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Old 10-18-2011, 02:00 PM   #41
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Belt? - "Check"
Suspenders? - "Check"
Duct tape? - "Check"
Gorilla Glue? - "Check"
Safety harness? - "Check"
Bungee cord? - "Check"

OK, looks like you're good to go.

What? Just one more year so you can attach a safety rope?

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Old 10-18-2011, 03:27 PM   #42
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Sorry, I thought you'd be able to pin a tail on an answer those two questions using units of years or percentages. Seemed pretty straightforward to me. But, hey, you're the one who's working-- and you have to find the answer that works for you.

Personally, I was comfortable retiring at 4% because the preponderance of the studies available in 2002 were in the 4% range. If the military had let me go part-time at 5% I would have done that too. I knew that we could cut our spending to the bone during a recession or that I could even get a job to smooth over the rough patches. If any-- so far so good.

There's my answer. It'll be interesting to see what you decide to do. Personally I think you're locked up somewhere between paralysis analysis and "just one more year" syndrome. But that's just my opinion, and yours is the one that matters.
Thanks for your thoughts Nords. I am sure it's not pleasant to retire on 4% and then have some study come out saying you can only do this on 2%; or reverse for that matter - to take your example, if I wait for 2% and work extra N years only to find out 4% was actually the right amount to shoot for... I am too conservative to retire with 4% or even 3% - at least for now, and this kind of study certainly does not help... but at some point, I want to make the "better" choice based on the new "preponderance of the studies" available, as you put it. I still have some time to make that choice...
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Old 10-18-2011, 05:24 PM   #43
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What? Just one more year so you can attach a safety rope?
Nail gun. But maybe that's just because I've been listening to the contractors wield them for the last seven weeks.

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Thanks for your thoughts Nords. I am sure it's not pleasant to retire on 4% and then have some study come out saying you can only do this on 2%; or reverse for that matter - to take your example, if I wait for 2% and work extra N years only to find out 4% was actually the right amount to shoot for... I am too conservative to retire with 4% or even 3% - at least for now, and this kind of study certainly does not help... but at some point, I want to make the "better" choice based on the new "preponderance of the studies" available, as you put it.
The 2% study just doesn't seem relevant to me when it's compared to the other literature. Plus Raddr's studies on his home page. Plus his Y2K retiree. Plus other studies like Monte Carlo and FinancialEngines.com and Otar and Bud Hebeler and COLA'd annuities and living off the dividends... that depend on methods other than historical data. Plus all the other reading I've been doing while talking with other retirees and writing the book.

There's plenty of doom & gloom out there. Maybe it's because the skies really are gloomy. Or maybe it's because you're still deep inside a cave.

Well, nothing personal, but let me leave you with one final thought that other board members have belatedly come to appreciate:
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I still have some time to make that choice...
"... as far as you know!"
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Old 10-19-2011, 11:36 AM   #44
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Another article on this topic in FA Magazine by Wade Pfau.


New Research Challenges 4% Withdrawal Rule

In this article Wade discusses some research by Williams and Finke.

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This is illustrated in the new research article, “Determining Optimal Withdrawal Rates: An Economic Approach,” by Duncan Williams and Michael Finke of Texas Tech University. The article appears in the Fall 2011 issue of the Retirement Management Journal, and it won the journal’s Academic Thought Leadership Award. Williams and Finke find that an aggressive retiree with a $1 million nest egg and a guaranteed Social Security income base of $20,000, could actually maximize their utility with a 7 percent withdrawal rate. So much for the 4 percent rule!
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Old 10-19-2011, 12:27 PM   #45
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Another article on this topic in FA Magazine by Wade Pfau.


New Research Challenges 4% Withdrawal Rule

In this article Wade discusses some research by Williams and Finke.
I understood the underlying argument (with guaranteed sources to cover basics retirees may choose to risk running down their portfolio when they get old) but I didn't see how he arrived at the optimal choice (i.e. how he calculated the acceptable failure rate for various individuals). The charts didn't include that factor
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Old 10-19-2011, 12:48 PM   #46
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I understood the underlying argument (with guaranteed sources to cover basics retirees may choose to risk running down their portfolio when they get old) but I didn't see how he arrived at the optimal choice (i.e. how he calculated the acceptable failure rate for various individuals). The charts didn't include that factor
He does not describe it... probably because it is in the Williams and Finke paper. I looked for their paper and could not find it. It seems to require a subscription or registration to get to it.

