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Old 10-27-2012, 10:17 AM   #21
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A very smart/conservative plan, but no matter how large your 'residual' becomes? Unless leaving a large bequest is a primary goal, at some point I'd think you might take more than 4%. Here's hoping we all have that problem in time...
No plans to leave anything. I-ORP says I can spend subtantially more than what I need to cover current expenses. Not really taking anything out since I just take the dividends, the capital is still in place. I really don't know what I'd spend the "residual" on, maybe I suffer from being a lifelong LBYM'er. Once pension/SS kick in "withdrawal" needs would be closer to zero.
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Old 10-27-2012, 10:32 AM   #22
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I currently have an 'unsafe' withdrawal rate of about 5%. I do this because my solid gold platinum lined jewel encrusted polished brass on stained pine pension is not enough to live on. I also want to delay SS until 70 and use it as a form of long life insurance. And, most infamously, I want to travel a lot over the next 8 years. That takes money.

Once SS kicks in at 70, my pension and the pumped-up SS benefits should provide enough to live on. At that time I can reduce my rate to under 3% and most likely near 2%.

That's my plan and I am sticking to it.
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Old 10-27-2012, 11:08 AM   #23
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That's my plan and I am sticking to it.
That makes two (really three, including DW).

If I would base current retirement fund withdrawl's at 4%, what happens when my DW's two small DB plans, along with our respective SS income starts (along with my 50% of DW's SS in just over a year)?

Heck, even at the age of 70 (in five years, when my SS starts), we'll be withdrawing well below 4%.

I/we would rather spend it in ER, rather than just adhere to a withdrawl plan that has nothing to do with us, at this time in our retirement.
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Old 10-27-2012, 11:11 AM   #24
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about the worst group now may be those who retired in 2000 depending on allocations as they are facing the perfect storm.
Shouldn't a 2000 retiree that had been plugging money away for years in the stock markets have had a huge pile of money? If so, they should have been able to survive through the decade on much less than 4%.

I think that the 4% rule is too simplistic; it doesn't take into account the current inflation/deflation of stocks. My impression, paying with FireCalc, is that if one invests the appropriate ratio of income regularly into the stock market for 30 years, then enough will have been put aside to cover retirement expenses. Whether the expense to pile of money ratio is 5+% or 3-% depends on the specific state of the market on the day of retirement. I think that it is a mistake to only look at the retirement date to select expense level based on a fixed ratio. I think that expenses should be based on the amount of money invested over the years, not on the accumulated amount on retirement date.

Maybe I'm wrong? Anyway, that's my current thinking.
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Old 10-27-2012, 01:35 PM   #25
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the part you missed is if someone retired in 2000 that 4% withdrawal is based on that pile of money they accumulated. they get 4% of a larger number inflation adjusted.

in reality i think most foks adjusted spending downward when thinks fell apart so in practice they are in much better shape .

the studies assumes they just continued right on business as usual so in theory they may be the worst group.

the current inflation or deflation of stocks is accounted for in the sense the correlation between their relative value and performance seems to be very high.
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Old 10-27-2012, 02:19 PM   #26
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i cant get through to them that the 4% rule doesnt represent big gains or even average gains. it represents the worst real returns history ever threw at retirees .
Well, that should be "U.S. retirees" right? That is, we're cherry-picking the most prosperous economy in the world over the last century. And when you say "history" we really mean the period between 1871 and today, a period of explosive growth in wealth worldwide but especially in this one country.

I'm not arguing against your point, but future real returns can certainly be below 4% in the US. In most places (even in "modern times") they've historically been well below that. Economic and political conditions in the US are changing, and a bet on continuation of past performance is not a sure thing.
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Old 10-27-2012, 03:13 PM   #27
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i think your confused. whats needed to have them hold true isnt 4% real returns ,according michael kitces its less than 1% REAL RETURNS .

the 4% swr is based on the worst returns any of the retiree groups had .

rolling 30 year periods are looked at and analyzed.

since the first 15 years make or break every time frame its crutial to look at the first 15 years.

for a 60/40 mix those average returns , for that worst ever group were an average of .86% real returns for a 15 year period .

the 4% swr still held true for them going out the full 30 years. .. thats less than a 1% real return and you were able to last at least 30 years and had money left over to boot.

all you need is a real return of .86% over the first 15 years of a retirement and that rule will hold.

so lets look at this very moment .bonds are at zero real return because the 15 year bond is around 2% and inflation is around 2% so assume they stay there at zero real return for the next 15 years. , so all stocks need to return is 1% by 2028 which is 15 years from now for the rule to hold because we are looking at worst case scenerios.

since stocks are pretty much where they were in 2000 now do you think the markets can return 1% real return average over 28 years? it will be 28 years in 2028 which already puts the odds of a 1% real return move in the next 15 years pretty good.

for the record the historical average real return for equites is 8% so a 1% move should be a piece of cake now.

folks miss the biggest thing about the 4% swr, and that is its based on surviving the worst returns,sequences and inflation ever to date.

if anything the swr of 4% is to low and leaves way to much on the table. over 96% of the time more then the origonal starting principal was left over at the end of 30 years.

pretty spooky that a 1% real return is all thats needed to maintain an inflation adjusted swr for 30 years.

i thank michael kitces for those most excellent points and the math to go with them..

http://www.kitces.com/blog/archives/...7s+Eye+View%29
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Old 10-27-2012, 03:59 PM   #28
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This calculator says 1% return equals 26.4 yrs. until portfolio is depleted.

