that more than fully covers my expenses, but I also have 401k and Roth buckets to tap into to supplement so not too concerned after age 70.

Question - is it reasonable to assume market recovery by Jan 2027 OR do you think it's prudent to defer my retirement date a bit past mid 2024 and accumulate more cash to a future date even past Jan 2027? While I want to plan for the 90th percentile of cases I also don't want to plan for the 98th percentile (i.e. 2% probability)

I am trying to find a "middle ground" date where we could assume a very strong likelihood that the market would have recovered to 4800.

As you acknowledge, "...nobody can time the markets and predict the recovery..."

You are asking about a possible retirement in mid-2024, which is about 2 years away. Do you actually need to make definite plans now or in the near future? Is there something about your situation or your job that might require this, or even make it important?

If not, then why are you fretting now about what you'll be doing 2 years from now?
Keep saving aggressively (or however you describe your current savings, etc.) as usual, and double check again in a year. Needless to say, you won't actually need to wait until next year. Presumably you'll be aware of how the economy and the market "have been" during that year, right?

You'll have a lot more information about the state of the world and the state of your affairs in a year. Then you can start to think about the following year and the longer term future.
If things aren't quite as good as you'd wish, then either defer, or perhaps decide not to defer but to do some belt-tightening.

But do it based upon your actual situation, and how you expect it to be in the future under a variety of scenarios. If one of those has you living in a cardboard box under a bridge, then... don't retire then.
[Note, I suppose some sort of apocalypse could have any or many of under that bridge with you, but it makes sense to think about the more reasonable outcomes. In a real apocalypse, it probably wouldn't matter what you planned or when you made decisions.]

You can't "know now", and you won't *know* next year, either.
You won't even *know* with the certainty you seem to want when you actually retire just what the future will be bringing (unless you hit the jackpot and have money oozing out of your accounts).

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Re: Timing the recovery for planning purposes

Post by willthrill81 »

ResearchMed wrote: Mon Jul 04, 2022 6:09 pm
stocknoob4111 wrote: Mon Jul 04, 2022 12:14 pm I know nobody can time the markets and predict the recovery, I get that, but for planning purposes I want to operate off my dividends and cash starting in mid 2024 when I retire. My plan is to accumulate enough cash between now and mid 2024 to live off just my dividends plus saved cash through Jan 2027. After that I will withdraw 4.5% from my taxable for the next 17 years (from age 53-69). Past 70 I have SS that more than fully covers my expenses, but I also have 401k and Roth buckets to tap into to supplement so not too concerned after age 70.

Question - is it reasonable to assume market recovery by Jan 2027 OR do you think it's prudent to defer my retirement date a bit past mid 2024 and accumulate more cash to a future date even past Jan 2027? While I want to plan for the 90th percentile of cases I also don't want to plan for the 98th percentile (i.e. 2% probability)

I am trying to find a "middle ground" date where we could assume a very strong likelihood that the market would have recovered to 4800.

As you acknowledge, "...nobody can time the markets and predict the recovery..."

You are asking about a possible retirement in mid-2024, which is about 2 years away. Do you actually need to make definite plans now or in the near future? Is there something about your situation or your job that might require this, or even make it important?

If not, then why are you fretting now about what you'll be doing 2 years from now?
Keep saving aggressively (or however you describe your current savings, etc.) as usual, and double check again in a year. Needless to say, you won't actually need to wait until next year. Presumably you'll be aware of how the economy and the market "have been" during that year, right?

You'll have a lot more information about the state of the world and the state of your affairs in a year. Then you can start to think about the following year and the longer term future.
If things aren't quite as good as you'd wish, then either defer, or perhaps decide not to defer but to do some belt-tightening.

But do it based upon your actual situation, and how you expect it to be in the future under a variety of scenarios. If one of those has you living in a cardboard box under a bridge, then... don't retire then.
[Note, I suppose some sort of apocalypse could have any or many of under that bridge with you, but it makes sense to think about the more reasonable outcomes. In a real apocalypse, it probably wouldn't matter what you planned or when you made decisions.]

You can't "know now", and you won't *know* next year, either.
You won't even *know* with the certainty you seem to want when you actually retire just what the future will be bringing (unless you hit the jackpot and have money oozing out of your accounts).

