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Old 08-02-2007, 06:44 PM   #41
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So if I just take 4% and adjust it up or down according to the year I'll be fine .Right ?
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Old 08-02-2007, 08:34 PM   #42
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So if I just take 4% and adjust it up or down according to the year I'll be fine .Right ?
Probably, but just remember, according to Firecalc, a 4% WR for a 30-year retirement path failed approximately 5% of the time. The example I gave in an earlier post on this thread was for the case where one was continuously resetting for an additional 30 years. Some have argued that when you reset, it is no different from a person just retiring in that year, and I agree. However, that person still has a 5% chance of failure (as do you if you reset). If you don't reset and your portfolio has grown, your withdrawal rate will be less than 4%, so your Firecalc success rate will have increased, perhaps even to 100%.

Saying it another way - imagine 20 people, one of whom will retire each year for the next 20 years using a 4% WR. According to Firecalc (and assuming the future will be no worse than the past), one of those 20 would be expected to fail. The math I used above would apply to this situation. When you reset, you are essentially starting your retirement over (assuming you still keep the 30-year horizon). It's like having an urn with 19 red balls and 1 white ball. The red balls are successes, and the white ball is failure. Each drawing from the urn (with replacement) represents a 30-year retirement path. Although on each drawing, the probability of drawing a white ball is only 5%, if at the outset you plan to make 13 drawings, there will be nearly a 50% chance of drawing a white ball (a failed retirement path).

Granted, as you age, your retirement path will shorten. An 80 year-old may choose to run Firecalc with a 15-year horizon. In this case, Firecalc gives a 100% success ratio with a 5.3% WR.

IMO, a safer plan would be: after a significant portfolio increase, reset to a WR which Firecalc says is 100% safe using the then (possibly shorter) retirement horizon.
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Old 08-03-2007, 07:20 AM   #43
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If you only take 4% out of your portfolio every year (up and down), you will never run out of money, therefore, by definition you will have 100% success.

Your portfolio may shrink considerably, but it can never go to 0.

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Old 08-03-2007, 07:50 AM   #44
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IMO, a safer plan would be: after a significant portfolio increase, reset to a WR which Firecalc says is 100% safe using the then (possibly shorter) retirement horizon.
That's a three-dinger!
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Old 08-03-2007, 11:19 AM   #45
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This sounds like some might benefit by reviewing statistics and the idea of independent events. Fired@51's red ball analogy is spot on. The old saw about past results are not predictors of future returns cuts both ways, in this case, it's good news for y'all retirees.
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Old 08-03-2007, 06:03 PM   #46
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The results of successive trials of flipping a coin, choosing from a mix of red and white balls, and playing Russian roulette are presumably independent.

I don't know that anybody has yet shown (somebody may have, but I don't know about it) that market results are independent from year to year.
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Old 08-03-2007, 07:02 PM   #47
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The results of successive trials of flipping a coin, choosing from a mix of red and white balls, and playing Russian roulette are presumably independent.

I don't know that anybody has yet shown (somebody may have, but I don't know about it) that market results are independent from year to year.
But the economy is not a random sequence of events, sure occasionally an
terrorist attack, oil crisis, etc affect it, but overall it ebbs and flows like the
tide. Not up one year, down the next as you would expect with random
results. 95-99 were up, 00-02 were down, 03-06 were up, 07?
TJ
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