Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 06-04-2015, 10:12 AM   #21
Recycles dryer sheets
Taxman59's Avatar
 
Join Date: Sep 2014
Posts: 484
Quote:
Originally Posted by David1961 View Post
Interesting article. I cannot imagine many scenarios where a retiree's portfolio will increase by over 50% in three years, unless their WR is really low, but I am sure it is possible.
The rule doesn't require a 50% increase in 3 years, but rather when the account has grown by 50% over the initial balance, increase the spending by 10%. Then for the next three years keep it at the new level and if you are still up 50+%, increase another 10%. The natural inclination is to increase the spending by the 50% when the account is up 50%, but this builds in some caution should the account bounce down after the first increase.
__________________

__________________
Taxman59 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 06-05-2015, 11:06 PM   #22
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 717
Quote:
Originally Posted by ERD50 View Post
Agreed. That's fine for someone with considerable discretionary spending that can cut back those items. But I'd really prefer to keep spending at a reduced initial rate with less chance of needing to cut back.

-ERD50
You realise that using Guyton-Klinger that you don't have to use a larger initial SWR, right?

You can start with 4% or even 4.5% and just go with the flow, letting the increases happen as you hit the guardrails. Start at 4%, and when/if your account grows enough that your draw will be 80% of that (3.2%) then you increase your dollar draw amount by 10%.

Kitces's complaint about Guyton's method is that there is the possibility of having to reduce the draw amount. But if you start at 4% -- instead of 5.5% as Guyton suggested -- then a cut is unlikely to ever be necessary.

The only things I dislike about Kitce's method here is that the jumps will be large and infrequent, and there is no automatic rule for reductions (in the case that a reduction is called for). With Guyton's method the increases will be gradual, small and frequent. Reductions (when & if necessary) also small gradual.
__________________

__________________
rayvt is offline   Reply With Quote
Old 06-06-2015, 06:36 AM   #23
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Humble
Posts: 188
I'm still sold on Burns 6% of portfolio or 90% of last years WD. This gives you some freedom to loosen up after a good year.

Firecalc in Scott Burns column
__________________
Turn_the_Page is offline   Reply With Quote
Old 06-06-2015, 08:28 AM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,470
Quote:
Originally Posted by walkinwood View Post
Kitces suggests ratcheting up inflation adjusted spending by 10% every time the portfolio increases multiples of 50% over the initial value. These increases are limited to once every 3 years.

https://www.kitces.com/blog/the-ratc...ule/#more-7411

I am a fan of variable SWR methods that adjust with portfolio valuations, inflation and age. However, I still use a %age of current portfolio value.
Same here with %age of portfolio value. That method exactly tracks portfolio performance ignoring inflation. It is super easy to compute. We're comfortable with the annual income variability since we have a lot of discretionary spending plus are still living below our withdrawal rate these days.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 06-06-2015, 08:51 AM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,281
Quote:
Originally Posted by rayvt View Post
You realise that using Guyton-Klinger that you don't have to use a larger initial SWR, right?

You can start with 4% or even 4.5% and just go with the flow, letting the increases happen as you hit the guardrails. ....
Right, but as you say (with G-K), you have to be ready to cut spending. I personally would rather approach things with my conservative WR% with the hope that I never have to cut the buying power amount.

The more I think about it, the "Retire Again and Again" method is the simplest, and makes the most sense for me. If you picked a WR% you were comfortable with initially, why not just re-run it every few years? Or to say it another way - if this method was good enough for you at the start, isn't it still good?

If you chose a H(istorically) S(afe) WR%, then cutbacks will only be needed if the future is worse than the worst of the past. Historically the odds are that you will be able to increase your WR% over time, and never need to cut back below the initial amount (inflation adjusted).


-ERD50
__________________
ERD50 is online now   Reply With Quote
Old 06-07-2015, 07:44 AM   #26
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 717
Quote:
Originally Posted by ERD50 View Post
Right, but as you say (with G-K), you have to be ready to cut spending. I personally would rather approach things with my conservative WR% with the hope that I never have to cut the buying power amount.
Well, as they say, "hope is not a plan".
Something they taught us in one of the classes I took was "The person with the best Plan B is the one most likely to be the winner."

