Author Topic: Would you have gone back to work in 2008 or 09 if you RE'd in 07?  (Read 7811 times)

Dr. Doom

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Let's say you RE'd in 2007 with 500K in assets, 75/25 bond split, and an 18K spend rate.  The S&P was 1500.  cFireSim told you things looked good -- 99% good, in fact.  You gave the finger to your job.

Fast forward to March 2008.  The S&P is 650.  Your asset sheet is down to 250 or so (a drop of 230K plus you spent 20K or so).  cFireSim is telling you that your chance of success is now 45% with an (already-reduced) 16K spend rate.  It's tough to lower it a whole lot further and frankly you don't want to.

Are you looking for work?

The broader question is:  Do you run cFireSim in retirement, and at what failure percentage do you start adjusting behavior or scanning online classifieds?

Hindsight being what it is, we can all see that if you stayed in the market you probably would have come out of the mess pretty good.  But that's not exactly what I'm interested in.  I'm more interested in knowing if, at the time, you think you would have made a change, started selling mom's old jewelry, got a job at Home Depot, anything like that.

Thoughts?

Thegoblinchief

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #1 on: May 12, 2014, 07:23:53 PM »
I probably would have gotten enough work to cover expenses, assuming I could get work.

Another Reader

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #2 on: May 12, 2014, 07:29:26 PM »
Good reasons for having multiple income sources, including rental properties and dividends.  I did RE in 2007, and while the balance sheet worsened considerably in the period from 2008 to 2012, the income did not. 

St4n

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #3 on: May 12, 2014, 10:52:37 PM »
An interesting discussion for sure!  I'm a long way from FIRE, but in planning for a long, happy and well-funded retirement the example of recent history was flashing red in my mind, so I've been reading up on how to make the best of this type of situation.

There seem to be myriad articles on the topic, but you can pick almost any developed-world stock index and the 2008/9 peak to trough drop would be 40-60%.  That's enough to make anybody's eyes water.  The more important statistic though (for me at least), is how much the cash dividend payments fell during that time.  I don't have time to go searching for loads of data now as my lunch break is almost up, but what I have shows the yield on the S&P 500 was 1.87% in Dec 2007, 3.24% in Dec 2008 and rose as high as 3.60% when the market bottomed out in March 2009. 

So why is this important?  Well, crudely, if the stock index you're invested in dropped by half from peak to trough and the dividend yield increased from 1.87% to 3.60% over the 15 month period, the reduction in cash dividend payments would have been less than 10%.

Haul me over the coals for this calculation if you like - it's rushed and guestimated.  I also accept that you Americans seem to rely less on dividend income and more on capital appreciation for your total returns, but I think the principle stands.  Provided I keep my sources of income sufficiently diverse, then I should be able to sit out whatever fluctuations in capital the market may endure.

I guess that means, in answer to your point Dr. Doom, no, I don't believe I would have been updating my CV (resume!).

dragoncar

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #4 on: May 13, 2014, 11:12:52 AM »
I probably would have gotten enough work to cover expenses, assuming I could get work.

Yeah, but I'm pretty sure I wouldn't have found anything.  Probably just a side gig, or maybe temp work.

Cpa Cat

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #5 on: May 13, 2014, 11:39:39 AM »
I went back to work - my husband and I were ER at that time. We lost a business (passive investors) about that time, too. He was panicking about it and asked if we should pull out of the market to preserve assets. I said, "How about instead I go back to work and we go all in."

It was probably our most mustachian time and we were able to shovel quite a bit of cash into the market.

As you predicted, it all seems a bit silly now.

Thegoblinchief

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #6 on: May 13, 2014, 01:48:49 PM »
I probably would have gotten enough work to cover expenses, assuming I could get work.

Yeah, but I'm pretty sure I wouldn't have found anything.  Probably just a side gig, or maybe temp work.

