Market pullback? Market bubble?

[The Heretic]

Been a bit of a rocky year or two for my retirement funds. Last year and this year were more or less flat overall with the market all over the place.

I know that the overall trend in the long term for stock markets is upwards. If you look at the charts for them over the years the market always trends up - long term.

However, there have also been some noticeable pullbacks/devaluations/corrections/etc. and those usually take at least a few years to correct.

I don't have a few years. I am getting a bit jittery. I have four years to retirement. I have enough to theoretically retire now - if nothing goes wrong (I don't get sick, the market doesn't go bad, etc.) - but one thing I have learned in the last 50+ years is that things always go wrong, sooner or later. Things break, people get sick, jobs go away, unexpected expenses come up - stuff happens. Those who don't plan for stuff happening suffer when it does - or they suffer more than they do if they planned for those things to eventually happen.

I have no debt except my mortgage and right now my theoretical property equity is more than my actual debt. But that can go away too. If I went on SSI now I could just maybe pay my mortgage only, nothing else. If I wait until full retirement age, then I will have enough to live on at my current expenditure rate.

I max out my 401K (including senior makeup funds) and Roth IRA (I can't put money into my traditional IRA - my income is too high).

I also have a child who is barely making ends meet, who doesn't have savings, who has sudden expenses such as medical or a car breaking down, and sometimes one of the earners in that household finds themselves without a job - those things puts them in debt, which they can't dig out of without my help.

----

What I am getting to is that I am holding a fairly risky position in my funds now. On a scale of 1 to 5, I am at a position of 4, five being the most risk.

The past year and a half I have earned almost nothing in those fund. Going from being positive earnings to negative back to positive on any given week. In my largest IRA (a rolled over 401K) it is now just back to where it was a little over a year ago. They are all positive compared to what I put into them, but the growth is flat.

Now I see that some of the people who predicted the housing bubble and the resulting recession, are now predicting a huge pullback ahead in the stock market. Not tomorrow, not next week, maybe not this year - but ahead.

The other thing is I see the PDX area is in a housing bubble of its own. My property equity grows by 10% per year, mostly from simple appreciation due to the market pressure. I don't see how that can continue long term - at some point it is going to burst - just like it did in 2007.

Finally, my client/employer (I am a contractor), one of the largest corps in the world, has been in a slump this year and sees more coming in the next 6 months. They are starting to cut budgets - including head counts - here and there. I am fairly secure in the short term due to my position and experience, but one thing I know is that contractors are among the first to be shown the door, and that such things can happen very suddenly.

I am thinking of gradually pulling the bulk of my funds out of the stock market, and putting them into low interest "safer" funds - telling my funds manager to reduce my risk profile down all the way.

I would still keep about ten percent in the market - my Roth IRA - and keep contributing to that. If there is a pullback I can pull out of that quickly (a few days to a week) tax free.

Long term, my plan is, if I make it to full retirement age and I still have good equity in my property, to sell it and move further out and build using only the equity and cash savings, thereby being mortgage free. Then live solely on SSI.

I am not worried about SSI going bust in my lifetime - by the time it does (2035 or so) I will be gone.

My retirement funds (not SSI) are not for me (I hope) - they are for my child who may have to retire early due to health reasons, and who has no savings or retirement funds, and who may not get SSI if it reduces its payout. I.E., my plan is not to touch it - but while I could theoretically wait long term for it to come back, I might need some of it to survive short term, and I am concerned about the predicted pullback.

Not really asking any questions - just voicing my concerns - but feedback is welcome.

Read More

 

[DONOTBUGME]

Quantitative easy and the rates have been held low to help the Obama (non) recovery. Feds pumped money into the stock market to make their elite global masters more money. We are all about to step in it thanks to our leader's greed.

 

[Dungannon]

I'm not savvy about such things so I can only share what has worked for me. I've been retired for ten years. I had no debt when I retired: house paid off, no loans, and have never paid a penny of interest on credit cards. For the first eight years I didn't touch my traditional or Roth IRA, just to see if we could live on SS and work-related retirement. It's been a stretch at times, which actually reminds us of what it was like when we were first married.

All that to say, the closer I got to retirement the more conservative I got with my IRA investment strategy. The percentage changed at times, but I shifted out of all higher risk portfolios and went about half & half with income-producing stock (i.e., not equity stock) and traditional blue-chip stocks. I was more interested at that point with preserving what I had than trying to make it grow in an economy with such low interest rates.

