Took my balance in my 401K program out of all stocks, bonds

[turbo]

I'm going to ride things out and hope my mutual fund managers buy like crazed lawn-sale ladies when stocks bottom out. I can't realistically hope to start pulling out my principal for maybe 10 years or so, and I hope we have some actual adults in DC by then.

 

[Jack21222]

When people think the worst of the market, it makes a bull run.

When people thought the worst of the market, it crashed 10% lower from the time you made this comment.

 

[rhody]

http://latimesblogs.latimes.com/money_co/2011/08/dow-down-633-points.html"

I can't understand why people are so shocked by this. I am within ten years of retirement, back about 13 years ago another company Raytheon, had their stock value plummet by over 60% to 25 $ and change a share. Today, it closed at 39.41 $ down 1.89 $. The stock has NEVER recovered in those intervening 13 years. My stock has dropped over ten bucks a share as well.

If the market's correct themselves and investment comes back, then you will see the stock price come back, however, I cannot afford to take that chance this time. Young people should not be so concerned, but when it is your retirement savings if you have half a brain, you had better be.

Rhody...

P.S. FYI. http://online.wsj.com/article/SB10001424053111903454504576493062552222944.html?mod=googlenews_wsj"

 

[rhody]

On a positive note, for creative thinkers among us, back in 1980 I had a car loan for about 5200$ and was a renter. Had I somehow secured a loan for 10,000$ and bought Microsoft stock, and paid off that loan and held onto the stock. I would be worth more than a million dollars from that one transaction alone. Never give up on your dreams, friends. There are always creative ways to make them come true.

Rhody...

P.S. Looking back at the situation, I could have done it, but didn't have the courage to do so, so as they say without risk there is no reward.

 

[turbo]

Well, as I said earlier (since stock-trading is not one of my skills) I hope my mutual-fund managers buy like crazy lawn-sale ladies as stocks bottom out. I spent a lot of time with my financial adviser at Principal figuring out how to diversify, so I have a wide range of holdings in US, International, Pacific, etc funds. As panics drive prices down in stocks in each of these markets, I pray that the managers buy up quality stocks so that I can fully recover from the Bush recession. Hopefully, the Fed will raise the short-term interest rates too, since I planned to live off the interest on my money-market accounts. My wife's family is very long-lived, and I want to retire on interest and dividends so that she won't have to touch our principal for the next 30+ years.

We are well-positioned, but I don't doubt the potential for radicals in our government to destroy our economy, so we have stayed liquid and stable in much of our investments.

 

[rhody]

Well, as I said earlier (since stock-trading is not one of my skills) I hope my mutual-fund managers buy like crazy lawn-sale ladies as stocks bottom out. I spent a lot of time with my financial adviser at Principal figuring out how to diversify, so I have a wide range of holdings in US, International, Pacific, etc funds. As panics drive prices down in stocks in each of these markets, I pray that the managers buy up quality stocks so that I can fully recover from the Bush recession. Hopefully, the Fed will raise the short-term interest rates too, since I planned to live off the interest on my money-market accounts. My wife's family is very long-lived, and I want to retire on interest and dividends so that she won't have to touch our principal for the next 30+ years.

We are well-positioned, but I don't doubt the potential for radicals in our government to destroy our economy, so we have stayed liquid and stable in much of our investments.

Good for you turbo, I hope you succeed in your strategy.

Rhody...

 

[turbo]

Good for you turbo, I hope you succeed in your strategy.

Rhody...

Me, too. I was earning lots of interest on the MM funds until the jerks running the Fed kept dropping the short-term interest rate to satisfy Wall Street. That stinks! Much of the shift of wealth from the middle class to the wealthy was accomplished via the Fed's actions in keeping money cheap for speculators. This crap has not been properly addressed by the current administration, though you can find blog posts by Robert Reich explaining how this theft was engineered.

 

[Jack21222]

I wish I had money to invest as this market bottoms out... Any extra money I get goes to paying down my home equity line of credit. It's only 4% interest, but it's variable rate, and if they ever start bringing interest rates back up, I want to have that as low as possible.