This is one of those interminable topics. We are trying to balance two conflicting things, to maximize the annual withdrawals, to not run out of money, to not have to reduce any annual withdrawal. The problem is we do not know what will happen in the future.
When the portfolio goes down, you don't know if this is just a momentary pothole, or if it is the start of a long downward slope.

If you want to never run out of money, you go with a constant percentage draw --- but the draws will fluctutate wildly. Somebody recently posted a spreadsheet showing a draw of $59K one year and a draw of $48K the next year, in the 2008/2009 period.

As G-K, Kitces, Burns, and others have said, *most* of the large market jumps are smoothed out over the next few years, so abruptly changing your draw is not neccessary. But changing it *will* be neccessary if the jump does not revert. That's the case no matter how you manage the changes--the ultimate reduction is if your account goes to zero, and you have $0 withdrawls forever.

These strategies have a Plan B for the case of portfolio losses: slowly reduce withdrawals.
The "take 3%, period" strategy has no Plan B. The real world imposes its own Plan B -- "...and then you die."

The alternative to possibly making periodic reductions is to take a low SWR. But that is essentially taking a permanent preventative reduction.
Take 3% with no reductions, or take 5% with the possibility of having to reduce to 4% or 3%. Or a low probability of 2%. It sounds to me like a boxer taking a dive to avoid getting punched. Preemptively declaring defeat, and starting off with the initial presumption that you will lose anyway.

If you are okay with 3%, then why not take 5% and then reduce down to 3% if and when it ever becomes neccessary? Because looking at past history, there is less that a 1-in-20 chance that it will be neccessary. But if those odds catch up with you -- well, you have a plan that will let you survive.

We all know that when push comes to shove we *will* reduce our spending in adverse curcumstances. So why not make that an explicit part of the plan? Whether you are taking 5% or 3%, if the market crashes 50% you'll hunker down and avoid all unneccessary spending. So a plan that has you cutting your draw is just explicitly stating what you'll do.
__________________
rayvt is offline   Reply With Quote
Old 06-07-2015, 08:10 AM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,428
I seem to recall that we had a similar thread recently about using Firecalc to determine spending consistent with a target success rate and then refreshing it if your portfolio increased as if one was retiring anew which I suspect is similar to the retire again approach being referred to.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 06-07-2015, 09:58 AM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,281
Quote:
Originally Posted by rayvt View Post
Well, as they say, "hope is not a plan"....
Agreed. I only included 'hope' in there, as I'm a 'never say never' guy. And while a 100% HSWR and a long LE plan is very unlikely to require a cut in buying power... never say never. If the future is worse than the worst of the past, even that plan could require an adjustment.


Quote:
This is one of those interminable topics. We are trying to balance two conflicting things, to maximize the annual withdrawals, to not run out of money, to not have to reduce any annual withdrawal. The problem is we do not know what will happen in the future.
Absolutely.


Quote:
If you want to never run out of money, you go with a constant percentage draw
Right, but that's just shifting the definition of 'failure', as your WR can possibly drop very low

Quote:
The alternative to possibly making periodic reductions is to take a low SWR. But that is essentially taking a permanent preventative reduction.
Agree to a point, but if you use some form of the 'retire again and again' plan, you re-evaluate, and spending can likely go up. Sure, people will say they'd rather spend it when they are young, but that danged unknown future is the fly in the ointment.


Quote:
Take 3% with no reductions, or take 5% with the possibility of having to reduce to 4% or 3%. Or a low probability of 2%. ...

If you are okay with 3%, then why not take 5% and then reduce down to 3% if and when it ever becomes neccessary? Because looking at past history, there is less that a 1-in-20 chance that it will be neccessary. But if those odds catch up with you -- well, you have a plan that will let you survive.
I agree with your analysis. But in my personal case, I'm actually OK with a conservative WR at this point in my life, I'm not sacrificing or scrimping (just normal LBYM I would pretty much do anyhow). So I'd rather increase my confidence factor that I can go for a very long time @ ~ 3%, rather than taking more now, and risking, even a small risk, the future lifestyle.

Quote:
We all know that when push comes to shove we *will* reduce our spending in adverse curcumstances. So why not make that an explicit part of the plan? Whether you are taking 5% or 3%, if the market crashes 50% you'll hunker down and avoid all unneccessary spending.
I know for a fact (remember 2008?) that I *won't* (matching your emphasis!) do that. I went on spending like I always did. In my mind, if I had to tell my wife that we need to cut back a few years after I retired, I would have 'failed', and should go back to work. A low WR provides that comfort level.