More recently I got to thinking 'what am I actually saving for?' Both my folks and my in-laws ended up spending all of their savings on nursing home care as they had too much in the way of assets to get Medicare to pay. It was a shame. They could have had such enjoyable retirement years instead, but squirreled away every penny only to have it go to the nursing home where they lay in bed waiting to die. We're not living longer, we're just dying longer than in the past.

We don't help our kids with money, but have invested in college savings accounts for the grandkids and paid for nice vacations when it involves the whole tribe. I think there is a 7 year look-back on financial gifting by Social Security, but our plan is to start giving away any remaining savings in tax-free $10k gifts when we reach the point of having to leave the house for a nursing home. At that point I'm willing to live in a shoebox. And hopefully I won't be living long thereafter. Even if [shudder] I did live a whole bunch of years as a semi-vegetable, and couldn't just take a long walk in a snow storm, I want any remaining estate to go to the kids and grandkids.

 

[2506]

Over the last 50 years or so, stocks returned about 7-10%. Based on a number of factors, mostly retirement of baby-boomers, we're at best going to see 3-5% for the foreseeable future. That being said, Heretic--you should definitely re-evaluate your time horizon and risk tolerance.

 

[WWShooter]

I'm a little ahead of your time line, but share your concern about the stock market. I'm 71 and still working at a pretty decent desk job. I have about 30% of my savings (non-tax advantaged) in about 10 individual, mostly large cap stocks in a variety of sectors, with the balance in essentially cash.

I think long term the stock market is the place to be, and I'll be looking for high quality, dividend stocks following the next recession. Until then, I'm just going to ride it out with my present conservative allocations. I used to worry about missing the next market increase, now I sleep well knowing that I'll miss the next market free-fall.

One thing you might consider is waiting as long as possible to claim Social Security. The benefits increase by about 8% per year for each year you delay claiming up to age 70, when you max out. Those increased benefits continue for as long as you live. Given your desire to preserve savings for your son, maximizing Social Security could help a lot.

 

[2506]

Eeesh. WWShooter, most people in the business of giving financial advice would tell you at your age to get out of stocks and allocate more into bonds and cash (or cash equivalents). Lower returns, obviously, but much less risk. Sadly, stocks are a young person's game.
The rule of thumb is you should subtract your age from 110 or 120 depending on your health- and that's the percentage of your portfolio that you should keep in stocks. Meaning, if you're 30, you should keep 80-90% of your portfolio in stocks. If you're 70, you should keep 40-50% of your portfolio in stocks.

 

[WWShooter]

Eeesh. WWShooter, most people in the business of giving financial advice would tell you at your age to get out of stocks and allocate more into bonds and cash (or cash equivalents). Lower returns, obviously, but much less risk. Sadly, stocks are a young person's game.
The rule of thumb is you should subtract your age from 110 or 120 depending on your health- and that's the percentage of your portfolio that you should keep in stocks. Meaning, if you're 30, you should keep 80-90% of your portfolio in stocks. If you're 70, you should keep 40-50% of your portfolio in stocks.

I'm confused. I'm at about 30% stocks with the balance money market or equivalent. If I understand your rule-of-thumb, I'm under-invested in stocks, not over-invested.

If you're referring to my plan to get more heavily into stocks following the recession I expect, that's in line with more modern financial advice, which suggests that as you age you increase your stock exposure to assure that you keep up with inflation.

But my main point for the OP was that delaying claiming SS is about the best "investment" common folk like us can get these days.

 

[IronMonster]

Get out, now.

The reality is we are at the cycle highs if not the peak.

The chance of significant upside in the next few years is small.

The chance of a downturn , maybe significant downturn in the next few years, 100% (this is already something like the third longest period in US history without a recession)

It's simply a matter of odds

If you get out of the market you may miss out on 5-15% gains over the next few years

If you stay in personally I think there is a very good chance of a 30-50% pull back (all of the Equities gains are fed driven and fake, when it markets correct they always overshoot)

So my advice? Get out today

 

[2506]

I'm confused. I'm at about 30% stocks with the balance money market or equivalent. If I understand your rule-of-thumb, I'm under-invested in stocks, not over-invested.

If you're referring to my plan to get more heavily into stocks following the recession I expect, that's in line with more modern financial advice, which suggests that as you age you increase your stock exposure to assure that you keep up with inflation.

