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Old 02-12-2019, 10:07 AM   #21
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This chart stops in 1975. At this point, we have data for a 30-year retirement up to 1989.

With the bull market from 2009 till now, we stopped talking about the hapless 2000 retiree, who would see the S&P nearly halved in 2002, rebounded to be almost halved again in 2009. We used to talk about that a lot during the Great Recession.

I wonder if anyone has updated a theoretical 60/40 portfolio with 4% WR for such a retiree.
Yeah wondering the same thing. I believe the 2000 retiree is still doing okay, but wondering if a 3rd bear market will cause this retiree to "surpass" the 1966 retiree.
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Old 02-12-2019, 10:25 AM   #22
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From 2021-2025, we plan to pull out 4.5-5% until I reach full SS age, then dial back to 3.5-4% after SS. "Comfortable" expenses however are about 15-25% below that amount, so we have a lot of slack.

When DW reaches full SS age--we're likely to have a withdrawal rate below 3% with large RMDs, so I'm trying to pull out to the top of the 12% bracket for the next 5 years and stuff the unspent portions in a brokerage account. Right now that has bonds and dividend holdings, but I'll switch that to growth stocks when DW draws SS (and make the 401k/403bs a lot more bond heavy).
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Old 02-12-2019, 11:09 AM   #23
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From the figures that I have for our 2 projected SS payments, and my pension payment taking both at 62 years old, I will have to take 3-4% to cover expenses 8 years from now when I finally FIRE. 5% AA would give us extra $$ to have fun without depleting our funds.

I'm still playing with the figures of one of us waiting until 70 for SS.

These figures also don't include us investing any of the 50% raise she got late last year, so the potential for big growth in other areas is high.
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Old 02-12-2019, 11:14 AM   #24
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Sure.... What I said was a 'market drop' of 15%.... the portfolio will probably drop over time due to withdrawals.
The portfolio can drop quite far over many consecutive years due to market drops, withdrawal and inflation.

You have to model how far the portfolio will shrink, because your income will shrink proportionally. Not quite as quickly as a straight % since the withdrawal rate increases a bit each year, but during bad sequences the portfolio is also depleted a bit faster due to the increasing withdrawal rate. The VPW spreadsheet does model this worst case real drawdown of the portfolio and when it would have occurred to give you an idea of how many years it could keep dropping.

When you know how far the portfolio has shrunk (real terms) in the worst cases in market history you can decide how you might handle such a scenario, whether you have enough discretionary expenses where you could cut back, or whatever.
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Old 02-12-2019, 11:25 AM   #25
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The portfolio can drop quite far over many consecutive years due to market drops, withdrawal and inflation.

You have to model how far the portfolio will shrink, because your income will shrink proportionally. Not quite as quickly as a straight % since the withdrawal rate increases a bit each year, but during bad sequences the portfolio is also depleted a bit faster due to the increasing withdrawal rate.

When you know how far the portfolio has shrunk (real terms) in the worst cases in market history you can decide how you might handle such a scenario, whether you have enough discretionary expenses where you could cut back, or whatever.
When I look at what the market has done in the past, I try to imagine what my no-kidding real-world reaction would be if my no-kidding real-world portfolio had declined by 50% or so, and if (like in the real world) I couldn't know for certain that asset values would increase in a year or two. I >know< I'd be cutting withdrawals drastically, and I'll bet most folks would, if there's any "fat" at all in the spending budget. For others who reach the same conclusion, then it makes a lot of sense to go with variable withdrawals (a % of the year-end portfolio value, or some modification of that) for planning. If that's what you'll really do, then go ahead and model things that way. FIRECalc can do it, as can some other calculators.
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Old 02-12-2019, 12:11 PM   #26
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Old 02-12-2019, 12:25 PM   #27
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When I look at what the market has done in the past, I try to imagine what my no-kidding real-world reaction would be if my no-kidding real-world portfolio had declined by 50% or so, and if (like in the real world) I couldn't know for certain that asset values would increase in a year or two. I >know< I'd be cutting withdrawals drastically, and I'll bet most folks would, if there's any "fat" at all in the spending budget. For others who reach the same conclusion, then it makes a lot of sense to go with variable withdrawals (a % of the year-end portfolio value, or some modification of that) for planning. If that's what you'll really do, then go ahead and model things that way. FIRECalc can do it, as can some other calculators.
OP-

If you want to start w/ a 5% w/d rate, then I would recommend some type of variable w/d method. There are several (VPW, Guyton-Klinger, etc) which will support an initial w/d rate of >=5%. You can use the ‘c-fire-sim’ calculator to quickly test several of them.
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Old 02-12-2019, 12:33 PM   #28
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The portfolio can drop quite far over many consecutive years due to market drops, withdrawal and inflation.

You have to model how far the portfolio will shrink, because your income will shrink proportionally. Not quite as quickly as a straight % since the withdrawal rate increases a bit each year, but during bad sequences the portfolio is also depleted a bit faster due to the increasing withdrawal rate. The VPW spreadsheet does model this worst case real drawdown of the portfolio and when it would have occurred to give you an idea of how many years it could keep dropping.

When you know how far the portfolio has shrunk (real terms) in the worst cases in market history you can decide how you might handle such a scenario, whether you have enough discretionary expenses where you could cut back, or whatever.

Sure, that's why I suggested downloading the VPW tool and back testing against Market History in my first response to you. (BTW - I participated in the development of the VPW tool)
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Old 02-12-2019, 01:12 PM   #29
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That's easy... Just tell me the Portfolio Returns and Inflation rate over that long period of time and we'll draw you a Graph.....



Or you can download the VPW tool and Change the WR to 5% and backtest against Market History.
+1 on the variable withdrawal.

