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Re: 6% + SWR's
Old 06-02-2006, 12:57 PM   #21
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Re: 6% + SWR's

I think theres semiviolent agreement and honestly I dont think i've seen anyone say that 4% is immutable or "biblical". I've seen people get the business because they were jerks, because their idea just wasnt very good or because they didnt do a good job of explaining it.

I dont think anyone is saying that its 4%, only 4% and you're an idiot for looking at other ways.

I hear some people saying that its just not plausible to come up with a formula thats any more accurate than the horseshoes and handgrenade method.

I hear some people saying they think they can or should try.

Unless you've got a time machine or a really good crystal ball, you pick something that makes you feel good, a strategy that you think is going to implement your feel-good idea and you go with it. I just wouldnt expect a bunch of other people to jump in with you. Everyones got different buttons and different things happen when you push them.

Ten bucks says whatever chart or strategy you come up with, you're going to make a lot of changes and what you think's going to happen isnt.

The worst thing you can do, in my lame opinion, is to come up with a bunch of stuff that makes you think you can take a lot more out than seems likely, and you end up broke at 75. Second worst thing is being so afraid of "losing" your money that you live miserably and leave a ton of money at the end.

If you're so close that you need to push the edge to make a plan work, or you're so afraid of losing money...stay at work...its going to work out a lot better for you than the constant gnashing of teeth.
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Re: 6% + SWR's
Old 06-02-2006, 01:02 PM   #22
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Re: 6% + SWR's

When individuals like Daddy-O or CFB bring up different ways to look at withdrawal rates and things to make sure to add in to the FIREcalc calculator, I appreciate it. Since I'm very confident I won't have a pension or other lifetime streams of income (other than SS which may occur ~30 years after ER), my "nest egg" will have to do most of the heavy lifting by producing a stream of income.

If I can go with a hybrid withdrawal strategy instead of the fixed strategy, I need to save $250,000 (or 20%) less. That could be a few extra years of not having to work. And I get to spend more in the up years as the portfolio value (hopefully) rises. In the down years I can scrimp a little, or find a way to make a little money. To me, ~3.x% fixed versus ~4.x% hybrid is much more than semantics.

Of course many say "if you're that close to the edge, work a little more to pad your nest egg". Probably good advice, but I'd like at least some evidence as to what would have worked historically in order to know when I'm FI and not just some dude with a big 401k account balance.

There's a good chance I get to the point where I say, "according to FIREcalc, I'm FI", but I chicken out on pulling the cord and decide to work a little longer to pad the portfolio a little more. Maybe till I can live off the dividends and interest, who knows.
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Re: 6% + SWR's
Old 06-02-2006, 01:26 PM   #23
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Re: 6% + SWR's

Quote:
Originally Posted by Cb
I don't understanding the "stick-poking" at the folks modeling different variable withdrawal strategies.*..
Cb,

Maybe I am missing something but I don't see any stick poking going on here. I see an open and honest discussion of opinions on a topic that is one of the foundations for the existence of this board (FIRECalc). I know I have no malice towards anyone on this topic and I don't believe any of the other posters here do either. Frustration maybe...but not malice.

A model is a model...it is a representation of something else and is not itself the object it is intended to represent. SWR is a model of a set of probabilities based on assumptions. The possible variation in these assumptions is what makes one SWR different from another. In the end they are all opinions. We know all about opinions....."we all have one and mine is better than yours etc..... "
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Re: 6% + SWR's
Old 06-02-2006, 02:32 PM   #24
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Re: 6% + SWR's

Wow, we got some good discussion going now.. that great. I agree with most of what everybodies said actually.

I'm interested in understanding and kicking the tires of many differing options/models and picking the one that makes sense for me. Other people may have different needs, income streams and a different model may fit their lifestyle and temperment better. So be it.

I'm a DIY person and would not feel confortable unless I had a plan and model of the likely outcome. Some jump into ER or R without knowing or understanding the likely outcome; some are lucky, some have an intuitive financial sense and some we hear about on Frontline.

