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Old 05-10-2015, 09:27 PM   #21
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Here's a nice condensation of the current debate regarding the safe withdrawal rate (it includes photos of Bill Bengen, originator of the 4% rule, relaxing during his well-deserved retirement):

New Math for Retirees and the 4% Withdrawal Rule - The New York Times

...
Article references Pfau's recent work. His predictions are no more likely to be right than all the (at best contradictory) others out there (authority bias). Reminds me of this Buffet statement in his 50th shareholders letter:

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“It is entirely predictable that people will occasionally panic, but not at all predictable when this will happen. Though practically all days are relatively uneventful, tomorrow is always uncertain. (I felt no special apprehension on December 6, 1941 or September 10, 2001.) And if you can’t predict what tomorrow will bring, you must be prepared for whatever it does. Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s tool kit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.
Emphasis Added.
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Old 05-11-2015, 03:22 AM   #22
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in numbers we can relate to , the common denominator to all failures is they maintained less than a 2% average real return the first 15 years and with out spending adjustments made ran out of money before they ran out of time.

as long we you are above that number 4% should hold. so far only the y2k retiree is in danger. real retirns on the s&p 500 is below 2% the last 15 years as well as bonds are 0%. a 50/50 mix with no spending lowered would fail.
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Old 05-11-2015, 05:16 AM   #23
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The problem I see with ALL the SWR research is how narrow minded it is. It looks only at US investing- or in the research of other countries only looks at investing within those countries. So 4% is the worst case scenario for an investor in the S&P, and for most other countries the SWR is lower over the same historical period. So what? Only investing in the S&P is hardly demonstrating the sort of diversification available to investors. Is the whole world headed on a downward economic cycle like we have never seen in the past 150 years along with our poor old gloomy-doomed USA? I have yet to see any research demonstrating what is likely to happen with asset allocation across both US, international,and emerging markets and bonds-also internationally diversified-- with rebalancing. I don't know if the number for a worst case SWR for such a portfolio would be lower or higher, but it seems to me it ought to be part of a more reality based forecast.


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Old 05-11-2015, 06:04 AM   #24
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The 4% "rule" isn't really a rule; it's a factual statement: "If the future is no worse than the past, then you can withdraw 4% per year for 30 years and probably not run out of money".

The problem occurs when people try to turn this fact into a rule by removing the part in italics.
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Old 05-11-2015, 07:26 AM   #25
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There have been many articles on the death of the 4% rule, most conclude 3% would be safer - duh? Google and read them all. They assume the future will be worse than any 30 year period in history from 1871 through present which includes dozens of recessions, the Great Depression, several World Wars and lesser. Might be, might not...
Is there anyone really saying the future will be worse? Or are they saying it could be worse. Maybe you think it can't get any worse than the times you mentioned, but the economy always recovered nicely from those times. What happens if we have a bad period, not followed by a recovery?
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Of course VPW is safer, it's a variant of the % of remaining portfolio withdrawal method which cannot fail on paper. Of course you could still find yourself having to reduce spending dramatically along the way, but you'll never go broke...
VPW is more reactive to a prolonged downturn. You will be cutting spending all along as your portfolio drops. With 4% spending increased by inflation, what is your trigger that tells you to cut back? The first few years you might be likely to think that it'll bounce back, so you can stick to the plan. If the recovery doesn't happen, at some point you're going to have to wake up and cut back. That's likely going to have to be a drastic cutback, which seems less manageable than incremental cutbacks all along.

What concerns me about VPW is that if your retirement starts well, you can (but don't have to) spend a lot more. If prolonged bad times follow, you'll be in worse shape than someone who followed the 4% rule and let their nestegg grow more in the good times. Maybe that's not such a concern because most plans will succeed if the early years are good.
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Old 05-11-2015, 07:37 AM   #26
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The 4% "rule" isn't really a rule; it's a factual statement: "If the future is no worse than the past, then you can withdraw 4% per year for 30 years and probably not run out of money".

The problem occurs when people try to turn this fact into a rule by removing the part in italics.
+1
and the part in italics weakens the rule.

not that I'm proposing this... but look at RMDs... withdraws designed to start at 70.5 and end I think at 115 years old. You always pull a % of what is left... so should not run out of money.
It's real easy to blow your budget.. I did (RE in March)... bought an outback. But then I don't have a really firm ... defined WR. I hand waved a 1.5% which will be difficult to keep within with this purchase and medical expenses. I likely should decide to follow some withdraw method. But typically I under spend.
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Old 05-11-2015, 09:25 AM   #27
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Thought this comparison between SWR, VPW & RMD withdrawal methods might interest some here. Hindsight is a wonderful thing (e.g. past performance from historical results is no guarantee of the future), but FWIW.

