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    • ams25
    • By ams25 5th Feb 18, 2:52 PM
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    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 2
    • ams25
    • By ams25 6th Feb 18, 7:34 PM
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    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 god 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.
    • westv
    • By westv 9th Feb 18, 8:42 AM
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    westv
    Currently, it appears to be a "correction".
    • gadgetmind
    • By gadgetmind 9th Feb 18, 4:28 PM
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    gadgetmind
    I'm kind of retired now and greet this volatility with a yawn. Well TBH as I have 250k to put into the markets next week, and a fair bit more come April, it's come as a welcome drop.

    If markets stay low until April, it's also saved me a fair bit of tax for exceeding LTA.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • westv
    • By westv 9th Feb 18, 5:30 PM
    • 4,525 Posts
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    westv
    I laugh in the face of my portfolio's 20k loss this week!
    • Thrugelmir
    • By Thrugelmir 9th Feb 18, 5:43 PM
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    Thrugelmir
    I laugh in the face of my portfolio's 20k loss this week!
    Originally posted by westv
    Given the past couple of years returns. I'm happy if it simply trades +/- 10%. As still well up in a 3 year period on an average basis. No point in being greedy. When the causes of the markets rise are simply down to Central Banks intervention.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • bostonerimus
    • By bostonerimus 9th Feb 18, 6:07 PM
    • 1,826 Posts
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    bostonerimus
    I laugh in the face of my portfolio's 20k loss this week!
    Originally posted by westv
    My accounts will be $100ks less than they were a couple of weeks ago. But you can only spend cash so until you sell it isn't real. Keeping these losses "theoretical" is why a retiree should have a cash buffer and get some income from things like dividends, spare time job, rent, annuities or a define benefit pension.
    Misanthrope in search of similar for mutual loathing
    • DairyQueen
    • By DairyQueen 9th Feb 18, 6:28 PM
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    DairyQueen
    Good topic for discussion OP. No offence to the zillionaire and comfortably-DB'd contributors but this post seems aimed at others - i.e, those that that can't rely on those kinds of financial cushions but whose essential retirement income is entirely exposed to the vagaries of cash returns and the markets.

    I'm a relative newbie too so others have far more expert views than I but (bar a few bits and bobs) my entire retirement portfolio is now self-managed.

    I will probably begin decummulation in around four years and, over the last 18 months, guided by this site and other research, I have chosen and implemented a retirement strategy that I hope will stand-up to most market conditions. The current volatility is an opportunity to test that strategy and learn from it.

    Others have mentioned the cash buffer and that's the foundation of my strategy. I have around three years income in cash. That allows me to sleep comfortably. Without that buffer I would not feel comfortable with such a high equity exposure (79/21) in my SIPP. I also have the equivalent of another year's income in a short-term bond fund. This is my defence against a protracted bear market, or an unforeseen, sudden call on a sizeable chunk of capital when the bears are ascendant.

    My core investments are three trackers with different timescales and each has equity/bond allocations relative to those timescales. The longer the timescale, the higher the equity allocation. I have adopted a three-period approach to retirement: short-term (drawdown in 4-10 years), medium-term (ditto in 10-20 years) and long-term (ditto in 20+ years). The amount invested in each tracker is pretty arbitrary and will be revised annually.

    I also have about one third of my SIPP invested in actively-managed, satellite funds. These investments are directed at sectors or regions that I either favour or that I feel are under-represented in my trackers. They tend to be more volatile (e.g. smaller companies) but are quite well-diversified. These are the assets that I will review first when annually rebalancing the portfolio.

    I am currently holding 4% of my SIPP portfolio in cash but am unlikely to invest that until the markets settle. I would prefer to miss any opportunistic gains( losses?) than try and guess the markets.

    I'm very sensitive to inflation as I have seen how it's ravaged the non-index-linked pensions of people I know. Thinking about it, I am so heavily invested in the markets because it's impossible to match inflation with cash and I suspect that I will invest more in cash if rates begin to exceed inflation.

    Right now my stress level is fine and I have no intention of changing anything in my portfolio. If I was in drawdown now I would have made a single withdrawal (of 3.45%) at the end of last year and that's the scenario I will be testing.

    I will be reviewing each fund's performance during this volatile period and may make some tweaks at the end of this year. Right now it's steady as s/he goes.
    • Thrugelmir
    • By Thrugelmir 9th Feb 18, 6:48 PM
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    Thrugelmir
    No offence to the zillionaire and comfortably-DB'd contributors but this post seems aimed at others - i.e, those that that can't rely on those kinds of financial cushions but whose essential retirement income is entirely exposed to the vagaries of cash returns and the markets.
    Originally posted by DairyQueen
    Annuities come in various guises. They should not be disregarded out of hand. As provide a guaranteed income stream. That combined with the state pension at least provides a solid base level.

