The Plight of the Y2K Retiree

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
User avatar
adrian2
Veteran Contributor
Veteran Contributor
Posts: 13333
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: The Plight of the Y2K Retiree

Post by adrian2 »

AltaRed wrote:Almost everyone has CPP and OAS
For people who moved to Canada during their adult life, they may be far from getting max CPP and OAS.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
SQRT
Veteran Contributor
Veteran Contributor
Posts: 5441
Joined: 01 Nov 2012 11:33
Location: Ontario/Arizona

Re: The Plight of the Y2K Retiree

Post by SQRT »

AltaRed wrote:I doubt very much there are many people with the resources that you suggest. Almost everyone has CPP and OAS but few have good DB pensions and fewer yet have more than low 6 digit RRSPs. Those folks will always have 'sequence of returns' risk from a dividend paying stock portfolio, and especially so if they do not have proper diversification.

What can one really do with, for example, $35k/yr in pension payments (CPP/OAS/DB) and perhaps $200k in RRSP assets? Swing for the fences with $200k in 4% yielding blue chip dividend stocks and having to tap into capital to stay solvent? What would that person do in 2008 and 2009?
I don't think an ETF say VDY? With a current yield of 4% would be viewed as "swinging for the fences". With a backstop of pensions (even just CPP and OAS) and say a 25% FI component this would be a rational plan in my view. Makes even more sense since the divs would be taxed at a very low rate (perhaps even nil). I don't think divs are just for the rich. In fact given the recent tax hikes, may be more suited for less wealthy investors. As to what this person would have done in 2008/2009? Cut expenses and live off FI, pensions, and perhaps a slightly lower level of dividends like the rest of us? Although, if VDY had been in existence in 2008 the divs probably would not have been cut very much given its heavy weighting in financials.
Last edited by SQRT on 07 Jan 2016 02:57, edited 1 time in total.
User avatar
scomac
Veteran Contributor
Veteran Contributor
Posts: 7788
Joined: 19 Feb 2005 09:47
Location: The Gateway to Wine Country

Re: The Plight of the Y2K Retiree

Post by scomac »

AltaRed wrote:

What can one really do with, for example, $35k/yr in pension payments (CPP/OAS/DB) and perhaps $200k in RRSP assets? Swing for the fences with $200k in 4% yielding blue chip dividend stocks and having to tap into capital to stay solvent? What would that person do in 2008 and 2009?
Actually the scenario you suggest above worked out pretty well. The $200K in 4% yielding blue chip dividend stocks in 2008-09 grew to almost a double from then until now. I'm living proof of that. There was no need to tap capital to stay solvent. The income stream was good enough. I sure didn't see it as swinging for the fences at the time.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: The Plight of the Y2K Retiree

Post by AltaRed »

While I agree that something like a 100% portfolio of VDY yielding 4% would be much better than a FI portfolio of equivalent size for cash flow generation, I know of no 'average Joe' who would be prepared to do that. Whether capital risk is real or not is not relevant because those with only a few beans to hang on too have a feeling of vulnerability and will not risk them. It is human nature.

Re: Adrian, yes, I know there are many who do not have maximum CPP and OAS, especially in the case of CPP. Should be able to source that from StatsCan data.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
SQRT
Veteran Contributor
Veteran Contributor
Posts: 5441
Joined: 01 Nov 2012 11:33
Location: Ontario/Arizona

Re: The Plight of the Y2K Retiree

Post by SQRT »

AltaRed wrote:While I agree that something like a 100% portfolio of VDY yielding 4% would be much better than a FI portfolio of equivalent size for cash flow generation, I know of no 'average Joe' who would be prepared to do that. Whether capital risk is real or not is not relevant because those with only a few beans to hang on too have a feeling of vulnerability and will not risk them. It is human nature.
Well, I know a few "average Joes" who would, did. I guess we could debate who knows the most average joes and what they think, but I will pass on that. It is a reasonable plan for an average Joe who has a good portion of his expenses covered by CPP and OAS.
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7960
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: The Plight of the Y2K Retiree

Post by Norbert Schlenker »

17 1/2 years in from the tech bubble peak, nobody is ruined yet.
y2k retiree.png
Nothing can protect people who want to buy the Brooklyn Bridge.
User avatar
NormR
Veteran Contributor
Veteran Contributor
Posts: 5234
Joined: 18 Feb 2005 11:19
Contact:

Re: The Plight of the Y2K Retiree

Post by NormR »

Will they make it to 95 with money or die in poverty? The race is on :wink:

I suspect the balanced investors aren't particularly happy at this point having 'lost' ~40% of their money. Mind you some draw down has to be expected.

