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Old 04-25-2015, 03:11 PM   #21
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Interesting - I didn't know that. I am amazed at how many people on this forum, e.g., here, are really proud of having a WR below 4% and of having their assets grow. That, to me, is very conservative, but then I have no heirs to be concerned about. I am happily planning a WR > 4%.
Have you looked at the graphical output of FireCalc? Note all the times the lines go up.

You sound like a candidate for some form of variable percentage withdrawal plan. They work fine for people who can flex spending up and down with the market and who have no legacy goal. That could be you.
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Old 05-06-2015, 12:40 PM   #22
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Have you looked at the graphical output of FireCalc? Note all the times the lines go up.

You sound like a candidate for some form of variable percentage withdrawal plan. They work fine for people who can flex spending up and down with the market and who have no legacy goal. That could be you.
Thanks. I'm in Canada, so I don't think Firecalc works for me. I don't think it would be able to handle our alphabet soup of RPPs, RRSPs, RRIFs, TFSAs, CPP and OAS.

I am building a cash cushion -- a ladder of CDs (GICs in Canada) -- that I can cash in instead of selling shares in the event of a market crash. It should last for a couple of years to give share prices time to recover.

I think we are also going to be flexible enough to ease up on spending during tough times if needed -- travel to cheaper countires, or spend more time at home -- but I am not really building that into the plan at this stage.
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Old 05-06-2015, 01:33 PM   #23
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Thanks. I'm in Canada, so I don't think Firecalc works for me. I don't think it would be able to handle our alphabet soup of RPPs, RRSPs, RRIFs, TFSAs, CPP and OAS.

I am building a cash cushion -- a ladder of CDs (GICs in Canada) -- that I can cash in instead of selling shares in the event of a market crash. It should last for a couple of years to give share prices time to recover.

I think we are also going to be flexible enough to ease up on spending during tough times if needed -- travel to cheaper countires, or spend more time at home -- but I am not really building that into the plan at this stage.
To get firecalc to work you have a few options:
Use the additional income page for any pensions.
Use the NAV value of the things that have an equivalent cash value...

But - make sure you appropriately address the expense ratios on that page - I know we have much lower expense ratios in the US.
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Old 05-20-2015, 02:47 PM   #24
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rodi, I've taken your advice and played around with Firecalc. It is a cool tool. It didn't give me the unalloyed thumbs-up on my plan that I would have liked.

But I have a very complex spreadsheet model (I'm an economist) that tracks income from different types of investments (dividends, interest, other), sheltered plans (Canadian equivalents of Traditional IRAs and Roth IRAs), a defined benefit pension, public pension and benefits, and the taxation of income and withdrawls. I am using my current dividend and interest yields adjusted down a bit for prudence. Balances are forecast out offset by spending which is indexed for inflation. I assume no capital gains (since no-one can predict capital gains accurately), which builds in an extra degree of prudence, and I will have a cash cushion so that I don't have to sell off during a downturn. Expense ratios are not an issue since I don't hold any funds, but you're right the mutual funds fees are higher in Canada - another reason not to hold funds.

Despite all of this, it is still scary flouting the so-called 4% rule.
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Old 05-20-2015, 03:00 PM   #25
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4% is a number that results by choosing a certain success probability ( I think it's 95%) from a Monte Carlo simulation of the size of a portfolio after 30 years of withdrawals using historical market returns for various asset allocations. People should first do some serious budgeting and analysis of their individual circumstances and the use the 4% rule to see if they are on the retirement ballpark.
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Old 05-24-2015, 08:12 AM   #26
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4% is a number that results by choosing a certain success probability ( I think it's 95%) from a Monte Carlo simulation of the size of a portfolio after 30 years of withdrawals using historical market returns for various asset allocations. People should first do some serious budgeting and analysis of their individual circumstances and the use the 4% rule to see if they are on the retirement ballpark.

Almost...it arose from success in study of all 30 year periods (vis a vis, FIREcalc)


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Old 05-24-2015, 09:41 AM   #27
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I use the 4% as a check, not the basis for my drawdown strategy.



Arrrr.....
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Old 05-24-2015, 09:54 AM   #28
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OP, IMO, even though you are living off dividends, etc. I still think the amount you use to live on should be considered a withdrawal.
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Old 05-24-2015, 10:52 AM   #29
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But I have a very complex spreadsheet model (I'm an economist) that tracks income from different types of investments (dividends, interest, other), sheltered plans (Canadian equivalents of Traditional IRAs and Roth IRAs), a defined benefit pension, public pension and benefits, and the taxation of income and withdrawls.
But does your very complex spreadsheet account for future variability in sequence of returns? That's one of the vexing complications that leads to the 4% "rule" in order to stay inside the envelope of spending that doesn't exhaust the portfolio.
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Old 05-24-2015, 11:56 AM   #30
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OP, IMO, even though you are living off dividends, etc. I still think the amount you use to live on should be considered a withdrawal.
+1 The implied premise in the OP seems to be that it's impossible to run out of money if your initial withdrawals are restricted to interest and dividends, leaving principal untouched. That's incorrect, primarily because interest and dividends may not increase along with inflation, thus making it inevitable in the long run to dip into principal.

