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    • ams25
    • By ams25 5th Feb 18, 2:52 PM
    • 135Posts
    • 150Thanks
    ams25
    Bear Market/Crashes: how do Retirees Deal with it?
    • #1
    • 5th Feb 18, 2:52 PM
    Bear Market/Crashes: how do Retirees Deal with it? 5th Feb 18 at 2:52 PM
    So maybe this is the beginning of a crash, correction, bear market, buying opportunity or maybe its nothing.

    And seems to me that we are really still very early in the accelerating shift from defined benefit pensions and annuities to more and more people having to live off a pot of savings and investments.. and to be able to deal with investing that and handling market sell offs as a norm. Not sure how well equipped people are for that.

    So whatever the current market movement is, it's a good opportunity to raise this question for retirees who have stopped regular work and rely on savings and investments (not defined benefit pensions/annuities of private or state varieties) for the majority of their income - how do you (or how do you think you will) cope with seeing a 10, 20, 40% portfolio decline and knowing you are reliant on the same portfolio for your future income.

    - will you ignore it and just carry on because you know markets go up, down and eventually up again
    - will it make you grumpy and irritable with loved ones
    - will you buy more equities because you saw this coming
    - are you comfortable your portfolio is structured to ride out the more common 1-3 year downturn, or the less common 5-10 year downturn/poor returns (or even the 1966 retiree nightmare of 17 years of poor returns and high inflation )

    I've lived through several crashes and bear markets but as I was working it was not all that difficult to ignore them because at the end of the day i didn't need the money anytime soon. In 2008 I (thought) I was around 15 years from retirement, or longer.

    I have tried to structure my asset allocation to suit what I think is my risk tolerance, not to need to sell equities any time soon and even have some funds available if I am brave enough at some point to buy. I believe I can cope with a 3% withdrawal rate over the long term which according to most experts should be a safe withdrawal rate.

    I've read loads to educate me that I am well set up so I should be fairly relaxed. So far the latest global sell off has not bothered me much, but if (or when) it proves to be the next bear market, we haven't seen anything yet.

    So if you have previous experience, as a retiree, how did you cope and what advice for us newbies.
    If, as many here are I suspect, this (or whenever) is going to be the first time as a retiree dealing with a major sell off, how do you see yourself dealing with it. what suggestions do you have for this community here to help them deal with it calmly and to maintain low stress levels.

    As they say, a problem shared.....
    Last edited by ams25; 05-02-2018 at 3:05 PM.
Page 1
    • Triumph13
    • By Triumph13 5th Feb 18, 3:49 PM
    • 1,163 Posts
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    Triumph13
    • #2
    • 5th Feb 18, 3:49 PM
    • #2
    • 5th Feb 18, 3:49 PM
    If this does turn into a full blown bear market, then it may test my resolve to retire this autumn, but I think I'll still go ahead. My strategy will basically be just be to hide under the duvet until it goes away. Relax, chill out, don't do anything expensive and definitely DON'T panic sell.
    I'm pretty sure I'll be fine as I have lots of slack in my budget and plenty of things I want to do that will cost very little eg catching up on my huge pile of unread books. When the markets recover then I'll do all the expensive things on my list.
    One thing that does worry me though is the wider economic impact if lots of people behave like me. In the good old days of DB pensions and/or annuities pensioners probably acted as a dampener on economic swings - they kept a constant level of spending / demand throughout because of their constant income. As drawdown gets more common, I worry that they'll start to act as an amplifier instead - translating market falls into real economic downturns as they rein in their spending in response.
    • dunstonh
    • By dunstonh 5th Feb 18, 4:10 PM
    • 91,124 Posts
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    dunstonh
    • #3
    • 5th Feb 18, 4:10 PM
    • #3
    • 5th Feb 18, 4:10 PM
    Bear Market/Crashes: how do Retirees Deal with it?
    Absolutely no differently to how to when the invested on day 1. You know they are coming. You will see many of them during the rest of your life. So, why should you act any differently when they arrive?

    how do you (or how do you think you will) cope with seeing a 10, 20, 40% portfolio decline and knowing you are reliant on the same portfolio for your future income.
    10% is not classed as a crash. Its correction territory and you see those every 1-2 years. 20% - last one was in 2015. That is a crash. 40% is more generational and depression level.

