Retiring in Japan 1990

Last time I looked at the big crashes in US history and wondered how many people really would have pulled the trigger and retired right before or during the crash.

When I wrote that I just looked at the four or five years right before the crash. But it got me thinking…what would the entire investing life have been like for someone leading up to that?

Just for some variety, we’ll switch locations from the US to Japan. The Japanese crash in 1990 (and decades afterwards) has been far worse than anything in US history. Retiring in Japan with 100% Japanese stocks would have been pretty horrible. But…what would the years leading up to that retirement have looked like?

(Even though this is for a Japanese investor, I’ll keep everything in US dollars for simplicity.)

  • If they save 8% of their salary every year, then they are able to retire early at age 54
  • If they save 10% of their salary every year, then they are able to retire early at age 51

So when we think about someone’s retirement being devastated by the implosion of the Japanese bubble…we’re talking about people who undersaved and retired 10–15 years early.

How do things look if they had just stayed the course? They still only save 10% but they don’t try to retire super early; they stick around to age 60 no matter how big their portfolio grows.

And let’s compare them to their twin sister who did the same exact thing but invested in a 60/40 portfolio.

They both retire on January 1st, 1990.

Things actually turn out much closer than we might have expected!

This is what Estrada called “falling from a further height”. Yes, our 100/0 investor was 100% equities at the top of the Japanese bubble. But, after a lifetime of investing in 100% equities, they also had a bigger portfolio. The two almost entirely cancel each other out.

Not to totally oversell this, because after the 18 years or so the 60/40 portfolio does start doing noticeably better. And both portfolios would have been pretty unpleasant. After all, we’re talking about someone who was expecting to live on $40,000 a year in retirement and is having to make do under $30,000 (and sometimes under $20,000) no matter whether they had gone with the 60/40 or the 100/0.

On the other hand, saving only 10% of your income isn’t an aggressive saver. What if they had saved 15% of their income during their career?

Retirement income after saving 15% a year during your career

Their income still drops below the $40,000 they were counting on during retirement. And after the first decade drops below $30,000. The 15% savings rate helps but not enough.

What if they had saved 20% of their income during their career?

Retirement income after saving 20% a year during your career

While it drops below the $40,000 threshold in between years 19 and 24 of retirement…on the whole I’d consider this “acceptable”. Not great, by any means. Especially for someone who, before the crash, was expecting a fairly luxurious retirement. But they were able to maintain essentially the same standard of living they had during their four decade working career.

So…If you save 20% of your income then even if you invested in 100% equities and retired at the height of the Japanese bubble and spend three decades in the post-crash malaise…you still did kinda okay?

That seems like a pretty good story, actually. It also seems to reinforce the lesson that all of us should probably spend more time thinking about saving (and spending) and less time on asset allocation.

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