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Old 01-03-2014, 05:21 PM   #41
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@clifp. No, I made my money mostly through employee stock options and other equity related incentive compensation, as well as leveraged investing in my employer's stock. Employer was one of the big CDN banks. Keep in mind that running up a football score doesn't do you much good, eg a win is a win. On the other hand you get to spend the "extra points" when you run up your retirement wealth.
It just seems to me to be a very good risk reward equation. If I don't really need the money, why wouldn't I let it ride. My daughter or other charities will thank me.
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Old 01-03-2014, 06:03 PM   #42
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I'm not sure I can relate to the question (if I understood it properly) - I'm aiming for a conservative WR and a maintain a high equity position. I think OP was figuring these would generally be mutually exclusive?

-ERD50


No I don't think they are mutual exclusive at all. As you know for most conservative withdrawal rates there is virtually no difference in success rates for a wide range of AA anywhere from 40-80% and even 20/80 or 90/10 only increase failures by a couple percent.

My question is there seems to be a strong preference (not from you) for the lowest possible equity. allocation once you get to the 95%+ level. I suppose the benefit is being able to sleep better at night during a bear market. The down side is the low equity position also mean you have a very slim chance of significantly increasing your standard of living and/or finding yourself rich at an old age.

In many cases this is preference for people who also have large pension or other secure source of income. I guess it just comes down to a risk tolerance and just wonder what risk they are really guarding against?.

I also want to point out that I suspect that even for people without pensions, social security provides a pretty important back up.

For instance lets take a look at the poor Y2K retiree. Raddr has not updated the thread for 2103 yet.

But as of 2012 his 75/25 (t-bills) portfolio was worth $493K his inflation adjusted withdrawal was 54K.. Looks grim right however 2013 helped him out and by my calculations he had 545k at the end of 2013. (It is also worth noting that 25% in t-bills is a particularly poor option)

If the Y2K retire was 50 that makes him 63/4 now and eligible to collect full SS in 2016. If SS was a very conservative $20K that give him a 39% chance of success (not great but...) If someone managed to accumulate $1,000,000 by age 50 a more realistic SS figure is $2500/month, 30K a year. This gives the Y2K retire a respectable 70% survival rate.

When I talk about my withdrawal rate, it is very rare that I include SS. Yet it could be more than 1/3 of my income if things go badly.
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Old 01-03-2014, 06:06 PM   #43
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Nothing wrong with that. I will do the same. But in Shawn's case, he looks like he can cover that (in-home nursing care and other unexpected things) and then some (much, much more). But, hey, I understand that for some people, accumulating wealth is the goal in life.
In my case, accumulating wealth is not the ultimate goal. The ultimate goal is to feel financially secure, both in terms of needs and wants. I do not wish to be inhibited by financial constraints.

Example. I just loaned a woman $5K to help with the veterinary bills for one of her pets. She is the "pet sitter" who had been looking in on my cat over the last 1 1/2 years, but recently it was one of her cats who became ill. She does not have that much money and her husband recently lost his job. I have no expectations about when or if this loan will be repaid. If the loan becomes an expense, so be it. I can take these steps without any real financial consequences to me. No second thoughts. No emotional tradeoffs or worries. It is financial freedom.

I cannot predict the future. I do not know what other events will occur in my life. Yes, I may need to pay for in-home nursing care for myself. I may need to pay for in-home nursing care for my mother or my step-mother. I do not know how the economy or my investments will perform. Frugality and the accumulation of wealth provide the security and flexibility of financial freedom.
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Old 01-03-2014, 07:07 PM   #44
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I am relatively conservative having seen firsthand the absolute distress and misery that follows a complete wipeout of a portfolio. This has led me to be satisfyed completely being able to live a more assured, lower risk portfolio likely providing a comfortable life style with a portfolio that should be able to handle either economic upsides or downsides. This is far important to me, while at the same time undoubtably limiting my chances to become rich.

The reason for most of the portfolio failures I was unfortunate enough to witness was due to overreliance on single stocks, sudden financial losses not covered by insurance, or just plain too much spending.

For today's investor an overreliance on stocks in an attempt to get rich even with only a 2% portfolio withdrawl is missing the very real possibility of a deflationary spiral that would leave stocks suffering much more than other asset classes. Equities are the most likely way for many to become rich, but I think the percentages are far lower currently than many may feel or calculate base on past history.

Investors are overconfident because portfolio crashes have been limited in the most part to single countries, or to losing sides in war but never has the investing world ever been so connected world wide to each other.