Considering how low my "core" retirement budget (e.g. no travel, no money set aside for capital expenses on house or cars) is, that's all it would take to avoid zero drawdown.

meadow lark

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #7 on: May 13, 2014, 02:58:24 PM »
Probably.  All the jobs dried up at the same time of course, so I would have been doing something that I wouldn't enjoy too (home health care, or a Skilled Nursing Facility).  Or I would have moved to Thailand or Guatemala for a year, and tried to live very cheaply.  I can imagine 1 year in to retirement really not wanting to go back!

taekvideo

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #8 on: May 13, 2014, 05:40:55 PM »
I would have started tutoring again to at least cover expenses until the market recovered... and shifted some of those bonds into the stock market while it was cheap so I'd be sitting much prettier when it did.

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #9 on: May 13, 2014, 05:57:32 PM »
^ This.

At least I would like to think I would have done this.  And put some of my cash in as well.

Dr. Doom

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #10 on: May 13, 2014, 06:11:19 PM »
Thanks for the responses, this is helpful.  Just trying to visualize what I might feel and do had the same scenario played out and I'd already RE'd.  I made it through the downturn without panicking (i.e. sticking to my allocation and continuing to invest via automatic deductions) but that's at least in part because I had income.  Picturing the same scenario without that sweet, sweet monthly check has me doing a gut check on my own risk tolerance.

@goblinchief, your comments remind me how important it is to keep your core expenses down.  If you're not drawing too much off, drops like this should be okay to live through, assuming the market does eventually recover.

As you predicted, it all seems a bit silly now.

I'm sure it didn't feel the least bit silly at the time, and it won't the next time either.  It does seem to me that looking for some additional income streams in this scenario makes sense.   Appreciate the validation.

Chuck

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #11 on: May 13, 2014, 07:03:07 PM »
I remember the panic that surrounded the financial crisis.


I would have been unable to find work in my field, as my buddies were dropping like flies at the time, but I would have gone to work at Wal-Mart if my sheets had started to look that grim.

Dr. Doom

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #12 on: May 13, 2014, 07:10:37 PM »
Good reasons for having multiple income sources, including rental properties and dividends.  I did RE in 2007, and while the balance sheet worsened considerably in the period from 2008 to 2012, the income did not.
Yes, good point.  I've always assumed that I will retire with entirely paper assets.  I'm starting to reconsider now that I'm playing out scenarios.

Dr. Doom

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #13 on: May 13, 2014, 07:31:34 PM »
Well, crudely, if the stock index you're invested in dropped by half from peak to trough and the dividend yield increased from 1.87% to 3.60% over the 15 month period, the reduction in cash dividend payments would have been less than 10%.

I see: the drop-off in overall value isn't quite as bad as it initially looks because of the yield increase which will help get you through the leaner years.

Do you happen to know if yield payout percentages reliably go up when ETF values are plummeting?  Wait, I just asked google:  Yes, they do.

I think I'm going to take steps to DRIP a portion of my portfolio to make it easier to weather this sort of situation when it inevitably happens again.  I can't live off of the S&P average of 2%ish, so it'll take some picking.  I know Brave New Life has a lot of info on that topic and was his preferred approach -- I'll check in there first and then hit the library.  (Up until now I've avoided DRIP portfolios because I'm reluctant to pick individual stocks -- I'm a lazy investor.)

It's funny, people always tell you to diversify your portfolio and income streams to mitigate the chance of a single event wiping you out.  While that advice has always made sense on a superficial level, it's really only now hitting home to the point where I'm going to take action on it.  Let's hear it for learning from history.







wtjbatman

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #14 on: May 13, 2014, 07:55:42 PM »
One reason I combine dividend growth investing/REITs with index funds. And maybe physical RE one day, who knows. Anyway, I will pull enough in dividends to easily cover my expenses, even after the inevitable dividend cuts. 40% of the overall market in the great recession, but much fewer of the S&P 500 and dividend champions.

Of course I say that now while everything is sunshine and roses and the market isn't tanking. We'll see what happens when the next big one comes.