 

[rhody]

On a positive note, for creative thinkers among us, back in 1980 I had a car loan for about 5200$ and was a renter. Had I somehow secured a loan for 10,000$ and bought Microsoft stock, and paid off that loan and held onto the stock. I would be worth more than a million dollars from that one transaction alone. Never give up on your dreams, friends. There are always creative ways to make them come true.

Rhody...

P.S. Looking back at the situation, I could have done it, but didn't have the courage to do so, so as they say without risk there is no reward.

I wish I had money to invest as this market bottoms out... Any extra money I get goes to paying down my home equity line of credit. It's only 4% interest, but it's variable rate, and if they ever start bringing interest rates back up, I want to have that as low as possible.

Jack,

Keep my suggestion in my previous post in mind, even if you need to borrow the money, consider paying off the loan an investment, if I had done the same thing with google stock I would have been wealthy, its stock http://quotes.nasdaq.com/asp/SummaryQuote.asp?symbol=GOOG&selected=GOOG". Amazing, huh ?

Rhody...

 

[Borg]

Ah, here's the reason for the drop!

 

[FlexGunship]

I understand that there's no correlation but, it seems like the market always drops when we go on vacation.

Stop going on f***ing vacation! I'm trying to save for retirement here!

 

[Borg]

Stop going on f***ing vacation! I'm trying to save for retirement here!

It wasn't me, it was the Smurfs.

 

[rhody]

OK, a couple of folks who jumped out of stocks just jumped back in in the past few days. it will be interesting to see if in a few weeks or a month if they made the right choice.
Stay tuned, there will be plenty of screaming and gnashing of teeth if they made a bad call, and you will hear first, I promise, hehe...

Rhody...

 

[rhody]

Approaching the two month mark, in another week and a half or so, and the stock price is still down over 12%, it has dipped as low as 15% of the below the price I sold it at. My trepidation and decision to sell was well founded, at least in the short term.

Now the trick is, if you are going to jump back into the market, under what conditions do you pull the trigger ?

Rhody...

 

[Borg]

Approaching the two month mark, in another week and a half or so, and the stock price is still down over 12%, it has dipped as low as 15% of the below the price I sold it at. My trepidation and decision to sell was well founded, at least in the short term.

Now the trick is, if you are going to jump back into the market, under what conditions do you pull the trigger ?

Rhody...

Well, now that I'm back from vacation...

Seriously though, I'm still not sure that it's over. My original two main worries (the Euro and the US budget cuts) are still iffy. I don't see any good news on either front - just more disagreements and squabbles.

As far as the Euro is concerned, I don't think that any country with a stable currency would be willing to become a Euro member right now.

The US budget is supposed to be cut by 1.5 trillion in the next few months. What's going to happen when that hits the fan?

 

[Alfi]

Personally, I don't play the money game. So I am just an observer to the game.

All I know is, we have not lost anything through my wife's ( and her adviser ) choices over the last ten years.

I did buy a couple of gold pieces as a gift for her at ~100 an ounce.
I just liked the sound of them chinking together. they stay in a safety deposit box now :(

All this stock stuff ... it's not the same as making money by the sweat of your brow or the strength of your back.
It's sitting back, doing nothing, and hoping your money is worth more.

 

[rhody]

Almost the end of September and my stock price just went down another 3 dollars, that puts me a little over -20% since I got out of it, the end of July. Rough numbers here, about 10% average drop per month since I got out. I predicted (to myself at least) that it would not exceed -25% in the next year or two, let's see if I am a nobody or suddenly the luckiest economic expert on the planet. Let's see how the numbers run from here, shall we ?

If I trust my predictions then, the 20 - 25 percent range would be a good time to jump back in, no ? I don't need to worry about short term withdrawal for a number of years so I am OK there as well.

Rhody...