RM
That's been precisely my point all along, but you've articulated it much better than I did. If the OP isn't planning on retiring very soon (i.e., this year), then I see no need in worrying about where the market might be in a couple of years. If the OP's portfolio is good in 2024, then retire. Otherwise, keep working.
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Re: Timing the recovery for planning purposes

Post by celia »

Rather than expecting a market recovery in a few years, I think you should/ could plan your early retirement a little differently:
stocknoob4111 wrote: Mon Jul 04, 2022 12:14 pm …I want to operate off my dividends and cash starting in mid 2024 when I retire. My plan is to accumulate enough cash between now and mid 2024 to live off just my dividends plus saved cash through Jan 2027. After that I will withdraw 4.5% from my taxable for the next 17 years (from age 53-69).
Since you’re planning a lonnnnng early retirement, I would start building a Roth Conversion Ladder. But I would convert more than you need to spend 5 years out, to help bring down the balance of your tax-deferred accounts, while letting more of your Taxable cash and dividends continue to grow. Some of your cash can be used each year to pay the taxes on the conversions. Here’s a calculator that helps you determine the minimum you should convert for living expenses:
https://www.rothladders.com/

I recommend this strategy to help level out your taxes over all the years rather that having 17 years of low/no income taxes followed by high taxes after your RMDs push you into high brackets after age 72. After 20 years of growth, your current tax-deferred accounts can be 2 or 3 times larger than they are now! Wouldn’t you want some of that growth to happen in Roth where withdrawals can be tax-free, when needed?

The biggest problem with retiring so early is that you will have many more years of retirement than most people. Lots of things can happen during that time span that you can’t predict. (Just think of all the unexpected things in the last 3 years, where you could have up to 50 years of “unpredictable” compared to 20 or 30 years for most seniors). You will need medical insurance and probably disability insurance so your assets aren’t used up in medical or disability situations, should they occur.

Inflation will also make things unpredictable financially.
Last edited by celia on Mon Jul 04, 2022 6:58 pm, edited 1 time in total.
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Re: Timing the recovery for planning purposes

Post by willthrill81 »

celia wrote: Mon Jul 04, 2022 6:53 pmYou will need medical insurance and probably disability insurance so your assets aren’t used up in medical or disability cases, should they occur.
If the OP isn't working for money due to being FI, then why would s/he need disability coverage?
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Re: Timing the recovery for planning purposes

Post by celia »

willthrill81 wrote: Mon Jul 04, 2022 6:57 pm
celia wrote: Mon Jul 04, 2022 6:53 pmYou will need medical insurance and probably disability insurance so your assets aren’t used up in medical or disability cases, should they occur.
If the OP isn't working for money due to being FI, then why would s/he need disability coverage?
He/she needs to pay for not just living expenses but possibly also disability expenses, if he became disabled. Consider the additional costs of home care (eg, cooking, bathing assistance), home modifications for the disability (eg, a lift to go up/down steps, widen doorways for wheelchair access), and pay others to do tasks that he can no longer do (eg, from changing a light bulb to mowing the lawn). If he only accounted for living expenses and didn’t have disability insurance, the added expenses can make him use up his reserved “living expenses” faster.
Last edited by celia on Mon Jul 04, 2022 7:14 pm, edited 1 time in total.
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Re: Timing the recovery for planning purposes

Post by willthrill81 »

celia wrote: Mon Jul 04, 2022 7:08 pm
willthrill81 wrote: Mon Jul 04, 2022 6:57 pm
celia wrote: Mon Jul 04, 2022 6:53 pmYou will need medical insurance and probably disability insurance so your assets aren’t used up in medical or disability cases, should they occur.
If the OP isn't working for money due to being FI, then why would s/he need disability coverage?
He/she needs to pay for not just living expenses but also disability expenses, like home care (eg, cooking, bathing assistance), home modifications for the disability (eg, a lift to go up/down steps, widen doorways for wheelchair access), and pay others to do tasks that he can no longer do (eg, from changing a light bulb to mowing the lawn). If he only accounted for living expenses and didn’t have disability insurance, the added expenses can make him use up his reserved “living expenses” faster.
Gotcha. Of course, this assumes that the disability coverage, which seems to be around 60-70% of one's gross income while working, would be enough to pay for such additional expenses, and I imagine that the policy would need to be taken out while the OP was still working.
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Re: Timing the recovery for planning purposes

Post by rockstar »

stocknoob4111 wrote: Mon Jul 04, 2022 1:56 pm one of the assumptions that I am making is that IF there is so much carnage in the markets - enough to cause such a protracted hit to dividends and result in an extended depressed market - it would imply that we are in a SEVERE recession. Given that backdrop I can't quite see how prices don't come down - i.e. deflation. How will people be able to afford skyrocketing rents, food and other items? That really makes no sense to me.
Debt.