    Having been through a number of these, its a case of "here we go again". Been there done that, come out the other side as per usual.

    Realistically, if people are investing within their risk profile and capacity for loss, and not drawing silly amounts, then there shouldnt be an issue.

    This is also why your drawdown strategy should maintain a cash float for 18-24 months.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Anonymous101
    • By Anonymous101 5th Feb 18, 4:38 PM
    • 1,033 Posts
    • 407 Thanks
    Anonymous101
    • #4
    • 5th Feb 18, 4:38 PM
    • #4
    • 5th Feb 18, 4:38 PM
    I'm a long way off retiring but as I'm planning to retire early, hopefully by 50 or 55 at the latest, I have thought about it.

    It depends where exactly I am at the point of the decline in the market. Firstly a large crash can easily put retirement back by a few years by reducing the size of your pot. If I was yet to retire then I'd think very carefully about the timing of stopping to contribute to a pension / savings and beginning to draw down upon it.
    It may be that a couple of additional years working will see you through the bear market and leave you very healthy when markets improve. Another option is to stop contributing to a pension but not commence full drawdown. Essentially change jobs to something part time or lower paid just to see things through.

    If you're already retired then not panicking and monitoring the situation is essential. Perhaps you don't need to do anything at all. Maybe watching your spending a little more tightly is in order or maybe even going back to work part-time or even full time is an option.

    I think the trick is not to panic and make sure you're aware of the implication any down turn would have on your portfolio and subsequent income.
    • redux
    • By redux 5th Feb 18, 4:40 PM
    • 18,041 Posts
    • 23,219 Thanks
    redux
    • #5
    • 5th Feb 18, 4:40 PM
    • #5
    • 5th Feb 18, 4:40 PM
    What happens that defines when this could be happening? Something that was up 7% in a month or 14% in 3 months has dropped back 2.5% today, up 1% since lunchtime.
    • dunstonh
    • By dunstonh 5th Feb 18, 5:14 PM
    • 91,124 Posts
    • 58,142 Thanks
    dunstonh
    • #6
    • 5th Feb 18, 5:14 PM
    • #6
    • 5th Feb 18, 5:14 PM
    What happens that defines when this could be happening? Something that was up 7% in a month or 14% in 3 months has dropped back 2.5% today, up 1% since lunchtime.
    Originally posted by redux
    Media does love its scaremongering though. You are already seeing words like plummet, decimated, plunge, tumble. All on relatively minor volatility. They are going to run out of verbs when a real drop occurs.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • OldMusicGuy
    • By OldMusicGuy 5th Feb 18, 5:52 PM
    • 300 Posts
    • 569 Thanks
    OldMusicGuy
    • #7
    • 5th Feb 18, 5:52 PM
    • #7
    • 5th Feb 18, 5:52 PM
    I retire in 4 weeks. I set my strategy to handle this based on my risk profile (I am very risk averse). I have around 23% of my DC pot in cash, plus a similar amount in cash or near cash outside my SIPP. The remainder (about 55% of my total wealth excluding house equity) is invested in a mix of passive tracker funds and an active dividend focused fund.

    The invested money will be left as it is for 10 to 15 years and we will live off the cash and near cash (and SP) in the meantime. I'm happy to have risk free cash investments in ISAs and bond ladders at 1.7% to 2.3% to provide secure funds whatever happens (as I have posted many times, I don't believe in "inflation" so this level of interest is fine for me right now). The invested money will be able to ride out any market crashes in the next 5 years or so and is there to provide for us in later life. We will still have quite a bit of cash as well, that will not be completely spent in the next 10 to 15 years.