    Foolish to leave ones entire pension invested at the whim of the markets. No amount of hindsight can predict the future. More so given the past decade. Where the aim of the Central Banks is actually to maintain financial stability. Not provide investors with a bumper return. That in fact has come about as there is no where else to invest/save money with any hope of a positive return. When there's only one game in town. Can only end one way.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • gadgetmind
    • By gadgetmind 9th Feb 18, 6:54 PM
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    gadgetmind
    This book looks at the merits of using capital to buy guaranteed income. My take away was at age 55 in low return times you'd have to be bonkers.

    https://www.amazon.co.uk/Living-Off-Your-Money-Retirement/dp/0997403403

    Of course, if you can get a DB pension off the magic money tree, then great, make it someone else's problem regards how the hell to fund it.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • gadgetmind
    • By gadgetmind 9th Feb 18, 7:01 PM
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    gadgetmind
    BTW, dunno if I was the "zillionaire", but we pulled down heavily on our ISAs to lend rellies 400k as a bridging loan when a house sale fell through. We've managed to bang 150k back in during the intervening months as other funds have come through, and now they've paid us back hence me saying drop is nice as silly rises were doing my head in.

    Future income is likely to be zero unless NV comes good so it's "living off money" from now on.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • Thrugelmir
    • By Thrugelmir 9th Feb 18, 7:02 PM
    • 58,490 Posts
    • 51,851 Thanks
    Thrugelmir
    This book looks at the merits of using capital to buy guaranteed income. My take away was at age 55 in low return times you'd have to be bonkers.
    Originally posted by gadgetmind
    I know a few people that have taken their NHS pension at 55 only to regret it a few years later. As their compatriots continue to grow their benefits to an even higher level.

    55 is a young age to retire. Worked with many people over the years that kept their hand in. Well into the 70' and 80's. Sharp minds never deaden.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • gadgetmind
    • By gadgetmind 9th Feb 18, 7:08 PM
    • 10,785 Posts
    • 8,662 Thanks
    gadgetmind
    I know a few people that have taken their NHS pension at 55 only to regret it a few years later. As their compatriots continue to grow their benefits to an even higher level.
    Originally posted by Thrugelmir
    Yup, keeping DB running if you can is no brainer. Zero DB for me as technology industry so none of this legacy.

    55 is a young age to retire. Worked with many people over the years that kept their hand in. Well into the 70' and 80's. Sharp minds never deaden.
    My sharp mind wants to work on more challenging things than work has thrown up for the last two years.

    I can retire and take 4% from pots pre state pension (and less post) with *zero* drop in "take home pay". Why keep on working? I can't put any more into UK pensions, tax is now at silly levels, stress and conference calls until 8/9/10pm were harming my health, so sod it all TBH.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • bostonerimus
    • By bostonerimus 9th Feb 18, 7:16 PM
    • 1,826 Posts
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    bostonerimus
    Good topic for discussion OP. No offence to the zillionaire and comfortably-DB'd contributors but this post seems aimed at others - i.e, those that that can't rely on those kinds of financial cushions but whose essential retirement income is entirely exposed to the vagaries of cash returns and the markets.
    Originally posted by DairyQueen
    There's been a lot of research into retirement income withdrawal rates from various stock and bond portfolios, but that doesn't give you the whole picture on how you might want to organize your money for retirement income. The UK was until recently heavily biased towards annuities and it has now flipped to DC drawdown and with interest rates so low annuities are seldom even considered and CETV are very tempting. Drawdown can seem very attractive with some reasonable assumptions, but you should always be conservative when planning retirement income and even if the 4% rules says you are very likely to be ok you should consider some income diversity. I expect at least partial annuitization to come back in favour as interest rates climb back up and stock markets start acting a bit more sensibly and revert back to less than double digit annual gains.
    Misanthrope in search of similar for mutual loathing
    • DairyQueen
    • By DairyQueen 9th Feb 18, 8:12 PM
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    DairyQueen
    Annuities come in various guises. They should not be disregarded out of hand. As provide a guaranteed income stream. That combined with the state pension at least provides a solid base level.

    Foolish to leave ones entire pension invested at the whim of the markets. No amount of hindsight can predict the future. More so given the past decade. Where the aim of the Central Banks is actually to maintain financial stability. Not provide investors with a bumper return. That in fact has come about as there is no where else to invest/save money with any hope of a positive return. When there's only one game in town. Can only end one way.
    Originally posted by Thrugelmir
    I am nowhere in your league of knowledge but I don't think I made any reference to disregarding annuities.... just not now. As far as I am aware there are only three sources of guaranteed, index-linked retirement income at the moment: SP, DB and annuities (the latter being particularly poor value right now). I'm open to learning if I've missed something in that list.

    Assuming that SP is not enough, and DB is absent, and annuities are very poor value what do we have left? As far as I know we have cash and the markets. As you say, that's the only game in town.