 

[rhody]

I just checked the stock price today and it is down about 14% when I put the funds into fixed this July. From the scary look of the US economy with the super committee's failure to reach a compromise and 2012 being a presidential election year, and the weakness in many countries currencies in Europe, I don't plan on getting into stocks again until possibly Q2 of 2012.

However, my gut tells me to wait it out till Q1 of 2013 after the next election cycle. Obviously I want to get into it at the bottom and ride it up again. I figure one more ride up in the market and I will be out for good, I have a target percentage return in my head, and once I reach it I will lock into fixed for good. Let's see if these predictions were are or full of ... a year and a half from now. For those who are in the 10 year countdown range from retirement, what are your plans ?

Rhody...

 

[Borg]

I'm still sitting also. I was nervous last month when the S&P went to 1275 but, I continued to hold off.

I've been spending a good a good amount of time watching daily market news coverage. I originally expected that Greece and Italy would require some fiscal intervention and that the markets would eventually move on. But, now there's Spanish bond yields hovering over 6%, France's AAA rating in danger and finally today's weak bond auction in Germany. Definitely doesn't seem like a time to jump in.

 

[rhody]

WSJ: How to Make Your Nest Egg Last Longer

Those who stick to the convention of annually spending no more than 4% of their initial retirement savings—adjusted each year for inflation—can "use the tax code to make their portfolios last up to seven years longer," says Baylor University Prof. William Reichenstein, a principal at Retiree Inc., a Leawood, Kan., company that helps retirees plan tax-efficient withdrawals.

How It Works

For simultaneous withdrawals to work, retirees should have at least two of the following three types of accounts: regular tax-deferred IRAs and 401(k)s; tax-free Roth IRAs and 401(k)s; and regular taxable accounts.

The first step, he says, is to put off claiming Social Security. A delay will increase their future benefit and reduce the amount of those benefits subject to tax.

In the interim, Mr. Barber says, the couple should withdraw the $70,000 from the taxable account. At that rate, the $300,000 account will support them for about four years.

To see why, consider what will happen in four years, when the couple drains the $300,000 taxable account. At 66, they will qualify for a combined $44,000 in Social Security—or 33% more than they would have received at 62, says Mr. Barber.

From a tax perspective, a bigger Social Security benefit is good news. Why? The formula that determines how much of an individual's Social Security is taxable counts only half of a person's Social Security income. So, in contrast with income from a regular IRA, "you can receive twice as much Social Security income before you ever trigger a tax" on your benefits, says Mr. Mahaney of Prudential.

The couple is also likely to reap future tax benefits. Thanks to the Roth conversions, their tax-deferred IRAs will be smaller. Thus, when required distributions from those IRAs begin at 70½, the withdrawals—and the taxable income they create—will be lower. And tax-free Roth withdrawals can supplement income in years in which tapping other accounts would push them into a higher tax bracket.

The math is sticky, but the benefits can be large.

Is anyone following this thread already using this strategy ? Are there any pitfalls not covered in the quoted text or the article ?

Rhody...

 

[turbo]

Is anyone following this thread already using this strategy ? Are there any pitfalls not covered in the quoted text or the article ?

Rhody...

There are pitfalls in part because everybody's financial needs in retirement are different, so one can't get too simplistic.

For instance, except for energy costs (electricity, gas and oil) it is not very expensive to live here. BUT, women in my wife's family tend to be very long-lived, so that has to be factored in. Actuarial data isn't always helpful for outliers.

I would suggest that you "pay yourself first". For instance, don't take out a loan on a house (and especially not on for something that depreciates quickly, like vehicles). Buy those with cash. Savings accounts, money-market accounts, etc are essentially paying 0% interest thanks to Fed's policy of shoveling free short-term money at Wall Street. It's nuts (IMO) to park large amounts of money in such savings accounts at no interest, and take out loans on big-ticket items that charge significant interest. Pay with cash, avoid paying any interest, and you have pocketed the difference. That's not just a good strategy for tough times - my wife and I have been doing this for decades. Can't afford it? Don't buy it.

