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Old 12-04-2010, 02:41 PM   #41
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Maybe I've been wrong all these years but 4% SWR is very near the historical floor for a 30 year retirement, so odds are there would be considerable money left on average. I'm going to be more conservative, but as most here know 4% SWR is not an average, which implies a 50/50 chance, it's a very high probability of success (again historically). Choosing a WR of less than 4% for a 30 year retirement means the retiree is assuming returns will be worse than we've ever seen, including the Great Depression, and/or he/she will live longer than 30 years in retirement. All understandable, but to put it in perspective...
Understood. But after a "normal" 30 year retirement I'll (hopefully) be 69. 10 years before that I'll reevaluate the situation and if I'm sitting on the untold riches that many of the historical runs suggest, I can up my spending then; assuming I can find stuff worth blowing it on. No regrets.
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Old 12-04-2010, 03:12 PM   #42
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But yes, we'll have regrets that we didn't enjoy it more while we were alive.
R U sure?
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Old 12-04-2010, 03:48 PM   #43
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Actually I agree with considering an annuity late in life. But if we've spent 1X in the first 20 years of retirement, having 2-3X/yr (for example) for our remaining years when we can't readily enjoy experiences for physical if not other reasons would lead to the same regrets. So the problem remains. But it's a potential solution to the 'die broke' aspect...
Yes, that thought occurred to me as I was writing that post. Not exactly the solution we are looking for.

Although, you could spend at a higher rate before you got the annuity with the thought that you wouldn't need as much nest egg at the time you annuitize. But that leaves you gambling on just what the annuities will be paying when you are ready to buy.

Just no easy answer.

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Old 12-04-2010, 05:25 PM   #44
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I have thought for sometime that the "4% SWR" figure is too widely misunderstood. Especially for those on this board, if you retire early, unless very wealthy, less than 4% is likely needed. I think the 4% rule was generally created at a time most retired at 65. Pensions, SS, and lifestyle all have to be considered. With pending SS changes in the future, this too may have an impact down the road.
You might want to do some "additional" research about the 4%. Or you can simply ask. I guarantee you that most members of this board do not misunderstood that 4% SWR.
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Old 12-04-2010, 05:36 PM   #45
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You might want to do some "additional" research about the 4%. Or you can simply ask. I guarantee you that most members of this board do not misunderstood that 4% SWR.
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Old 12-04-2010, 06:06 PM   #46
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Actually I agree with considering an annuity late in life. But if we've spent 1X in the first 20 years of retirement, having 2-3X/yr (for example) for our remaining years when we can't readily enjoy experiences for physical if not other reasons would lead to the same regrets. So the problem remains. But it's a potential solution to the 'die broke' aspect...
I am looking at SPIA options.... but I am a little wary about it being the best approach. Since I have a pension, I am not sure that a SPIA is the best choice for us. But if I could lock-in a great payout because rates went a lot higher, I would probably do it.

For now, I intend to maximize the annuity we already paid for... SS. Delay till 70 for the larger SS amount and it has a COLA.


Of course, one could purchase longevity insurance (basically an SPDA). I think they can be purchased with inflation protection.

I have also considered creating an old age reserve fund and invest it in a target fund with a date 25 or 30 years into the future and use it. Right now this is my default approach.

I am considering several approaches and am still on the fence about it.

If I cannot make my mind up as the the optimum approach, I will take a multi-pronged approach.

I have also considered that our house could be used as a resource with a reverse mortgage. I would only consider that as a contingency plan... last resort if everything else failed.
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Old 12-04-2010, 07:04 PM   #47
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I guarantee you that most members of this board do not misunderstood that 4% SWR.
-1

This is so far from being grammatical English that I can't even figure out the intent of the posting.
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Old 12-04-2010, 10:06 PM   #48
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-1

This is so far from being grammatical English that I can't even figure out the intent of the posting.
With a "misunderstand" or "is not misunderstood", then I think Sam's grammar is perfectly correct. As it stands it's still plenny good. How's your Vietnamese?

