Another safe withdrawal rate question

[Rich_by_the_Bay]

Quote:

Originally Posted by chinaco I am thinking of dividing our portfolio up into small portfolios for each decade of retirement. With more dollars of the starting portfolio dedicated to the 55 -75 (2 decades) for 3 reasons:

I think many of us will do that via periodic adjustments over time rather than in a more formal or rigid manner.

If you like that approach you may want to read about Lucia's buckets strategy. In essence, his bucket 1 if for 7 years, bucket 2 for 7 years, and then you replenish and restart. You can choose the number of years per bucket.

[REWahoo]

Quote:

Originally Posted by Rich_in_Tampa If you like that approach you may want to read about Lucia's buckets strategy.

If you do, please remember this: "It's not the size of the buckets in your portfolio, its the size of the portfolios in your buckets."

....I need more coffee.

[Jarhead*]

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Originally Posted by REWahoo! If you do, please remember this: "It's not the size of the buckets in your portfolio, its the size of the portfolios in your buckets."

"My Buckets got a hole in it"
"My Buckets got a hole in it"
"My Buckets got a hole int it"

"I can't buy no beer"

"Well, me and my Baby bought a
Ford and now we sit together on
the Running Board"

"Cause My Buckets got a hole in it"

"I can't buy no Beer."

[Rich_by_the_Bay]

Quote:

Originally Posted by REWahoo! If you do, please remember this: "It's not the size of the buckets in your portfolio, its the size of the portfolios in your buckets."

Ahh, bucket all. Who cares.

I actually heard a caller on the Lucia radio show asking how much he should put in bucket 1, 2, etc. It became painfully clear that he really thought he could simply pick a number that worked for him for bucket 1. I mean any number - just decide how much you need, assign it to bucket 1, and voila: FIRE. Never mind that this left him with about $1.17 after 7 years.

Jarhead, I'm getting this image of you doing your best Harry Belafonte imitation. It's scaring me.

[youbet]

Quote:

Originally Posted by chinaco I am thinking of dividing our portfolio up into small portfolios for each decade of retirement.

Do you perceive this as effecting how much money you need to accumulate in aggreagate to allow you to RE? Will this management methodology have any impact on when you RE?

[Jarhead*]

Quote:

Originally Posted by Rich_in_Tampa Ahh, bucket all. Who cares. I actually heard a caller on the Lucia radio show asking how much he should put in bucket 1, 2, etc. It became painfully clear that he really thought he could simply pick a number that worked for him for bucket 1. I mean any number - just decide how much you need, assign it to bucket 1, and voila: FIRE. Never mind that this left him with about $1.17 after 7 years. Jarhead, I'm getting this image of you doing your best Harry Belafonte imitation. It's scaring me.

Actually, it was Hank Williams. (But Harry, putting a Calypso twist on it might be interesting.)

By the way, I like the idea of keeping as much distance as you can before feeling a need to tap your equities.

I've been doing that since I've been retired. My wife was a stay-at home mother, with no real work experience, so that was a consideration. (No pension here).

Having a feeling of being somewhat detached with what's going on in the stock market has worked wonders for my attitude.

Not for everybody, for sure, but for me it's been a good approach so far.

[Rich_by_the_Bay]

Quote:

Originally Posted by Jarhead* By the way, I like the idea of keeping as much distance as you can before feeling a need to tap your equities. Having a feeling of being somewhat detached with what's going on in the stock market has worked wonders for my attitude. Not for everybody, for sure, but for me it's been a good approach so far.

How much distance did the trick for you (in terms of year's expenses), if you don't mind sharing?

[Jarhead*]

Quote:

Originally Posted by Rich_in_Tampa How much distance did the trick for you (in terms of year's expenses), if you don't mind sharing?

Rich: Initially, when I retired, (1987) used about 7 years, and since that time have increased a little more, as time has went on.

Currently, I'm about 15 years out. (That will take me to 86).

This strategy has worked for me because we have a pretty good handle on what is required to keep us active and involved.

My wife and I both came from families that were "down where the rubber meets the road", and not having to put our children through that process is very important to us. Consequently, our goal has been to break tradition, and not put our kids through what was required of us.

In any case, we do what we want to do within the parameters we've set up, and not having to spend any "psychic" energy on the state of the "Stock Market" helps a great deal.

On the other hand, if I were a young guy like Nords with a Cola'd pension, health ins. basically taken care of, I'd have no problem at all with a 100% allocation in the market.

[Rich_by_the_Bay]

Quote:

Originally Posted by Jarhead* Rich: Initially, when I retired, (1987) used about 7 years, and since that time have increased a little more, as time has went on.

Interesting. That 7 year figure for early FIRE seems to come up repeatedly. I read once that this is about the longest stretch the market every stayed down consistently. Others said that that's long enough that even if most of the market is down, something is up somewhere in your portfolio.

Must be a magic comfort number. Thanks for your perpsective - makes sense to me.

[Sam]

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Originally Posted by spncity Just wondering if the 4% SWR is an attempt to preserve the portfolio or deplete it. (Not ignoring that the market could go either way - just wondering about the intent).

spncity,

Keep in mind that this group is very conservative when it comes to financial safety. Most are well below the already conservative 4%. That's probably the reason why no one has answered your question directly.

The 4% is NOT an attempt to preserve the portfolio value. It's to ensure that your portfolio is not depleted before your time of death.

But, the side effect of the 4% is that not only your portfolio is preserved, it's actually increased significantly, on average. The key word here is average.

To prove this to yourself, simply bring up Advanced FIRECalc, no need to change any value. Just click on "Submit" and look at the result

And here is how your portfolio would have ended up in each of the 106 cycles. The range was $-300,739 to $4,259,606, with an average of $1,284,723.