Folks will take on second jobs and potentially downsize. Folks working will start to unionize for higher wages. We've seen this all before in the 70s and 80s. Remember the tiny Japanese vehicles in the 80s and the movie Gung Ho making fun of them? Remember All in the Family and Archie moonlighting as a taxi driver for additional money?

Deflation will probably hit for discretionary items to offset the inflation happening for food, gas, and utilities. Rents can't keep going up as fast without having a lot of vacancy. People will migrate to cheaper cities for work.

And yes, I expect dividends to get hit. Maybe they don't shrink, but they don't grow as much. Take Disney for example. They stopped theirs and haven't resumed it. However, a company like Coke might continue to pay.

From an investing stand point, inflation is likely to shrink the available cash you have to save and invest. This is how I think this ultimately his the markets. We get the same impact as higher unemployment.
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Re: Timing the recovery for planning purposes

Post by celia »

willthrill81 wrote: Mon Jul 04, 2022 7:14 pm
Of course, I doubt most seniors have disability insurance, but hopefully they have more “reserves” for the unexpected things in life. We have no idea if OP is saving for more than future living expenses.
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Re: Timing the recovery for planning purposes

Post by willthrill81 »

celia wrote: Mon Jul 04, 2022 7:21 pm
willthrill81 wrote: Mon Jul 04, 2022 7:14 pm
Of course, I doubt most seniors have disability insurance, but hopefully they have more “reserves” for the unexpected things in life. We have no idea if OP is saving for more than future living expenses.
I suspect that most here at least have enough discretionary spending budgeted for in retirement that they could handle the expenses resulting from most disabilities if needed. But it's something to consider.
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Re: Timing the recovery for planning purposes

Post by marcopolo »

celia wrote: Mon Jul 04, 2022 6:53 pm Rather than expecting a market recovery in a few years, I think you should/ could plan your early retirement a little differently:
stocknoob4111 wrote: Mon Jul 04, 2022 12:14 pm …I want to operate off my dividends and cash starting in mid 2024 when I retire. My plan is to accumulate enough cash between now and mid 2024 to live off just my dividends plus saved cash through Jan 2027. After that I will withdraw 4.5% from my taxable for the next 17 years (from age 53-69).
Since you’re planning a lonnnnng early retirement, I would start building a Roth Conversion Ladder. But I would convert more than you need to spend 5 years out, to help bring down the balance of your tax-deferred accounts, while letting more of your Taxable cash and dividends continue to grow. Some of your cash can be used each year to pay the taxes on the conversions. Here’s a calculator that helps you determine the minimum you should convert for living expenses:
https://www.rothladders.com/

I recommend this strategy to help level out your taxes over all the years rather that having 17 years of low/no income taxes followed by high taxes after your RMDs push you into high brackets after age 72. After 20 years of growth, your current tax-deferred accounts can be 2 or 3 times larger than they are now! Wouldn’t you want some of that growth to happen in Roth where withdrawals can be tax-free, when needed?

The biggest problem with retiring so early is that you will have many more years of retirement than most people. Lots of things can happen during that time span that you can’t predict. (Just think of all the unexpected things in the last 3 years, where you could have up to 50 years of “unpredictable” compared to 20 or 30 years for most seniors). You will need medical insurance and probably disability insurance so your assets aren’t used up in medical or disability situations, should they occur.

Inflation will also make things unpredictable financially.
How can you possibly know from the info provided if Roth Conversions would be appropriate for the OP?

Disability insurance? Can you even get that if you are not working? Isn't that generally used to insure lost income. What happens if you have no lost income?
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Re: Timing the recovery for planning purposes

Post by smitcat »

willthrill81 wrote: Mon Jul 04, 2022 7:14 pm
celia wrote: Mon Jul 04, 2022 7:08 pm
willthrill81 wrote: Mon Jul 04, 2022 6:57 pm
celia wrote: Mon Jul 04, 2022 6:53 pmYou will need medical insurance and probably disability insurance so your assets aren’t used up in medical or disability cases, should they occur.
If the OP isn't working for money due to being FI, then why would s/he need disability coverage?
He/she needs to pay for not just living expenses but also disability expenses, like home care (eg, cooking, bathing assistance), home modifications for the disability (eg, a lift to go up/down steps, widen doorways for wheelchair access), and pay others to do tasks that he can no longer do (eg, from changing a light bulb to mowing the lawn). If he only accounted for living expenses and didn’t have disability insurance, the added expenses can make him use up his reserved “living expenses” faster.
Gotcha. Of course, this assumes that the disability coverage, which seems to be around 60-70% of one's gross income while working, would be enough to pay for such additional expenses, and I imagine that the policy would need to be taken out while the OP was still working.
"Gotcha. Of course, this assumes that the disability coverage, which seems to be around 60-70% of one's gross income while working,"
Standard disability benefits are much lower than this for most folks maxing out at somewhere around $36K per year for very few.
That is why some folks take out additional disability insurance for some periods of time for their own protection.
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Re: Timing the recovery for planning purposes

