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Old 12-05-2010, 06:03 PM   #61
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REWahoo: How you understand I? Mist be student tough english/vietnamese dactionery, no??
I'm guessing it's the year I spent in pilot training ("aviator" training for you Navy types) with Tran Tao, fellow student pilot.
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Old 12-05-2010, 06:15 PM   #62
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Originally Posted by GregLee View Post
-1

This is so far from being grammatical English that I can't even figure out the intent of the posting.
It strikes me that someone who uses leetspeak in Post #42 is hardly in a position to be a grammar nazi.
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Old 12-05-2010, 06:23 PM   #63
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we'll have regrets that we didn't enjoy it more while we were alive....
Consumption at this stage of our lives is for life's experiences - not "things" as some may be thinking.
In a talk with an older colleague, actually a former boss, I said that I'd like to do some travel now, when I still had my health. Repeating an old saying, I said that, on my deathbed I would not want to regret that I did not take this or that trip.

My older friend shook his head and said "Don't worry. Most people on their deathbed would simply wish for the pain to stop".

His wise words left me speechless, and stuck with me. It's sad, but true. In the end, it does not matter that much.
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Old 12-05-2010, 10:50 PM   #64
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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.
I totally agree that in general, those on this board are better informed and prepared. My statement was meant to refer to the 4% SWR widely quoted in the media, which many outside of this board read and refer to. Sorry if I offended! :-)
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Old 12-05-2010, 11:01 PM   #65
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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.

.
The data does seem to suggest that being conquered creates havoc with a retirement portfolio. A pity the authors didn't include the SWR for the Koreas or Vietnam or Africa with its huge number of civil wars.

So I guess future retirement planning also needs to include the relative strength and national security assessment of your country. The good news is that foreign affairs and national defense policy seem to be a legitimate topic FIRE topic and not mere politics .
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95% rule
Old 12-07-2010, 08:05 AM   #66
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95% rule

personally, I'm using Bob's 95% rule, 4% of the current year's diversified portfolio, only I apply 3.5% instead of 4, just to add another layer of "security".

I believe in the efficient market theory.
I believe only new news moves markets. And since new news is unpredictable, markets are therefore totally unpredictable.
Analyzed potential future events are already "priced in" the markets with their expected probabilities applied by the millions of investors.

But, with the rising tide of the beauty of capitalism, markets will go up over the long term.
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Old 12-07-2010, 08:22 AM   #67
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But, with the rising tide of the beauty of capitalism, markets will go up over the long term.
Fair point. When looking at historic returns, and how they might be applicable to today, it's worth considering some context. Is the world becoming more like the U.S. with stable governments, peaceful borders, and private enterprise? Or is it becoming more like Europe of the early 20th century with powerful and belligerent dictators/emperors making war on their neighbors?

While projecting the U.S. record forward is probably too optimistic, using the European record is probably too pessimistic.
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Old 12-07-2010, 11:03 AM   #68
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personally, I'm using Bob's 95% rule, 4% of the current year's diversified portfolio, only I apply 3.5% instead of 4, just to add another layer of "security".
I'm also leaning toward a more conservative version of the 95% rule (but I still have a few years to change my mind). In my case:

In bad years, take the greater of 4% of current portfolio or 95% of the previous year's spending. In good years, take the lesser of 4% of current portfolio or 4% of original portfolio at retirement (adjusted for inflation).

But really, the percentages above represent what I'll be living on, rather than what I'll be taking from my savings, since my withdrawal rate will drop at 55 (when I start receiving a very small non-COLA pension from a previous company) and at 62 or 67 (when I start taking Social Security).

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While projecting the U.S. record forward is probably too optimistic, using the European record is probably too pessimistic.
I agree. There might even be a book in that. It would need a catchy title. "Our Goldilocks Future"? "The Middle Path"? Forget I mentioned it...
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Old 12-07-2010, 11:28 AM   #69
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Another variable withdrawal strategy that doesn't get a lot of attention is Guyton's Decision Rules
http://cornerstonewealthadvisors.com...iteArticle.pdf

It is an expansion of an earlier paper by Guyton.
http://www.bobneiman.com/NWM_Pages/D...n%20Guyton.pdf

I created a spreadsheet a while ago to calculate the withdrawal based on his rules. I use this as another check point to make sure I'm not going too far off track.
Spreadsheet to ease SWR calculations using Guytons Decision Rules
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Old 12-08-2010, 08:19 AM   #70
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Isn't it the case that the vast majority of the failures are because of poor market performance early on?

Maybe I'm missing something (in fact it is likely) but I'd think it reasonable to start out at 4% and if the **** is hitting the fan in the first x years adjust down to 3.5% or 3%. Of course this would require being able to retire on 3% of your amount as well as 4%, or be able to work part time or turtle to a cheaper location.

