Might It Actually Be Different This Time?

Investing Strategies Retirement Investing
41

Daryll44 analyzes,

Retirees benefit from the most inflation protected income stream in existence - social security. Retirees are probably safer from any looming disaster than any other group of citizens - especially considering their politically protected status.

Not so much for higher income/higher net worth retirees doing a FATFIRE retirement. SS is a small piece of the income pie and IRMAA adds health care cost (although IRMAA is really a tax more so than a healthcare cost).

Not really. IRMMA is the loss of the 87% taxpayer subsidy to Medicare Part B & D. The regular Medicare monthly premium you pay only covers about 17% of the benefit.

Only about 7% of the wealthiest retirees pay any IRMAA penalty at all and you need to be well into the top 1% of wealthiest retirees to lose the full Gov’t subsidy at incomes of $500,000/yr for singles and $750,000/yr for married couples.

Nice to see the Gov’t coming after folks like you and me instead of targeting single mothers on Food Stamps.

intercst

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42

Daryll44 asks,

There’s a very good chance that you’ll end the 30-year period with more money than you can spend – as long as you don’t yield to some of the sub-optimal advice being presented here and elsewhere.

intercst

Intercst, do you think the S&P500 will reach a new all time high within the next 5 years? Others too…put another way, do you think this is 1966?

I think there will likely be an explosive reflux rally once the Fed stops raising interest rates. There’s tremendous unmet demand in the economy (e.g., I’m ready to buy a new car once things get back to “normal”, but I refuse to pay more than MSRP.)

Usually when there’s a lot of unmet demand, “job creators” build factories and hire workers to staff them. But it’s a new world today and folks won’t accept the old “poverty wage” employment model. It’s going to take a while for “management” to catch up to reality.

“Quiet quitting” and “work from home” is just the tip of the iceberg for “old-style” management.

intercst

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43

Intercst, do you think the S&P500 will reach a new all time high within the next 5 years? Others too…put another way, do you think this is 1966?

Not intercst, but this doesn’t seem much like 1966. Inflation is a portfolio killer. But the Fed has clearly signaled they don’t want inflation to get out of control, as opposed to the corrupt political puppet Arthur Burns. I personally have no idea if the S&P will be up or down over the next five years. And I don’t much care because those types of short term moves don’t seem to matter much over the investing horizons I’m interested in.

I’m very confident the S&P will be up over the next 10 years, and completely confident it will be up over the next 20. Legendary investor Edward Thorp is 89 years old and is in 100% equities because even at his age he views his wealth as generational.

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44

Intercst and Syke6 thanks for the answers. Great answers! I’d like to hear from the few others that follow this thread.

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45

intercst:“There’s tremendous unmet demand in the economy (e.g., I’m ready to buy a new car once things get back to “normal”, but I refuse to pay more than MSRP.)”

The reason you can’t buy a new car at discount…is simply supply chain problems - most notably computer chips from China. Worse, China is having a new ‘lockdown’ NOW. Manufacturers have lots of cars minus computer chips sitting - waiting for the magic parts to show up.

It’s not the ‘economy’ although other supply chain problems exist including raw materials, and of course, lithium battery material, lithium battery cells and assembled batteries.

intercst: “Usually when there’s a lot of unmet demand, “job creators” build factories and hire workers to staff them. But it’s a new world today and folks won’t accept the old “poverty wage” employment model. It’s going to take a while for “management” to catch up to reality.”

You really meant China here? hmmm… good ole US manufacturing is building and converting plants all over the country.
Some plants slowed down for CHIP shortage.

Battery plants in half a dozen states. New assembly lines.

intercst: ““Quiet quitting” and “work from home” is just the tip of the iceberg for “old-style” management.”

Well, a good part of that was the government sloshed out cash year after year and a lot of folks just decided they really didn’t have to work, so never went back to work.

