Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-18-2013, 04:53 PM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,974
Quote:
Originally Posted by urn2bfree View Post
Of course the 4% rule is too rigid anyway with it's blind withdrawl of ever increasing amounts regardless of needs or returns...no sane retiree would do that. Strategies which alter withdrawls according to some basic rules during booms and bust years allow for even higher peak withdrawls without failure, so 4% as a starting point is still probably ok.
No sane person would, but none of the well known authors/articles recommend blind withdrawals either, in fact they encourage modulating withdrawals over the course of a long retirement as real returns unfold.

And of course there's always % of remaining portfolio withdrawal, which allows one to better control end of plan portfolio residual (for those who don't want to leave a large estate like us) with a much lower chance of running out entirely (aka failure) - though it requires more spending of smoothing during retirement to avoid radical changes from one year to the next. % of remaining portofolio, at least in the first 1/2 or so is making more and more sense to me thanks to other ER.org member experiences I've read over past years.
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-18-2013, 09:19 PM   #22
Thinks s/he gets paid by the post
Huston55's Avatar
 
Join Date: Jul 2011
Location: The Bay Area
Posts: 1,802
Quote:
Originally Posted by Midpack View Post
No sane person would, but none of the well known authors/articles recommend blind withdrawals either, in fact they encourage modulating withdrawals over the course of a long retirement as real returns unfold.

And of course there's always % of remaining portfolio withdrawal, which allows one to better control end of plan portfolio residual (for those who don't want to leave a large estate like us) with a much lower chance of running out entirely (aka failure) - though it requires more spending of smoothing during retirement to avoid radical changes from one year to the next. % of remaining portofolio, at least in the first 1/2 or so is making more and more sense to me thanks to other ER.org member experiences I've read over past years.



+1

I just read the Guyton article in the thread you started on 2/20/13 and find it very interesting. I'm attracted by: (1) the high probabilities of portfolio success over 40 yrs and, (2) the increased portfolio NPV (max utility of portfolio). I'm also encouraged that their analysis showed only a couple of instances, in 40 yrs, where income reductions would be required, and those are 10% (absolutely manageable).

I plan to study this more for possible incorporation into our plans.
__________________

__________________
You may be whatever you resolve to be.
Huston55 is offline   Reply With Quote
Old 05-19-2013, 04:33 AM   #23
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
I would agree with this. When I started to read this website a couple of years ago, my predicted SWR was 4%. Now it is down to 3-3.5%. I guess my SWR may change again slightly in the next couple of years.
Quote:
Originally Posted by urn2bfree View Post
so 4% as a starting point is still probably ok.
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 05-19-2013, 09:13 AM   #24
Recycles dryer sheets
 
Join Date: Mar 2011
Location: Dallas
Posts: 457
We just look for dividend payers of 4%+ to take care of us... No bonds here. Cds for emergency fund of 2 years for the bad days coming.
__________________
Surewhitey is offline   Reply With Quote
Old 05-19-2013, 12:13 PM   #25
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Surewhitey
We just look for dividend payers of 4%+ to take care of us... No bonds here. Cds for emergency fund of 2 years for the bad days coming.
That might well work, but your income is going to be subject to the volatility of the market and if there's a big fall in equities you'll have to hope your CDs can provide your income until the market recovers.

I have a fundamental issue with the use of a phrase like "safe withdrawal rate" when it refers to a particular percentage and depends on the past performance of volatile investments. For me a SWR is one that is never greater than the difference between the return of the portfolio and inflation.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-19-2013, 12:24 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by nun View Post
That might well work, but your income is going to be subject to the volatility of the market and if there's a big fall in equities you'll have to hope your CDs can provide your income until the market recovers.

I have a fundamental issue with the used of a phrase like "safe withdrawal rate" when it depends on the past performance of volatile investments.
I don't follow your reasoning on this. Surewhitey's plan isn't affected by market volatility at all--it depends only on the companies continuing to pay their dividends at approximately the same $/share as they pay now (or more). Equity prices could drop 50% and it wouldn't affect the dividend payments one bit.

But dividends do depend on continued general economic health. If the economy as a whole takes a dive and companies don't make profits, then there won't be dividends (for long). But if the economy is in the tank, then the same situation will affect rental real estate, corporate bonds, and lots of other things (including some things that insurance/annuity companies invest in. If their investments lose money for a long time, they won't be paying out the promised returns, and the "reinsurance" they use wont work well for a general calamity affecting many companies).
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 05-19-2013, 12:39 PM   #27
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by samclem
I don't follow your reasoning on this. Surewhitey's plan isn't affected by market volatility at all--it depends only on the companies continuing to pay their dividends at approximately the same $/share as they pay now (or more). Equity prices could drop 50% and it wouldn't affect the dividend payments one bit.