I wouldn't expect it to change anyone's outlook, it's only one data point - if anything it will probably reinforce whatever withdrawal method views the reader already holds.

Safe Withdrawal Rates, Part 2: Variable Withdrawals | Seeking Alpha
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Old 05-11-2015, 09:44 AM   #28
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Perhaps these rules and systems are a really good idea for someone with no common sense. However, this person would have no considerable assets to retire on anyway. I cannot see their relevance for the sophisticated and dedicated retirees like those at this site, other than that which could easily be summed up in a short essay.

LBYM, save more than you think necessary, try to remember that some unknown unknowns just may exist, live conservatively before and after retirement, If you need to spend a bit more than planned because you or a family member are sick, go ahead, but maybe not for your 4th tour of Italy, or at least not often.


If one insists on a formal system, very likely a smoothed series of Buffet's portfolio look-through earnings would at last approach the problem from a different angle than FireCalc and other well vetted withdrawal methods that implicitly assume using up the cash vale of a portfolio over one's expected lifetime. This of course rests an action plan on four unforcastable variables-lifespan, portfolio return, portfolio price path, and necessary expenses.

Ha
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Old 05-11-2015, 10:00 AM   #29
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I really do not think that the current research has disproved the 4% rule....


I have not read all the articles, but I do not think there has been any failures yet. Have there been


I think that the current state of affairs is temporary.... it will eventually go back to 'normal'... I do not know what the stock market has done for the past 15 years, but Vanguard says that for the past 10 years I am up 8.9% per year... doing well to meet the 4% rule...
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Old 05-11-2015, 10:06 AM   #30
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I really do not think that the current research has disproved the 4% rule....


I have not read all the articles, but I do not think there has been any failures yet. Have there been


I think that the current state of affairs is temporary.... it will eventually go back to 'normal'... I do not know what the stock market has done for the past 15 years, but Vanguard says that for the past 10 years I am up 8.9% per year... doing well to meet the 4% rule...
Maybe I'm misinterpreting your statement, but the classic 4% SWR methodology is based on a 95% success rate...IOW 5% failure rate.
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Old 05-11-2015, 10:15 AM   #31
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Thought this comparison between SWR, VPW & RMD withdrawal methods might interest some here. Hindsight is a wonderful thing (e.g. past performance from historical results is no guarantee of the future), but FWIW.

I wouldn't expect it to change anyone's outlook, it's only one data point - if anything it will probably reinforce whatever withdrawal method views the reader already holds.

Safe Withdrawal Rates, Part 2: Variable Withdrawals | Seeking Alpha
Good article. Makes it clear that VPW is geared towards someone who doesn't care about leaving anything behind, while SWR most likely will leave a lot for your heirs in most normal scenarios.

And I neglected to mention that my #1 concern with VPW is that it does go to 0. It may be extremely unlikely that I live to 100 (which is the end date for the examples I've seen), but I don't want my money gone if that does happen. Unlike one poster on here, I don't consider my plan a failure if I die with money.

I'm more likely to set my end date to something like age 115, which I think essentially turns it into the RMD plan. I'm happy to leave something behind, and like the assurance that I won't outlive my money. I haven't even been spending 4% since retirement much less what VPW or RMD would give me, but I think I like using those as my upper bound.
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Old 05-11-2015, 10:41 AM   #32
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Perhaps these rules and systems are a really good idea for someone with no common sense. However, this person would have no considerable assets to retire on anyway. I cannot see their relevance for the sophisticated and dedicated retirees like those at this site, other than that which could easily be summed up in a short essay.
I always enjoy these types of bold, dare I say, blunt statements from you Ha. I think that very, very few retirees here follow any of these "rules" to the letter. Perhaps none. Most (all?) seem to use them as a rough guide, so they have a sense of when they might be about to get too far off course.

If that's the case, then why all the discussion? Well, we are an analytical bunch - we just can't help ourselves. A lot of the minutiae discussed here is very possibly also driven by folk who haven't yet retired, or are very early into the retirement, and are still fretting a bit - or by those who are sailing close to the wind by not having quite enough money, or with an ardent desire to spend as much as their portfolio will allow. The folk who are trying to "squeeze the most" out of their portfolios have an impossible task ahead of them but hey - we all love numbers, and we love to speculate what the future may hold.

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LBYM, save more than you think necessary, try to remember that some unknown unknowns just may exist, live conservatively before and after retirement, If you need to spend a bit more than planned because you or a family member are sick, go ahead, but maybe not for your 4th tour of Italy, or at least not often.

