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A discussion on SWR & factors that affect it
Old 10-01-2012, 02:39 PM   #1
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A discussion on SWR & factors that affect it

by Michael Kitces (moderator), Wade Pfau, Bengen & Guyton. They cover a lot of ground on factors that affect withdrawal rates - adjustments to withdrawals, fees & taxes, current valuations etc. I found it valuable to read what these pioneers & practitioners have to say.

Safe Withdrawal Rates: What Do We Really Know?

(I think this journal allows free access to articles only in the month they were published, so save it someplace safe if you want to access it later)
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Old 10-01-2012, 03:10 PM   #2
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Broad but nonetheless good read, thanks. Much of this has been discussed here, but nice to see it all summarized in one place like this. Unfortunately but understandably there are no silver bullets - there seem to be convincing reasons to be careful with: Sigh...
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Old 10-01-2012, 03:26 PM   #3
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So, trying to get my head around the comment about people who retired in 2000 are worse off than those retiring now/soon. Is that because the market stagnated in the past 12 years (it did?) or because they lost big during the 2008 crash? Or is there some nuance I'm missing?
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Old 10-01-2012, 03:40 PM   #4
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So, trying to get my head around the comment about people who retired in 2000 are worse off than those retiring now/soon. Is that because the market stagnated in the past 12 years (it did?) or because they lost big during the 2008 crash? Or is there some nuance I'm missing?
They have 12 years fewer to finance, on average.

Many factors go into this, but I think the most important are how old are you, what sources of non-portfolio income do you have, do you have demonstrated ability to get good returns over time, how much will you need/want to spend, how much do you have, and what are interest rates and valuation levels.

AS some of us have discoverd, there is also the matter of off balance contingent liabilities-like marriage, dovirce, child support, uninsured illness et cetera.

IMO the rest can pretty well be ignored.

Ha
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Old 10-01-2012, 03:47 PM   #5
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Ok. Re-reading it, Guyton says something to the effect that folks in the 2000 era had over valued portfolios leading to unrealistic 4% SWR.

That makes a certain amount of sense except that if 4% is the rule of thumb, the SWR consideration should include overvalued/undervalued/crashes etc. It is the starting point of your portfolio value isn't it?

Or is this a case of people THOUGHT they were rich enough to retire based on past performance, only to find a drop in value and lower returns going forward?
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Old 10-02-2012, 04:20 AM   #6
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it was interesting reading seeing all the brains together but nothing really new or ground breaking from the round table.
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Old 10-02-2012, 04:29 AM   #7
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Broad but nonetheless good read, thanks. Much of this has been discussed here, but nice to see it all summarized in one place like this. Unfortunately but understandably there are no silver bullets - there seem to be convincing reasons to be careful with: Sigh...

i agree to an extent with bill's philosophy as to why keep playing when you already won the game.

for decades i used the growth model from the fidelity insight newsletter.

as i got closer and closer to what i thought was a workable amount for retiring i shifted gears about 5 years ago to their income and capital preservation model.

no longer was my focus about growing richer, now its shifting to not growing poorer as a goal.

i do disagree on not owning equities totally with bill as historically time has smoothed out market risk to the point to date it has been very predicable.

like i said in an earlier thread 15 years seems to be the magic number for turning out okay in equities.

could that change? sure it can but all things being equal i think i would prefer to plan around what was ,what is and what stands a good chance of continuing.

i will just add though at the moment our model owns no equities . we do own some bond funds that behave like proxies for equities but they just are not as volatile. that can change though as the outlook changes.
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Old 10-02-2012, 04:30 AM   #8
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it was interesting reading seeing all the brains together but nothing really new or difinative from the round table.
My impression too! Just a general "feel" that somehow things now are different, and people need to be more cautious.
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Old 10-02-2012, 04:34 AM   #9
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i agree ,but thats something this group has been researching and saying through all their articles so thats what i meant by nothing new.
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Old 10-02-2012, 05:01 AM   #10
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i agree to an extent with bill's philosophy as to why keep playing when you already won the game.

for decades i used the growth model from the fidelity insight newsletter.

as i got closer and closer to what i thought was a workable amount for retiring i shifted gears about 5 years ago to their income and capital preservation model.

no longer was my focus about growing richer, now its shifting to not growing poorer as a goal.

i do disagree on not owning equities totally with bill as historically time has smoothed out market risk to the point to date it has been very predicable.

like i said in an earlier thread 15 years seems to be the magic number for turning out okay in equities.

could tht change? sure it can but all things being equal i prefer to plan around what was ,what is and what stands a good chance of continuing.
My reaction to Bernstein's new philosophy was shock and horror, really. Because he blows off loss of spending power in this new perspective, and I think it's been shown pretty clearly that portfolios with low equity exposure (less than 20%?) don't survive long term for this very reason (inflation).