But my main point for the OP was that delaying claiming SS is about the best "investment" common folk like us can get these days.

At 30% in stocks, conventional wisdom says you're about where you need to be.

 

[Hotnhere]

I'm not savvy about such things so I can only share what has worked for me. I've been retired for ten years. I had no debt when I retired: house paid off, no loans, and have never paid a penny of interest on credit cards. For the first eight years I didn't touch my traditional or Roth IRA, just to see if we could live on SS and work-related retirement. It's been a stretch at times, which actually reminds us of what it was like when we were first married.

All that to say, the closer I got to retirement the more conservative I got with my IRA investment strategy. The percentage changed at times, but I shifted out of all higher risk portfolios and went about half & half with income-producing stock (i.e., not equity stock) and traditional blue-chip stocks. I was more interested at that point with preserving what I had than trying to make it grow in an economy with such low interest rates.

More recently I got to thinking 'what am I actually saving for?' Both my folks and my in-laws ended up spending all of their savings on nursing home care as they had too much in the way of assets to get Medicare to pay. It was a shame. They could have had such enjoyable retirement years instead, but squirreled away every penny only to have it go to the nursing home where they lay in bed waiting to die. We're not living longer, we're just dying longer than in the past.

We don't help our kids with money, but have invested in college savings accounts for the grandkids and paid for nice vacations when it involves the whole tribe. I think there is a 7 year look-back on financial gifting by Social Security, but our plan is to start giving away any remaining savings in tax-free $10k gifts when we reach the point of having to leave the house for a nursing home. At that point I'm willing to live in a shoebox. And hopefully I won't be living long thereafter. Even if [shudder] I did live a whole bunch of years as a semi-vegetable, and couldn't just take a long walk in a snow storm, I want any remaining estate to go to the kids and grandkids.

Interesting view point...
"We're not living longer, we're just dying longer than in the past"

 

[Oregonhunter5]

It's gonna get very ugly after the election. The future of the stock market is nasty.

 

[The Heretic]

Long term I want to stay in because if at all possible I am not saving those investments for myself, they are for my daughter who has health problems and may need to retire much earlier than SSI full retirement age, and is struggling to put any money aside for retirement, much less maxing it out like she should (if possible).

That said, if I get laid off next year, I may need some of those funds and I don't want to pull them out after they are devalued.

So yeah, I want to shift most of them (about 90%) to something that won't lose much value if the market tanks. I am not too worried about them not earning for the next 3 to 4 years. The only reason the 401K made anything at all this year is because I put 80% of each paycheck into it early this year when the market was down, and then went back to balanced contributions when the market came back. Made about $3 or $4K just by doing that - rule #1 of economics, buy low, sell high.

Once I am retired and settled, I would move the funds back into the market, especially if it has tanked and is very low - again, buy low and sell high, then leave it there for 10 to 20 years for my daughter, any mandatory distributions would just go into a separate fund.

My life expectancy is about 75 to 85, which is when just about everybody in my family kicks the bucket from cancer, heart, stroke, etc. - sometimes all of the above. So I don't want to keep working past 66-67. My parents did that and my dad only lived another 10 years. My mom another 15.

They both worked hard and long, and so have I (I've been working since I was 15). I haven't had a paid vacation in 5 years (the corp I work for takes a break now twice a year for about a week each). They got to travel, I have not. The last 5 years of my mom's life she didn't get to do much of anything, mostly spent in assisted living. My dad struggled with cancer the last 5 years of his life.

So I want to retire while I can still do things. How much I will get on SSI if I make it to full retirement will be plenty for me if I don't have debt.

I hope that in 10 or 15 years they will have robots to help me out at home, but I don't want to go into assisted living much less a nursing home (my maternal grandfather did that and he was a vegetable the last couple of years). If I get to the point where I am not ambulatory or I have Alzheimers or Parkinsons or dementia, that's it for me - hook me up to an IV of sedative and let it flow.

I know about the cost of living in a home - for my mom it was $4k per month and that wasn't for nursing, it was just someone coming around a couple of times a day and making sure she got a little help when she needed it. I would rather have someone come to my home than live in an apartment in such a place.

