Market Timing and Contributions for those who are near FI or at FI but still work

[JBME]

Many will continue to work even if they reach FI. Many more will continue to work even if they are, say, 80-90% of their FI number and simple compounding will get them to FI in 5 years or less. If you reach your number, technically you have little to no reason to save more except perhaps to save on taxes or get further future tax diversification. Let's say you've taken the position that you are FI between 45-55 but because you're still young and like to work you plan to work 10 more years. Let's even assume you work part time, so lower income and in lower tax brackets.

Would you ever consider setting up a plan to not save more because you don't need to, with a simple exception: considering we enter a bear market every 3-5 years, you still have 2-3 more bear markets to get through before retirement. You don't contribute to retirement at all except when you see the market is in bear market territory so you see stocks are on sale and you then direct your paychecks to heavily go into retirement accounts to buy as much as possible at these discounts. I would imagine in 10+ years' time you'd be very happy you did this. It's market timing in a way too. Has anyone thought about this? Way too complicated to actually execute? Unrealistic to think you'll save nothing but then save as much as possible when the market has fallen 20%+ and you don't know when it will come back, but you know it will in the next 10 years?

[Tangler]

If I understand you correctly, I think you may be overthinking it.

Keep things simple and easy. Just keep buying.

When "Market timing" involves predicting the future it has lots of potential problems.

If your plan for "Market timing" involves rebalancing AFTER a bear or working extra to buy more AFTER markets drop, this is more a reaction to changes (adaptation / flexibility) rather than prediction.

I think flexibility and adaptation are reasonable. I think prediction is problematic.

If you want to be 90:10 or 80:20 and then rebalance following a drop of say > 19% in VTI then that is something you could put in writing as a plan.

If you keep substantial cash on the side waiting for (predicting) a drop every 3-5 years you might miss out and would be better off just lump sum investing and ignoring the noise/ news.

I guess those are not very different but to me one is prediction and the other is adaptation in my mind.

Look at the book by Michael Edelson called "Value Averaging" if you want to be systematic in your buying with new income based on what the market does or if you want to live a simple life remember these 3 words:

"Just keep buying"

Here is more on value averaging:

https://www.bogleheads.org/wiki/Value_averaging

[Lithium]

I have been doing this to some degree this year, begrudgingly taking extra work because the market is down. It’s kind of hard to go foresee myself doing that 25 years from now.

It’s fairly easy as a physician to take on extra work during a bear market, but much harder to cut back when the market tops out.

I’ve never been much of a spender in the first place. I just save money in hopes to buy freedom with my time. It sounds challenging psychologically to go through periodic spending shocks, and good luck getting a spouse on board. Makes plenty of sense in principle however.

[jfoxcpacfp]

Many will continue to work even if they reach FI. Many more will continue to work even if they are, say, 80-90% of their FI number and simple compounding will get them to FI in 5 years or less. If you reach your number, technically you have little to no reason to save more except perhaps to save on taxes or get further future tax diversification. Let's say you've taken the position that you are FI between 45-55 but because you're still young and like to work you plan to work 10 more years. Let's even assume you work part time, so lower income and in lower tax brackets.

Would you ever consider setting up a plan to not save more because you don't need to, with a simple exception: considering we enter a bear market every 3-5 years, you still have 2-3 more bear markets to get through before retirement. You don't contribute to retirement at all except when you see the market is in bear market territory so you see stocks are on sale and you then direct your paychecks to heavily go into retirement accounts to buy as much as possible at these discounts. I would imagine in 10+ years' time you'd be very happy you did this. It's market timing in a way too. Has anyone thought about this? Way too complicated to actually execute? Unrealistic to think you'll save nothing but then save as much as possible when the market has fallen 20%+ and you don't know when it will come back, but you know it will in the next 10 years?

Those bear market averages (I believe actually about q3.5yrs) are a historical average over the long term, not a guarantee in the short term. Remember we just got through ~13 yrs with no bear except for a 2-mo blip. Just saying that you can’t make a 10-yr or even 20-yr plan on “expected” bear markets. History is all we have to go by, not emotions and new formulas and acronyms.

But I’ve been putting spare cash in the market without looking at what it is doing on a particular day, also did a nice Roth conversion. The fact that we are in bear territory and I am not depending on this money for at least 5 years is enough for me. I keep imagining myself in 2009 deciding to sit on the sidelines out of fear and where I (and our clients) would be looking back today with that attitude. Picture yourself 10-15 years in the future. Do you believe you’ll be glad you invested more or regretful? You have to play the long game to do it right.

IANYFA, the above is my personal experience and my opinion.

[GasFIRE]

Many will continue to work even if they reach FI. Many more will continue to work even if they are, say, 80-90% of their FI number and simple compounding will get them to FI in 5 years or less. If you reach your number, technically you have little to no reason to save more except perhaps to save on taxes or get further future tax diversification. Let's say you've taken the position that you are FI between 45-55 but because you're still young and like to work you plan to work 10 more years. Let's even assume you work part time, so lower income and in lower tax brackets. . . .

