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July 13, 2014

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Tom Sightings

I have had some of my retirement savings in stocks and mutual funds -- but I can see in hindsight that I haven't invested nearly as much as I should have. Fortunately, I didn't bail out in 2007-09, but just kept things steady. Now I can see I should have gone "all in" in 2009 ... but this is not poker, it's my future, so I guess discretion is the better part of valor.

Fortunately, ever since I "retired" in my early 50s, I've been able to work part-time consulting and freelancing. I enjoy the work; it keeps me busy; and while I don't make a lot of money, it's enough to keep me from dipping into my retirement accounts too much.

That's why I'm a big proponent of part-time work in retirement, esp. if you retire early, as long as you can find something that you enjoy doing. My next career -- working on a golf course; I think that would be fun.

Cindi

Hindsight is 20/20. But you can't go backwards.

We made a few tweaks in our budget that enabled DH to retire at 57. I retired at 50. The secret for us is to keep making those tweaks. Keep being creative. Keep finding new ways through the maze.

Our rate of return on everything is between 5.5% and 6%. Are we well off? Depends. We have the Goldilocks Syndrome: we have enough which is 'just right' for us. Have no idea what another person might need/want.

Today I took one of those quizzes that lets you know how much you need per month in retirement. It said we needed $6501 per month. That's funny because we only spend $2400 a month. The quiz result had me spending $600 a month on meals out. We hardly spend $25 a month but there was no category for checking off 'no meals out', so the quiz just assumed we did.
It also said we would be spending $2000 a month on housing but in reality we only spend $816 (taxes, insurance, maintenance).

The longer I am retired, the more I understand and respect each and every fellow retiree. People need to do what is best for them and there should be no judgment. Just a sharing of ideas and suggestions.

Glad you're back posting.

Juhli

I agree so much with your perspective! We are risk averse with a focus on having enough for the rest of our lives. We did get some benefit from the stock market run up as we just sold the stock mutual funds from my parents' estate. However we also had to sell the bond mutual funds so it may have evened out. I refuse to look at that LOL. Now what to do with my inheritance?

Retired Syd

Tom: Further to the discussion on picking up part-time work in retirement, David Blanchett had a great article in Marketwatch: http://www.marketwatch.com/story/why-retirement-planning-is-more-than-401ks-and-iras-2014-06-20 that talked about the value of "human capital" in your retirement portfolio. It acts kind of like a bond when considering your total wealth picture.

Cindi: Well you are the queen of figuring out how to do more with less (not to mention making a little extra retirement income from renting out your vacation place). Looks like you've gotten back to blogging again too!

Juhli: Well good luck figuring that out! Sounds like you will be very careful with it.

Angela

I learned a long time ago to ride the waves of the stock market, and adopted a buy and hold attitude toward investing. Feeling pretty smug about it now that my portfolio is don't so well. But I still have 'bag lady syndrome'... Always worrying about my future. Thanks for reminding us that there are simple ways to tweak each of our scenarios... and to keep looking forward!

dgpcolorado

First thing I did when I retired young in 1999 was sell a chunk of my all stock 401(k)/IRAs and buy TIPS at the rather high interest rates (3.7% plus inflation) available then. A few years later TIPS were "discovered" and those interest rates are long gone, probably never to return.

After that adjustment I weathered the 2000 bear market with little damage. And several decades of investing experience allowed me to sit tight in 2008 during that big bear market, since I knew that it would come back eventually (I did buy some stock shares in Feb 2009 just before the bottom, but cash was tight after that big plunge).

I do feel sorry for those who panic and sell at the bottom of a bear market, then swear off stocks until the bull market has been going for several years. "Sell low, buy high"? How is that a successful investing strategy?

One way to help avoid panic selling is to be sure to have several YEARS worth of living expenses stashed in liquid investments so that there is no need to sell into bear markets to raise cash. This is a must for early retirees who are living off savings and investments alone. I have mine in Series I Savings Bonds, purchased when interest rates were much higher (of course).

One more thing. I've mentioned this before: Social Security is basically an inflation-indexed annuity and can be considered as part of the fixed income portion of a portfolio. If more people would figure SS into their investment mix they might find that their allocation to stocks isn't nearly as high as they think and they might sleep better during bear markets.