Our savings account and money market account are essentially stagnant, as is the "interest-paying" checking account, since banks aren't paying any interest (beyond nominal amounts that don't even approach inflation). My IRA (built of rolled-over 401ks) and my wife's 401K are doing better, plus we have smaller defined-benefit retirement plans from previous jobs.

I wouldn't stay as liquid as we are, except I'm always keeping my eye out for large tracts of nice timberland that I could buy when the owner is retiring or otherwise wants to cash out fast. Not having to ask a bank for a loan means not having to pay for foresters to cruise the property and evaluate the timber. Just review the tax records, hire a lawyer to review the title, and set up a closing.

It goes without saying that you have to be very conservative and live within your means for many years to be able to save and pull this off. Both our parents came up during the Depression, so such lessons were drilled into us from a young age.

Caveat: I have no training as a financial adviser - but these strategies have worked well for us.

 

[John Creighto]

I'm not too savvy either, Don, but I smell a bubble.

Maybe but if you look at the graph between 1988 and now, the price of gold has trippled. The same thing has happened to the money supply in this time period (M3). see graph bellow:

http://www.paulvaneeden.com/Sites/paulvaneedencom/Root/Web/Images/page_35/200807041.gif
http://www.paulvaneeden.com/The.Actual.Money.Supply

 

[lisab]

Maybe but if you look at the graph between 1988 and now, the price of gold has trippled. The same thing has happened to the money supply in this time period (M3). see graph bellow:

http://www.paulvaneeden.com/Sites/paulvaneedencom/Root/Web/Images/page_35/200807041.gif
http://www.paulvaneeden.com/The.Actual.Money.Supply

Interesting...in 23 years gold has tripled. In January 1988, the Dow Jones was 1,988, http://finance.yahoo.com/echarts?s=%5Edji+interactive#symbol=%5Edji;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;. Right now, it's 12,100. Looks like buying gold in 1988 and holding it until now would not have been a great idea.

 

[Ivan Seeking]

I'm not too savvy either, Don, but I smell a bubble.

You're not the only one.

 

[turbo]

You're not the only one.

Lots of bubbles going on simultaneously. You have to know when to bail out if you are in an overvalued asset. If not, your "paper profits" can be gone overnight. If your paper profits are being supported by fiat currency being shoved out by the Fed, eventually there has to be a correction, and that might not be nice.

 

[jtbell]

WSJ: How to Make Your Nest Egg Last Longer

Is anyone following this thread already using this strategy ? Are there any pitfalls not covered in the quoted text or the article ?

There are two parts to this: postponing taking Social Security benefits, and converting some of your tax-deferred IRA / 401(k) / 403(b) to a Roth account.

As far as I can tell, postponing SS benefits is pretty much a no-brainer, provided you have other sources of money to live on in the meantime: working longer and/or drawing down your savings. For each year you wait to start collecting SS after your full retirement age (66 in my case), your benefits increase by 8%, up to age 70 (32% total). And they increase more or less with inflation after that.

I'll probably stop working at 63, but I'll have enough saved up that I can wait until 70 to start collecting SS, unless the world economy falls apart completely in the meantime.

You have to live long enough so you "break even", so if you think you're going to be dead by 75, you might as well take SS at the normal time, or even early. I've projected my own situation using a spreadsheet for each way, and I break even somewhere between 75 and 80. My father lived to 81 (lung cancer from smoking), and my mother lived to 94, so I expect to come out ahead by postponing.

As far as I can tell, the Roth conversion trick doesn't yield anywhere near as much money in itself, but I'm going to consider it in a couple of years when I can start taking money out of my 403(b) retirement plan without penalty (apart from having to pay taxes on it). It depends on how much I can take out without bumping my wife and me from the 15% tax bracket (where we're likely to be at that point) to 25%.

Of course, if we get a complete tax and/or SS reform by then, it may reduce the "need" to play games like this. Or it may not...

 

[turbo]

Of course, if we get a complete tax and/or SS reform by then, it may reduce the "need" to play games like this. Or it may not...