Like you, my original "game" was to have a super high equity exposure because I had a long time period to invest and I was working, and thus adding to the pot and not dependent in the nest egg to cover living expenses. The goal was about maximizing long term gain. "Winning the game" was being able to retire. Once I retired, the game did change. Now the goal was to trade off between short term volatility and long term portfolio survival, and to be able to "sleep at night". But just because I have ~50% in equities doesn't mean that I am playing the same game as before. Now I am playing the "long term portfolio survival" game. It's not the same game at all.

I really think Bernstein's new point of view is because so many people bailed in 2008/2009, "near the bottom" and then made their losses permanent by not getting back in, in a timely manner. But a lot of other people did not do that. Some rebalanced, some white-knuckled it through, some bailed, but got back in before making their losses "permanent".

IMO this new philosophy is for the folks who will sell risky assets anyway after a market crash, so they might as well keep their equity exposure super low. For longer periods, portfolio survival really suffers using this approach. You end up needing a larger portfolio until you have enough to put a reasonable chunk into equities. But 20 to 25 years in expenses in fixed income? And only then adding the inflation hedge of equities?

He's an advisor, though, he has to sell clients plans that he thinks they will stick to. I guess he's now telling them that they have to save a lot more? Because I can't imagine encouraging someone to retire with 25 years expenses and 0 equity exposure to protect against 25 years of loss of spending power.

Personally 12 years is my number of minimum expenses in fixed income to live off of if we go through another extended swoon in the equity markets. I can't get my mind around needing more than that. And I have more than 12 years expenses now in fixed income, but to me that just means I can use the excess to rebalance like we are supposed to when an asset class takes a hit. I actually arrived at that min 12 year number, as my personal number, when I held my nose and rebalanced in late 2008/early 2009. (I also usually have an additional 2 years expenses set aside in a separate account from my retirement fund - belt and suspenders)

And the last two crashes, though brutal, weren't extended at all. Or maybe not to those who didn't bail at the bottom and then stay out.
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Old 10-02-2012, 06:51 AM   #11
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Quote:
Originally Posted by walkinwood View Post
by Michael Kitces (moderator), Wade Pfau, Bengen & Guyton. They cover a lot of ground on factors that affect withdrawal rates - adjustments to withdrawals, fees & taxes, current valuations etc. I found it valuable to read what these pioneers & practitioners have to say.

Safe Withdrawal Rates: What Do We Really Know?

(I think this journal allows free access to articles only in the month they were published, so save it someplace safe if you want to access it later)
Thanks for the link, and the warning to save it - I will.

I enjoyed Bengen's contributions - he seemed to speak with the most clarity.
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Old 10-02-2012, 12:41 PM   #12
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Quote:
Originally Posted by walkinwood View Post
by Michael Kitces (moderator), Wade Pfau, Bengen & Guyton. They cover a lot of ground on factors that affect withdrawal rates - adjustments to withdrawals, fees & taxes, current valuations etc. I found it valuable to read what these pioneers & practitioners have to say.

Safe Withdrawal Rates: What Do We Really Know?

(I think this journal allows free access to articles only in the month they were published, so save it someplace safe if you want to access it later)
Thank you for the link an interesting exchange of ideas. And saved it as you suggested. Looking at my actual expenditures since ER in 2002, I can see that I adjusted expenses downward by about 15% during 2008-2009 even though I was not consciously doing so. I don't know how common this behavior was among other ER folks here but I wouldn't be surprised if I'm not the only one.

This leads me to believe that Withdrawal rates are very dynamic and a lot of ER folk have the ability to drastically change their living conditions if situations warrant. When I look at my community and the number of folks that live in 55+ apartments on SS alone and seem perfectly happy it becomes clear that what one considers irreducible living expenses today may become totally different in the future.

I'm starting to think that for me rather than a fixed WR its turning out that if I feel good because my portfolio is doing well I'll indulge a little. If not, I cut back and thru it all we seem to live comfortably - so far anyway.
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Old 10-03-2012, 12:54 AM   #13
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I agree with Audrey.
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Originally Posted by audreyh1 View Post
My impression too! Just a general "feel" that somehow things now are different, and people need to be more cautious.
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Old 10-03-2012, 05:20 PM   #14
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Good read. Thanks for the link.
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Old 10-04-2012, 09:57 PM   #15
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Good stuff. Thanks got posting. I found the discussion on bonds interesting. The expectation of a bear market in bonds means fewer choices for AA and the need to stay on the lookout for creative approaches to income generation.
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