    It will cost a sum more than the average person has available to fund a 'base level' annuity at the moment. I'm sure that you know the size of the average retirement fund.

    I (and I'm sure others) know the risks involved. We may be newbies but that's the first lesson we learn. We have a choice: buy a (poor value?) annuity, invest in cash (at returns below inflation) or take a risk. With millions of others I have chosen to take a (I hope) calculated risk. If the markets go against me then I plan to draw on my cash reserve and top-it up when markets are better.

    I am not seeking a 'bumper return'. If annuities represented anything like a decent return - ditto cash - then I wouldn't feel the need to expose so much of my retirement fund to the markets. As things stand I feel that I have no choice.

    I also believe that when interest rates rise a large number of retirees will move funds from the market. In the interim 'one's entire pension is (not) invested at the whim of the markets' but definitely more of it is invested this way than would be so if there were any guaranteed/inflation-linked alternatives that made financial sense.

    I think it's likely that many retirees/, and hose close to, will move funds into safer investments if economic conditions return to historic norms.
    • Linton
    • By Linton 9th Feb 18, 8:34 PM
    • 9,386 Posts
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    Linton

    55 is a young age to retire. Worked with many people over the years that kept their hand in. Well into the 70' and 80's. Sharp minds never deaden.
    Originally posted by Thrugelmir
    You can keep your hand in and your mind sharp without all the hassles, politics and the life shortening stress of work. I've recently completed an OU BA in Maths. Working on the MSc now.
    • economic
    • By economic 9th Feb 18, 10:09 PM
    • 2,940 Posts
    • 1,586 Thanks
    economic
    You can keep your hand in and your mind sharp without all the hassles, politics and the life shortening stress of work. I've recently completed an OU BA in Maths. Working on the MSc now.
    Originally posted by Linton
    Totally agree. Even though i am working now (im 34) i plan to go part time soonish and on my "off" days i plan to continue to learn to code.
    • Audaxer
    • By Audaxer 9th Feb 18, 11:06 PM
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    • 602 Thanks
    Audaxer
    I am currently holding 4% of my SIPP portfolio in cash but am unlikely to invest that until the markets settle. I would prefer to miss any opportunistic gains( losses?) than try and guess the markets.
    Originally posted by DairyQueen
    DairyQueen, you seem to be well organised with a good strategy, but I'm interested in your comment above. When you say unlikely to invest the cash until the markets settle, do you mean wait to hopefully settle at a much lower level than at present? I am not yet fully invested and am also happy to bide my time in the current circumstances, but if they continued to fall to say 20% I'd be tempted to invest more at that time even although they may well still be volatile and could fall further.
    • ams25
    • By ams25 10th Feb 18, 9:06 AM
    • 159 Posts
    • 186 Thanks
    ams25
    My accounts will be $100ks less than they were a couple of weeks ago. But you can only spend cash so until you sell it isn't real. Keeping these losses "theoretical" is why a retiree should have a cash buffer and get some income from things like dividends, spare time job, rent, annuities or a define benefit pension.
    Originally posted by bostonerimus
    managing to stay calm in the face of 50k or so of paper (online?) loses this month...not interested in knowing the exact amount. My asset allocation has helped to moderate losses a little and gains over the last 18 months since I stopped working/retired reassure. Quietly pleased with myself that I have handled this first, albeit small, test satisfactorily. Even my wife was surprised by my response...fearing a less tranquil reaction to plunging markets.

    Now mentally telling myself that if it were 300k instead that would be ok because I have cash and bonds to tap into before I go near forced equity selling. No doubt that would/will be a lot more painful but the principle is the same as the last week of loses just supersized.

    The likes of Jim Rogers saying the next bear market will be the worst in our lifetimes (and he's in his 70s) is sobering....and you have to hope this is not a 1966 scenario in the making.

    But as they say, nobody knows nothing.
    • Thrugelmir
    • By Thrugelmir 10th Feb 18, 9:43 AM
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    • 51,851 Thanks
    Thrugelmir
    You can keep your hand in and your mind sharp without all the hassles, politics and the life shortening stress of work. I've recently completed an OU BA in Maths. Working on the MSc now.
    Originally posted by Linton
    Not suggesting that one works in a normal everyday full time position. With years of experience in a particular field one knows when one is right. Being politely blunt is an effective tool for dismissing those that expel hot air.
    Last edited by Thrugelmir; 10-02-2018 at 9:47 AM.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Audaxer
    • By Audaxer 10th Feb 18, 9:48 AM
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    • 602 Thanks
    Audaxer
    managing to stay calm in the face of 50k or so of paper (online?) loses this month...
    Originally posted by ams25
    Gosh, that's a lot! I'd be interested to know which has fallen most in the last month - your active or passive portfolio?
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