Kaminoge

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #15 on: May 14, 2014, 03:25:12 AM »
I would have been unable to find work in my field, as my buddies were dropping like flies at the time, but I would have gone to work at Wal-Mart if my sheets had started to look that grim.

Do you think it would have been possible to get a job at Wal-Mart? I would have thought they would have been inundated with applicants given the number of people losing their jobs.

wtjbatman

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #16 on: May 14, 2014, 03:31:22 AM »
I would have been unable to find work in my field, as my buddies were dropping like flies at the time, but I would have gone to work at Wal-Mart if my sheets had started to look that grim.

Do you think it would have been possible to get a job at Wal-Mart? I would have thought they would have been inundated with applicants given the number of people losing their jobs.

I know they have a lot of turnover though. When I was working at Wal-Mart any store that had less than a 50% yearly turnover was considered to be doing well. Although keep in mind some jobs, such as cashier or cart pusher, experience much more turnover than something like management. So yeah, you could probably get a job at a Wal-Mart near you without too much effort. It just might be a bottom of the barrel job.

happy

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #17 on: May 14, 2014, 03:55:31 AM »
Part of my retirement plan will be to keep 3 years expenses in cash, with the hope this will enable me to weather a downturn, leaving shares intact to recover. 

I suspect though, that I would be cutting expenses (my FI number has a bit of fat in it) and looking for some employment to cover expenses as well if I could.  My profession (physician is not easy to opt in and out of, and it would be costly to maintain credentialling if not working for any lengthy period of time. So I would need to find something else.

Good question though OP, it reminds me that I really ought to develop and include realistic plans for suitable side-gigs or secondary employment opportunities in my retirement plan.

AlmstRtrd

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #18 on: May 14, 2014, 05:31:06 AM »
A 75/25 stock and bond split is not a diversified portfolio and one should expect massive drawdowns unless we are in a really prolonged period of prosperity. That asset allocation will take a big hit when either deflation or significant inflation are present. If you want to only hold stocks and short to intermediate-term bonds, you should at least have a pile of cash on the sidelines to buy those massive dips.

And, as a couple people have pointed out, finding work during the Great Recession was not easy. Sure you can try that but it's not a really solid plan unless you are in a rare profession that allows you to jump back in when the unemployment rate is very high.

Cpa Cat

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #19 on: May 14, 2014, 06:12:54 AM »
As you predicted, it all seems a bit silly now.

I'm sure it didn't feel the least bit silly at the time, and it won't the next time either.  It does seem to me that looking for some additional income streams in this scenario makes sense.   Appreciate the validation.

Well, you're right. At the time, it was a pretty big stress reliever. Our holdings also seemed to recover far more quickly than other people's (which makes sense, since our damage control involved leaning into the market at the bottom). I can recall people talking about the recession and thinking, "Really? That's still happening?"

So silly isn't the right word, because we made a good financial call. But it was totally unecessary. Our early retirement would not have been affected in the long run. Next time, I'll have more faith in our safety margin.

Dr. Doom

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #20 on: May 14, 2014, 06:37:39 AM »
At the time, it was a pretty big stress reliever.
...
 Our early retirement would not have been affected in the long run. Next time, I'll have more faith in our safety margin.

These are my key takeaways.  It sounds like in your case working added a huge benefit to your life:  the relief of anxiety and stress.  My guess is that this greatly improved the quality of your days, no?  And probably nights, too, because you could sleep.



Cpa Cat

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #21 on: May 14, 2014, 06:55:00 AM »
At the time, it was a pretty big stress reliever.
...
 Our early retirement would not have been affected in the long run. Next time, I'll have more faith in our safety margin.

These are my key takeaways.  It sounds like in your case working added a huge benefit to your life:  the relief of anxiety and stress.  My guess is that this greatly improved the quality of your days, no?  And probably nights, too, because you could sleep.

Definitely. There is a lot to be said for feeling like you've taken some measure of control over your life. At the start of the recession, everything seemed very much out of our control. All we could do was sit and watch and worry about what our situation was going to look like when it was all over.