    I will probably draw down maximum tax free UFPLS annually until SP age (in 5 years) and make up any shortfall from cash outside the SIPP. I may invest some of the cash left in the SIPP after 5 years depending how things go.

    The biggest thing I have learnt spending time on MSE is to define a strategy that meets your risk profile and whatever you do don't start fiddling with things when the market takes a turn downwards.
    • bostonerimus
    • By bostonerimus 5th Feb 18, 6:54 PM
    • 1,552 Posts
    • 991 Thanks
    bostonerimus
    • #8
    • 5th Feb 18, 6:54 PM
    • #8
    • 5th Feb 18, 6:54 PM
    I wouldn't rely completely on volatile investments for income. So you might look at income from a rental property (although that's got it's issues) or maybe partial annuitization. Don't use overly optimistic projections in your retirement planning, be a bit conservative and have a pot that will fund your retirement with some headroom for unforeseen expenses etc.

    1) Have a realistic withdrawal rate.
    2) Have an asset allocation that has historically supported that withdrawal rate
    3) Stick to your asset allocation by rebalancing through market cycles.
    4) Have a detailed budget so you know where everyhting goes and a plan to reduce your
    spending in bad times.
    5) Have a buffer of cash/savings accounts/short term bonds that will take you through at least 2 years of spending so you can avoid selling into a down market.
    Last edited by bostonerimus; 05-02-2018 at 7:48 PM.
    Misanthrope in search of similar for mutual loathing
    • kidmugsy
    • By kidmugsy 5th Feb 18, 7:18 PM
    • 10,198 Posts
    • 6,923 Thanks
    kidmugsy
    • #9
    • 5th Feb 18, 7:18 PM
    • #9
    • 5th Feb 18, 7:18 PM
    They are going to run out of verbs when a real drop occurs.
    Originally posted by dunstonh
    But not nouns. Sharegeddon!!!
    Free the dunston one next time too.
    • westv
    • By westv 5th Feb 18, 8:40 PM
    • 4,445 Posts
    • 2,069 Thanks
    westv
    Dow Jones down 1500

    Tiiiiiimber!

    Sorry, I just had to get that off my chest!
    • Sterlingtimes
    • By Sterlingtimes 5th Feb 18, 8:55 PM
    • 1,399 Posts
    • 3,787 Thanks
    Sterlingtimes
    I retire in 4 weeks. I set my strategy to handle this based on my risk profile (I am very risk averse). I have around 23% of my DC pot in cash, plus a similar amount in cash or near cash outside my SIPP. The remainder (about 55% of my total wealth excluding house equity) is invested in a mix of passive tracker funds and a
    Originally posted by OldMusicGuy
    My approach is similar. I'm also risk adverse but I do believe in inflation! Even when you know how to be financially rational, when it's your own money and your own livelihood then there may be an urge to make adjustments. I have the SIPP portion of my pension layered into five years in cash, ten more years in absolute return type funds (including bonds and gilt-edged stock) with a reduced equity exposure, the remainder year in various equities. Perhaps near-term inflation can be disregarded, but I feel that anything could happen in the decades to come. My wife is 12 years younger than me so this may skew my thinking.
    Solar installed 21 November 2014 > Centre of England > 3,780 Wp > 14 *270 Watt Trina panels > 14 * Enphase micro-inverters > managed by Enlighten Envoy Hub > 19° west of south > 35° pitch > tree shading to east > iBoost > Wattson Anywhere monitoring > Ovo Smart Gateway > Schneider Electric (Drayton) MiGenie smart thermostat.
    • Thrugelmir
    • By Thrugelmir 5th Feb 18, 10:35 PM
    • 57,535 Posts
    • 50,829 Thanks
    Thrugelmir
    And seems to me that we are really still very early in the accelerating shift from defined benefit pensions and annuities to more and more people having to live off a pot of savings and investments.. and to be able to deal with investing that and handling market sell offs as a norm. Not sure how well equipped people are for that.
    Originally posted by ams25
    Your words remind me of a book I read some years back.