Granted, I could have been more careful in describing the potential for falling dividends.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-19-2013, 02:30 PM   #28
Recycles dryer sheets
 
Join Date: Mar 2011
Location: Dallas
Posts: 457
If the drop happens, I'll cash out some cds for stock...
__________________
Surewhitey is offline   Reply With Quote
Old 05-19-2013, 02:55 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,974
Quote:
Originally Posted by nun View Post
I have a fundamental issue with the use of a phrase like "safe withdrawal rate" when it refers to a particular percentage and depends on the past performance of volatile investments. For me a SWR is one that is never greater than the difference between the return of the portfolio and inflation.
No need to take issue if you understand the origins and meaning of SWR.

What does SWR really mean? And not?
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 05-19-2013, 04:07 PM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,881
4% SWR is a great place to start if you have no clue as to where you are going, like age in bonds. Most of us that post here know the inherent dangers of blindly following a general rule and are smart enough to make common sense adjustments as needed.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Old 05-19-2013, 04:16 PM   #31
Recycles dryer sheets
 
Join Date: Jul 2008
Location: Sacramento area
Posts: 444
Quote:
Originally Posted by foxfirev5 View Post
I have no intension of using any kind of SWR % to determine my withdrawals from tax deferred plans. Rather than that I will maximize the withdrawals to fill out at least the 15% tax bracket. My plan is to provide flexibility and minimize taxes.
This is due to the fact that I plowed every available dollar into retirement funds while having a much more modest amount in taxable. Wish I had done it a little different but I'm making the adjustment over the next two years.

My situation and stategy exactly.

My WD is based on a 6% portfolio over time (Inflation 3%). Too high? Perhaps. The thing is, my projections are just that - PROJECTIONS. They are absolutely subject to change. I will not blindly take $50,000 because my spreadsheet sez to - it will all be moderated by actual results. A bad investment year means tighten the belt. A great year means we can RETURN to the schedule - not go hog wild. We are 3 1/2 years downstream and doing just fine. Blindly following a plan is not the most brilliant strategy - kind of like the stories we heard when GPS units first came out" "Turn Here" caused some folks to turn right into a river. D'Oh. You have to keep your eyes open and your head screwed on straight.

Perhaps i will lower my 6% return in time. Perhaps not. If it is too LOW I will probably just leave it as is and recognize that we are building a little mad money....

your mileage can and will vary.


PS - my WD rate for this year is about 2%. I built a spreadsheet based on an inflow of cash that rises at 2.5% a year, inflation is projected at 3% (Yes, that is a disconnect for now) and a portfolio return of 6%. Due to the 2.5% income rise each year, eventually the draw exceeds the income and the portfolio balance declines. It is projected to reach zero in my 90th year of age. At that time i would suffer a decline in income of about 25%. My pension and Social Security will still provide 75% of my income. So it is not a disaster. We also have LTC policies (CalPERS) and zero debt. If the sky falls in, there are going to be many many many folks in the same boat. I plan to live well, sleep fine and enjoy the years that God gives me.
__________________
AWeinel is offline   Reply With Quote
Old 05-19-2013, 09:35 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,385
Quote:
Originally Posted by Independent View Post
Or .... they could defer SS payments. Funny how rarely that option gets mentioned.
There are many straightforward sensible ideas which essentially go nowhere on this board.

Regarding SS at 70, I read endless complex demonstrations why other ages are better. But how about this? Will you own any long maturity fixed income? It has been demonstrated that for income, SPIAs dominate long term bonds. And postponing SS dominates SPIAs. A>B and B>C implies A>C. This does not address those situations that I do not understand involving government and foreign pensions.

Case closed.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 05-19-2013, 10:27 PM   #33
Thinks s/he gets paid by the post
martyb's Avatar
 
Join Date: Nov 2006
Location: Bossier City
Posts: 2,182
I will begin retirement with a 4% WD rate, and will probably stay close to that for about the first 4 years, until a 2nd pension kicks in, then most likely reduce to a lesser withdrawal amount. Would it be a bad idea after the first 4 years to re-establish a new baseline SWR of say...3% & then start all over again? This assumes I would want to do the baseline thing in one year, then for all subsequent years, increase by the inflation number of the previous year? Just wondering....
__________________
martyb is online now   Reply With Quote
Old 05-20-2013, 08:22 AM   #34
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Midpack View Post
No need to take issue if you understand the origins and meaning of SWR.