The obvious strategy in play today by ruling governments is a stealth savings tax by offering negative real rates on the debt issued and a circle of guarentees between "troubled" and secure nations, but the resolution of this problem has not yet actually manifested itself, either through inflation or deflation; both potential resolutions that hang unseen over the populations of the world and controlled by ongoing heads of finance in a fashion much like the Sword of Democles. We as investors continue on as the citizens of Syracuse, unseeing of either the thread that holds the finances together over which we hold neither sight nor a responsiblity of it's upkeep to keep the sword invisible to the populace.
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Old 01-03-2014, 07:31 PM   #45
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At our end, we very deliberately over engineered the retirement plan by working for longer and building up a bigger nest egg than either our own spreedsheets or FIRECalc said was necessary. Unless we increase our spending, there is at least a reasonable possibility of ending up being "rich" at some point. This is one risk that does not keep me awake at night.
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Old 01-03-2014, 07:56 PM   #46
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Does anybody want to be rich when they get old?

We ARE old!.... quite content with what we have, thank you.

5 more years of retirement will equal total years of employment, or to put it another way... 51 years of freedom.
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Does anybody want to be rich when they get old?
Old 01-03-2014, 08:21 PM   #47
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Does anybody want to be rich when they get old?

Haven't read all the responses, but perhaps I'm being redundant - forgive me if I am.

OP - define 'rich'.

I'm retired in my fifties, have pensions to cover my living expenses, minimal debt (a couple of cars paid off this year), a new RV (paid for), and a 7 digit portfolio at a moderately risky 60/40 AA. I haven't even thought about SS yet, though it won't be much, it'll be a bit of extra gravy. At a two percent withdrawal, should I take it for reasons of extravagance, FC indicates he historic average would be a tripling of the balance during our life expectancy. Never below the current amount. I could mess around, increase volatility, increase risk and possibly make a bit more.

Why?

My son has his own career, his own successes, his own hardships - he needs to find his own path to be happy - but will still inherit a hefty amount. We won't let him starve or be homeless if he needs help, and he's independent enough not to ask unless necessary; even then he's embarrassed when he occasionally does, which is OK. He's out of college and surviving doing his dream - a professional, non-starving actor. If we gave him everything, he'd never be a happy and independent individual. There's nothing more we want, nothing more he needs.

Actually, I guess I feel pretty darn rich, but not in the manner you're describing.
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Old 01-03-2014, 10:10 PM   #48
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Quote:
Originally Posted by clifp View Post
Quote:
Originally Posted by ERD50 View Post
I'm not sure I can relate to the question (if I understood it properly) - I'm aiming for a conservative WR and a maintain a high equity position. I think OP was figuring these would generally be mutually exclusive?

-ERD50
No I don't think they are mutual exclusive at all. As you know for most conservative withdrawal rates there is virtually no difference in success rates for a wide range of AA anywhere from 40-80% and even 20/80 or 90/10 only increase failures by a couple percent.

My question is there seems to be a strong preference (not from you) for the lowest possible equity. allocation once you get to the 95%+ level. ....
OK, that helps, and I'd agree that there is probably a pretty strong correlation between those shooting for high success rates in FIRECalc and choosing a low Equity AA - but far from universal. Historically, if you take that to extremes (below ~ 35% equities), you start to hurt your success rates, and it is not what I would call a 'conservative' plan. A few posters did not want to hear that, but it is a historical fact.


Quote:
For instance lets take a look at the poor Y2K retiree. Raddr has not updated the thread for 2103 yet.
If he does that in the next few years, please let us know!

-ERD50
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Old 01-03-2014, 10:39 PM   #49
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I am using a fairly conservative WR (at least after age 70.5) and going with 100% equities, as suggested by the OP. The SWR is not that different between 40% and 100% equities, though it does sag a bit towards 100%. On the other hand, the average or median portfolio values for 100% equities are much higher than for 40% equities. So I figure I give up just a little WR safety and hopefully gain the safety of a larger portfolio later.

I model this, outside FIRECalc, with an historical rate of return fixed each year but with a requirement of a large portfolio ending value that results in about a 3% WR. If that actually happened we could end up with well over $10M in our portfolio in today's dollars, depending on how long we lived. That would be nice, though we'd spend some of it if it got that high.
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Old 01-03-2014, 11:04 PM   #50
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I thought of something my 82-year-old, retired dad said to me last year when he needed some costly dental work to replace some crowns: "There goes some more of your inheritance!" LOL I told my brother what he said to me and he enjoyed the laugh, too.
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Old 01-03-2014, 11:48 PM   #51
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I thought of something my 82-year-old, retired dad said to me last year when he needed some costly dental work to replace some crowns: "There goes some more of your inheritance!" LOL I told my brother what he said to me and he enjoyed the laugh, too.
That does seem to be pretty common sentiment.

