Author Topic: Economic cycle: Best time to retire?  (Read 1105 times)

hydra

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Economic cycle: Best time to retire?
« on: August 28, 2018, 10:06:10 AM »
Considering that the average cycle lasts ~5-1/2 years and the crucial period of retirement is the first 10 years, my question is when is the best time to retire?

1. end of bull market (pre-recession)
2. early recession
3. mid recession
4. end of recession (pre-recovery)
5. early recovery
6. mid recovery

My intuition tells me that the best time is 6 (mid recovery), but I really don't know. What do the expert math people say?

RWD

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Re: Economic cycle: Best time to retire?
« Reply #1 on: August 28, 2018, 10:31:53 AM »
What is your definition of best? The longer you wait the more money you'll end up with and the safer your retirement will be. The trade-off is more years worked, of course.

The safest retirement periods tend to be the ones where you both have a lot invested already and the market is about to go on an extended bull run (e.g. 1982). My guess is number 5 is answer to your question. But that's assuming you still have enough invested after the preceding crash to be FI.

And then there is the practical difficulty of determining at which point the market is currently at...

hydra

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Re: Economic cycle: Best time to retire?
« Reply #2 on: August 28, 2018, 10:44:05 AM »
Good points.

My definition of best: least likely to run out of money before you croak.

I guess one could use FIREcalc to definitively answer this question by playing with the "Your portfolio" > "Include performance since" number. The default is 1871, but you could plug in different numbers and see what happened historically.

I'll give this a try when I have time. If someone has already done it, I'd be interested to hear your results.


thd7t

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Re: Economic cycle: Best time to retire?
« Reply #3 on: August 28, 2018, 11:20:55 AM »
You don't need the "best" time.  You need the "good enough" times.  In that case, if you can make your SWR work, the only really bad time is #1, maybe #2, but depending on the depth and duration of the downturn, 2 could be okay. 

RWD

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Re: Economic cycle: Best time to retire?
« Reply #4 on: August 28, 2018, 11:47:41 AM »
Least likely to run out of money is always one more year away. Keep working until you croak and you'll never run out of money.

I ran cFIREsim and looked at the years where you ended up with the most money (1982 was best). The problem with just looking at this though is that it doesn't take into consideration that your current invested assets is a moving target based on both your own contributions and investment performance. You're not choosing between retiring with $1 million in 1981 versus $1 million in 1982 (1982 is 51% better!). Instead you're comparing something more like $1 million in 1981 versus $857k (plus one year of contributions) in 1982 (1982 is only 18% better).

What's your actionable result from this though? We can't know what part of the "cycle" we are in at any given moment. That's why the Trinity study (and cFIREsim and similar) take a historical statistical approach. Without knowing what the market will do next we can be confident in a high percentage chance of success. If one gets lucky and hits their FIRE number in a 1982 or similar type year then they'll have more money than they'll ever need. Unlucky start in 1966 then either they saved enough that it still doesn't matter and/or resort to backup plans (cutting back on spending, part time work, social security, inheritances, etc.).

Check out the Stop worrying about the 4% rule thread for a 33-page exhaustive (and exhausting) discussion on this related topic.

hydra

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Re: Economic cycle: Best time to retire?
« Reply #5 on: August 28, 2018, 04:48:35 PM »
Very interesting answer, RWD. Thanks!

All of you are awesome. Just knowing this forum exists helps give me confidence to retire early, because I know I can come here and get good advice when needed. Maybe someday I'll be able to give others advice.

Cheers!

hydra

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Re: Economic cycle: Best time to retire?
« Reply #6 on: August 28, 2018, 05:07:36 PM »
Newb question: What is AA?

I see this acronym all over the 33-page thread, but I don't see it spelled out.

JLee

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Re: Economic cycle: Best time to retire?
« Reply #7 on: August 28, 2018, 05:31:14 PM »
Newb question: What is AA?

I see this acronym all over the 33-page thread, but I don't see it spelled out.

Asset allocation

hydra

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Re: Economic cycle: Best time to retire?
« Reply #8 on: August 29, 2018, 12:09:41 PM »
Got it. Thanks.

Habilis

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Re: Economic cycle: Best time to retire?
« Reply #9 on: August 29, 2018, 04:28:37 PM »
Big ERN at earlyretirementnow.com has a great series on this, here's the latest article: https://earlyretirementnow.com/2018/08/29/google-sheet-updates-swr-series-part-28/