What does SWR really mean? And not?
I take issue with the "safe" part and the use of historical data. The need for adjustments with actual portfolio performance is not well communicated in the SWR acronym and many people don't get past that.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-20-2013, 09:29 AM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,974
Quote:
Originally Posted by nun View Post
I take issue with the "safe" part and the use of historical data. The need for adjustments with actual portfolio performance is not well communicated in the SWR acronym and many people don't get past that.
Indeed, but that's not the fault of the originators of SWR methodology. Would it have been better had they not published their findings at all?
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 05-20-2013, 10:17 AM   #36
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Midpack View Post
Indeed, but that's not the fault of the originators of SWR methodology. Would it have been better had they not published their findings at all?
My criticism isn't for people using Monte Carlo methods to see how a portfolio would have done over the years, it's the reporting of those results without equal emphasis on the caveats of the research. That sin is committed by many journalists in popular articles and also in many articles on financial websites. I have no idea how FAs explain "SWR" to their clients, but I imagine there is some confusion there too.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-20-2013, 11:14 AM   #37
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by nun View Post
My criticism isn't for people using Monte Carlo methods to see how a portfolio would have done over the years, it's the reporting of those results without equal emphasis on the caveats of the research. That sin is committed by many journalists in popular articles and also in many articles on financial websites. I have no idea how FAs explain "SWR" to their clients, but I imagine there is some confusion there too.
Maybe, but the problem is there is **** no**** bulletproof SWR using future results. For all we know the market will tank 99% next year. Or we have a 30-40 year run of weak investment performance we've never seen before in US equities, combined with a sustained period of high inflation. If people don't see the difference between saying something is safe "if the future is like the past" (which is what Monte Carlo tries to do, more or less) and "something is safe, period", that's a problem with their understanding of what the tools are supposed to do, not the tool itself.

About all the "tool" can do -- or financial planners that use them -- is make sure the investors are adequately educated about the *context* of SWR (i.e. it refers to comparisons to past history). Then people who feel comfortable taking the risk that the future will resemble the past can choose to take close to 4%, or those who believe in the pessimistic "it's different this time" paradigm can choose to take a lot less.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-20-2013, 06:45 PM   #38
Thinks s/he gets paid by the post
Huston55's Avatar
 
Join Date: Jul 2011
Location: The Bay Area
Posts: 1,802
Quote:
Originally Posted by nun View Post
I take issue with the "safe" part and the use of historical data. The need for adjustments with actual portfolio performance is not well communicated in the SWR acronym and many people don't get past that.
I understand your "issue" but, don't share it. And, with all due respect, I also don't find it consistent with how most of us live our lives.

I'm an engineer, like many on this forum. Virtually everything we encounter in our lives today is designed by engineers using some "laws" (physics) but, lots more judgment based on empirical data. Mix that together with a "safety factor" (there's one or more in every design), and you get the products you use every day for almost everything in your life.

So, I find it inconsistent (and frankly not practical) to insist on absolute certainty when it comes to SWR.

I think the reasonable and practical approach is to understand the basis, be able to apply it to your situation (use your own safety factors), and then act accordingly, as opposed to carrying on that the SWR is not perfect.

As I tell my scientist friends: "Perfect is the enemy of good enough."
__________________
You may be whatever you resolve to be.
Huston55 is offline   Reply With Quote
Old 05-23-2013, 07:30 AM   #39
Recycles dryer sheets
RISP's Avatar
 
Join Date: Jul 2012
Posts: 307
Quote:
For me a SWR is one that is never greater than the difference between the return of the portfolio and inflation.
nun, what is your SWR in a year when your portfolio did not show any positive return, and there was inflation? Is it negative?
__________________
RISP is offline   Reply With Quote
Old 05-23-2013, 09:08 AM   #40
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by RISP View Post
nun, what is your SWR in a year when your portfolio did not show any positive return, and there was inflation? Is it negative?
Well for me it would be zero as I have pension, SS and rent that will cover my expenses. Most people would spend cash, but the WR from the equities/bond portion would be zero. It might be a touch semantic as money would still be coming out of the overall portfolio.
__________________

__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Reply

Tags
annuities, withdrawals


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 02:41 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.