FWIW, Mom use to say that sometimes. I finally achieved a pretty good breakthrough when I explained, mom the bulk of your money is with Vanguard. Frankly I doubt you are going to need it so I am managing with an eye to your inheritance. But there is 200K (more after this year) in Schwab and I'll pretty upset with you if you haven't spent most of before die. Cause that you'll have either died too early or not spent enough of it. She has been great at mostly giving this away, but when she announced I am flying first class for this trip I applauded.
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Old 01-03-2014, 11:51 PM   #52
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At what point in your life (and wealth) do you say you have accumulated enough and it is time to start unloading (donation to your favorite causes, splurging, gifting, ...)? Being conservative to fool proof your retirement is good. But, frankly, reading this and other relevant threads, I sense that some of you are ultra conservative if not downright paranoid about running out of money. ( For example, in other posts, I see people recommending 2% WR. Really? Isn't that worse than average annuity you can get now? )
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Old 01-03-2014, 11:57 PM   #53
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At what point in your life (and wealth) do you say you have accumulated enough and it is time to start unloading (donation to your favorite causes, splurging, gifting, ...)? Being conservative to fool proof your retirement is good. But, frankly, reading this and other relevant threads, I sense that some of you are ultra conservative if not downright paranoid about running out of money. ( For example, in other posts, I see people recommending 2% WR. Really? Isn't that worse than average annuity you can get now? )
No one will object to however you wish to manage your portfolio, or at least I won't.

So many things are so confidently said, but in the fullness of time we will find that many are wrong one way or another. That is why it pays to be humble and careful.

Ha
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Old 01-04-2014, 12:23 AM   #54
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Being conservative to fool proof your retirement is good. But, frankly, reading this and other relevant threads, I sense that some of you are ultra conservative if not downright paranoid about running out of money. ( For example, in other posts, I see people recommending 2% WR. Really? Isn't that worse than average annuity you can get now? )
Two income couples who have maxed out and delayed SS benefits could theoretically make $80K on SS alone -

Workers with Maximum-Taxable Earnings

If the kids are grown and the house is paid for, is spending extra money on depreciating consumer goods going to make them any happier? Happiness studies say probably not, especially if they move to a low COL area where the average income is much lower and the $80K easily makes them the Joneses already.
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Old 01-04-2014, 01:09 AM   #55
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Two income couples who have maxed out and delayed SS benefits could theoretically make $80K on SS alone -
That'd be good enough expense budget for most, given that people end up spending less as they age.
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Old 01-04-2014, 01:10 AM   #56
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No one will object to however you wish to manage your portfolio, or at least I won't.

So many things are so confidently said, but in the fullness of time we will find that many are wrong one way or another. That is why it pays to be humble and careful.

Ha
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Old 01-04-2014, 07:03 AM   #57
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Does anybody want to be rich when they get old?

I'm over $3 million now and have been very frugal. I might inherit another million but maybe not. I'd just as soon die before my mother. I'm 55 and if I worked another 8-10 years and saved my ass off, I might acquire another million. Yes I'd like to hit that number, but is it worth it to work longer?

I've never really even spent $50,000 a year yet I have been able to do some nice things and even contribute a fair amount to my alma mater. I do have a 1995 vehicle, so I guess I will need to buy a car at some point! Porsche? I always wanted one...
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Old 01-04-2014, 07:10 AM   #58
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One thing to remember is that if FireCalc says you are going to have 100% success you are probably going to meet your definition of rich ($5M).

For example, I think FC shows that I'm at 100% with the worst scenario just over $0. But that also means my best scenario is something like $30M and my average is projected at $8M.

.

Yes this right on fishing, the MOST PROBABLE RESULT of using Firecalc to determine withdrawal rates is that your only worries will be estate tax and charitable trusts.
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Old 01-04-2014, 07:19 AM   #59
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But, frankly, reading this and other relevant threads, I sense that some of you are ultra conservative if not downright paranoid about running out of money. ( For example, in other posts, I see people recommending 2% WR. Really? Isn't that worse than average annuity you can get now? )
I'm always concerned someone will come along and try to robnplunder my nest egg.
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Old 01-04-2014, 07:22 AM   #60
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Interesting discussion. I was thinking many people like a "conservative"AA and some of these carry debt into retirement. Perhaps having debt pushes one towards a FI component to balance out the risk? I have no debt and wouldn't feel comfortable with such in retirement. debt certainly would increase your risk of going broke. I also believe my equities are less risky than the market data used in Firecalc. I seem to recall that CDN equities had the highest success rate of any country, and my choice of CDN equities is very "blue chip"
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