Article on safe withdrawal rates

[nun]

SWR for stocks and bond funds is 0% ? I guess if and when society is in a sufficient decline, that could be true. A lot of strange things has happened before in history.

However, when things get that bad, I do not see how SPIA, pensions, and SS would be worth anything. Just ask pensioners of the old Soviet block countries, China, and currently of Greece. These countries still exist, yet a lot of people are miserable, and it was not because they had a lot of stocks and bonds that became worthless.

In a Greek, or worse scenario, everyone will be in deep trouble whatever your AA, but needing in 0% WR from your stock and bond portfolio is useful through market down turns that fall short of the apocalypse and it's always nice to reinvest the dividends and gains in the good times.

Paying off the mortgage while you are working so that you have a 0% WR in retirement just lets me sleep well at night.

 

[NW-Bound]

The interest rate environment of the '70s is very different from that today. A century of data says that when 10-year Treasuries yield above 5% (most of 1970s), stock prices move the opposite direction of yield changes. When the 10 year yield is below 5% (today) stock prices move in the same direction as yield changes. Since the 10-year is currently below 5% and expected to rise, stocks will rise concomitantly. Once the 10-year reaches 5% and increases further, stocks will falter.

When interest goes up to approach double digit, P/E contraction will hurt stocks like crazy, that's for sure!

 

[RetireBy90]

Looks like wiki has Dow flat for the most part from 1970-1980. If I remember correctly, while yahoo finance shows 10 year treasury at about 8%. However, look at 1990 to 2000 and treasury rates show up to 12% so I'd think inflation was worse in second decade and wiki shows Dow up from 1000 to 3000 in that time. I've heard that stocks do better in high inflation cause they can raise prices as needed. Just wanted to add some real numbers to memories

 

[NW-Bound]

Let's not forget that in order to compete with high interest rates, stocks had to pay a lot higher dividends that they do now. That helped lessen the pain.

Regarding the high inflation period, you left out the decade 80-90. It was in the early 80s that interest rates peaked up. The 30-yr mortgage for my 1st home was at 14%, closed in April 1980. It was after Volker raised fed fund rates up to 20% in 1981 that the inflation subsided, and stocks started to take off. The prime rate reached 21.5% in 1981 also.

PS. I just looked up the inflation rate in the early 80. The peak was at 14.76% in March 80, right at the time I bought my 1st home, but was generally around 14% for all of 1980. It lingered above 10% for most of 1981, before succumbing to Volker's bitter medicine. In 1982, it was about 6-7%, and dropped to the 3% range in 1983. Stocks rocketed after that, allowing many of the boomers to happily retire into the sunset. What a poetic ending!

PPS. Of course, the rise of stocks in the 1982-2000 period was also attributed to the peace dividend after the end of the Cold War. How lucky are the boomers? Of course, they had to suffer through it and the Vietnam War first.

 

[rbmrtn]

Looks just the opposite to me. 10yr peaked in '81 at almost 16%. It started in '90 at about 8.5% and has been declining since. Inflation was out of control in the '70s mostly driven by commodities/energy prices. It was mild during the 90s, plus declining interest rates made a perfect time for stocks.

 

[Midpack]

IMHO a SWR for stocks and bond funds is 0%. Your retirement essential income should come from SPIAs, SS a pension or other stable income sources.

Still trying to make sense of this - I can understand low, but 0% makes no sense at all. If you're going to withdraw 0%, you don't need any portfolio at all...

 

[NW-Bound]

It gives me bragging rights! Isn't that worth somethin'?

 

[rbmrtn]

Still trying to make sense of this - I can understand low, but 0% makes no sense at all. If you're going to withdraw 0%, you don't need any portfolio at all...

Maybe he means not spending down the assets but living off dividends/interest ?

 

[Nords]

The interest rate environment of the '70s is very different from that today. A century of data says that when 10-year Treasuries yield above 5% (most of 1970s), stock prices move the opposite direction of yield changes. When the 10 year yield is below 5% (today) stock prices move in the same direction as yield changes. Since the 10-year is currently below 5% and expected to rise, stocks will rise concomitantly. Once the 10-year reaches 5% and increases further, stocks will falter.

When interest goes up to approach double digit, P/E contraction will hurt stocks like crazy, that's for sure!

Looks like wiki has Dow flat for the most part from 1970-1980. If I remember correctly, while yahoo finance shows 10 year treasury at about 8%. However, look at 1990 to 2000 and treasury rates show up to 12% so I'd think inflation was worse in second decade and wiki shows Dow up from 1000 to 3000 in that time. I've heard that stocks do better in high inflation cause they can raise prices as needed. Just wanted to add some real numbers to memories

I'm impressed with the high-definition clarity of your crystal balls. It almost makes me want to give up asset allocation and be an active trader.

Nah, sounds like work.