I also realize that if so and so model yields a 6.23 or whatever SWR, future returns will make it a different number, but likely somewhere in the ballpark. Someone else on another thread mentioned that the NUMEBR is the maximum SWR. In my case, playing with the models is helping me to reevaluate that 'maybe' i'll reduce my number from 1.25MM @ 4% to 1.00MM @ 5% even though my models say I could draw 7 or 8% (with Ty@55, Pension@65, SS@67, DWSS@72 and partime to stay busy). cushion built in. That equates to about 3 to 5 years earlier than just taking the conventional wisdom.

Just like I do not or would not trust my future soley to the word/work of ; financial planners, the trinity guys, Guyton, T Rowe Price calculator and as much as he seems like a great guy, dory and FIRECALC; I have the ability and means to plan for myself and will.

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Re: 6% + SWR's
Old 06-02-2006, 02:38 PM   #25
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Re: 6% + SWR's

Quote:
Originally Posted by Daddy O
...I have the ability and means to plan for myself and will.

job
Yep. There are those like JG who swear the "SW" in SWR stands for Smith & Wesson.

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Re: 6% + SWR's
Old 06-02-2006, 02:43 PM   #26
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Re: 6% + SWR's

Quote:
Originally Posted by Daddy O
Someone else on another thread mentioned that the NUMEBR is the maximum SWR. In my case, playing with the models is helping me to reevaluate that 'maybe' i'll reduce my number from 1.25MM @ 4% to 1.00MM @ 5% even though my models say I could draw 7 or 8% (with Ty@55, Pension@65, SS@67, DWSS@72 and partime to stay busy). cushion built in. That equates to about 3 to 5 years earlier than just taking the conventional wisdom.
My thinking exactly. What if I can retire 3-5 years earlier with a smaller nest egg and not have a significant reduction in spending over time (and potentially a significant increase)?

Or conversely, if I know spending under one model will work based on historical returns, and I choose a more conservative withdrawal strategy to actually take withdrawals, I have in essence improved the safety of my withdrawal strategy (more padding).

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Re: 6% + SWR's
Old 06-02-2006, 02:53 PM   #27
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Re: 6% + SWR's

daddy-o

If I may, I think your use of the term 'likely' is where you're getting some disagreement. "likely outcome" "likely somewhere in the ballpark" (which is a GOOD one, btw ).

Plausible and reasonable are good words. I have no illusions about my (or anyone elses) ability to get anything figured out anywhere near the range of 'likely'.
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Re: 6% + SWR's
Old 06-02-2006, 02:54 PM   #28
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Re: 6% + SWR's

Quote:
Originally Posted by Cute Fuzzy Bunny
If I may, I think your use of the term 'likely' is where you're getting some disagreement. "likely outcome" "likely somewhere in the ballpark" (which is a GOOD one, btw ).

Plausible and reasonable are good words. I have no illusions about my (or anyone elses) ability to get anything figured out anywhere near the range of 'likely'.
It's just semantics.
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Re: 6% + SWR's
Old 06-02-2006, 02:56 PM   #29
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Re: 6% + SWR's

Quote:
Originally Posted by justin
It's just semantics.
Like handgrenades and horseshoes.........you just have to be "close enough."
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Re: 6% + SWR's
Old 06-02-2006, 06:59 PM   #30
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Re: 6% + SWR's

Quote:
Originally Posted by REWahoo!
Yep. There are those like JG who swear the "SW" in SWR stands for Smith & Wesson.
Can I presume you mean I will shoot myself in the foot. You may be right, but it is amazing to me that on this board where most proclaim to adhore the use of financial planners and their ilk, that one is viewed with disdain if they try by their own research; to understand alternative withdrawl schemes, understand volutility, rebalancing schemes, etc. This is viewed as pushing the limits due to undercapitalization, living on the edge, data mining, etc. Presenting the precise output/answer is wrong, the output be slopped up to not provide the precise output. The/a cushion should be built into the answer, I suppose users cannot decide what their cushion should be.

I don't proclaim to have all the answers nor that whats right for me is right for everyone else. I will say that a model that yields 5.x% or even 6.x% is significantly different than one that yields 4.x%.