Retired Syd

Angela: You kept a cool head, you earned the right to be a little smug in my opinion.

dpg: I agree about the cash. And here's a great article about viewing Social Security basically as the equivalent of TIPS in your portfolio: http://www.marketwatch.com/story/social-security-as-part-of-your-portfolio-2013-08-19. I think you could have written it yourself!

deegee

Syd, you already know about my early retirement. I ERed in late 2008 as the markets were crashing and that was a BIG help to my ER budget because I was able to buy low at bargain-basement prices while selling while still pretty high.

I am not that concerned about my overall rate of return (which is about 4% so far in 2014) because I do not sell shares of anything to pay my expenses. I rely on a monthly income stream from mostly bond fund dividends which is a function of the number of shares I own and the dividends per share they generate. Nowhere in that forumla is what those shares are worth so if those shares rise or fall in value it makes no real difference. That provides me a great level of comfort.

P.S. Syd, I love your Gumball Rally reference. That is my faorite line of the movie and I often act it out recalling how actor Raul Julia (since deceased) delivers that memorable line.

Retired Syd

deegee: That's funny (about the Gumball Rally reference)--I use it often too! Just never in print before.

Jacq

I'm not sure, but you might be in the minority on that among ER-r's:

http://www.early-retirement.org/forums/f28/your-2013-investment-return-69894.html

To me, it's a business and if I don't run my business properly then I'm going to have to give it up to a more passive strategy like the Permanent Portfolio or DGI or Couch Potato Portfolio - wherever I can do the least damage. TBH, I would really miss the math and calculations part though. (Also think I'm competitive at games - and beating my estimates is a game - so that might explain some of the focus.)
Like deegee, I don't get too fussed about the ups and downs since the dividends don't change despite all the noise.

Retired Syd

Jacq: I do think I'm in the minority on this one. But just because I don't know my rate of return doesn't mean I don't know how I'm doing in this business of retirement. I update my balance sheet each month and rebalance whenever my allocation gets out of whack. And I project out from my current balance what the next 50 years are projected to look like so I don't wind up negative before I turn 100.

When I retired, my retirement projection worksheet got me to 100 when I projected an average earnings rate of 2% over inflation. Now, the spreadsheet works while assuming future growth of 1% over inflation. So while I don't know what my actual returns were each of the last 6 years, I do know it's better than I originally projected because my assumptions going forward can afford to be even more conservative than when I started.

Which means to me, my asset allocation and spending levels don't need tweaking for now. In other words, no action necessary (going forward) at the moment.

If I went back and calculated my returns for the last 6 years, I would undoubtedly find they were WAY worse than I projected for 2008 and 2011 and WAY better for 2009, 2010, 2012 and 2013. But I'm not sure that gives me any more actionable information than I already have.

Karen

We have used non-traded REITS for part of our portfolio. They pay between 6 to 7% and then when they go public they have sold at a profit.

Jacq

Oh definitely hear what you're saying, didn't at all mean to imply that you didn't treat it as a business. Everyone - not just retirees - should look at their personal financial position as IncMe. I think we're coming at the same place (ie. do I need to do something different?) just in a different way or for a different purpose. I also suspect that most accounting types can get a good ball park figure for their returns at a glance without even pulling out a calculator or spreadsheet. I'll have to have a full year of not contributing to see if that's true or not. :-)

It's interesting that you project out much farther than I do. I read somewhere that future oriented people will project out something like 33 years. I've got my spreadsheet going out to 65 but gave up going past that when I decided it was just too much of a crapshoot - and got tired of playing with the estimated net returns cell, downsizing proceeds/timing, etc. etc.

Retired Syd

Jacq: Well you and I are similar in that we can't shed our accountant-like tendencies. Job hazard I guess. Although how you could ever get tired of playing with a spreadsheet I'll never understand :)

I know 100 is way too long (especially since the likelihood of BOTH of us living to 100 is next to nothing). But then there will be room for things I've not built in, like possible long-term care costs and other unforeseen costs. That is definitely the accountant in me, overly conservative!

IncMe--I like it!

Jan

My husband pulled household and his IRAs before the last crash. He dabbled for a bit. It has been in cash for three years. I took my portfolio and invested in mutuals and single stocks. Since we calculate everything together, we made about 5% last year. I am about to sell all and take a year to dollar cost average in again.
Our nest egg is for old age. Thank God my husband bit the bullet and suffered through an Army career. His pension is not large, but with the house paid off, we are golden :) I am thinking we will feel rich when we start Social Security.
Life is good.
Missed you Syd! Glad to see you here again!

Retired Syd

Thank you Jan!

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