My problem with 3% versus 4% isn't the amount left over, it is the extra years of work that might be required to increase your portfolio an additional 33%. That could be the difference of 5-10 years in your prime.
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Old 12-08-2010, 08:41 AM   #71
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Isn't it the case that the vast majority of the failures are because of poor market performance early on?
Yes, I think this is true. I did some research on this exact issue a few years ago and posted the results here.

Basically, if your portfolio is suffering severely 5 or 10 years into your withdrawal period, you need to do something to slow the bleeding. Work part time, reduce your withdrawals, etc.

I personally plan on having a significant portion of my withdrawal be a variable amount based on portfolio value each year, and the rest of my withdrawal would be inflation indexed. Empirically, this will let me pull out around 4% starting out, and there is a 95% chance my withdrawals won't decrease below about 3% in the first 10 years or so. By year 10, I am virtually guaranteed to meet or exceed the 4% SWR.

In practice, this would look like the following: 2% withdrawal indexed to inflation each year plus a 2% withdrawal that is 2% of the actual portfolio balance each year. The former part of the withdrawal dampens the volatility of the latter part of the withdrawal (in good years and bad). Over time, odds are very good that my withdrawal will grow. If, say, I had a million bucks in my portfolio, and I needed $25000 as my absolute bare bones living expenses, then I could take $40,000 a year per my 2%/2% strategy and have a very good chance (95%+) my withdrawals would never dip below $28,000-30,000.

The advantage of this method (the hybrid method I call it) is two fold: you don't annually increasing amounts blindly as your portfolio craters and you get to enjoy spending more in the vast majority of scenarios where your portfolio appreciates over the decades. I think the hybrid method more closely approximates what you will want to do anyway: conserve money when you get poorer and spend more when you get richer.

This is all assuming that the past is prologue for the future.
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Old 12-08-2010, 09:52 AM   #72
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Isn't it the case that the vast majority of the failures are because of poor market performance early on?
That is what the data shows. But it's worth remembering that "early on" is based on a 30 year retirement. What does "early on" mean for someone retiring in their 50's . . . the first couple of decades?
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Old 02-04-2011, 06:02 PM   #73
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+1
the study on which the "4% SWR" is based assumed a 30-year retirement and an equity allocation of 75%. I think also the 4%WR assumed that the portfolio would be totally consumed at the end of the 30 years and had a 5% probability that you would outlive your money. I'm going by memory here, so I'm open to correction.

If your retirement will differ from those parameters, an adjustment to the WR is probably in order.
Ok the above is incorrect. The 4% Safe withdrawal rate was intended as a level of withdrawal that would ensure that the portfolio would NOT deplete in a 30 year time period. The aftcast on this shows that it is possible, or has been possible in the past, that the portfolio could deplete. It is not likely though, and it is much more likely you would have a large estate left behind.

The best book written on this SWR topic is Unveiling the retirement myth by Otar.

Regarding the 5% chance of "outliving your money", that would be probably in the range of a 8% withdrawal rate, based on the initial year, and indexing to inflation.

Something that doesn't get mentioned much is the variance people take in their withdrawal rate. If you retire on 2M asset base, use 4% WR (80k initial year), and the portfolio falls 40% the first year, it is unlikely you will still feel find pulling 80k + inflation the very next year. However, this is actually what these SWF studies are suggesting. They are using the number of 4% as the very first year, and regardless of asset movement, continuing to withdraw the same amount (not percentage!) plus inflation in all following years. The understanding here is that your assets fluctuate, but your spending should not.

The 4% withdrawal rate depends on many things for portfolio survival, the biggest of which in my opinion is management and trading fees. If you have a million dollar portfolio, pay 1.5% in management and trading fees, and decide to withdraw using this 4% rule, you are actually withdrawing 5.5% as per the studies conducted. This is kind of my primary reason for shying away from any asset management. (that being said, I am considering a flat fee DFA advisor).