Don't hold your breath on this account. There are vested interests that are determined to maintain the status quo.

 

[rhody]

NYT article: Laid Off, With Retirement Almost in Sight

If you are out of work, you can also take an early, penalty-free distribution from your company plan, like a 401(k) or I.R.A., to pay your health insurance premiums. To qualify, you need to have received, or be receiving, state or federal unemployment benefits for 12 consecutive weeks

and

paying for health insurance before you are eligible for Medicare is probably one of the biggest challenges of joblessness.

TAP YOUR ROTH I.R.A. You can pull out all of your Roth contributions — but not the earnings — at any time and for any reason, free of tax and penalty. (If you converted a traditional I.R.A. to a Roth, that money could be pulled out, too, as long as it had been in the account for at least five years; each batch of money converted starts a new five-year period.)

The shortfalls in this article, basically in a tough economy that punish older laid off workers because of the tangled mess of intertwined tax legislation deserves serious attention from our congress and senate. With their track record and approval rating, around 9% I am not holding my breath.

Rhody...

 

[rhody]

Here is some more info to chew on:

Today's Retirement Myth: A Million Dollars Is Enough

Highlights: Retirement Calculators

You can look up your expected Social Security benefits at the Social Security website. As an example, the average monthly benefit for a retiree was recently $1,229, amounting to $14,748 per year. You're likely to collect more or less than that, of course -- and you can increase your benefit by about 8% for every year that you delay taking it, beyond your normal retirement age. Also, make sure to add in income from any pensions or annuities you may have, along with dividend income and withdrawals from retirement accounts such as 401(k)s and IRAs.

and...

The $375,000 Difference

Here's some easy but important math related to your withdrawals: If you expect to have a nest egg of, say, $1 million, multiply it by 0.04 -- which is 4% -- to see what your initial withdrawal will be. In this case, it's $40,000. If you manage to amass $300,000 by retirement, a 4% withdrawal will net you $12,000 in your first year.

You can flip those numbers around, too. If your calculations show that you'll need an annual income of about $50,000 in retirement, multiply that by 25 to see how big a nest egg you'll need to generate $50,000 via a 4% withdrawal rate: $1.25 million.

Of course, your other income sources can reduce that. If you're expecting $15,000 in Social Security income and $10,000 in pension income, then your savings and investments will only need to generate $25,000 in your first year. Multiply that by 25, and you'll arrive at a nest egg of $625,000.

That's a great illustration of why you may not need to accumulate $1 million for your retirement.

Interesting and sobering, isn't it.

Rhody...

 

[jtbell]

And don't forget to take taxes into account when figuring your withdrawal rate, especially if your funds are in tax-deferred accounts (IRA, 401k, etc.).

Caution: Objects in Your Retirement Portfolio May Be Smaller Than They Appear (morningstar.com)

My retirement-projection spreadsheet does try to take this into account. Tax-deferred accounts are easy because all withdrawals are taxed as ordinary income. Taxable accounts are trickier because of capital gains versus dividends. I (over?)simplify that by calculating the tax on the entire annual gain each year, as if they were ordinary income. I figure that's conservative because unrealized capital gains compound tax-free until you sell the stock in question.

I do try to project the shifting-upwards of tax brackets with inflation, which reduces the future tax bite.

 

[turbo]

Saving for retirement can be "interesting". I have lots of pre-tax funds rolled over into an IRA, but I can't continue contributing to that IRA. I have to start another IRA with taxed money. Instead, I opted to build a substantial money-market account that the Fed has scuttled by shoveling free short-term money at Wall Street, so my interest rate is almost zero, and is far outpaced by inflation. Our government is bought and paid for, and they are driving wealth to the wealthy at a staggering rate.

My wife and I get weekly (at least) come-ons from big banks wanting us to take on credit-cards. The same banks pay less than 1/2% interest on your deposits, and will gladly dun you for 20-30% or more interest on CC balances.

"A man with a briefcase can steal more money than any man with a gun" - Don Henley