Post by ResearchMed »

willthrill81 wrote: Mon Jul 04, 2022 7:14 pm
celia wrote: Mon Jul 04, 2022 7:08 pm
willthrill81 wrote: Mon Jul 04, 2022 6:57 pm
celia wrote: Mon Jul 04, 2022 6:53 pmYou will need medical insurance and probably disability insurance so your assets aren’t used up in medical or disability cases, should they occur.
If the OP isn't working for money due to being FI, then why would s/he need disability coverage?
He/she needs to pay for not just living expenses but also disability expenses, like home care (eg, cooking, bathing assistance), home modifications for the disability (eg, a lift to go up/down steps, widen doorways for wheelchair access), and pay others to do tasks that he can no longer do (eg, from changing a light bulb to mowing the lawn). If he only accounted for living expenses and didn’t have disability insurance, the added expenses can make him use up his reserved “living expenses” faster.
Gotcha. Of course, this assumes that the disability coverage, which seems to be around 60-70% of one's gross income while working, would be enough to pay for such additional expenses, and I imagine that the policy would need to be taken out while the OP was still working.

Wouldn't any "disability" coverage cease if someone was no longer employed?
It's to replace income if one becomes disabled...

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Re: Timing the recovery for planning purposes

Post by willthrill81 »

ResearchMed wrote: Mon Jul 04, 2022 7:32 pm
willthrill81 wrote: Mon Jul 04, 2022 7:14 pm
celia wrote: Mon Jul 04, 2022 7:08 pm
willthrill81 wrote: Mon Jul 04, 2022 6:57 pm
celia wrote: Mon Jul 04, 2022 6:53 pmYou will need medical insurance and probably disability insurance so your assets aren’t used up in medical or disability cases, should they occur.
If the OP isn't working for money due to being FI, then why would s/he need disability coverage?
He/she needs to pay for not just living expenses but also disability expenses, like home care (eg, cooking, bathing assistance), home modifications for the disability (eg, a lift to go up/down steps, widen doorways for wheelchair access), and pay others to do tasks that he can no longer do (eg, from changing a light bulb to mowing the lawn). If he only accounted for living expenses and didn’t have disability insurance, the added expenses can make him use up his reserved “living expenses” faster.
Gotcha. Of course, this assumes that the disability coverage, which seems to be around 60-70% of one's gross income while working, would be enough to pay for such additional expenses, and I imagine that the policy would need to be taken out while the OP was still working.

Wouldn't any "disability" coverage cease if someone was no longer employed?
It's to replace income if one becomes disabled...

RM
I don't know. Celia's recommendation is the first I've ever heard of its kind around here.
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Re: Timing the recovery for planning purposes

Post by celia »

marcopolo wrote: Mon Jul 04, 2022 7:26 pm How can you possibly know from the info provided if Roth Conversions would be appropriate for the OP?
OP stated that he/she is starting to save up more in Taxable so cash and distributions can be spent in early retirement. We don’t know if they have a large tax-deferred balance or not. If not, the suggestion is a mute point.

But if they have a lot in tax-deferred, it makes sense to “spend down” (ie, convert) some of it instead of Taxable to even out the tax hit over many years. That’s what the Roth conversion ladder helps you do besides making some of your retirement assets available for spending before 59.5.
Disability insurance? Can you even get that if you are not working? Isn't that generally used to insure lost income. What happens if you have no lost income?
I don’t know, but it is still something to consider. The question is like asking if a SAHM can get disability insurance. She may need it just as much as her partner.
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Re: Timing the recovery for planning purposes

Post by marcopolo »

celia wrote: Mon Jul 04, 2022 7:50 pm
marcopolo wrote: Mon Jul 04, 2022 7:26 pm How can you possibly know from the info provided if Roth Conversions would be appropriate for the OP?
OP stated that he/she is starting to save up more in Taxable so cash and distributions can be spent in early retirement. We don’t know if they have a large tax-deferred balance or not. If not, the suggestion is a mute point.