Going back to work erased the feelings of powerlessness over our finances. I think it also gave us more of a sense of security in the future and our early retirement in general. We weathered a pretty bad recession that occurred at the worst possible time during our ER, and it was actually kind of easy. Our reaction turned out to be overkill, but it did prove to us that we're on pretty good footing.

Jack

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #22 on: May 14, 2014, 08:50:25 AM »
At the time, it was a pretty big stress reliever.
...
 Our early retirement would not have been affected in the long run. Next time, I'll have more faith in our safety margin.

These are my key takeaways.  It sounds like in your case working added a huge benefit to your life:  the relief of anxiety and stress.  My guess is that this greatly improved the quality of your days, no?  And probably nights, too, because you could sleep.

Definitely. There is a lot to be said for feeling like you've taken some measure of control over your life. At the start of the recession, everything seemed very much out of our control. All we could do was sit and watch and worry about what our situation was going to look like when it was all over.

Going back to work erased the feelings of powerlessness over our finances. I think it also gave us more of a sense of security in the future and our early retirement in general. We weathered a pretty bad recession that occurred at the worst possible time during our ER, and it was actually kind of easy. Our reaction turned out to be overkill, but it did prove to us that we're on pretty good footing.

So it sounds like you hit the beginning of the recovery with more asset shares than you RE'd with. What do you think the net effect has been on your portfolio? Are your assets now higher than you expected them to be?

Cpa Cat

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #23 on: May 14, 2014, 09:12:22 AM »
So it sounds like you hit the beginning of the recovery with more asset shares than you RE'd with. What do you think the net effect has been on your portfolio? Are your assets now higher than you expected them to be?

Yes. But we didn't really need the extra money to make ER comfortable.

Basically what we accomplished was we didn't need to withdraw any percentage during the downturn, and instead were able add a fairly substantial amount. Then we experienced a pretty mind-blowing upswing because we skewed our portfolio aggressive at the same time. 

It amuses me that we were so successful, given that our conversation one night basically went like this:
Mr Cat: "My friend just told me he's pulling all his money out of the stock market and we should too, because this downturn could be the worst in history and could last for years and years!"
Mrs Cat: "I may have never used my Economics degree for anything up til this moment, but it's telling me that we should do the absolute opposite of that and invest everything we possibly can in this market!"
Mr Cat: "ZOMG Let's do it! If the financial market collapses then we're fucked anyway!"

Not exactly sophisticated investment strategizing.

dude

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #24 on: May 14, 2014, 09:14:07 AM »
I would have drawn the necessary funds from a cash account holding 3 years' worth of expenses -- that's my plan when I FIRE. 

bo_knows

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #25 on: May 14, 2014, 09:16:52 AM »
I, like many on here, plan on doing a side-gig in ER.  If, I would have ER'ed in 2007, and my side-gig (and my wifes) wasn't covering at least 50% of our expenses, I'd consider looking for some work, if available.

From my time crunching numbers, even just a little bit of expenses coverage goes a long way during a market downturn.  If you're replacing 10-20% of your expenses with side-gig money, you will probably be alright (unless the downturn is worse than all previous downturns in history).

dude

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #26 on: May 14, 2014, 09:21:41 AM »
A 75/25 stock and bond split is not a diversified portfolio and one should expect massive drawdowns unless we are in a really prolonged period of prosperity. That asset allocation will take a big hit when either deflation or significant inflation are present. If you want to only hold stocks and short to intermediate-term bonds, you should at least have a pile of cash on the sidelines to buy those massive dips.

Not necessarily true:

http://www.retireearlyhomepage.com/reallife14.html

MooseOutFront

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #27 on: May 14, 2014, 09:26:00 AM »
I likely would have gone back to work to take advantage of the buying opportunity of the crashed market for a year or 3.  My FIRE plan doesn't have me living off of stocks I sell for the 1st few years after "retirement" so I wouldn't feel compelled to work full time just to prevent selling depreciated shares.  Not at first anyway.