 

[NWGlockgal]

I retired at the end of last year and decided I needed to reduce risk in my investments.
I went from 80% stocks, 5% bonds 15% cash to 50%stocks/40%bonds/10% cash. In the
next couple of years as I get older I will continue to decrease the amount I have in stocks
since if the market tanks I would not have enough time to wait for a recovery. Speak with your financial advisor about your risk tolerance and let them set up an appropriate plan for you.

I retired with no debt, home and car paid for, and encourage others to do the same. Not owing
anyone anything greatly relaxes your mind.

I also encourage people to take six months before they are considering retiring and account for every single penny that you spend. I did that and found I could comfortably live on what I get in widow's social security benefits and income from owning two rentals. I am delaying takingmy own social security benefits until I turn 70 and they max out.

I also advise continuing to keep track of all your spending to keep things in line. It's so easy to over spend if you don't keep a handle on it.

 

[2506]

Just as a side note--high grade side by sides and some over/unders, especially in smaller gauges, have beat the stock market over the last 40 years. They typically appreciate around 10% per year.

 

[rick benjamin]

"no debt when I retired: house paid off, no loans, and have never paid a penny of interest on credit cards"
"I retired with no debt, home and car paid for, and encourage others to do the same. Not owing
anyone anything greatly relaxes your mind."

Company forced me out earlier than I anticipated.
I retired at 54, started SS at 62, no debt, pay cash for everything.
Stress is melting away.

 

[The Heretic]

Talked to IRA funds guy.

Told him to go from 80/20 stocks/bonds to 80/20 bonds/stocks.

I will be doing something similar with my 401K myself

If the market crashes badly, or nothing happens and I get to full retirement, then I will probably move back into the market.

 

[CountryGent]

We've moved most of our regular, taxed, investments into safer vehicles in the last few years. Based upon a number of factors, I have a feeling the market is going to be, well, problematic soon. Though we have a fairly long time horizon, I need to look at our IRAs and other investment accounts too.

 

[NWGlockgal]

"no debt when I retired: house paid off, no loans, and have never paid a penny of interest on credit cards"
"I retired with no debt, home and car paid for, and encourage others to do the same. Not owing
anyone anything greatly relaxes your mind."

Company forced me out earlier than I anticipated.
I retired at 54, started SS at 62, no debt, pay cash for everything.
Stress is melting away.

Same thing I do.....I use a costco credit card for gas and a few other things for the percentage I get back later on but always make sure to pay it off and never carry a balance. I also prefer to pay cash for most things....and if I can't do that, I don't need it.

 

[The Heretic]

If my job were not threatened and I wasn't so close to retirement, I would let it ride, but if my job goes away next year then I may have to pull from those funds, so a 20 to 60% pullback in the market could really hurt me.

When the tech bubble burst back in 2000 I lost about about 40 to 50% on paper and I was unemployed to boot. Fortunately I didn't have much in those funds and I could afford to let it ride so I did. I pretty much had to anyway. When I finally caught up with the 401K (it went through a couple of acquisitions) in 2008 to roll it into an IRA, the value had doubled from what I had before the tech crash. The money I had in another 401K weathered the "great recession" fairly well, and has since almost doubled from what I had in 2007. The last 18 months it has been flat - up and down 1-2% each week, but it is pretty much valued what it was a year ago, so I figure just put it somewhere safe if it isn't going to make money.

My 401K has done okay - I direct that (within the funds I can choose from). I think the main reason it made any money this year was because at the first of the year, when there was a "correction" in the market, I dumped as much as I could into it from each paycheck - about 80% - and when the market came back I made a little bit.

Right now the market is up, so time to pull out myself.

 

[The Heretic]

Same thing I do.....I use a costco credit card for gas and a few other things for the percentage I get back later on but always make sure to pay it off and never carry a balance. I also prefer to pay cash for most things....and if I can't do that, I don't need it.

I use the Costco for big ticket items and costco purchases, and i use the amazon card for amazon purchases, and I use my debit card for everything else to earn interest on the money in my checking account (1.7% on up to $25K).

Pay off the credit cards every month in full - get free use of that money for that time, and get some security on online purchases - almost never need that, but nice to have.

The only debt I have is my mortgage. Theoretically I have almost 50% equity if the various valuations (including taxes) are to be believed - growing by 5 to 10% per year. PDX area is definitely in a bubble, but if it doesn't burst/deflate before I retire, that's good for me, as I plan to use the equity to buy land and build a shop with a studio apt. on that land, and then be totally/almost debt free when I retire. That's the plan anyway - 40 more months and then we'll see.