He attempts to explain it:

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So what do Williams and Finke find when applying utility analysis to the issue of retirement planning? I have replicated their methodology to illustrate several of the key points from their new research. The following figures show the “certainty equivalence” values, which are the lowest fixed-income levels a retiree would be willing to accept to avoid the uncertainty associated with spending more while they still have remaining wealth and spending less when their wealth is gone. Williams and Finke use mortality rates to calculate the percentage of one’s life expected to be spent without any remaining wealth. Consider someone with a guaranteed income of $20,000. Using a 5 percent withdrawal rate with a 50 percent stock allocation, Williams and Finke might find, for instance, that such a strategy will provide wealth, on average, for 98 percent of one’s remaining life (with a $1 million nest egg this would mean a total real spending amount of $70,000 in these years) and wealth will be depleted, on average, for 2 percent of one’s life (allowing for real spending of $20,000 in those years). The “certainty equivalence” is the constant real spending amount with 100 percent certainty that the retiree would accept to avoid the volatility of spending amounts just described, and a more risk averse retiree would accept a lower spending amount to avoid this uncertainty. These values are calculated using a rather complex-looking formula that includes the spending amounts when wealth does and does not remain, the probabilities for these two outcomes, and a measure of the retiree’s risk aversion. Whichever strategy provides the largest certainty equivalence is the one that maximizes the retiree’s utility.
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Old 10-19-2011, 10:53 PM   #47
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This is all very interesting and makes for some gourmet food for thought. But, my biggest problem will be actually withdrawing the money and spending it. After 40+ years of saving and investing, old habits are hard to break. On the other hand, nobody lives forever!
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Old 10-20-2011, 06:39 AM   #48
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This is all very interesting and makes for some gourmet food for thought. But, my biggest problem will be actually withdrawing the money and spending it. After 40+ years of saving and investing, old habits are hard to break. On the other hand, nobody lives forever!
Many of us have that problem after years of LBYM lifestyle... it becomes a second nature.

That nature sometimes has a downside to it... the so called penny wise/price foolish behavior... and sizing certain things up as a bad deal (because it is not fully understood) and avoiding it (where if they had a better understanding of it they might choose it).

For most of us, the challenge is balancing long-term financial security and consumption.

The author uses the economic idea of utility and certainty to try to describe the some motivations and trade off.

But the reasons are highly individual. I (and I think most people) have a difficult time defining my own motivations.... much less really understanding them... other than in very simple terms that do not quite get at the root of it.

Most people seem to accept a simple model... I will be very careful and whatever is left will be in the estate. That is our approach at this time.

But I believe that is because they (and I) are a little unsure about other ways to approach it. Even with the estate... I have to believe that many people would prefer to gift it while they are alive... but fear about future financial security is probably the main deterrent.

My goal is to increase consumption... especially in the early/healthy years.

I believe (using the economic term) my utility for an extra $ will be less when I am old an feeble than it is while I am relatively younger and healthy. I am referring to the extra $ (discretionary $).
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Old 10-20-2011, 08:12 AM   #49
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My goal is to increase consumption... especially in the early/healthy years.
.
There is a lot of truth here. I find I am often pushed towards early retirement all to often by health problems of friends and relatives. Whenever I start to waiver and think 'maybe one more year of work' somebody gets seriously ill! In the past year I have seen serious illnesses at work, with friends, and now several neighbors. About half are younger than I.

For the good of my friends, I need to retire soon before any more of them drop!!
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Old 10-20-2011, 08:21 AM   #50
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I'd be interested to see how a variable WR would change things. It's a scenario that's applicable to ER as WR may well be higher prior to SS or pensions beginning. Having a higher WR at the beginning of ER is obviously not ideal as it might eat into capital and you'll forever loose all that compounding, but ER may well be a possibility if you start at 4% and a 66 go down to 2% or even lower.
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Old 10-20-2011, 10:54 AM   #51
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ER may well be a possibility if you start at 4% and a 66 go down to 2% or even lower.
It would seem more than possible -- close to a certainty. Most "traditionalists" thought a 4% with inflation WR was good for 30 years. If you are flexible enough to cut back to 2% after an initial period it would seem you are good to go. If things work out well you could even keep up or increase the 4% down the line. The studies are arguing that greater than 4% is reasonable in the early years if you are able to cut back substantially later on.
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Old 10-20-2011, 01:44 PM   #52
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It would seem more than possible -- close to a certainty. Most "traditionalists" thought a 4% with inflation WR was good for 30 years. If you are flexible enough to cut back to 20% after an initial period it would seem you are good to go. If things work out well you could even keep up or increase the 4% down the line. The studies are arguing that greater than 4% is reasonable in the early years if you are able to cut back substantially later on.
Most ER folks are LBYM so SS may well cover a high proportion of their spending. If I project my budget into the future using 3% inflation and estimate my SS in future dollars (using todays rules) it will cover 80% of my spending. Combine that with some rental income and post 66 I have an income surplus without having to withdraw anything form savings.
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Old 10-20-2011, 08:37 PM   #53
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The studies are arguing that greater than 4% is reasonable in the early years if you are able to cut back substantially later on.
This would seem to depend very strongly on sequence of returns.

