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Old 04-21-2010, 11:54 AM   #21
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I think the amount you can count on is marginal at your age, with 2 adults and one child. I live as close to the bone as I can and spend only a few thousand less than you, on myself alone, though I do not own a home.

You will have health insurance for an entire family, plus daughters are expensive.

Ha
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Old 04-21-2010, 12:02 PM   #22
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That method is too simplistic because it doesn't match how the real world works. Use FIRECalc instead which is based on historical data.

Audrey
To add to that, Even though historical market gains have been around 10% (or so). Were you to retire in say 1970 (for a bad example) you would find that successive down markets would wipe you out long before the markets recovered in the 80's.

Therefore the timing and sequence of markets is important. Firecalc attempts to model market behavior such as this. The relatively low SWR is to help you get through poor markets. In good markets hindsight shows that a much higher withdrawal rate could have been achieved. However since nobody knows the future the prudent thing is to stick to a modest SWR.
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Old 04-21-2010, 12:16 PM   #23
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That method is too simplistic because it doesn't match how the real world works. Use FIRECalc instead which is based on historical data.

Audrey
I disagree. This equation I asked about is paramount to running a conservative or aggressive firecalc model.

Controlling the size difference between inflation and investment growth leads directly to a conservative vs an aggressive run of Firecalc IMO.
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Old 04-21-2010, 12:20 PM   #24
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I think the amount you can count on is marginal at your age, with 2 adults and one child. I live as close to the bone as I can and spend only a few thousand less than you, on myself alone, though I do not own a home.

You will have health insurance for an entire family, plus daughters are expensive.
interesting. We do not live close to the bone at all. We eat out and have normal entertainment budgets. Daughters cost is well accounted for as we track every single penny.

Although if you do not own a home, you must live some where, are you paying rent? Since I don't have rent or a mortgage that could be a pretty big difference between us.

I did add in a $12k budget for health care which is typical for my area for the family in case I do jump ship to a job that does not have health insurance.

Also, my house is the biggest drain on my expenses. House taxes and insurance are accounting for over 9.5k of the $42k we spent last year. If and when we downsize in the future, hopefully this tax and insurance % of my over all expenses will drop a bit.
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Old 04-21-2010, 12:21 PM   #25
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Therefore the timing and sequence of markets is important. Firecalc attempts to model market behavior such as this. The relatively low SWR is to help you get through poor markets. In good markets hindsight shows that a much higher withdrawal rate could have been achieved. However since nobody knows the future the prudent thing is to stick to a modest SWR.
What is considered a modest SWR? Is 3% safe or is that too aggressive?
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Old 04-21-2010, 12:22 PM   #26
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I disagree. This equation I asked about is paramount to running a conservative or aggressive firecalc model.

Controlling the size difference between inflation and investment growth leads directly to a conservative vs an aggressive run of Firecalc IMO.
Your concept may be sound but the point is investment returns and inflation don't remain fixed over time. Volatility within those two variables can eat your lunch.
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Old 04-21-2010, 12:24 PM   #27
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Your concept may be sound but the point is investment returns and inflation don't remain fixed over time. Volatility within those two variables can eat your lunch.
oh yes, I totally agree with that which is where the power of the monte carlo simulations is great.

I was more trying to get a general feel for how people view the general disparity between inflation and investment return so that I know I am not running too aggressive a simulation.
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Old 04-21-2010, 12:43 PM   #28
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What is considered a modest SWR? Is 3% safe or is that too aggressive?
For a 30 year retirement and a mixed stock-bond portfolio a SWR of around 4% keeps showing up in a variety of academic studies.

Any mutual fund/trading fees and taxes come out of that SWR though. For longer retirements than 30 years a 3.5% (or so) SWR is prudent. For 20 year or shorter retirements higher SWR's can be achieved.

The SWR keeps you from going broke in decade long bear markets.

Just for fun, consider reading Bernstein's articles on the "Retirement Calculator from Hell" series.

DATAQUEST

The Retirement Calculator From Hell - Part II

The Retirement Calculator from Hell, Part III

http://www.efficientfrontier.com/ef/403/hell4.htm

The Retirement Calculator from Hell, Part V
Attached Images
File Type: gif SWR.gif (29.2 KB, 81 views)
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Old 04-21-2010, 04:37 PM   #29
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For a 30 year retirement and a mixed stock-bond portfolio a SWR of around 4% keeps showing up in a variety of academic studies.

Any mutual fund/trading fees and taxes come out of that SWR though. For longer retirements than 30 years a 3.5% (or so) SWR is prudent. For 20 year or shorter retirements higher SWR's can be achieved.