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #28 on: May 14, 2014, 09:36:38 AM »

The answer is "I sort of did."

I took a planned sabbatical in 2006... planning on returning when I found something I liked.  (This turned out to take longer than I had planned.)  In retrospect, had I been working during the turndown, I would have retired much sooner -- because I would have been investing as the market fell.   

Rural

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #29 on: May 14, 2014, 10:02:33 AM »
My parents did retire (not early) in 2007. They watched it happen, and simply lived off of laddered CDs that were maturing at the time. I'm not sure they've touched any of the equity assets yet, but of course they've recovered completely.


Moral of the story is to have a Plan B.

DoubleDown

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #30 on: May 14, 2014, 10:21:36 AM »
I would have gone back to some kind of work, whatever highest pay I could get. Knowing that bad sequencing is the #1 retirement killer, I doubt I would have had the cojones to stick out the whole recession without bringing in some income to stop the drawdown on assets.

Good reasons for having multiple income sources, including rental properties and dividends.  I did RE in 2007, and while the balance sheet worsened considerably in the period from 2008 to 2012, the income did not.

You are officially my hero! That had to have been a rough time to retire, even though the rental income was still there. And especially with the housing market being the primary driver of the whole fiasco -- that would be ample cause for concern over property values, being able to keep renters who might have lost jobs, etc.

I don't think I know anyone who pulled the plug in 2007/08, but I know a whole bunch (at regular retirement age) who were planning on it and instead deferred their plans and kept working several more years. It made senior management jobs hard to find, because no one was leaving!

I remember the panic that surrounded the financial crisis.
I would have been unable to find work in my field, as my buddies were dropping like flies at the time, but I would have gone to work at Wal-Mart if my sheets had started to look that grim.

I think a lot of people's sheets did look grim after they discovered they lost 50-60% of their assets, and I ain't talkin' spread sheets!  I know, gross.

myDogIsFI

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #31 on: May 14, 2014, 01:46:29 PM »
I would have gone back to work or started training myself to get back to some kind of work. 

I think this is one of, or the best, safety margin for retiring early.  If you retire at 65 and plan on drawing an inflation adjusted 4% from a stock and bond portfolio, and then you hit an epic drop the next year, it really does suck because it'll be very difficult to go back to work.

On the other hand, if you're retiring much earlier, you have a much longer time horizon to cover until you die.  But if the event that is most likely to blow up your spending plan - an epic stock market drop in the first few years - shows up, that is when your skills will still be the freshest.  It would still suck, but basically you'd retool your resume, call the first RE a sabbatical, and then replenish your stash until you are sleeping well at night again.

MooseOutFront

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #32 on: May 14, 2014, 02:47:56 PM »
excellent point.

Cassie

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #33 on: May 14, 2014, 03:24:48 PM »
i developed a consulting business right after retiring & my hubby did too about a year later.  We intend to keep doing this p.t. until we hate it or can't physically/mentally do it anymore.  This is our hedge against bad things happening plus we like it.

Dr. Doom

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #34 on: May 14, 2014, 04:31:47 PM »
But if the event that is most likely to blow up your spending plan - an epic stock market drop in the first few years - shows up, that is when your skills will still be the freshest.  It would still suck, but basically you'd retool your resume, call the first RE a sabbatical, and then replenish your stash until you are sleeping well at night again.

I think I'm going to print and frame this.   It's a good reminder that the worst case scenario really isn't all that bad. 

bobmarley9993

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Re: Would you have gone back to work in 2008 or 09 if you RE'd in 07?
« Reply #35 on: May 14, 2014, 08:21:29 PM »
Interesting discussion, thanks to all who have posted.

Now I stayed employed throughout but from what I have read there were jobs to be had throughout the recession, it is just a question of being able to move to where the jobs are.  If nothing else that should be considered when doing the rent / move debate.