Second problem is that many day care places shut down during COVID lockdowns and never re-opened. No child care, fewer women in the work force and many finally realized that for a married couple, the second spouse working really added little benefit after child care and additional taxes…

You really think that much of the jobs these days are at ‘legacy manufacturing’ places? I’d venture there are tons of IT jobs, solar/wind, telecommunications, retail, web, FAcebook/Meta, Google, Amazon… and yeah, many are ‘manual jobs’ hauling stuff around, climbing 300 foot towers, running around warehouses…as well as fixing plumbing and appliances, and a thousand other jobs.

Hey, no one works in a sweat shop in car manufacturing putting the same widget on a car 8 hours a day. Robots do that. Workers supervise the robots - maybe half a floor of them. Fix them when they need fixing. Your cookies come off an automated line…probably and inspector at the end to yank a package every 300-400 units to check it…

Just what is ‘new style’ management to you? Talking to people with the right pronouns? “WE” and “QWI”… LOL…

t.

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46

Hi CMF_Fuskie,

“How many companies suspended dividends at the start of the pandemic and still have not resumed them?”

Don’t know and don’t care! Why?

I don’t invest willy-nilly looking for yield.

In 2010 or 2011, someone posted about dividends being slaughtered during the 2007 to 2010 market dip. I believe they were quoting from an NYT article about the SP500 dividend output dropping by 50% or so.

Those writers never look at a “real portfolio” of stock. The SP500 is not formed around good dividend payers. It is simply a bunch of random companies selected for market cap with little else in common.

During the dip, we had one company, Pfizer (PFE), suspend its dividend, a few companies held their dividend level and all the rest raised their dividends.

On a constant share basis, our dividend income has increased every year since we retired in 2005, including the great market dip.

Gene
All holdings and some statistics on my Fool profile page
https://community.fool.com/u/gdett2/activity (Click Expand)

47

skye:"I personally have no idea if the S&P will be up or down over the next five years. And I don’t much care because those types of short term moves don’t seem to matter much over the investing horizons I’m interested in.

I’m very confident the S&P will be up over the next 10 years, and completely confident it will be up over the next 20. Legendary investor Edward Thorp is 89 years old and is in 100% equities because even at his age he views his wealth as generational."

Well, I’m mid 70s, and the ‘averages’ say I’ve got about 10 more years to worry about…15 if I’m lucky. The genes in my family poop out long before 100. Plus I’ve got a few negatives as well…

If you look at 1966…the worst year to retire in the past 60 years…

In 1966, DOW was 88

In 1976 it was 104

If you look at inflation adjusted 1966 dollars…the DOW was up all of 20 bucks over a 20 year period to 1987.

If you had all your money in stocks, I hope they were paying some hefty dividends…that’s the only thing you got from your money - in stocks…

https://www.officialdata.org/us/stocks/s-p-500/1966

Of course, your other option was bank CDs…

Once in the 1980s, the market took off…but if you retired at age 65 in 1966… you had 20 years of horrible returns. Just dividends…and interest on your CDs. And no mutual funds to speak of back then. By age 85, yeah, the market recovered nicely. If you made it that long…if not, your kids probably thanked you for the inherited stocks.

t.

48

gdett2 writes,

In 2010 or 2011, someone posted about dividends being slaughtered during the 2007 to 2010 market dip. I believe they were quoting from an NYT article about the SP500 dividend output dropping by 50% or so.

Those writers never look at a “real portfolio” of stock. The SP500 is not formed around good dividend payers. It is simply a bunch of random companies selected for market cap with little else in common.

During the dip, we had one company, Pfizer (PFE), suspend its dividend, a few companies held their dividend level and all the rest raised their dividends.

30-year plus PFE shareholder.

That’s not true. They cut the quarterly dividend from $0.32 to $0.16 in 1Q 2009 from the obscenely high dividend yield they were maintaining to goose Executive Compensation, but they never stopped paying it.

https://investors.pfizer.com/Investors/Stock-Info/dividend-s…

intercst

49

Absolutely!