What is the yearly withdrawal rate at this point?

Might someone be willing to do something similar with a variable percentage withdrawal method?
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: The Plight of the Y2K Retiree

Post by ghariton »

Thanks Norbert

As someone who has been seriously overweight RRBs until the past few years, I feel comforted.

George
The juice is worth the squeeze
hamor
Veteran Contributor
Veteran Contributor
Posts: 1225
Joined: 09 Mar 2013 23:12

Re: The Plight of the Y2K Retiree

Post by hamor »

Thank you, Norbert for continuing to provide updates on that, very entertaining/blood curdling as I approach my own depletion phase ;)
"Speculation is an effort, probably unsuccessfully, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." Fred Schwed " Where are the Customers’ Yachts?"
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7960
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: The Plight of the Y2K Retiree

Post by Norbert Schlenker »

NormR wrote: 04 Jan 2018 16:53I suspect the balanced investors aren't particularly happy at this point having 'lost' ~40% of their money. Mind you some draw down has to be expected.
If you're 17 1/2 years into a 30 year plan and 60% of (the real value of) what you started with is still on hand, that's not awful.
What is the yearly withdrawal rate at this point?
The chart is in real dollars, so the withdrawal has been constant at $3.3333 per month since August 2000.
Might someone be willing to do something similar with a variable percentage withdrawal method?
Pinging longinvest ...
Nothing can protect people who want to buy the Brooklyn Bridge.
Spudd
Veteran Contributor
Veteran Contributor
Posts: 1518
Joined: 22 Sep 2013 14:52

Re: The Plight of the Y2K Retiree

Post by Spudd »

So at 3.33/mo and assuming current balance is 600 (chart is not detailed enough for more accuracy) it would be a 6.66% withdrawal rate at this point.
User avatar
NormR
Veteran Contributor
Veteran Contributor
Posts: 5234
Joined: 18 Feb 2005 11:19
Contact:

Re: The Plight of the Y2K Retiree

Post by NormR »

Norbert Schlenker wrote: 04 Jan 2018 20:13
NormR wrote: 04 Jan 2018 16:53I suspect the balanced investors aren't particularly happy at this point having 'lost' ~40% of their money. Mind you some draw down has to be expected.
If you're 17 1/2 years into a 30 year plan and 60% of (the real value of) what you started with is still on hand, that's not awful.
What is the yearly withdrawal rate at this point?
The chart is in real dollars, so the withdrawal has been constant at $3.3333 per month since August 2000.
Ah yes, my error. Could you brew up a nominal version of the graph?
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7960
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: The Plight of the Y2K Retiree

Post by Norbert Schlenker »

Spudd wrote: 05 Jan 2018 11:46 So at 3.33/mo and assuming current balance is 600 (chart is not detailed enough for more accuracy) it would be a 6.66% withdrawal rate at this point.
Yes, but with 12 1/2 years to go, 6.7% isn't an absurd proposal.
NormR wrote: 05 Jan 2018 16:19 Ah yes, my error. Could you brew up a nominal version of the graph?
y2k retiree nominal.png
Nothing can protect people who want to buy the Brooklyn Bridge.
User avatar
Shakespeare
Veteran Contributor
Veteran Contributor
Posts: 23396
Joined: 15 Feb 2005 23:25
Location: Calgary, AB

Re: The Plight of the Y2K Retiree

Post by Shakespeare »

The blue line looks pretty much like me (except I bought a house along the way, so I did better initially). Similar $ portfolio to when I retired in 1998, not accounting for inflation. My IRR is 8.6%, around 2% better than the FPX balanced.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Spudd
Veteran Contributor
Veteran Contributor
Posts: 1518
Joined: 22 Sep 2013 14:52

