Bear Market/Crashes: how do Retirees Deal with it?

Thrugelmir

ams25 wrote: »

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.

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............

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

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

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

atush wrote: »

If they have income units, they could switch (even if temporarily) to accumulation units so as to buy more unots at lower prices.

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

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

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

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.

Thrugelmir

caldejud wrote: »

at least you can see the impact of a bear market on your future finances.

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.

ams25

I agree having a cash reserve and/or sufficient income funds to cover c.2 years expenses is very important and could not see myself not having this in place and sleeping well! You do read of folk having an aversion to cash (performance drag) so having only 6-12 months rather than 1-2 years. That's worked out ok for them over the past 7 or 8 years, but who knows if that will be a good plan over the next 5.

My reading and (ongoing) understanding of safe withdrawal rates has also really helped me to be much calmer (so far) about declines. Anybody seriously intending to live off a portfolio should invest time in this topic. Www.earlyretirementnow.com is a really gòod site for this. It helps not because there is a simple safe answer but to understand better what should work and what probably won't, depending on your own objectives (e.g. deplete a portfolio vs leave a legacy etc) and circumstances.