your asset risk allocation should be set at whatever level it takes for you to sleep well at night.
Folks bet against the market all the time. If you are concerned, take some profits.
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IIRC, the S&P dropped right around 25% by the end of the 3rd Q of 2022, from January 2022. Iām hoping we donāt have another big drop too soon. 
I remember my 3rd Q 2022 statements looked awful. 
I do worry some about a big crash. We could live off our (not that high) pensions also, and we have way more than is smart in cash, so I do sleep well at night. Being retired and not having lots of dollars coming in would make a crash feel more real, but IIRC, if you left your money alone back in 2008, it didnāt actually take that long to recover.
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Both FAs have done Monte Carlo analysis. One suggests 100% probability that even with conservative assumptions, we are OK. The other has a 92% probability.
In answering the original question of āhow much do you think you need to retire?ā, does that include the addition to net worth that comes from our home? On the one hand, we would need to live some place. On the other hand, this is tougher if one has an expensive home and/or invested in renovation. I guess the first argument fails because one could always sell oneās house and rent.
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The federal funds rate is 5.33%, so there are many guaranteed fixed income options paying near 5.33%. For example t-bills are near 5.4% and state tax exempt Vanguardās default sweep is at 5.39% (with compounding, APY). Some other money markets are a bit higher .
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Yes, there was a large drop in the year 2008, and a quick recovery in 2009-10 The time to recover a lump sum at start of 2008 by portfolio is below:
- 100% stocks (US index) ā Feb 2011 (3 years, 1 month)
- 80% stocks / 20% bonds ā Dec 2010 (2 years, 11 months)
- 60% stocks / 40% bonds ā Sep 2010 (2 years, 8 months)
In my opinion, the more challenging crash from both a financial and psychological perspective was the Dot Com crash in early 2000s, because it was extended over a much longer period, with 3 sequential losing years. Doing the same time to recover lump sum comparison for start of 2000:
- 100% stocks (US index) ā Jan 2006 (6 years, 0 month)
- 80% stocks / 20% bonds ā Nov 2004 (4 years, 11 months)
- 60% stocks / 40% bonds ā Nov 2003 (3 years, 11 months)
Worst of all would be something that has never happened before in US, so risk cannot be evaluated using backtests of past historical crashes. An example is 1990s Japan, after which which Japanās world market cap dropped from 45% of world in 1990 to 6% of world today, with growth stagnating in Japan for decades. Itās debatable whether it is possible for this type of event to occur in the US, with similar severity.
Different people have different risk tolerances for such events, different time horizons, and different financial situations. I keep ~28% non-real estate assets in some form of fixed income (bonds, t-bills, money markets, bank accounts, ā¦), which I believe aligns with my degree of risk tolerance. I also tend to think long term, so I felt no significant psychological effects or desire to change my investments during the recent 2022 market decline or flash crash during COVID 2020. It also helped to have a good portion of assets in primary home, so % change in net worth was quite small during such events.
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My family has also been moving money into CDs. After years of waiting for decent CD rates they are finally here, so we are taking advantage of them.
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We will be looking to put more in high quality bonds, I think, when the Fed is done raising rates.
Yes, addressing the risk analysis and how to have your investments set up to align with your risk tolerance ā and over time checking your risk tolerance, especially with differing financial and other needs as one ages.
If people decide to relocate after retirement, deciding what kind of primary and possibly secondary home is desired. I know with what is going on in our household, we will be at our current location going into 3 more years for sure. By then, DD1/SIL/family will know if they are staying in the city they just moved to - as SILās military commitment will end - and my hope is that with job stability there (which SIL can obtain, and DD1 has, along with stability of their 4 children) they will remain there. Tough big family move just happened.
DH has hobby things going on here, and DD2ās BF of 4 years is with us for another 1 1/2 to 2 1/2 years as he works his way up in a professional sports team organization - and then can most likely gain good career employment where DD2 is.
In the mean time, I have some home improvements I want to complete. Also watching āHouse Hunterā episodes, getting an appreciation of the kind of decisions couples make on home selection in different areas of the country. We probably wonāt move until after one or both DDs purchase a first home. They both are in big cities in different states than us (and each other) - I am good friends with a realtor in one city.
I eventually want to have some kind of place near DD1ās family - maybe a condo as a 2nd residence. Plan to visit twice a year now for a few weeks at a time (based on length of time worked out with DD). I am very close the the Gkids and can help the busy family during my visits. At some point, DH and I will make a road trip to DD1/family as part of a trip also seeing family and friends in the state where at one time we had lived (TX).
Hoping the home interest rates will settle down a bit over the next few years. Will have to see what home prices will be with selling/buying.
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Vanguard settlement fund is only partially state income tax free. Currently 47.6% in repos
My post said t-bills were state tax exempt, not Vanguard settlement fund (VMFXX). I live in CA, which is a 50% state, so Vanguard settlement fund is 0% state tax exempt for me.
Sorry. I misread your statement
This came out recently. Donāt have a gift link unfortunately.
Uh oh. Is $5 mil not enough? Yikesā¦!
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Depends on spending levels, of courseā¦
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They all seem pretty content, and none seem likely to run out of money. Iām left wondering how much money the divorcĆ©eās ex-wife has if he is worth $6.1M. A career as an airline pilot seems unlikely to generate that much in savings, even investing in tech stocks (especially after a divorce), so I assume he must have received a substantial settlement.
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Our good friend recently got divorced after many years of what we now understand was not a happy marriage. He mentioned working incredibly hard to save 5 or 6 million ā¦ and poof, half of it is gone. His buddies were more than happy to explain to him that he will be just fine!
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A paywall bypass for the WSJ article is at https://archive.li/5UKcJ .
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Based on the chart there, it looks like the median tax deferred retirement account value is just above $0 (49.5% have saved $0), while $5 million or higher is the top 0.1%.
But it looks like the example people with $5 million or more do not anticipate any financial difficulty in retirement.
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It depends upon the airline one is working for. The pilot referenced flew for Southwest, and those guys have the ability to adjust their schedule, work extra and make big bucks. They also get substantial contributions from the company to their 401kās. As a senior pilot, if he stuck it out until age 65 and invested aggressively (sounds like he did), he could definitely save 6 million. It would help even more if his ex-wife had a high income and he didnāt lose in the divorce. Of course, one never knows if someone had an inheritance, but it is very reasonable that if he worked extra, saved for 43 years of his career in the military and airlines, and lived below his means, he could save that much. Of course, the problem is always living below oneās means.
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