 

[NW-Bound]

I'm impressed with the high-definition clarity of your crystal balls. It almost makes me want to give up asset allocation and be an active trader.

Nah, sounds like work.

Well, since you quoted me... Of course when we looked back at history, which were what we talked about, it was so clear.

About AA, I do that too, but reserve the right to modify it as I see fit. Active trader? Nah. Things usually do not happen that fast. Though I have nothing against day trading, I do not see how I can make money that way. Year trading, or even decade trading, now that's different. I have the patience, you see.

About it being work, I do not mind the work, but the question I ask is, does it pay? I guess time will tell.

PS. I really, really need to log off to go to Home Depot now. See ya all later.

 

[nun]

Maybe he means not spending down the assets but living off dividends/interest ?

No I mean to live off pension, SS from US and UK and rental income. There will be a time between ER and taking SS where I will have to spend some dividends, but once SS starts all my expenses will be covered without needing to spend anything from my portfolio, all the income from my portfolio will be reinvested.....so I'll actually have a negative WR.

 

[Meadbh]

No I mean to live off pension, SS from US and UK and rental income. There will be a time between ER and taking SS where I will have to spend some dividends, but once SS starts all my expenses will be covered without needing to spend anything from my portfolio, all the income from my portfolio will be reinvested.....so I'll actually have a negative WR.

Nice!

 

[pb4uski]

No I mean to live off pension, SS from US and UK and rental income. There will be a time between ER and taking SS where I will have to spend some dividends, but once SS starts all my expenses will be covered without needing to spend anything from my portfolio, all the income from my portfolio will be reinvested.....so I'll actually have a negative WR.

Would you like to adopt a 56 year old? I want to be your heir.

 

[nun]

Would you like to adopt a 56 year old? I want to be your heir.

Sure..... seriously the only reason I can make it work is I'm single and frugal. In today's dollars my SS, pension and rental income add up to $40k a year. As I have no mortgage and a good health plan I can live comfortably on that. I hope to leave my heirs some money, but who knows, I might have an end of life crisis and buy a Porsche in my 80s.

 

[pb4uski]

Or splurge a bit more now on experiences and things that you enjoy, mke life more convenient and bring you joy. You can't take it with you so you might as well enjoy the fruits of your labor (prudently, of course).

 

[nun]

Or splurge a bit more now on experiences and things that you enjoy, mke life more convenient and bring you joy. You can't take it with you so you might as well enjoy the fruits of your labor (prudently, of course).

I appreciate the advice, but I've got room for the fun stuff, plenty for theatre tickets, weekend beers and vacations. My ER retirement decision point has become being able to finance my spending from after tax money up to SS age and keeping my portfolio growing

 

[Midpack]

Maybe he means not spending down the assets but living off dividends/interest?

No I mean to live off pension, SS from US and UK and rental income. There will be a time between ER and taking SS where I will have to spend some dividends, but once SS starts all my expenses will be covered without needing to spend anything from my portfolio, all the income from my portfolio will be reinvested.....so I'll actually have a negative WR.

So you have more than enough floor income to meet your spending needs and you're planning on a (large) residual from your investment portfolio, which is great.

That's something very different than stating the only safe withdrawal rate for stocks and bonds is 0%. Whatever the safe withdrawal rate from a portfolio is, it's not 0% (actually an oxymoron), no matter what future real returns may be.

IMHO a SWR for stocks and bond funds is 0%

 

[HFWR]

Though some of us don't have the luxury of never touching our portfolio, so we have to [-]roll the dice[/-] carefully study the data, then decide on a SWR we can live with...

 

[mathjak107]

So you have more than enough floor income to meet your spending needs and you're planning on a (large) residual from your investment portfolio, which is great.

That's something very different than stating the only safe withdrawal rate for stocks and bonds is 0%. Whatever the safe withdrawal rate from a portfolio is, it's not 0% (actually an oxymoron), no matter what future real returns may be.

we are basically backing into our allocations based on the amount of income we want with the minimal amount of risk.

when we retire at 62 my wife will file, she has a small pension, we have rental income until we finish selling off all our holdings .

i figured needing about 2.5% -3% prior to me taking ss at 66 or 70 and about 2% after.

that will give us quite a few conservative options as opposed to drawing alot more income but having to go to a much larger allocation to equities.


our first reaction was to go 50/50 or so and base a lifestyle around 4% swr or so.

we have since cut that down and will base our lifestyle around a 2% withdrawal.

 

[nun]

Though some of us don't have the luxury of never touching our portfolio, so we have to [-]roll the dice[/-] carefully study the data, then decide on a SWR we can live with...