Also, remember that if you take SS at age 70, you can spend more each year compared to people who take SS earlier. Note: that this assumes you DO NOT WANT OR CARE to leave much of an estate to your heirs.
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Old 02-12-2019, 01:22 PM   #30
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+1 on the variable withdrawal.

Also, remember that if you take SS at age 70, you can spend more each year compared to people who take SS earlier. Note: that this assumes you DO NOT WANT OR CARE to leave much of an estate to your heirs.
Also remember that as you wait longer until 70 you'll spend more of your own money each year. So if you die before 78 or so and you'll be leaving less in your estate.
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Old 02-12-2019, 01:37 PM   #31
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I told my parents not to worry about leaving me any "estate" more than funeral costs. I plan to do the same thing with my kids....hopefully I can shower them, and my grandkids with money upon my death, but not likely.
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Old 02-12-2019, 02:28 PM   #32
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Also remember that as you wait longer until 70 you'll spend more of your own money each year. So if you die before 78 or so and you'll be leaving less in your estate.
Yup. That is exactly why I added that warning to my post. You have more to spend, but leave less for your heirs to spend. Works for some, not for others. YMMV.
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Old 02-12-2019, 03:16 PM   #33
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My plan is a 4.7% initial withdrawal rate. After SS kicks in, the rate lowers to ~3%. The overall success rate is pegging at 97-100%, depending on the other variables. If you're a gambler, try the "Rich, Broke, or Dead" calculator, which may or may not influence your decision.

https://engaging-data.com/will-money-last-retire-early/
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Old 02-19-2019, 04:24 PM   #34
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My 2 cents: What is your backup plan if you run out of money?

Typical backup plans.... (1) Live on Social Security (2) Reverse Mortgage (3) Relatives. (4) Get a part time job that you like to do (to reduce your risk).

Be aware that when you are older (such as age 85 for the youngest member of a couple), Reverse Mortgage payments are much higher since the bank knows you and your wife are going to kick the bucket soon...compared to a younger retired couple. If you do not have a backup plan, then I suggest being conservative in withdrawing your money.

Another option: Divide your portfolio into 5 years buckets such as age 65 to 70, 70 to 75.......90 to 95. Live within your means within that bucket which will ensure money will available until age 95. Long term buckets can be invested more aggressively due to the longer time horizon while short term buckets must be invested conservatively.

There are pros and cons to every strategy (high withdrawal rate, low withdrawal rate, backup plans, and bucket system. Good luck
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Old 02-19-2019, 04:39 PM   #35
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We have been retired since 2010 and have pulled out way more than 5% per year, but I started collecting social security this year and hubby starts next year. So our withdrawal will be under 2 - 3 % going forward.
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Old 02-19-2019, 06:07 PM   #36
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I'm not sure this is the time to try and test a 5% withdrawal rate since the bull market has had an almost 10 year run. The next 10 years will probably not be nearly as kind. As Firecalc shows, historically it can work for approx. 20 years. If you just need a 5 year window until you get SS or pension, sure go for it. But then cut back to at least a 4% WR at that point.
We've got a heapin' helpin' of recency bias goin' on, I fear.

Agree: If you're within a few years of receiving a pension and/or SS, sure, 5% will probably work.

If not, you're playing Russian Roulette.
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Old 02-19-2019, 06:23 PM   #37
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We've got a heapin' helpin' of recency bias goin' on, I fear.

Agree: If you're within a few years of receiving a pension and/or SS, sure, 5% will probably work.

If not, you're playing Russian Roulette.

And keep in mind ....



The '4%' rule, was an inflation adjusted amount of the original portfolio balance.... Which I am pretty safe in saying that no one has ever done. Mostly because if a 50% Market Downturn would occur people would 'pull in their horns' and cut spending, rather than take a 4% inflation adjusted amount into the teeth of a bear market.


With that said; why do we bother to discuss this 4% rule stuff? When it is NEVER executed. It is a planning tool..


So, did the OP actually mean an inflation adjusted 5% of his original portfolio balance? Or, did the original poster mean 5% of his remaining portfolio balance? Which is far safer than the standard 4% Portfolio definition. Or 5% of the original Portfolio Balance, and not inflation adjusted? ---



Maybe the Original Poster could chime in about what he/she actually means. Maybe the Original Poster could look at VPW which could provide a higher level of withdrawal with much greater safety than the standard '4%' rule would provide.
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Old 02-19-2019, 09:01 PM   #38
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I've seen it, yes, but with a twist. It isn't the X% rule you're used to seeing. Instead of taking, say 4% in the first year and ratcheting up for inflation every year, you draw a fixed percentage of your end of year balance, whether the market is up or down. So, if the market goes up, you get a raise. If it goes down, you cut back. Historically, it has worked as high as 6%, but I'd feel safer at 5% or less. Check our paulmerriman.com for the research on this drawdown strategy. He's good and seems to have no ax to grind. Runs a non-profit to promote financial literacy. Good luck.
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Old 02-20-2019, 03:43 AM   #39
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My first two years so far were 1.6% and 2.4%.
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Old 02-20-2019, 06:29 AM   #40
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I plan on spending ~6%/yr for the first 8 years, but the expenditures won't be all consumed assets. A good chunk of it will be used to delay SS+pension and for taxes on Roth conversions. I don't know how you model the value retained by doing that, but I know that it will hopefully have a much different risk level than just living large on >6% of the nest egg. When SS and pension kick in at age 70 I should be able to drop SWR down to 3% of remaining portfolio while maintaining a level lifestyle. Everything is a moving target though and I'll have to keep tabs on drawdowns.

I personally don't think the SWR quoted in posts by people doing similar maneuvers before SS and pensions are started are accurate or comparable.
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