I'd love to talk more about this topic with anyone interested. If anyone hasn't already, really check out that book. I actually read it first from the free download the offer gave, and then decided to buy the paper copy ($50!, way expensive for a financial book), but worth every penny to me. The book was written and targeted to retirement advisors if I recall correctly.
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Old 02-04-2011, 06:18 PM   #74
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That is what the data shows. But it's worth remembering that "early on" is based on a 30 year retirement. What does "early on" mean for someone retiring in their 50's . . . the first couple of decades?
Early on as described by the people that have done these studies is the first several years. The importance of market activity is actually most important in the first year, second most important the second year, etc. By the time you get to your late retirement years, the market really doesn't matter as much. The reason for this is that you are withdrawing the funds from what could be a damaged portfolio. If you retire with 1M asset, and you decide to use a 6% WR (admittedly high, but this is probably a situation MANY people will find themselves in), the first couple years make all the difference. If the portfolio goes to 650k year 2, and you make another 62k (4% initial amount plus inflation) withdrawal that year, you can see that effectively that is around a 9.5% withdrawal rate! Hopefully this makes sense of this for some people. The opposite is true is you have a banner year 1, portfolio goes to 1.2M, you make a 62k withdrawal. Effictively, for that isolated year, you've only withdrew 5.1%.
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Old 02-04-2011, 06:21 PM   #75
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Verygoodthings: This topic has been discussed extensively on this forum. Otar's book as well. I think you might be a little high on the SWR for a 95% success probability. Use the search function if you want to read previous threads on a particular topic. You will learn a lot here, I did.
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Old 02-04-2011, 06:21 PM   #76
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Yes, I think this is true. I did some research on this exact issue a few years ago and posted the results here.

Basically, if your portfolio is suffering severely 5 or 10 years into your withdrawal period, you need to do something to slow the bleeding. Work part time, reduce your withdrawals, etc.

I personally plan on having a significant portion of my withdrawal be a variable amount based on portfolio value each year, and the rest of my withdrawal would be inflation indexed. Empirically, this will let me pull out around 4% starting out, and there is a 95% chance my withdrawals won't decrease below about 3% in the first 10 years or so. By year 10, I am virtually guaranteed to meet or exceed the 4% SWR.

In practice, this would look like the following: 2% withdrawal indexed to inflation each year plus a 2% withdrawal that is 2% of the actual portfolio balance each year. The former part of the withdrawal dampens the volatility of the latter part of the withdrawal (in good years and bad). Over time, odds are very good that my withdrawal will grow. If, say, I had a million bucks in my portfolio, and I needed $25000 as my absolute bare bones living expenses, then I could take $40,000 a year per my 2%/2% strategy and have a very good chance (95%+) my withdrawals would never dip below $28,000-30,000.

The advantage of this method (the hybrid method I call it) is two fold: you don't annually increasing amounts blindly as your portfolio craters and you get to enjoy spending more in the vast majority of scenarios where your portfolio appreciates over the decades. I think the hybrid method more closely approximates what you will want to do anyway: conserve money when you get poorer and spend more when you get richer.

This is all assuming that the past is prologue for the future.
This is a good post. And this is what most people do. All of this 4% rule nonsense, people may understand it as explained to them by their advisors year 1, but they just spend according to portfolio value down the line.
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Old 02-05-2011, 10:46 AM   #77
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This is a good post. And this is what most people do. All of this 4% rule nonsense, people may understand it as explained to them by their advisors year 1, but they just spend according to portfolio value down the line.
Yes I think you are right. Who in their right mind would ignore portfolio results when planning their upcoming spending levels?
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Old 02-05-2011, 10:58 AM   #78
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Personally, I never considered 4% safe. The way I look at it, a one in twenty chance of running out of money is too risky - there are no do-overs here. My preference is to start with a SWR that FIRECALC says never failed, and keep my fingers crossed. In the meantime, I would be trying to opportunistically re-position my portfolio into one where the withdrawal rate can be supported from interest and dividends.
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Old 02-05-2011, 12:14 PM   #79
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Isn't it the case that the vast majority of the failures are because of poor market performance early on?
Earlier versions of FireCalc provided a chart which showed which trial periods failed and named them by their initial year. If I recall correctly, most failure trial periods beginning with years of high inflation did the worst.

Because we've been in a period of low inflation, I think many are overlooking that threat. For example, we all took a beating from the recent recession, but generally portfolios have recovered. There is no recovery form periods of high inflation. Once prices go up, there is seldom offsetting deflation to bring them back down.

As food, energy, etc., increase in price, don't look for a "recovery" bringing them back down to where you can afford them based on a non-inflation adjusted withdrawal rate.
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Old 02-05-2011, 02:27 PM   #80
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Another good resource I came across with the SWR was in the Bogleheads Guide to Retirement. There is a section specifically on early retirement, and it modifies the SWR by age group. The earliest retirement (I believe was around 40 years old) called for 3.0% initial withdraw, inflation indexed. Just a different spin on this typical rule. And may apply to some of us here of a younger age group.

Here is another opinion that I find respectable, I'm copying from a post written by a "Mike" on Raddrs Early Retirement forum:

"If you include data from all centuries and countries, the SWR is near zero. The 4% data set was for a country that was in the process of morphing into the world's preeminent super power. Meanwhile, the Japanese and German SWR for the same period was about zero. Much of the war ravaged rest of the world was not much better off.

Canada, Australia, New Zealand and the US were some of the few places that 4% was even close for the period."
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