Ha
This almost reads like that Baz Luhrman song that was incorrectly attributed to Kurt Vonnegut (except you left the part about wearing sunscreen out). It's what we should be doing though; hopefully, most of us are.
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Old 05-11-2015, 10:59 AM   #33
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I am not so sure 100 years of investing past for a single country accurately predicts 50 years of the future, which personally brings me back to the Triumph of the Optimists multi-country conclusions (a country has one past and many possible futures), a liability matching strategy and continuing to live below my means in retirement.
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Old 05-11-2015, 11:18 AM   #34
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I am planning to retire in 2016 at age 60

According to actuarial tables, the probability of me living to 90 is 2 in 10, to 95 is about 1 in 20.

According to simulations (FIRECALC) , the probability of a starting portfolio with 4.5% SWR having a balance greater than zero - for a period of 30 years (until age 90) is 90%

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Old 05-11-2015, 11:20 AM   #35
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I am not so sure 100 years of investing past for a single country accurately predicts 50 years of the future, which personally brings me back to the Triumph of the Optimists multi-country conclusions (a country has one past and many possible futures), a liability matching strategy and continuing to live below my means in retirement.
If the whatever you define as the "past" bears no relationship whatsoever to the future, how would you know you are 'living below your means in retirement?'
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Old 05-11-2015, 11:27 AM   #36
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If the whatever you define as the "past" bears no relationship whatsoever to the future, how would you know you are 'living below your means in retirement?'
Matching strategy + low baseline expenses in relation to retirement income. I like Bobcat2 posts over at Bogleheads.

Added:

Actually I don't think the past bears zero relationship to the future, but looking at the stock market over many countries like they did in TofTO, may be more insightful than using 100 years of past history in one country to predict 50 years into the future, especially with a more global economy than we had in the past.
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Old 05-11-2015, 01:13 PM   #37
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4% relates to a 30 year period which matches a someone retiring at 65. Dropping it to 3.5% or thereabouts is for a 40 year period which better matches an early retiree.
Exactly my understanding and exactly why my aim point is 3% for a planned 40-50 year retirement. If I find I have more money when I'm 65 and 20 years into retirement, I can always take another vacation or buy a Maserati with a vanity plate that reads 3PCTSWR or something.
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Old 05-11-2015, 02:08 PM   #38
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Exactly my understanding and exactly why my aim point is 3% for a planned 40-50 year retirement. If I find I have more money when I'm 65 and 20 years into retirement, I can always take another vacation or buy a Maserati with a vanity plate that reads 3PCTSWR or something.
+1

I think it would be fun to squander some money when I'm older - or have the luxury of being able to give away some during the course of my everyday life. I'm thinking things such as bigger tips, footing bills in stores for strangers in need, donating to charities etc.
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Old 05-11-2015, 02:54 PM   #39
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so for many who post here, a rule like 4% or 3.5% doesn't work. For me (I am not retired yet, about 20 months away) the 4% gave me a starting point. I've run several spreadsheets projecting a 6% and 4% return on my investments, and having a starting figure helps think through the numbers. Like many my sources of income will vary over my retirement years and so my needs from the investments will change over the years. Plan is to retire at 60 with a mortgage and a military pension. At my age 63 my DW will start SS, at my age of 67 I'll file and suspend my SS and pick up a spousal draw, then at m age of 70 I'll revert to my enhanced SS. At age 80 my mortgage will be paid off and I'll have less expenses.


I think this mix of different sources of income and expenses is more likely the norm rather than needing a fixed number of dollars over a 30-40 year period.


So nothing wrong with starting with a somewhat reliable rule, and making changes to fit your needs.


When you drive a car on a 45mph speed limit road, that doesn't mean you can always drive 45 safely, and doesn't mean that doing 50 is unsafe. Who besides me sometimes goes faster than 45 and sometimes slower? Of course the problems start when folks dive in a manner that gets in my way.
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Old 05-11-2015, 04:18 PM   #40
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So nothing wrong with starting with a somewhat reliable rule, and making changes to fit your needs.
This is undoubtedly a persuasive pitch, but to me there is one huge flaw. What is the reliable way that you will know that you are failing? How can you differentiate the expected ups and downs from those that may de destined to be a fatal slide?

One thing I usually (always) see being ignored is-"what is our starting point?" Is a portfolio of stocks and bonds with a price of $1 mm at todays PE10 of ca.27 the same value to a retiree as a portfolio valued at about 7 in 2080, or 15 in 2009?

To me it is impossible that it is. And this single fact invalidates everything based on past comparisons with nothing more than the market value of the portfolio. Anybody can do anything they want, but making reasonable justifications for some of these actions is not so easy.

Anyway, this will be clear enough in due time, unless Dame Janet is a lot more clever and lucky too than she appears to be so far..

Ha
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