Again, that's not the right answer for everyone, but it is my thinking, and I've been-there-done-that at this point.

Quote:
Originally Posted by pb4uski View Post
I seem to recall that we had a similar thread recently about using Firecalc to determine spending consistent with a target success rate and then refreshing it if your portfolio increased as if one was retiring anew which I suspect is similar to the retire again approach being referred to.
Right, that's all it is. Some calculators have the function built in, and will show the historical spending increases (if any).

-ERD50
__________________
ERD50 is online now   Reply With Quote
Old 06-07-2015, 11:15 AM   #29
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 717
Hmmm. Thinking about it a little more, it struck me that it probably doesn't matter much which strategy you use for making variable withdrawls.

First off, there is a 95% chance that you will never need to make a reduction. According to Firecalc.

Only a 5% chance that you'll even need to make a reduction. For that 5% case, you just need to decide how fast to rip the bandaid off--fast or slow. Most of the strategies do it slow, just different details of how to do it slowly.
From that standpoint, it doesn't much matter which of these strategies you use, so you might as well use whichever one is th easiest for you to figure.

83% chance that you'll be able to increase your withdrawals.
12% chance that you'll neither need to reduce nor increase your withdrawals.
The most likely case, by far, is that you'll be able to increase your withdrawals. Doesn't it make sense to have a plan for that as well as the disaster plan?

For other SWR's:
3% SWR: 0% must reduce, 0% flat, 100% to increase. (ERD50)
6% SWR: 50% must reduce, 11% flat, 34% to increase. (Scott Burns)
5% SWR: 28% must reduce, 12% flat, 60% to increase. (Guyton)
4% SWR: 5% must reduce, 12% flat, 83% to increase. (Bengen/Trinity standard)

Clearly, the Burns strategy would require you to have a reduction strategy in place.

=============
My method for figuring the breakdown of the probabilities:
Put your parameters into firecalc, then hit the Investigate tab. Check the "success rate" button and "provide date" box, then click Submit. Download the spreadsheet, then sort by the last column (final portfolio value). Count how many are negative. These are the failures. Count how many are positive and less that the starting amount. These are the ones with level withdrawal. The rest are the where the inital withdrawal could have been larger. The counts I got with the default parameters were 6, 14, and 95, for 115 possible periods.
__________________
rayvt is offline   Reply With Quote
Old 06-08-2015, 03:27 AM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,412
while income may stay constant the wild card is the legacy money bucket which can be all over the place depending on sequence risk and your actions. that has ranged from zero at 30 years to many times what you started with . so the adjustments relate more to the legacy bucket then spending changes
__________________
mathjak107 is offline   Reply With Quote
Old 06-08-2015, 07:14 AM   #31
Recycles dryer sheets
Retch The Grate's Avatar
 
Join Date: Jul 2010
Location: Mountain View
Posts: 252
The thing I'd worry about with doing the reset your SWR every time you have a gain method is that you are continuously selecting for being at the beginning of a N year withdrawal window and as we know, the scenarios that fail are where the market goes down at the early in the withdrawal window. Doing continuous reset on gains with 3% seems fairly safe since the 3% is historical 100% survival, but personally I'd want to adjust down when a 2008 occurred regardless. Overly paranoid for sure, but...
__________________
Retch The Grate is offline   Reply With Quote
Old 06-18-2015, 09:47 AM   #32
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,107
I agree, a good article.

One thing I especially liked was his chart illustrating the 30 year starting SWR from 1871 to 1985. This really brings home the fact the 4% rule of thumb is very, very conservative and that a WR of 5+% is usually safe.

Of course that "usually" qualifier is what we're all concerned about...
Attached Images
File Type: png SWR.png (32.2 KB, 67 views)
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 06-18-2015, 10:06 AM   #33
Thinks s/he gets paid by the post
RockyMtn's Avatar
 
Join Date: Jul 2009
Location: North Scottsdale
Posts: 1,231
Looks like I'm due for a raise! Good article.
__________________
FIRE'D in July 2009 at 51...Never look back!
RockyMtn is offline   Reply With Quote
Old 06-18-2015, 10:26 AM   #34
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 1,495
Quote:
Originally Posted by REWahoo View Post
I agree, a good article.