Re: The Plight of the Y2K Retiree

Post by Spudd »

Norbert Schlenker wrote: 06 Jan 2018 14:40
Spudd wrote: 05 Jan 2018 11:46 So at 3.33/mo and assuming current balance is 600 (chart is not detailed enough for more accuracy) it would be a 6.66% withdrawal rate at this point.
Yes, but with 12 1/2 years to go, 6.7% isn't an absurd proposal.
Agreed, I was just answering the question for the person who asked what the withdrawal rate is now.
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7960
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: The Plight of the Y2K Retiree

Post by Norbert Schlenker »

Updates through the end of 2018. Most portfolios are doing okay and likely to survive 30 years (through August 2030), but the 100% TSX Composite is getting to be a little desperate with a real year end value of $347 and 11 years 8 months still to run.
y2k retiree real 2018.png
y2k retiree real 2018.png (112.38 KiB) Viewed 2208 times
y2k retiree nominal 2018.png
y2k retiree nominal 2018.png (109.33 KiB) Viewed 2208 times
Nothing can protect people who want to buy the Brooklyn Bridge.
chufinora
Contributor
Contributor
Posts: 769
Joined: 12 Oct 2009 15:03
Location: Ottawa

Re: The Plight of the Y2K Retiree

Post by chufinora »

Why has the RRB portfolio out-performed here? Is it just the sequence of returns during the first 3 years for the equity containing portfolios or are there other factors that have worked for RRBs?
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: The Plight of the Y2K Retiree

Post by ghariton »

chufinora wrote: 16 Jan 2019 13:59 Why has the RRB portfolio out-performed here? Is it just the sequence of returns during the first 3 years for the equity containing portfolios or are there other factors that have worked for RRBs?
Dropping real rates over an extended period.These had already become premium bonds by 2000, and the premium continued to grow, with a big dip around end of 2008, then resumed its growth. (I bought in 2000, gradually bought more in the next eight years, and loaded up in November 2009, reaching my final target three years early). The premium is declining as maturities draw nearer, and you can see the result in the graph. Still, with a good head of steam, these should see me out beyond my lifetime.

The nominal return, including inflation indexing, has been close to that for nominal bonds. The protection against unanticipated inflation has basically been free.

George
The juice is worth the squeeze
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7960
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: The Plight of the Y2K Retiree

Post by Norbert Schlenker »

chufinora wrote: 16 Jan 2019 13:59 Why has the RRB portfolio out-performed here? Is it just the sequence of returns during the first 3 years for the equity containing portfolios or are there other factors that have worked for RRBs?
Partly it's a sequence of returns issue. The time period is cherry picked to start at the very top of the Canadian market in 2000, which was marked in particular by Nortel very near its peak price and also the biggest of the Canadian big caps. By construction then, the TSX only portfolio is almost certain to be the worst performer. The reason I start the graph in August 2000 at the top is that I'm documenting a likely worst case scenario for the 100% equity portfolio under withdrawals, a la the classic Bengen and Trinity studies.

That RRBs were selling at 4% real yields in 2000 is just a cherry on top for them.
Nothing can protect people who want to buy the Brooklyn Bridge.
User avatar
NormR
Veteran Contributor
Veteran Contributor
Posts: 5234
Joined: 18 Feb 2005 11:19
Contact:

Re: The Plight of the Y2K Retiree

Post by NormR »

Kudos to Norbert for the updates!
User avatar
scomac
Veteran Contributor
Veteran Contributor
Posts: 7788
Joined: 19 Feb 2005 09:47
Location: The Gateway to Wine Country

Re: The Plight of the Y2K Retiree

Post by scomac »

ghariton wrote: 16 Jan 2019 18:55
chufinora wrote: 16 Jan 2019 13:59 Why has the RRB portfolio out-performed here? Is it just the sequence of returns during the first 3 years for the equity containing portfolios or are there other factors that have worked for RRBs?
Dropping real rates over an extended period.These had already become premium bonds by 2000, and the premium continued to grow, with a big dip around end of 2008, then resumed its growth. (I bought in 2000, gradually bought more in the next eight years, and loaded up in November 2009, reaching my final target three years early). The premium is declining as maturities draw nearer, and you can see the result in the graph. Still, with a good head of steam, these should see me out beyond my lifetime.