The SWR keeps you from going broke in decade long bear markets.
The SWR is a bit tricky for me to calculate since I expect my expenses to change during my retirement.

If I had to meet my current needs, I am showing I need ~63k a year (which includes health insurance and taxes), on a 1.5M portfolio which is approx a SWR of 4.2% which is likely way too aggressive for a 45+ year retirement.

This is why I have been hesitant and was surprised when a few people earlier in the thread felt I could jump now.
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Old 04-21-2010, 05:03 PM   #30
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Check out Firecalc. It can handle the special expense etc.

Keep in mind that somewhere along the line you (probably) will be eligible for social security. That will help in the cash flow. Firecalc can handle some of these issues.

Also check out the "Optimal Retirement Calculator" Optimal Retirement Calculator and Retirement Decision Support System
They are set up to help you plan your cashflow in a tax efficient manner.
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Old 04-21-2010, 06:00 PM   #31
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interesting. We do not live close to the bone at all. We eat out and have normal entertainment budgets. Daughters cost is well accounted for as we track every single penny.

Although if you do not own a home, you must live some where, are you paying rent? Since I don't have rent or a mortgage that could be a pretty big difference between us.

I did add in a $12k budget for health care which is typical for my area for the family in case I do jump ship to a job that does not have health insurance.

Also, my house is the biggest drain on my expenses. House taxes and insurance are accounting for over 9.5k of the $42k we spent last year. If and when we downsize in the future, hopefully this tax and insurance % of my over all expenses will drop a bit.
I think perhaps he meant marginal in terms of withdrawal rate needed from your portfolio to support your projected lifestyle/expenses given your young age and family needs. Not that your budget was marginal.

Audrey
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Old 04-21-2010, 06:04 PM   #32
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What is considered a modest SWR? Is 3% safe or is that too aggressive?
3% is modest, and quite conservative IMO. 3.5% is perhaps the best you could hope to count on given your young age. And in that case you would want to minimize investment expenses on the portfolio. Remember these withdrawal rates include annual taxes as well.

4% is what folks feel is too aggressive for someone in their early 40s. OK for a 30 year time frame perhaps, but probably not for longer.

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Old 04-21-2010, 07:00 PM   #33
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3% is modest, and quite conservative IMO. 3.5% is perhaps the best you could hope to count on given your young age. And in that case you would want to minimize investment expenses on the portfolio. Remember these withdrawal rates include annual taxes as well.

4% is what folks feel is too aggressive for someone in their early 40s. OK for a 30 year time frame perhaps, but probably not for longer.

ok so then my 4.2% perspective initial AWR really does seem risky as I originally feared.

I do have some items that may help me in the future though

1) Small pension
2) Maybe some social security
3) Maybe a medium size inheritance
4) Downsizing of house to reduce expense and to add cash

So I guess I do need to be careful looking at the initial AWR and realize that the circumstances will likely changed in the future for me. If we only had a crystal ball
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Old 04-21-2010, 07:05 PM   #34
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ok so then my 4.2% perspective initial AWR really does seem risky as I originally feared.

I do have some items that may help me in the future though

1) Small pension
2) Maybe some social security
3) Maybe a medium size inheritance
4) Downsizing of house to reduce expense and to add cash

So I guess I do need to be careful looking at the initial AWR and realize that the circumstances will likely changed in the future for me. If we only had a crystal ball
A 4.2% initial withdrawal rate may be perfectly reasonable. Many of us who retired "early" had a higher than 4.0% initial withdrawal rate which declined once we became eligible for SS, pensions, downsized, etc.

While we don't have a crystal ball, we do have FIRECalc that will factor in all those variables - assuming they are input accurately.
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Old 04-21-2010, 07:28 PM   #35
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If I had to meet my current needs, I am showing I need ~63k a year (which includes health insurance and taxes), on a 1.5M portfolio which is approx a SWR of 4.2% which is likely way too aggressive for a 45+ year retirement.
We are older than you (62 and 56) but have 3 high school/college children and a bit less than you and are jumping this year (it helps that DH is eligible for SS now). Because of kids and the fact we still own our large expensive house (we have already bought for cash our downsized house) we anticipate higher withdrawal rates for the next 6 years than we will need after that. We did run Firecalc with those withdrawal rates and found 100% success in running Firecalc with well above 4% withdrawal rates for several years but then falling to a 3.3% withdrawal rate.

So I suggest modeling your actual expected spending over the various years and then seeing what the results are.
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