How long will my money last with systematic withdrawals? | Calculators by CalcXML
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Old 10-27-2012, 04:11 PM   #29
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i think your confused. whats needed to have them hold true isnt 4% real returns ,according michael kitces its less than 1% REAL RETURNS .
Whatever. I didn't say 4% or 1% real returns. I was just quoting your post.
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the 4% swr is based on the worst returns any of the retiree groups had .
Again--no. Not "any" retiree group, but "US retirees." And not over just any time period, but over a time period that was especially generous to this specific group.

Put it another way: There's no other country in history that has experienced the extended wealth growth the US experienced during this particular period. The US enjoyed some cultural, political, geographic and economic structural advantages over much of the world (and some good luck) during that time period. Things are changing in the US on many fronts. I'm betting on this country's industries, too, but I'm not going to tell anyone that things are unlikely to get worse than they were over this especially "sweet" period in this one country.
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Old 10-27-2012, 04:17 PM   #30
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This calculator says 1% return equals 26.4 yrs. until portfolio is depleted.

How long will my money last with systematic withdrawals? | Calculators by CalcXML

1% isnt the same as 1% real return
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Old 10-27-2012, 04:28 PM   #31
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Whatever. I didn't say 4% or 1% real returns. I was just quoting your post.

Again--no. Not "any" retiree group, but "US retirees." And not over just any time period, but over a time period that was especially generous to this specific group.

Put it another way: There's no other country in history that has experienced the extended wealth growth the US experienced during this particular period. The US enjoyed some cultural, political, geographic and economic structural advantages over much of the world (and some good luck) during that time period. Things are changing in the US on many fronts. I'm betting on this country's industries, too, but I'm not going to tell anyone that things are unlikely to get worse than they were over this especially "sweet" period in this one country.

no question we arent the prom queen anymore as they say so true long term gains will be nothing like we had in the past.

dont forget typically those gains we saw could support a 6.5% withdrawl in 95% of our time frames.

each percent above 4% is a 25% raise over 4% so you can see historically with few exceptions you could have pulled 50% more .

well i think those days are gone in the opinions most of us have but according to michael reducing to a 4% swr is a huge cut from what we could have taken historically .

all thats need to take that worst case swr of 4% is a 1% real return and his numbers back that up.

even if we hit a new worst case scenerio its not going to be far off from the worst we had so a small adjustment perhaps to 3.5% should put you on track again.
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Old 10-27-2012, 04:37 PM   #32
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i think your confused. whats needed to have them hold true isnt 4% real returns ,according michael kitces its less than 1% REAL RETURNS .
Here's what a 30 year FIRECALC run looks like with a 4% withdrawal rate and 1% real returns.




The failure rate is 42%.

Inputs: 10% standard deviation in returns, random returns averaging 1%, inflation rate of 0%. Starting portfolio of $100K, starting annual withdrawal of $4000

And, let's remember that a 30 year window isn't much for a hard-core ER type. Look at the slope of those lines--your portfolio would definitely be in a race with the grim reaper in most cases.
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Old 10-27-2012, 04:44 PM   #33
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I stopped worrying about my own situation when I realized the following.

1) If I manage to just keep up with inflation, meaning 0% real return, I will deplete my stash at 100%/30 years = 3.33%WR. So, for simplicity, I picked 3.5%WR.

2) I will be able to get some SS. That will help.

3) I believe I will spend less as I age, just as Bernicke observed with most people.

4) I may have some health problems in the next 30 years, and that I may not care all that much about the money that will not buy me happiness.

5) I may not even live another 30 years.

So, why don't I spend even more than 3.5%WR? The reason is simply that I like to have some margins. And then, deep down, I do not want to see my stash going down.

Until I get to the health stage that I fear, I still care about money, and I am still "Scroogy" enough to want to feel "rich". I still like to see my portfolio growing, and growing ...

PS. I just now realize after seeing samclem's post above that in the really bad scenario, my premise no. 1 above may not be achievable. Oh well! I may just die before 85 (I am 55 now), and that will take care of everything.
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Old 10-27-2012, 04:44 PM   #34
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the part your missing is you only need the 1% real return for the first 15 years, your running it over 30 years..

now why is it different? if you read the article from michael you will see there is a link between low crappy stock returns over 15 years and the results that are gotten 99 % of the time on the next 15 years that seem to be like night follows day up to now.

the 2nd half seems to come up quite a bit every time saving the retirement. the reason you need the 1% real return as a minimum is you still need to maintain a decent balance in the first 15 years to benefit from the gains in the 2nd half.

if you loose to much and spend down to far in the first 15 years even the better years cant save you.

if your really into this stuff read the link i posted, i found it quite mind blowing.

im certainly not smart enough to have come up with the above but i certainly do think the likes of dr wade pfau and michael kitces can get it correct.
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Old 10-27-2012, 04:47 PM   #35
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No plans to leave anything.