One thing I especially liked was his chart illustrating the 30 year starting SWR from 1871 to 1985. This really brings home the fact the 4% rule of thumb is very, very conservative and that a WR of 5+% is usually safe.

Of course that "usually" qualifier is what we're all concerned about...
Yes, but I just read Bernstein say that future returns have never looked so bleak in recorded U.S. history, so that qualifier calls for a conservative stance, IMO.
__________________
Options is offline   Reply With Quote
Old 06-18-2015, 10:34 AM   #35
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,107
The nice thing about choosing your SWR is you can create your own definition of "S" - and modify that definition at any time.

At age 68, ten years into retirement, I'm comfortable with loosening the purse strings a bit, even if the "I'll keep making predictions - one of these days I'll be right" crowd says the end is nigh.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 06-18-2015, 10:46 AM   #36
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 2,056
Quote:
Originally Posted by REWahoo View Post
I agree, a good article.

One thing I especially liked was his chart illustrating the 30 year starting SWR from 1871 to 1985. This really brings home the fact the 4% rule of thumb is very, very conservative and that a WR of 5+% is usually safe.

Of course that "usually" qualifier is what we're all concerned about...
A couple weeks ago I ran some scenarios using 12/31/07 as a retirement date. I tried both 3% and 4%. Well, I tried adding 5%, just to compare. This is assuming a starting portfolio of $1M, just to make things simple.

3% wd: 1,163,575 as of 12/31/14
4% wd: 1,045,566
5% wd: 927,557
Simply adjusting for inflation, $1M in 2007 would be roughly $1,145,000 today.

I think I read in another thread in the ER forums that one predictor of a failure cycle in FireCalc is that the first 10 years have a return of less than 2%? I might have some of the details mixed up, though.

Hopefully, 2007 ultimately pans out to be one of those anomaly cycles, like 1929, ~1965, 1973, etc. Moot point I guess, since I didn't retire in 2007. However, 2007 was the end of a good, long run that showed me early retirement really was within my reach.
__________________
Andre1969 is offline   Reply With Quote
Old 06-18-2015, 01:56 PM   #37
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 1,495
And for those of us with income streams coming online at various points in retirement the SWR is a moot, if not virtually useless, point as well.
__________________
Options is offline   Reply With Quote
Old 06-18-2015, 02:02 PM   #38
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,182
Quote:
Originally Posted by Options View Post
And for those of us with income streams coming online at various points in retirement the SWR is a moot, if not virtually useless, point as well.
You could always annuitize the value of those future income streams to give an approximation of a "net worth" to base a SWR off of. There may be better ways to do it, but this is a way to make a SWR strategy useful even in those cases.
__________________
RunningBum is offline   Reply With Quote
Old 06-18-2015, 02:03 PM   #39
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,107
Quote:
Originally Posted by Options View Post
And for those of us with income streams coming online at various points in retirement the SWR is a moot, if not virtually useless, point as well.
Is that why you chose 2.5%?
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 06-18-2015, 02:10 PM   #40
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 1,495
No I didn't choose anything. Early on, in an attempt to arrive at an SWR, I did exactly what RunningBum suggested and came up with an overall WR rate. I should delete that from my profile beause I really don't place much credence in that figure. It's even more meaningless to me personally as I spend the way I've always spent in life. Meaning, if things get bad I'll simply reduce spending during down years. I've gone several years without an inflation increase and suffered no loss in quality of life. My spending habits simply changed.

IMO, SWR is overrated anyway, what with Guyten spending rules, possible annuitization in later years, and other strategies to avoid PF depletion.
__________________

__________________
Options is offline   Reply With Quote
Reply


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


Similar Threads
Thread Thread Starter Forum Replies Last Post
Kitces & Guyton on SWR, Buckets & Essential/discretionary methods of withdrawals walkinwood FIRE and Money 10 10-24-2014 09:51 PM
Kitces: Phrases That Should Be Banished From Retirement Planning Htown Harry FIRE and Money 16 10-22-2014 04:37 PM
Ratcheting up the pension buyout offer ziggy29 FIRE and Money 9 10-07-2014 06:04 AM
Michael Kitces on the 4% rule mathjak107 FIRE and Money 31 03-29-2014 05:42 AM
Kitces article on roth conversions & cap gains harvesting walkinwood FIRE and Money 4 12-13-2013 09:14 PM

 

 
All times are GMT -6. The time now is 06:57 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.