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Re: 6% + SWR's
Old 06-02-2006, 07:11 PM   #31
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Re: 6% + SWR's

Quote:
model that yields 5.x% or even 6.x% is significantly different than one that yields 4.x%
it's obviously true ... but the point that others are making is, perhaps, that the model's output it not what is relevant ... rather it's the actual experience which is yet to come, and which cannot be predicted, and which will not be altered by your choice of model.

(readily admiting that one's behaviour might be altered by choice of model)
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Re: 6% + SWR's
Old 06-02-2006, 07:12 PM   #32
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Re: 6% + SWR's

Quote:
Originally Posted by Daddy O
Can I presume you mean I will shoot myself in the foot.
No, just like the USAF motto, you'll need to "aim high".

I was attempting a humorous reference to a former poster who frequently touted this as his solution to end of life problems.

Guess you had to be there...


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Re: 6% + SWR's
Old 06-02-2006, 08:17 PM   #33
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Re: 6% + SWR's

Sorry,

I'm not known as the humorous type..much to the dismay of DW, FIL, Mom, 7 sisters, etc.

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Re: 6% + SWR's
Old 06-02-2006, 08:56 PM   #34
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Re: 6% + SWR's

Quote:
Originally Posted by REWahoo!
No, just like the USAF motto, you'll need to "aim high".
I was attempting a humorous reference to a former poster who frequently touted this as his solution to end of life problems.*
Guess you had to be there...
Gosh, his wife better not find out...
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Re: 6% + SWR's
Old 06-02-2006, 09:53 PM   #35
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Re: 6% + SWR's

I may be remembering wrong, but I believe Dory mentioned in another thread that a portfolio that hits any nonzero number somewhere along the way, but recovers to allow continuing scheduled payouts is considered a "success". I am just trying to imagine my feelings as my portfolio goes from $x,000,000 to $x0,000. I don't think I would be reminding myself that FireCalc said I was ok. I would out collecting aluminum cans.

IMO, the truth is that there is nothing like a pension for a retiree. If you don't have one of these, you will need conservatism and luck.

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Re: 6% + SWR's
Old 06-02-2006, 10:01 PM   #36
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Re: 6% + SWR's

Quote:
Originally Posted by HaHa
I am just trying to imagine my feelings as my portfolio goes from $x,000,000 to $x0,000. I don't think I would be reminding myself that FireCalc said I was ok. I would out collecting aluminum cans.
Well, that is a drop of at least 91%. Ideally by the time you'd lost 40% you'd be cutting back your spending and perhaps picking up the occasional can on your daily walk.

Quote:
Originally Posted by HaHa
IMO, the truth is that there is nothing like a pension for a retiree. If you don't have one of these, you will need conservatism and luck.
Somewhere an annuity salesman just perked up his ears...
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Re: 6% + SWR's
Old 06-03-2006, 07:34 AM   #37
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Re: 6% + SWR's

Bernstein in "Four Pillars" suggests about 2% below average for stocks, 1% below average for bonds during withdrawal. So my simple model results in -

Saving Withdrawal
Stocks, Reits = 1/pe - costs -2 (taxed on nominal return)
Bonds, Bills = yield - inflation - costs -1

so currently expected return-
stock 5.5% - .5% = 5% while saving, -2% = 3% in withdrawal before tax
bond 5.5% - 3% - .5% = 2% while saving, -1% = 1% in ithdrawal before tax

so a 50/50 mix gives about 2% during withdrawal, reduced to near 1% after tax on nominal return

historically
stock 7% - 2% = 5% while saving, -2% = 3% in withdrawal before tax
bond 6%- 3% - 1% = 2% while saving, -1% = 1% in withdrawal before tax

so current expected return is similar to past averages using low cost index funds to minimize costs.







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Re: 6% + SWR's
Old 06-03-2006, 07:56 AM   #38
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Re: 6% + SWR's

While I enjoy reading research papers (such as Bengen and Guyton), I think most complicated spending rules are in the end just data mining trivia.

In my opinion -

Initially divide portfolio and fixed pensions over remaining IRS life expectancy
1. add inflation to initial withdrawal
2. redivide portfolio and pensions again
spend the lesser of the above

is about as complicated as it can get.