Not really taking anything out since I just take the dividends, the capital is still in place. I really don't know what I'd spend the "residual" on, maybe I suffer from being a lifelong LBYM'er. Once pension/SS kick in "withdrawal" needs would be closer to zero.
Not sure how you reconcile these two statements. If all goes well and you "just take dividends" and eventually "withdrawal would be close to zero...once pension/SS kick in" - you will most likely end up with a pile of money that will have to go to someone. That was my original question. We all hope to have that problem of course...a nice problem to have, and it beats the alternative of course. Again, I think we all have to be prepared to spend less, or spend more at some point as the plan unfolds...
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Old 10-27-2012, 05:03 PM   #36
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Not sure how you reconcile these two statements. If all goes well and you "just take dividends" and eventually "withdrawal would be close to zero...once pension/SS kick in" - you will most likely end up with a pile of money that will have to go to someone. That was my original question. We all hope to have that problem of course...a nice problem to have, and it beats the alternative of course. Again, I think we all have to be prepared to spend less, or spend more at some point as the plan unfolds...
Yes, IF ALL GOES WELL, I could leave a pile behind but if doesn't go well then I should be covered, so I win in either case, no? I don't think I said I wouldn't spend more, I just have nothing really to spend it on. If health insurance was easily obtainable it would be it would be much easier.

My thoughts were more along the lines of what NW-Bound just posted.
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Old 10-27-2012, 05:16 PM   #37
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the only flaw i see in michaels theory is he is figuring zero real return on the bonds.

if he is talking laddering bonds out to 15 years ill go with over all the returns may be zero after inflation since he can roll over those bonds into higher paying ones if rates and inflation pick up.

but if he is talking buying a bunch of 15 year bonds those may actually have negative real returns if inflation goes up above 2%. that would increase demand on the stock gains.

am i on to a possible flaw?
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Old 10-27-2012, 05:49 PM   #38
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1% isnt the same as 1% real return
4% return with 3% inflation is 1% real, is it not? Run the calculator and see what you get. I got 26.4 yrs. with the above input.
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Old 10-27-2012, 05:55 PM   #39
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but read the rest of the posting as to why the 1% real return is only for 15 years not 30.

the portfolio survives because of the returns on the 2nd half of the retirement which have always been at least enough to carry the swr over 30 years when ever the first 15 years suck but dont get worse then 1% real return or to much can be lost or spent down and the 2nd half cant save the retirement.

mike kitces research has shown that there is a 99% chance of the 2nd half being up enough when ever the first 15 arent.
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Old 10-27-2012, 06:25 PM   #40
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i think your confused. whats needed to have them hold true isnt 4% real returns ,according michael kitces its less than 1% REAL RETURNS .

the 4% swr is based on the worst returns any of the retiree groups had .

rolling 30 year periods are looked at and analyzed.

since the first 15 years make or break every time frame its crutial to look at the first 15 years.

for a 60/40 mix those average returns , for that worst ever group were an average of .86% real returns for a 15 year period .

the 4% swr still held true for them going out the full 30 years. .. thats less than a 1% real return and you were able to last at least 30 years and had money left over to boot.

all you need is a real return of .86% over the first 15 years of a retirement and that rule will hold.

so lets look at this very moment .bonds are at zero real return because the 15 year bond is around 2% and inflation is around 2% so assume they stay there at zero real return for the next 15 years. , so all stocks need to return is 1% by 2028 which is 15 years from now for the rule to hold because we are looking at worst case scenerios.

since stocks are pretty much where they were in 2000 now do you think the markets can return 1% real return average over 28 years? it will be 28 years in 2028 which already puts the odds of a 1% real return move in the next 15 years pretty good.

for the record the historical average real return for equites is 8% so a 1% move should be a piece of cake now.

folks miss the biggest thing about the 4% swr, and that is its based on surviving the worst returns,sequences and inflation ever to date.

if anything the swr of 4% is to low and leaves way to much on the table. over 96% of the time more then the origonal starting principal was left over at the end of 30 years.

pretty spooky that a 1% real return is all thats needed to maintain an inflation adjusted swr for 30 years.

i thank michael kitces for those most excellent points and the math to go with them..

What Returns Are Safe Withdrawal Rates REALLY Based Upon? - kitces.com | Nerd's Eye View
mathjak107, Thank you for an interesting post as well as the link for some perspective that I had not fully considered before. I thought I really understood what the 4% rule was all about but had not really appreciated the low return needed for the 4% rule to hold going into our (probably) low return "new normal" future. I've also subscribed to the thought that the 4% rule has worked in the US because we have had such an exceptional past compared to other countries. I'm going to have to noodle this one for a bit to see if it still makes sense to me after futzing with it but again, thank you.

But come to think of it, assuming a rate of return just enough to cover inflation (i.e. 0% real return) a portfolio will last 25 years to depletion assuming 4% withdrawals so, yeah on first blush it makes sense that a 1% real return will be fine for 30 years.
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