    This Time Is Different: Eight Centuries of Financial Folly

    History has a strange way of repeating itself............
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • ProDave
    • By ProDave 6th Feb 18, 9:07 AM
    • 644 Posts
    • 689 Thanks
    ProDave
    I am in the process of transfering a pension to drawdown. The side effect of that is it is all shifted to cash right now for the transfer. I will not be in a hurry to put it back into equities just now, so if the market is going to crash, can it please do it now.
    • redux
    • By redux 6th Feb 18, 1:55 PM
    • 18,041 Posts
    • 23,219 Thanks
    redux
    In the old days, where some people had a fund that must be converted to an annuity, without latitude as to the date, then the state of the market at the date of conversion could be significant.

    But now, since income drawdown was invented, and there is no grand conversion at a fixed date, things can be more gradual, spread over years.

    If someone did switch everything today, they would be a few per cent down compared to last Friday, but as it is someone else might instead just have 0.8 or 1% of the fund as a quarterly withdrawal and not worry about today's news.
    • atush
    • By atush 6th Feb 18, 2:06 PM
    • 16,546 Posts
    • 10,279 Thanks
    atush
    I would imagine, retirees deal with it by having enough cash ( I plan 2-3 years worth) to spend so they dont have to draw down during periods when prices are dropping. then they can start drawing again once prices recover.

    If they have income units, they could switch (even if temporarily) to accumulation units so as to buy more unots at lower prices.
    • Audaxer
    • By Audaxer 6th Feb 18, 2:13 PM
    • 918 Posts
    • 510 Thanks
    Audaxer
    If they have income units, they could switch (even if temporarily) to accumulation units so as to buy more unots at lower prices.
    Originally posted by atush
    Would it not be easier to just reinvest the dividends from Inc units at these times? I think to switch from Inc to Acc units would mean waiting for the sale proceeds from the Inc units being received, before being able to buy the Acc units, where prices may or may not move in your favour?
    • atush
    • By atush 6th Feb 18, 2:34 PM
    • 16,546 Posts
    • 10,279 Thanks
    atush
    Yes it could do, depends on the platform.

    And i would have a cash account to take the income before paying it out as requited so the cash acct could be used to make purchases. Or some have a same day settlement for buying/selling.
    • caldejud
    • By caldejud 6th Feb 18, 4:18 PM
    • 15 Posts
    • 7 Thanks
    caldejud
    As I have posted on the ERW thread earlier today , surely anyone with significant pension or drawdown funds should be doing at least some basic cash flow planning with an xls or a product like Retireeasy which we and others on here use. With a decent cashflow plan at least you can see the impact of a bear market on your future finances. If a sudden fall or continuous bear market throws up a big problem then you really do need to consider how risky you want your funds to be invested... and then the other problem if you decide to reduce the risk ...where do you put it? Cash , Gilts, Bonds, Gold?
    • enthusiasticsaver
    • By enthusiasticsaver 6th Feb 18, 5:02 PM
    • 5,705 Posts
    • 11,302 Thanks
    enthusiasticsaver
    DH and I are both retired. Luckily DHs DB pension covers our essential outgoings and my small DB pension covers the majority of our treats, holidays etc but we do depend on additional savings and investments to top this up and cover major capital spends. We get round the ups and downs of the stock market by keeping a substantial amount in cash assets. Our investments comprise of approx. 40% bonds and 60% equities and of that one third are income funds which pay out immediately to supplement our pensions. If the stock market goes down we will just ride it out.
    Debt free and mortgage free and early retiree. Living the dream

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • Thrugelmir
    • By Thrugelmir 6th Feb 18, 5:42 PM
    • 57,535 Posts
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    Thrugelmir
    at least you can see the impact of a bear market on your future finances.
    Originally posted by caldejud
    This isn't a bear market. They occur during a recession which no one is currently forecasting. More down to investor sentiment. As investors have had no where else to put their money for a while. Though 10 year US Treasuries have drifted up from 2.4% to 2.8%-2.9% in the past month. Are you optimistic or pessimistic. That's the driver currently.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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