This is me. I've been FI since 2010, working part-time since 2012. The initial conditions are important as it seems you're defining retirement contributions as savings. As a part-timer for 10 years now, I've tried to make every retirement contribution that I'm entitled to with an emphasis on Roth, whether IRA or 401k. As I have cut my hours over time, I no longer earn enough to cover expenses so my retirement contributions are more asset rearrangement than savings. This worked for me because my taxable account started out as my largest account by a significant margin. In this thread on withdrawal strategies, https://forum.whitecoatinvestor.com/...wal-strategies , I mentioned that I started out with taxable>pre-tax>Roth. Now I'm Roth>taxable>pre-tax by taking advantage Roth conversions and the MBDR over the last 5 years. This would be more difficult to implement if my pre-tax were my largest account which I'm sure is the situation for many, but not all, in this forum.

Most of these contributions were made without regard to market timing. I did rush an unplanned Roth conversion at the beginning of the pandemic when the market went down significantly. That bear was of such short duration that if I had delayed just a couple of weeks the benefit of a bear-market contribution would have been lost.

[JBME]

Appreciate these responses. I think I should have remade the title without explicitedly saying "market timing." The first point, that this is for those who are FI or near FI and yet still plan to work is a more important fact than market timing. My point is because you are FI or near FI and still working, you actually don't need to contribute anymore. So my point is if you're in a bear market, you take advantage and contribute. If there is no bear market (in the scenario Jfox mentioned) then big whoop-you already have enough so you just couldn't take advantage in order to have even more.

In my case of predicting and using market timing, it's really only if the scenario arises, and for planning purposes when you are already FI or near it, you don't need to depend on that scenario to arise in order to succeed.

[Tim]

Market timing for contributions general is a less than optimal strategy.
One exception, when you no longer want or need to play the game, do not plan on investing it. Zilch, nada, zero, never.
Tax strategies like the Roth conversions or TLH are different. They are all about timing tax opportunities.

[JBME]

Market timing for contributions general is a less than optimal strategy.
One exception, when you no longer want or need to play the game, do not plan on investing it. Zilch, nada, zero, never.
Tax strategies like the Roth conversions or TLH are different. They are all about timing tax opportunities.

This is a nice way to reframe what I’m trying to describe

[FIREshrink]

I don't time the market. I invest when I have the money. Every paycheck pretax, and about monthly when taxable cash accumulates.

[StarTrekDoc]

So the question is....what do you do when you've won the game?

For us, we have several levels of FI. We crossed the beach bum FI a few years ago and at that time we lossened the purse strings to allow some splurges (actually a lot!). Car upgrades, timeshare accumulation, house upgrades. Once done, and maintained continuation of FI progress, I dropped down a session finally coming off full time.

We shall see how this plays out over next six between free time, recession, and income to determine how the glidepath proceeds.

It's not just savings, but spending and work time too to replace portfolio losses or simply add more during good periods. More FI allows more options and flexibility to the ISP.

We are now past normal FI and working on Fat FI with planned exit to full retirement age 60.

We will be punching fully megabackdoor and Roth during this time.

[G]

Great thread. This is also me. Still funding cash balance, Roth 401k, PS (as able), BDR, HSA. Not much left for taxable. Similar to fireshrink, I invest when the money shows up in my account.

[Larry Ragman]

My wife and I have been fat FI for a while. We buy what we want within reason (no HI beach houses yet!) but I still fully fund all of my various accounts. I don’t thinkI am constitutionally capable of not saving and investing while I am earning. Long boring life story there; but regardless, to the original question, no.

[FIREshrink]

Because if you don't save, then you're spending. Much of that is just waste so what's the point? Eventually I hope we'll give a lot of it away.

[StateOfMyHead]

So the question is....what do you do when you've won the game?

For us, we have several levels of FI. We crossed the beach bum FI a few years ago and at that time we lossened the purse strings to allow some splurges (actually a lot!). Car upgrades, timeshare accumulation, house upgrades. Once done, and maintained continuation of FI progress, I dropped down a session finally coming off full time.

We shall see how this plays out over next six between free time, recession, and income to determine how the glidepath proceeds.

It's not just savings, but spending and work time too to replace portfolio losses or simply add more during good periods. More FI allows more options and flexibility to the ISP.

We are now past normal FI and working on Fat FI with planned exit to full retirement age 60.

We will be punching fully megabackdoor and Roth during this time.

This would make a good thread: Defining the different stages of FI. I won't make enough to be Fat FI but I'd like to be more comfortable than what I picture as beach bum FI. Would that be: I won't have to eat at chain restaurants FI? lol

[jfoxcpacfp]

So the question is....what do you do when you've won the game?

This is something I’ve thought many times in context of clients - it is certainly not a OSFA response. After being comfortably FI, one has freedom to make decisions that are not based on fear of outliving their money. Legacy (more charity/larger bequests to future generations), bigger lifestyle, total liquidity/bonds and quit planning for the future - or a combination. You can do a lot of good with your savings once you are no longer playing “the game” and can invest your net worth (beyond plan requirements) for growth. Everyone has a different purpose and you can fulfill it both while alive and beyond the grave.