The nominal return, including inflation indexing, has been close to that for nominal bonds. The protection against unanticipated inflation has basically been free.

George
If you bought them at the right time and the right price. I've owned my 2021's for over 10 years and have done OK by them, but anything in this decade hasn't been worth the bother as nominals have outperformed.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
chufinora
Contributor
Contributor
Posts: 769
Joined: 12 Oct 2009 15:03
Location: Ottawa

Re: The Plight of the Y2K Retiree

Post by chufinora »

Norbert Schlenker wrote: 17 Jan 2019 14:30 ..... That RRBs were selling at 4% real yields in 2000 is just a cherry on top for them.
I have been struggling to get my head around the magnitude of the growth in the RRB portfolio. How a 4% bond portfolio can in nearly 20 years almost double in value with 4% (CPI adjusted) annual withdrawals. With hindsight buying an inflation protected 4% bond, with a 4% annual withdrawal would have been a totally safe guaranteed plan (Hindsight is great eh!).

Thanks for posting this and updating each year, it does look like it will be another datapoint supporting the Trinity-Bengen 4% worst case SWR (Though could still go pear shaped with another big bear market in next few years).
User avatar
snowback96
Veteran Contributor
Veteran Contributor
Posts: 1200
Joined: 18 Mar 2007 18:15

Re: The Plight of the Y2K Retiree

Post by snowback96 »

Norbert Schlenker wrote: 16 Jan 2019 12:51 Updates through the end of 2018. Most portfolios are doing okay and likely to survive 30 years (through August 2030), but the 100% TSX Composite is getting to be a little desperate with a real year end value of $347 and 11 years 8 months still to run.
Norbert,

Thanks for producing this analysis each year. I find it fascinating as history unfolds and the "4% rule" gets a proper stress test.

I'm wondering if there is any chance you can produce charts for a 2% and/or 3% inflation-adjusted withdrawals? Both of those more conservative rates might also get tested before all is said and done. Thanks.
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7960
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: The Plight of the Y2K Retiree

Post by Norbert Schlenker »

chufinora wrote: 17 Jan 2019 19:03 With hindsight buying an inflation protected 4% bond, with a 4% annual withdrawal would have been a totally safe guaranteed plan (Hindsight is great eh!).
Sure, except you're doing this in early 2000. How good does 4% dead safe in RRBs look vs a 10 year history of 8.3% real (and 30 year history of 5.5% real) in the TSX Composite? Why give up all that extra lolly for a boring old government bond?

Also, let's be clear here that a bunch of the old timers here, not just ghariton, piled into RRBs in 2000-2002 after discussions at The Wealthy Boomer. There was discernible value in those boring old bonds, and some discerned it despite what equity markets seemed to have on offer.
Nothing can protect people who want to buy the Brooklyn Bridge.
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7960
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: The Plight of the Y2K Retiree

Post by Norbert Schlenker »

snowback96 wrote: 17 Jan 2019 20:36
Norbert Schlenker wrote: 16 Jan 2019 12:51 Updates through the end of 2018. Most portfolios are doing okay and likely to survive 30 years (through August 2030), but the 100% TSX Composite is getting to be a little desperate with a real year end value of $347 and 11 years 8 months still to run.
Norbert,

Thanks for producing this analysis each year. I find it fascinating as history unfolds and the "4% rule" gets a proper stress test.
Yes, I agree this is a proper stress test. :D IMHO at this point the TSX Composite is at best a coin flip for 30 year survival. Any decline that looks like '08-09 in the coming 11+ years virtually guarantees portfolio failure.
I'm wondering if there is any chance you can produce charts for a 2% and/or 3% inflation-adjusted withdrawals? Both of those more conservative rates might also get tested before all is said and done. Thanks.
Give me a few hours. Offhand, I don't think either of those rates would cause distress for any of the portfolios.
Nothing can protect people who want to buy the Brooklyn Bridge.
Post Reply