He's letting Bizlady know that while he agrees most of the general population might not understand the concept of the 4% SWR, he thinks that concept is quite well understood by most of the members of this board.

I think we waste spend quite a bit of time trying to nail down the fourth significant digit of a number that can probably wander back & forth from 3-6% over at least three decades.
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Old 12-05-2010, 05:18 AM   #49
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With a "misunderstand" or "is not misunderstood", then I think Sam's grammar is perfectly correct. As it stands it's still plenny good. How's your Vietnamese?

He's letting Bizlady know that while he agrees most of the general population might not understand the concept of the 4% SWR, he thinks that concept is quite well understood by most of the members of this board.

I think we waste spend quite a bit of time trying to nail down the fourth significant digit of a number that can probably wander back & forth from 3-6% over at least three decades.
Thanks Nords.

I thunk GregLee is very good speeking english. I mist went read all the posts he/she rite to bitter my written skull. I can't not learned enought.

REWahoo: How you understand I? Mist be student tough english/vietnamese dactionery, no??
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Old 12-05-2010, 05:28 AM   #50
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You definitely need to stay flexible with unknown future returns. With my mind set I can already tell I'll have a problem when I comes time to draw down a portion of the principle in my investments. However I really don't want to work another 5 years so that I can just live on dividends and interest. A SWR of 3%, 2.5% or 4%, who knows. I guess I'll work another couple years, continue w/ LBYM and hope for the best.
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Old 12-05-2010, 05:44 AM   #51
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Another FP Journal Article Dec 2010 on the topic.

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From an international perspective, a 4 percent real withdrawal rate is surprisingly risky. Even with some overly optimistic assumptions, it would have only provided “safety” in 4 of the 17 countries. A fixed asset allocation split evenly between stocks and bonds would have failed at some point in all 17 countries.
Looks like the study only included developed nations (mainly Western European nations or their former colonies).

An International Perspective on Safe Withdrawal Rates: The Demise of the 4 Percent Rule?
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Old 12-05-2010, 08:06 AM   #52
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Another FP Journal Article Dec 2010 on the topic. Looks like the study only included developed nations (mainly Western European nations or their former colonies).
An International Perspective on Safe Withdrawal Rates: The Demise of the 4 Percent Rule?
That was an interesting read (THANKS!). I would never have guessed it would be quite that bad (less than 1.5% SWR) for Spain, Belgium, Italy, France or Germany. Japan was not a surprise but a SWR of 0.5% - OMG!

And that's based on 1900-2008, presumably safe has ratched down for everyone into the future...
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Old 12-05-2010, 08:19 AM   #53
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Nice article, and one that gives me reason to cheer.

If you look at this chart, you'll notice that there are clusters of failures around the early / mid 1910s and around the 1940s by countries that didn't fair well in WWI or WWII. You may also notice that at a 4% withdrawal rate, most of the countries still exhibit a 2/3 or better success rate (although Italy stands out as being particularly atrocious). That's surprisingly good considering the ravages of war experienced by the European continent during the first half of the 20th century.



And most of us should feel pretty good about this chart, showing a 100% success rate for 12 out of the 17 countries using a withdrawal rate between 2.5% and 4% . . .




This is a great data set and one that would be fun to dig deeper into. My takeaway from a quick look at the numbers is that your withdrawal plan will likely fail if your country is completely destroyed by war. But even with that included, you still have a really good shot at surviving with a ~3% withdrawal rate.
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Old 12-05-2010, 08:24 AM   #54
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That was an interesting read (THANKS!). I would never have guessed it would be quite that bad (less than 1.5% SWR) for Spain, Belgium, Italy, France or Germany. Japan was not a surprise but a SWR of 0.5% - OMG!
We were posting at the same time, and I came away with a different interpretation (see above).