Waiting another 3 years and 5 months to collect SS at age 70 is currently the best performing “asset” in my portfolio – an 8% per year increase in benefits plus inflation.

intercst 39 months for me before i turn 70…

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50

aj485 complains

It wasn’t a complaint. It was a statement that I don’t believe that the example you provided was applicable to the specific example I suggested, to which you agreed by saying Right. Not sure why you’re saying I was complaining if you actually agree.

But it does demonstrate the very important aspect of the “4% rule” that many don’t understand. It’s the maximum inflation-adjusted withdrawal that survived all 30-year payout periods in history, it’s not an average result.

While I agree and understand that the 4% rule is a maximum, not an average - I don’t see how your example supports that at all. First, 1% is not 4%, so you aren’t actually using the 4% rule. Second, your expected 40 to 50 year retirement at the time you retired isn’t the same as a 30 year retirement, which is what the 4% rule models. I will say, if you actually retired with only 25 times your annual expenses looking at a potential 40 to 50 year retirement ahead of you, my take is that you were actually taking a not-insignificant risk. Sure, the odds were in your favor, but long shots happen a lot - just ask Texas A&M, Notre Dame and Wisconsin.

AJ

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51

I’m very confident the S&P will be up over the next 10 years, and completely confident it will be up over the next 20. Legendary investor Edward Thorp is 89 years old and is in 100% equities because even at his age he views his wealth as generational.

Thorp can always go back to his casino job…counting cards at blackjack…

nobody would recognize him from the old days and i don’t think he is the black book…

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52

First, 1% is not 4%, so you aren’t actually using the 4% rule.

You take 1% if your portfolio grows over time.

Say you start with $40,000 and $1 million. The 4% rule.

After 10 years of 3% inflation you’re now withdrawing $52,191. But pretend your portfolio has grown to $5 million. You’re taking 1% while still following the 4% rule.

Second, your expected 40 to 50 year retirement at the time you retired isn’t the same as a 30 year retirement, which is what the 4% rule models. I will say, if you actually retired with only 25 times your annual expenses looking at a potential 40 to 50 year retirement ahead of you, my take is that you were actually taking a not-insignificant risk.

For whatever it’s worth, Bengen said that 4.5% lasts 30 years, and 4% should last forever.

53

aj485 writes,

It wasn’t a complaint. It was a statement that I don’t believe that the example you provided was applicable to the specific example I suggested, to which you agreed by saying Right. Not sure why you’re saying I was complaining if you actually agree.

But it does demonstrate the very important aspect of the “4% rule” that many don’t understand. It’s the maximum inflation-adjusted withdrawal that survived all 30-year payout periods in history, it’s not an average result.

While I agree and understand that the 4% rule is a maximum, not an average - I don’t see how your example supports that at all. First, 1% is not 4%, so you aren’t actually using the 4% rule. Second, your expected 40 to 50 year retirement at the time you retired isn’t the same as a 30 year retirement, which is what the 4% rule models. I will say, if you actually retired with only 25 times your annual expenses looking at a potential 40 to 50 year retirement ahead of you, my take is that you were actually taking a not-insignificant risk. Sure, the odds were in your favor, but long shots happen a lot - just ask Texas A&M, Notre Dame and Wisconsin.

I used the 4% rule for the portion of the portfolio I was drawing my annual living expenses from. As my retirement portfolio exploded in value during the “bubble” of the late 1990’s, I kept the
“excess” in 100% stock, and used a 75/25 portfolio to draw from. Of course, I could have used the “Pay Out Period Reset Method” to increase my spending, but I didn’t retire with a “ramen noodle and tent camping in the National Parks” budget. I had the same lifestyle as when I was working and didn’t need to spend any extra.

Also, there’s not much difference in the “safe” withdrawal rate between 30 and 50 years. The big difference is the astonishing amount of money left in the portfolio after 50 years if you’re actually following something like the 4% rule and didn’t happen to retire on the eve of the next Stock Market Crash and Great Depression. I agree that it’s not “zero risk”. But it’s likely no more risky than flying a small plane, or the run-of-the-mill risks (nuclear war, deadly pandemic, etc.) for which there is no financial planning solution.