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Re: 6% + SWR's
Old 06-03-2006, 10:53 AM   #39
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Re: 6% + SWR's

Quote:
Originally Posted by Daddy O
that one is viewed with disdain if they try by their own research; to understand alternative withdrawl schemes, understand volutility, rebalancing schemes, etc.
Can you point out any post where someone has 'viewed you with disdain'? I'm sorry, but I dont see it. I keep hearing these *****-like "defenders of the conventional methodology" comments, but I really, truly dont see anyone who says "its 4% or you're a moron" or "anything other than 4% is wrong".

All I've seen is reasonable questions and people pointing out that some of these plans try to place some certainties and measurements on things that are hard to determine with certainty or hard to measure.

Quote:
Presenting the precise output/answer is wrong, the output be slopped up to not provide the precise output.
Theres the rub. How the hell do you provide a 'precise' number when you have no idea at all whats going to happen on dozens of different vectors that you have no control over and that have highly unpredictable characteristics? What if inflation roars to 20%? What if the stock market drops 80%? What if you or your spouse get extremely sick or die (god forbid)? What if you find yourself in a divorce? What if a dirty bomb gets detonated in NYC or LA? What if your house gets flooded or hit by an earthquake or other non-insurance-paying event?

Even the 4% SWR doesnt accommodate half of this stuff. Going a little more 'pedal to the metal' seems to be imprudent.

Bearing in mind, if you're even still reading at this point, that i didnt know what an SWR was for my first 3 years of ER, I dont practice one at all, and I think they're ridiculous tempests in a teapot. I have the 'ultimate variable rate withdrawal system'. We do what we want and spend what we want, within reason, and if the portfolio is doing great we spend extra. As long as the bottom line portfolio number stays the same or keeps going up, theres no problem.

This is a much simpler calculation than a lot of people make it out to be. We're (early retirees) are in it for the long haul. Presuming we invest in a well balanced, well diversified portfolio and dont blink if things get bad or go too nutty with the spending when things get good, you're going to make 5-11% returns. Where between 5 and 11% is where you get the disagreements and there is no obvious solution to those arguments without a copy of the 2025 new york times or a crystal ball. Inflations going to whack you from 1.5%-5% (depending on where you live and your lifestyle) on average unless something really bad happens, which is plausible. Taxes are going to hit you for an indeterminate amount depending on how you spend, how you withdraw, how you invest and where you live.

So over the long haul, on an annual basis, looking at the rosiest end of this, 11% returns - 1.5% inflation=9.5% minus taxes. The least rosy end is 5%-5%-taxes.

Hmmm...slightly less than zero and slightly under 9.5%. Whats the average of that? 4? 4.25? 4.5?

I think the closer you get to zero, the more you're denying yourself. The closer you get to the 9.5% the slimmer your recoverable margin in the event of failure.

You can throw in social security, annuities, part time working, pensions, and all sorts of other income streams. Then subtract all of the unexpected problems, minidisasters and uncontrollable life events. I'll bet over 30 years they even out.
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Re: 6% + SWR's
Old 06-03-2006, 01:22 PM   #40
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Re: 6% + SWR's

From what I've seen of my parents and in-laws, they spent too little. It wasn't because they didn't have it or were running out. It was because they had more than they wanted at the latter stages of life.

What I don't know is whether they "deprived" themselves when newly retired because they worried about running out of money. I can't ask my parents now because they're dead. I can't ask my in-laws bacause of their dementia.

The impact of "later life" care is the variable I'm experiencing now. Both of my in-laws are obsessed with running out of money but they have no idea how much they have or where it's invested. They also have no ability to manage anything. They have enough for both of them for at least 12 years and it's highly unlikely they will both last that long. With only one, the remaining savings will last for eternity -- not withstanding many of CFB's disasters. Once we get rid of their house (that both talk about moving back into but never will), their expenses will be about 40% over their spending prior to their moving to their respective care facilities. This is the "end of life scenario" so there's no need to preserve the portfolio. We can slowly deplete principle without risk.
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