In the above example, the starting portfolio value is $750,000.

[haha]

Quote:

Originally Posted by Sam spncity, The 4% is NOT an attempt to preserve the portfolio value. It's to ensure that your portfolio is not depleted before your time of death.

As I understand it, it is to ensure that your portfolio does not go to zero. A non-zero depletion is considered to be an ok trip.

Ha

[Sam]

Correct. By "depleted", I meant "totally gone".

[chinaco]

Quote:

Originally Posted by youbet Do you perceive this as effecting how much money you need to accumulate in aggreagate to allow you to RE? Will this management methodology have any impact on when you RE?

It does not affect when we will retire. The only thing holding us up right now is health care insurance. We qualify for that @ 55.

The issue that I struggle with is how to not be too conservative. All of these years, we have forgone spending to accumulate money. When we retire, we want to enjoy it... I am not talking about wasteful spending, but do things we want to do.

If we are too conservative we will underspend and forgo something that we want. I tend to be a careful person (like many on this board). I usually err on the side of caution. Therefore, I might throttle back the cash machine and not need to do so. This is probably more about how to manage expenses (discretionary) than it is how to manage the portfolio.

[obryanjf]

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Originally Posted by clifp ... Another thing worth noting, is that most of us don't actually have portfolio as optimal as shown as in FIRECalc or other calculator, we have have a heavy concentration in company stock or a specific sector, managed mutual funds with higher expenses, money sitting around in your local bank money market. ...

I'm not sure I would call FIRECalc nor the Trinity study portfolio the optimal portfolio. One was S&P and cash. FireCalc 2.0 now has more asset classes, but not a comprehensive list, primarily because the data may not exist over the sim time line.

Generalizing, I did a sim once that showed the difference between S&P/Cash and then a mix of Large/Small x Growth/Value improved SWR's by about .5%. I do not have the data but allocating across commodities, curriencies, REITS, precious metals, etc 'might' improve the SWR further. I do not know the percentages, but to me, it stands to reason that the optimal portfolio which yeilds the highest SWR, is one with more diversification than FIRECalc can simulate.

job

[obryanjf]

Another thought,

4% is based on NO external extras. No SS, No Pension, No reverse mortgage, No reduced spending ala Bernicke, etc.

For some those are valid, but not for everybody.

job

[2B]

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Originally Posted by Daddy O Another thought, 4% is based on NO external extras. No SS, No Pension, No reverse mortgage, No reduced spending ala Bernicke, etc. For some those are valid, but not for everybody.

I've decided that a "reverse mortgage" is another way of saying that you can't afford where you live. It means you need to downsize seriously.

I've seen older people become obsessed with "staying in their home." It is somehow a reflection of a disorder in their brain and they will do anything to stay in it. If assets become depleted where they need the cash for living, they are destroying their primary asset for assisted living or nursing care. If they have one, all of the policies have limits and then they need cash. Doing a reverse mortgage guarantees they will be destitute when they are forced to move out.

[Cut-Throat]

Quote:

Originally Posted by 2B I've decided that a "reverse mortgage" is another way of saying that you can't afford where you live. It means you need to downsize seriously. I've seen older people become obsessed with "staying in their home." It is somehow a reflection of a disorder in their brain and they will do anything to stay in it. If assets become depleted where they need the cash for living, they are destroying their primary asset for assisted living or nursing care. If they have one, all of the policies have limits and then they need cash. Doing a reverse mortgage guarantees they will be destitute when they are forced to move out.

Not really. - Maybe somebody just wants to tap some equity in the home and blow some $$$ on African Safari while they are able to in their 70s. They don't want to spend any in the portfoilo and see the Reverse Mortage as Extra Cash that they would never get to spend. I think I'd rather spend the banks money than money in my own portfoilo!

I look at it as 'Free money' - If you die living in a $500K house, someone else will get the money! Also, I'd rather shop for a Reverse Mortagage when I didn't need the money, instead of waiting until 'panic time'!

You do know you can't take the house with you - right?


When are you guys going to learn that it's not how much you had, but how much you got to spend?

[youbet]

Quote:

Originally Posted by chinaco The issue that I struggle with is how to not be too conservative.

And that is a major concern for many on this board. If you haven't followed along with threads involving delaying SS or purchasing immediate annuities in an attempt to spend more earlier without increasing the risk of running out of money, you should find and read them.

Both investment performance and inflation have been extremely variable over history. Firecalc, driven by historical data, gives results which account for that variability and directs withdrawal rates which, in most cases, will result in a significant ending portfolio in order to avoid total portfolio depletion. We can't predict the future and once money is spent, it's gone and unavailable to see you through down markets and/or skyhigh inflation.

There is absolutely no way to ensure you'll spend it all before you die and yet have substantial protection against running out of money. Any scheme involves trade-offs and you must understand yourself and the risks you want to minimize and the risks you're willing to tolerate. This will be very personal to yourself. I find that nine months into RE, my outlook and point of view continues to change and I suspect will for some time to come.

[jdw_fire]

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Originally Posted by youbet There is absolutely no way to ensure you'll spend it all before you die and yet have substantial protection against running out of money.

Actually this is not correct you can ensure you spend it all before you die and not run out of income. And you touched on the answer in the very same post.

Quote:

Originally Posted by youbet If you haven't followed along with threads involving delaying SS or purchasing immediate annuities in an attempt to spend more earlier without increasing the risk of running out of money, you should find and read them.

One way is to convert your entire net worth into SPIAs.

[youbet]

Well, that's right jdw_fire. I let my personal circumstances drift into my analysis.

You could convert 100% of your net worth into SPIAs and they will pay you until death and be worth zero one nano-second after your death. That just doesn't work for my circumstances, but it might for some, and I stand corrected.

Thanks.