Stocks for the Long Run – it’s magic.

intercst

1 Like
54

fdoubleol explains,

<<<<aj:First, 1% is not 4%, so you aren’t actually using the 4% rule.>>>

You take 1% if your portfolio grows over time.

Say you start with $40,000 and $1 million. The 4% rule.

After 10 years of 3% inflation you’re now withdrawing $52,191. But pretend your portfolio has grown to $5 million. You’re taking 1% while still following the 4% rule.

Exactly! You get it. Just because your portfolio has exploded in value, you don’t need to take 4% of the new larger account balance, if you’re happy with your current lifestyle.

After the dot.com bust in 2000, I remember a guy who complained that the “4% rule” didn’t work because he bought a big cabin cruiser boat at the top, and now has to return to work.

intercst

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55

You take 1% if your portfolio grows over time.

Except that wasn’t the example I gave. What I said was:

I would point out that if you are retiring with 25 times your expenses (i.e. 25 years worth of expenses) that holding 8 years in cash means that you are holding nearly 1/3 of your entire portfolio in cash. That introduces it’s own risks.

Say you start with $40,000 and $1 million. The 4% rule.

After 10 years of 3% inflation you’re now withdrawing $52,191. But pretend your portfolio has grown to $5 million.

Sorry, not believable. Under your scenario of 3% inflation, someone who rebalances to keep 8 years of expenses in cash, even if we assume that cash makes 1%, would have to have an annual 24.84% return on the remainder of their portfolio in order for their $1M portfolio to grow to $5M in 10 years.

AJ

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56

aj485 writes,

<<<You take 1% if your portfolio grows over time.>>>

Except that wasn’t the example I gave. What I said was:

I would point out that if you are retiring with 25 times your expenses (i.e. 25 years worth of expenses) that holding 8 years in cash means that you are holding nearly 1/3 of your entire portfolio in cash. That introduces it’s own risks.

Say you start with $40,000 and $1 million. The 4% rule.

After 10 years of 3% inflation you’re now withdrawing $52,191. But pretend your portfolio has grown to $5 million.

Sorry, not believable. Under your scenario of 3% inflation, someone who rebalances to keep 8 years of expenses in cash, even if we assume that cash makes 1%, would have to have an annual 24.84% return on the remainder of their portfolio in order for their $1M portfolio to grow to $5M in 10 years.

My retirement portfolio went up more than 7-fold in less than 6 years in 1994-2000 (i.e., using a $1 MM starting balance, more than $7 million six years later.) The S&P 500 about doubled over that time period, NASDAQ up by 400%.

And of course, there we people with $50 to $100 million fortunes all from a zero start back in the 1990’s. Eventually, they gave back 50% to 90% of that in the bear market, depending on how diversified they were.

Those we the days.

intercst

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57

Not so much for higher income/higher net worth retirees

High(er) income/net worth retirees should already be insulated due to their wealth and income from a sustained drop in standard of living.

Look at the last 20 years of boom and bust - the rich have the vast majority of the wealth gains. I don’t think they need to worry - I am certainly not worried for them (they can afford to lose a hell of a lot more than everyone else).

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58

I’m replying in the new interface so I can see how this works. Truthfully this thing is maddening.

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59

One of the things about posting on a thread from the old system is that when people open it to read it they start at the top. The system remembers where we leave off in new threads, or old threads after we read them. It does not know where we left off on old threads we haven’t read. To get to your message I had to scroll through the whole thing, as will everyone else.
And when they get to the end they can see this message about why.

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60

Not everyone :slight_smile:
I see a scroll bar at right (in this thread: 1/59 Sep13 ----> 1d ago)
Hover over 1d ago, it will say “jump to last post”, click & poof, there you are

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