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Old 08-02-2013, 03:51 PM   #21
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Whatever dough you have you can take 4% of that amount. This is what Bob Clyatt addresses in his book. Other independent studies have concluded that one will never run out of money using this latter method
.

Yes, obviously. Reducing a non-zero amount by 4% will always be greater than zero. It doesn't take a "study" to conclude that -- it's simple math. Does this call for a "duh"?

You never run out of money, but your annual draw will swing wildly. Which is not quite what people are looking for.
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who knows what will work on withdrawal percentage
Old 08-02-2013, 04:24 PM   #22
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who knows what will work on withdrawal percentage

All we can do is take the best educated guess that we can when deciding on a withdrawal rate. For me, being conservative, I try to stay atop the new articles on SWR but ultimately I have to make the final decision and live with it. Academic articles I give more weight to than something in Money magazine where someone could be trolling for your money. Being conservative I use the Constant Spending Plan (CSP) option in Firecalc and 35 years. Recently I wonder if I'm shooting myself in the foot by not using the Bernickne's model. It seems more in line with what will eventually happen and we would like to spend more in travel while we have the opportunity. I also hate the idea of using the CSP model and having more money available later than in Bernickne's model only to be forced to possibly give it to a nursing home later where they bleed you dry. Of course it allows you to enter one. For me moderation and flexibility are essential to success.
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Old 08-02-2013, 05:52 PM   #23
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In most cases the portfolio value in the later years is very large -- even "huge". It's only a small portion of all possible outcomes where the portfolio is in danger of dropping to zero. But that's the one we focus on, because that's the one we want to avoid.

In the more likely case, the portfolio has grown so large after 20-30 years that you could easily double your withdrawal and still be quite safe.
Thanks, that helps. So, even though some SWR rates define "success" as ending up with at least a dollar, in the more likely scenario, the principal will be preserved and perhaps even increased. Makes sense.

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You are making this harder than it needs to be.
Am I? It doesn't seem that complicated. I'm just trying to understand some of the basics. Some of my earlier remarks were jokes/cracks, not really serious. You might be "hearing" me sound more serious than I actually am.

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What most of what you read is taking out 4% the first year of retirement and then each succeeding year increase that dollar amount by what the inflation rate was. The other 4% guideline is taking out 4% of your portfolio each year without inflation adjustments. Whatever dough you have you can take 4% of that amount. This is what Bob Clyatt addresses in his book. Other independent studies have concluded that one will never run out of money using this latter method. The former works well for those who retire in their mid-60's while that latter works best for early retirees who have 40 or more years of retirement ahead of them assuming they live a normal life span.
I would be in the latter camp. I actually plan on a 2% to 3% WR, so I suppose I should sleep easy.
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Old 08-02-2013, 10:59 PM   #24
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I did not understand the Sports Illustrated quote. ...
Me neither. Or at least, I didn't understand how it related to the subject.

Well, I finally read the article, and I didn't like it at all. It just doesn't fit my POV, and I think it is potentially dangerous.

1. Be Flexible OK, sounds good in theory, but how's that work in practice? I hope to put more time into the G-K models that are floating around here, but from what I can tell so far, being 'flexible' means being ready to cut your spending about in half for quite a few years just to squeak out a few more years from the portfolio. Do you think the average reader thinks in terms of cutting spending in half for years when they hear the phrase "it's prudent to tighten one's belt"? Or are they thinking 'we won't go out to dinner as much'?

2. Choose a Lower Success Percentage I choose 100% for the simple reason that the future may be worse than the past. Why would I choose a rate that I know has failed in the past? They talk about 80%, and again, just 'cut back if the markets perform poorly'. I'd be interested to see what kind of cuts it would take for an initial 80% success rate WR to get back to success.

3. Choose a Shorter Time Horizon And what if you are the 1 in 8 that makes it to 95? How are you gonna get by? Sure, discretionary costs will drop, but maybe you need to hire help for all sorts of things. And he sure glosses over the LE for females, and the combined LE for couples with "but it is always distinctly a minority possibility". How about a number? Lotsa hand-waving here.

I really don't want either of us to be a financial burden on our kids. I feel I should have worked longer/harder, saved more or spent less rather than take an almost 1 in 5 chance that I will run out.

Plan for a long retirement | Vanguard

To my view, any one of these are potentially dangerous over-simplifications. Couple 2 or 3 together, and the situation multiplies. It's irresponsible IMO, but it is just what some people want to hear.

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Old 08-02-2013, 11:10 PM   #25
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Thanks, that helps. So, even though some SWR rates define "success" as ending up with at least a dollar, in the more likely scenario, the principal will be preserved and perhaps even increased. Makes sense. ...
I'd like to add to that. It seems that 4% rate is often referred to as an 'SWR'. But recall that it has failed 5% of the time in the historical 30 year periods. And some of those failures occurred in ~ year 23. Going out 30 years would have taken a portfolio from a positive $750,000 to a negative $300,739. It takes a lower rate, ~3.59% to hit 100% success.

But yes, any 'success' ends up above zero (by definition in FIRECalc), with many of the periods maintaining and increasing in buying power.

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Old 08-02-2013, 11:35 PM   #26
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Compare with Henry Heebler's simplified auto-pilot method.
Interesting. It is basing WR on an average of the 4% 'rule' and the govt published RMDs.

If I'm following this right, the initial WR for a 65YO is the average of 1/31 and 4%. That is 3.23% and 4.00%, so average is 3.615%. And it dips considerably in his 1965 scenario, looks like ~ 2.5% at about 15 years in?

Compare to a FIRECalc run (not directly comparable - his conditions are slightly different, I might try to model both in FIRECalc later) which shows that a constant 3.58% survives.

But it's food for thought. I'm thinking it might look good for me by combining the RMD calc with a lower baseline WR, like 3.5%? And I've definitely thought about using RMD as part of the equation for my later years.

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Old 08-03-2013, 08:52 AM   #27
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Can anyone find the RMD table he uses in the auto-pilot article?

Put retirement savings withdrawals on autopilot - MarketWatch

The ones I find start at 70 1/2, and the numbers are different. His table is an image, I can't easily copy/paste the numbers into a spreadsheet, and I could not find it in Pub 590.



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Old 08-03-2013, 09:42 AM   #28
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Go to publication 590, appendix C.

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Old 08-03-2013, 10:04 AM   #29
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Go to publication 590, appendix C.

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Thanks, I did that, but I didn't see any numbers that matched his table. i.e Age 60, RMD of Account / 35.2?

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Old 08-03-2013, 10:28 AM   #30
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I would have guessed that he was using Table 1 for single life expectancies, but as you say it doesn't match up at all. Maybe his table is old and life expectancies have been revised.
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Old 08-05-2013, 10:25 AM   #31
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Most of these pundits supporting SWRs base their assumptions on past history. So it's funny to see the rate reduced by 25 percent after a few short years. History sure can change on a dime ! lol. Trying to come up with a satisfactory formula for a problem with so many variables is futile, IMO. For those RE looking at 40 year plus retirements I would recommend splitting the time frame up before 67 and after. I would have a target amount for age 67 and make sure I hit or exceed it.
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