I know I am a party pooper, but overall I think all these "studies" and calculators are not very helpful. It is junk science. There used to be a member here who would challenge people by saying-"Do you think things can get worse than the great depression?!" Well, I don't know, but I can think of a lot of ways that things could be worse, from the POV of a retiree. The point is, we may be looking at a discontinuity. The OECD countries are all boirrowed up. They all have demographic problems. And we seem to running short of cheap, easily produced oil. This could be a whole new deck of cards, with more jokers and fewer aces.

Ha
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Old 10-21-2011, 08:03 AM   #54
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You can go nuts trying to figure out just how bad things can get and how to plan for everything. All we can do is our best. I remember the 70's when global COOLING was supposed to reduce our food supply. Combine that with civil disorder in our cities and the best advice was to hide out in the mountains with your food, gold guns and plenty of ammunition to defend it all.
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Old 10-21-2011, 01:57 PM   #55
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You can go nuts trying to figure out just how bad things can get and how to plan for everything. All we can do is our best.
That is my exact point. We live "on the planet of inexperience" and these calculators engender a false sense of exactitude. There is no way to really plan, because we have no way to know what is coming along. Rules of thumb like the 4% rule haven't spent many years with almost 0% interest rates, the world has never been so fully borrowed up, etc etc. Any of these issues could resolve very positively, or very negatively.
My objection is not to going on and acting, but to thinking that there is some scientific or reliable basis on which to base these actions.

The simple idea of prudence is likely the best guideline.

Ha
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Old 11-02-2011, 02:02 PM   #56
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Another article on this topic in FA Magazine by Wade Pfau.


New Research Challenges 4% Withdrawal Rule

In this article Wade discusses some research by Williams and Finke.

I have been trying to figure out what would be a SWR in an emerging economy with no social security, pensions etc (except your retirement networth) to rely upon, rampant inflation to combat, and no meaningful historical data to fall back upon. Wade's been giving me some pointers on how to get started, but its been slow going so far.
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Old 11-05-2011, 10:13 PM   #57
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I read somewhere (don't remember where) that it's foolish to worry about more than an 80% certainty of your money lasting, anyway. In the last 100 years we had two world wars, invention of nuclear weapons, move to industrialization and then an information economy, rise and collapse of numerous countries, runaway inflation, global flu pandemic, etc. On top of all that, our estimates assume significant stability (as looked at in FireCALC hindsight) in our monetary and social systems that may not continue in the future. So looking 30-40 years out is a pretty big gamble in any case.

By my own nature I'm very conservative and a worrier. But a near-death experience 4 years ago (at 51 yo) has changed my outlook quite a bit. There are NO guarantees in life. If it looks pretty good, I say go for it and adapt as necessary to the inevitable surprises that will occur.
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Old 11-05-2011, 10:59 PM   #58
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That is my exact point. We live "on the planet of inexperience" and these calculators engender a false sense of exactitude. There is no way to really plan, because we have no way to know what is coming along. Rules of thumb like the 4% rule haven't spent many years with almost 0% interest rates, the world has never been so fully borrowed up, etc etc. Any of these issues could resolve very positively, or very negatively.
My objection is not to going on and acting, but to thinking that there is some scientific or reliable basis on which to base these actions.

The simple idea of prudence is likely the best guideline.

Ha
Well put Ha.

As I've posted on many threads, despite our FIRE plan having a 100% survival rate when FireCalc tested, DW and I expect a wild ride financially through our retirement years. We understand our final results, hopefully many years from now, may be anywhere between having just spent our last dollar or having a large multiple of our beginning FIRE portfolio amount to leave to the kids. And there isn't all that much we can do to change the variability.
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Old 11-05-2011, 11:51 PM   #59
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I read somewhere (don't remember where) that it's foolish to worry about more than an 80% certainty of your money lasting, anyway.
The third article of Bernstein's five-article series:
(FAQ archive): Bernstein's "Retirement Calculator from Hell" articles
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Old 11-06-2011, 07:00 AM   #60
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I have been trying to figure out what would be a SWR in an emerging economy with no social security, pensions etc (except your retirement networth) to rely upon, rampant inflation to combat, and no meaningful historical data to fall back upon. Wade's been giving me some pointers on how to get started, but its been slow going so far.

Good point... for those who are not very familiar with Wade, he has a nice blog with some thought provoking posts.

Here it is:

Pensions, Retirement Planning, and Economics Blog
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