Early on in my planning I decided to set up stable income sources for retirement. So really it's not a luxury it's just how I've prioritized my investing. 27 years ago I took the opportunity to continue to pay into the UK SS system so that at 66 I'll have both US and UK SS. I also bought a 2 family home so that I can get rental income. Finally I'll get a $5k annual pension at 62 and from 1987 to 1991 I contributed to a TIAA annuity that will produce another $5k when Im 65. I'll have to spend taxable income between ER and 65 and I'll be doing IRA to ROTH rollovers, but I'm not planning on spending any of my tax deferred money. Of course if my two SS checks get reduced my plan will change, but I should be able to handle that.

 

[HFWR]

Early on in my planning I decided to set up stable income sources for retirement. So really it's not a luxury it's just how I've prioritized my investing. 27 years ago I took the opportunity to continue to pay into the UK SS system so that at 66 I'll have both US and UK SS. I also bought a 2 family home so that I can get rental income. Finally I'll get a $5k annual pension at 62 and from 1987 to 1991 I contributed to a TIAA annuity that will produce another $5k when Im 65. I'll have to spend taxable income between ER and 65 and I'll be doing IRA to ROTH rollovers, but I'm not planning on spending any of my tax deferred money. Of course if my two SS checks get reduced my plan will change, but I should be able to handle that.

I involuntarily paid into SS, and will likely get the full amount I'm "entitled" to get. My pension from megacorp was involuntarily "frozen" years ago, though I will qualify for a small one from my current employer. I threw as much money as possible at tax-deferred savings, and benefited from the matches available. Have NO desire to be a landlord...

I suppose I could have quit my j*b, where I had significant seniority and other longevity benefits, and found a j*ob with a pension.

So, it didn't work out that I'll get a lot of "pension" benefits, but that was beneficial to me in other ways, vis a vis a higher salary and higher match. In reality, I've created my own pension, and I'm managing it, and pocketing the expense and management fees.

How is buying an annuity is not "investing", since you're counting on TIAA to invest for you, so they can continue paying your benefit? You still have a SWR, based on the annuity payment vs. the money you traded for that monthly benefit.

Don't really care, buy why would you shortchange yourself by investing a lot of money you never intend to spend?

 

[nun]

So, it didn't work out that I'll get a lot of "pension" benefits, but that was beneficial to me in other ways, vis a vis a higher salary and higher match. In reality, I've created my own pension, and I'm managing it, and pocketing the expense and management fees.

How is buying an annuity is not "investing", since you're counting on TIAA to invest for you, so they can continue paying your benefit? You still have a SWR, based on the annuity payment vs. the money you traded for that monthly benefit.

Don't really care, buy why would you shortchange yourself by investing a lot of money you never intend to spend?

Sure the TIAA is invested, but I'm one step removed from the market and it's lowest annual return over the past 27 years has been 3%. My main point is that I have diversified my retirement income sources throughout my working life so that I can support my retirement without the need to spend my IRA, 403b and 457 etc. I put money into taxable and tax deferred index funds, but I also bought TIAA-Traditional early on, paid off my mortgage so that my 2 family pays net income and made voluntary contributions to the UK SS system when many would have just spent that money.

I invested money in 401k, 403b, ROTH, 457etc to get the tax advantages and to have a portfolio I can use in case of emergencies......or for that Porsche. I have a very nice lifestyle, I described it as frugal because I buy the compact car rather than the big sedan and will bake an apple pie rather than buy one. Saving or investing money rather than spending it isn't "short-changing" yourself when you have all you want or need. The portfolio is insurance and the taxable part is a bridge to when the SS checks start and for that I'll be using a 4% WR

 

[Huston55]

Don't really care, buy why would you shortchange yourself by investing a lot of money you never intend to spend?

Sure the TIAA is invested, but I'm one step removed from the market and it's lowest annual return over the past 27 years has been 3%. My main point is that I have diversified my retirement income sources throughout my working life so that I can support my retirement without the need to spend my IRA, 403b and 457 etc. I put money into taxable and tax deferred index funds, but I also bought TIAA-Traditional early on, paid off my mortgage so that my 2 family pays net income and made voluntary contributions to the UK SS system when many would have just spent that money.

I invested money in 401k, 403b, ROTH, 457etc to get the tax advantages and to have a portfolio I can use in case of emergencies......or for that Porsche. I have a very nice lifestyle, I described it as frugal because I buy the compact car rather than the big sedan and will bake an apple pie rather than buy one. Saving or investing money rather than spending it isn't "short-changing" yourself when you have all you want or need. The portfolio is insurance and the taxable part is a bridge to when the SS checks start and for that I'll be using a 4% WR

You're in an excellent position. But, I think the question is 'Why not retire now?"

 

[nun]

You're in an excellent position. But, I think the question is 'Why not retire now?"

Main reason is health care....I'm 51 and at 55 I can retire and keep my health insurance and pay the same premium as when I was w*rking. I also want a bit more in after tax savings to bridge the 55 to 65 gap. Plus I quite like my w*rk.