Starting Retirement During Market Crisis

Comment posted to “The Sequence in Which Returns Occur Affects Your Wealth,” by Charles Rotblut, CFA, in the May 2015 AAII Journal.

Very interesting article. Let me share what happened to me and what I did about it. I was one of the very unlucky ones—I retired in August of 2007, just in time for the big financial crisis of 2007–2008. Consequently, my portfolio lost a full 50% in value during that two-year period. Had I panicked, it absolutely guaranteed that I would have had to return to the workforce because retirement was no longer a feasible option. However, I had fortunately provided for a large bucket of cash equal to four years of needed retirement income so that I would not have to touch the portfolio during any possible disastrous years. So I had a temporary safety net. It proved to be prophetic!

This is how I saved my retirement plans: I systematically examined every holding within the portfolio, and sold everything that looked like it would not recover value, and I took my losses. Believe me, some were very big. I then redeployed the proceeds into more promising stocks.

The criteria I used were simple: strong balance sheets, excellent income statements with a solid track record of earnings and income, solid dividend returns with a history of increases, powerful business models, and ability to survive in economic downturns. It was a stressful 18-month odyssey, but it worked. Within that 18-month time frame, my portfolio regained all of its lost value—and then some.

—James Hogg from Florida

Performance History of Dividend Payers

Comment posted to “Dividends Are Still Valuable,” by John Buckingham, in the May 2015 AAII Journal.

It was eye-opening that the dividend payers generally underperformed in the six months leading up to the rate hike. The irony of the above being that those six months prior to the rate hike have been going on for four-plus years now and clearly, as the table provides, dividend payers have been underperforming.

—Dave Gilmer from Washington

Accurately Valuing Annuities

Comments posted to “Briefly Noted: Investors Have Difficulty Valuing Annuities,” in the May 2015 AAII Journal.

The difficulty with analyzing this problem in a straightforward manner is the uncertainty of the payout period. Social Security benefits cease at death, the time of which is an unknown variable. Determining present values of annuity payments therefore represent a best guess, results of which are bound to be all over the board.

—James Whaley from Texas

Many (or most) of the experts in the media do not like annuities. They state all the costs, etc. However, they rarely (or never) mention Vanguard. I have two variable annuities with them and they are great. No sales fees and no surrender charges. Also, with annuities, there are no RMDs [required minimum distributions] and no required withdrawals until age 85, as opposed to IRAs.

—William Gaul from Illinois

Trusts and High-Yield Savings Accounts

Member Question Regarding Trusts and Savings Accounts

I have had multiple problems with banks and other financial institutions due to their inability and unwillingness to treat a living trust as an individual. They won’t do it if it is a trust, even though essentially I am the trust! So, I appeal to you to help find me a high-yield savings account that will accept my money in trust form.

—Linda Morehouse

Greg McBride at BankRate.com responds:

Synchrony Bank, which offers a high-yielding account, does offer the account as a revocable trust under formal agreements (grantor is trustee/grantor is not trustee). Everbank will also open their Yield Pledge Checking and Yield Pledge Money Market to trusts.