Remember that the chart you're looking at shows the WR needed to reach 100% success. Also remember that Japan had two nuclear bombs dropped on it, and most of its other cities firebombed. I think its reasonable to conclude that if your country's history includes a period where it was completely destroyed by war, 100% success is going to be very difficult to accomplish. But even with all of the years of war included in the data set (and the past couple of decades of stagnation), a 4% WR still survived 62.5% of the time in Japan. That seems remarkably good.

Given the data set, it would be really instructive to lower the "success" threshold down to the 90% level, or maybe trim 5% of the best and worst years, and see what the minimum WR is then.
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Old 12-05-2010, 08:35 AM   #55
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We were posting at the same time, and I came away with a different interpretation (see above).

Remember that the chart you're looking at shows the WR needed to reach 100% success. Also remember that Japan had two nuclear bombs dropped on it, and most of its other cities firebombed. I think its reasonable to conclude that if your country's history includes a period where it was completely destroyed by war, 100% success is going to be very difficult to accomplish. But even with all of the years of war included in the data set (and the past couple of decades of stagnation), a 4% WR still survived 62.5% of the time in Japan. That seems remarkably good.
Guess we did. We agree it's an interesting article.

To me, a 62.5% "success rate" would be an oxymoron. The "success" threshold starts at 80% for me, but YMMV.

And a detail, but your characterization that 12 of 17 is being very generous with Spain in that you'd have to have had a stock allocation of 30-50% to succeed at 2.5% - who has that kind of foresight?
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Old 12-05-2010, 09:00 AM   #56
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Thanks for all the replies about this study (which allowed me to skim rather than read it ). From my skim, I take it that the historical runs by country evaluated how a portfolio with stocks/bonds of each country in question would have done. It would certainly be remarkable if such portfolios survived in countries devastated by WWI, WWII, civil wars, etc. It would be more interesting to see how well a hypothetical diversified portfolio containing a broad mix of assets from all of those countries and the US did in those same periods. I suspect even a Spaniard with a "world-wide portfolio" might have survived. Another useful chart would look at a typical home country biased portfolio (e.g. Spanish investors with 70% Spain, 30% international; German with 70% German, 30% international). That would better reflect current portfolio approaches.
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Old 12-05-2010, 09:03 AM   #57
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To me, a 62.5% "success rate" would be an oxymoron. The "success" threshold starts at 80% for me, but YMMV.
Yes, but we're talking about a data set where some of those countries were completely destroyed, twice. I think we all recognize that our plans will never be robust enough to survive that kind of scenario. I don't think it is oxymoronic at all to say "I have a financial plan that survives 62% of the time in a period where my country is conquered twice by hostile enemy forces in the most destructive wars the world has ever known." I'm actually surprised its that good.

I don't know how much insight that analysis provides, though. Certainly planning for 100% success doesn't strike me as productive given those circumstances. Striving for 80% seems more reasonable, but we don't know what WR accomplishes that because the authors don't tell us. We know that 4% passes that hurdle in 9 out of 17 countries. 3% seems like a probable winner given the large number of countries where you get 100% success at that WR. And I think most of us would be happy with that outcome.


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And a detail, but your characterization that 12 of 17 is being very generous with Spain in that you'd have to have had a stock allocation of 30-50% to succeed at 2.5% - who has that kind of foresight?
No foresight required. 50% seems like a pretty reasonable, and common, equity allocation.
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Old 12-05-2010, 09:37 AM   #58
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I am pleased that Canada fared pretty well in the study.
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Old 12-05-2010, 09:52 AM   #59
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Looks like the study only included developed nations (mainly Western European nations or their former colonies).

An International Perspective on Safe Withdrawal Rates: The Demise of the 4 Percent Rule?
About 5 years ago we discussed Triumph of the Optimists. There was of course disagreement, but some of us concluded that the only way to arrive at 4% ="Safe"WR was to ignore the majority of countries for which good long term data existed. In other worlds, use incomplete data and rely on the divinely granted special status of the USA. This assumes the usual passive indexes and rebalancing.

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Old 12-05-2010, 12:29 PM   #60
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This study, of course, also begs the question . . . "How would broad international diversification have changed the results?"
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