But if they have a lot in tax-deferred, it makes sense to “spend down” (ie, convert) some of it instead of Taxable to even out the tax hit over many years. That’s what the Roth conversion ladder helps you do besides making some of your retirement assets available for spending before 59.5.
Disability insurance? Can you even get that if you are not working? Isn't that generally used to insure lost income. What happens if you have no lost income?
I don’t know, but it is still something to consider. The question is like asking if a SAHM can get disability insurance. She may need it just as much as her partner.
Roth conversion ladder usually implies spending the ladder, and is usually used as a strategy to access tax-deferrd accounts when there is little or no Taxable account available.

Even if Roth Conversions were warranted (there is nothing in the info given that indicates they are), OP would be better off simply doing Roth Conversions and using Taxable account for living expenses, as opposed to doing the ladder to spend some of the converted dollars.

We don't know the OPs tax situation, so there is no way to know if Roth Conversions would actually help even out their tax liability.

I have no idea if a non-working person can get and collect on a disability policy. Certainly Soc Sec disability does not pay out if someone has not worked recently. I would at least check to see if such a thing was even possible before suggesting to someone that they needed to have it.
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Re: Timing the recovery for planning purposes

Post by celia »

ResearchMed wrote: Mon Jul 04, 2022 7:32 pm Wouldn't any "disability" coverage cease if someone was no longer employed?
It's to replace income if one becomes disabled...
This article recommends that you convert your employer’s disability policy, when possible, since you need to be employed at least 30 hours a week in order to buy it.
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Re: Timing the recovery for planning purposes

Post by celia »

marcopolo wrote: Mon Jul 04, 2022 8:00 pm Roth conversion ladder usually implies spending the ladder, and is usually used as a strategy to access tax-deferrd accounts when there is little or no Taxable account available.
I looked at some of the OP’s past posts regarding his/her portfolio. He had/has a 401k that he didn’t want to roll over to a Rollover IRA, since he was doing Backdoor Roths (ie, high income).

Although I don’t think he can afford to retire yet (because of the long future ahead), he thinks he can live on $36K a year, in today’s dollars. The idea that he plans to pump up his Taxable account for 2 or 3 years and that it can then last him another 17 years, gave me the impression he has the ability to save a lot and had probably saved that in tax-deferred, but now is switching to Taxable for upcoming spending needs.

Granted, that may or may not be true, but I wanted to cover that case. As you know, Marcopolo, I like to get past the tax issue early. That’s why I suggested what I did.
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Re: Timing the recovery for planning purposes

Post by willthrill81 »

celia wrote: Mon Jul 04, 2022 8:14 pm
ResearchMed wrote: Mon Jul 04, 2022 7:32 pm Wouldn't any "disability" coverage cease if someone was no longer employed?
It's to replace income if one becomes disabled...
This article recommends that you convert your employer’s disability policy, when possible, since you need to be employed at least 30 hours a week in order to buy it.
Again, I suspect that most here would be able to offset expenses related to a disability from reduced discretionary spending.

FWIW, in all the thousands of threads I've seen here over the years, I've never heard of a once FI person having financial problems due to a disability.
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Re: Timing the recovery for planning purposes

Post by Dottie57 »

I would have a couple of backup plans.
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Re: Timing the recovery for planning purposes

Post by Kinkajou82 »

I'm far from retirement but my IPS has me changing my allocation at 50 to start including more conservative investments because I've read that it could take the market 10 years to recover in major cases. So I guess planning for the possibility of a 10 year long slump is my answer to this prompt.
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Re: Timing the recovery for planning purposes

Post by JoeRetire »

Kinkajou82 wrote: Tue Jul 05, 2022 4:01 am I'm far from retirement but my IPS has me changing my allocation at 50 to start including more conservative investments because I've read that it could take the market 10 years to recover in major cases. So I guess planning for the possibility of a 10 year long slump is my answer to this prompt.
It could take 20 years to recover. Or 30 years. Or the rest of your life.
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Re: Timing the recovery for planning purposes

Post by Shallowpockets »

OP, those of us already retired have to make do with whatever plans we assumed before retiring. After retiring one has to fit themselves into the piece of life they are in at that moment. I would say that most of them work out. Therefore your plan is as valid as any other plan for the time being.
So make your assumptions and move forward. It will all be assumptions. People whose assumptions work out at the movement of retirement are liable for what ever else changes down the road.
Retirement a long time. You cannot assume or expect that all will continue so well even if the start of your retirement is spot on.
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