Whether the portfolio described in the OP will actually suffer this fate is unclear. It's good that total expenses are currently less than interest and dividend income, but that alone doesn't guarantee success. IMHO, the only way to estimate long term success is to model this using Firecalc, or some similar tool. Probably not the answer OP was looking for, but it's better than offering false reassurances that you're safe as long as you're not spending principal.
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Old 05-24-2015, 01:10 PM   #31
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But does your very complex spreadsheet account for future variability in sequence of returns? That's one of the vexing complications that leads to the 4% "rule" in order to stay inside the envelope of spending that doesn't exhaust the portfolio.
+1

I have a spreadsheet that I developed way back when as my first attempt at a calculator. I had conservative assumptions (1-1 1/2% real returns) and I was amazed how good it looked. The problem was that it assumed a nice steady return year after year. If only that was predictable!
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Old 05-25-2015, 11:14 AM   #32
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+1

I have a spreadsheet that I developed way back when as my first attempt at a calculator. I had conservative assumptions (1-1 1/2% real returns) and I was amazed how good it looked. The problem was that it assumed a nice steady return year after year. If only that was predictable!
I don't have variability of return since I have invested directly in good quality dividend-paying stocks and real estate income trusts. My spreadsheet takes into account dividends and REIT distributions at current rates, but ignores capital gains, which are impossible to predict.

So there is some risk here: dividends and distributions could be reduced, although the companies I've bought haven't done so, even in 2008. They are more likely to go up, and some have either corporate policies to increase their dividends (like Brookfield renewable BEP.un) or have a track record of doing so like AT&T.

I am controlling for risk of capital losses by building a cash cushion of CDs/GICs so that I can go two years without selling any shares -- this way I don't have to sell during a downturn. If this happens, I will replenish the cash cushion when the market has recovered, so I should get capital gains, which are not factored into the plan -- they are just a bonus.
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Old 05-25-2015, 11:16 AM   #33
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This article from the New York Times provided me some reassurance that I needn't stress too much about ignoring the 4% rule-of-thumb (because it isn't a "real rule").
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Old 05-25-2015, 11:56 AM   #34
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I don't have variability of return since I have invested directly in good quality dividend-paying stocks and real estate income trusts.
Dividend returns without volatility!!! Oh that it were so...


This is the S&P 500 dividend history since the 19th century. graph/

Current Yield: 1.92% +0.43 bps
4:09 pm EDT, Fri May 22
Mean: 4.41%
Median: 4.35%
Min: 1.11% (Aug 2000)
Max: 13.84% (Jun 1932)

And this is the whole index, not individual issues which have greater volatility. And don't get me started on REITs! Real estate doesn't have volatility and changing yields?!

Fine to live off the dividends. Probably not fine to delude ourselves that this is somehow risk free.

There is no free lunch ( or breakfast , or dinner for that matter)
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Old 05-25-2015, 12:16 PM   #35
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Dividend returns without volatility!!! Oh that it were so...


This is the S&P 500 dividend history since the 19th century. graph/

Current Yield: 1.92% +0.43 bps
4:09 pm EDT, Fri May 22
Mean: 4.41%
Median: 4.35%
Min: 1.11% (Aug 2000)
Max: 13.84% (Jun 1932)

And this is the whole index, not individual issues which have greater volatility. And don't get me started on REITs! Real estate doesn't have volatility and changing yields?!

Fine to live off the dividends. Probably not fine to delude ourselves that this is somehow risk free.

There is no free lunch ( or breakfast , or dinner for that matter)
This doesn't address what he said. He didn't say that the capital value of his account was constant, only that the income was. In fact, dividend income does vary, but not nearly as much as quoted values of the securities.

From my POV, the main risk to a dividend oriented single stock investor is concentration, and perhaps becoming biased toward high yields.


Ha
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Old 05-25-2015, 02:00 PM   #36
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This doesn't address what he said. He didn't say that the capital value of his account was constant, only that the income was. In fact, dividend income does vary, but not nearly as much as quoted values of the securities.

From my POV, the main risk to a dividend oriented single stock investor is concentration, and perhaps becoming biased toward high yields.


Ha
Dividend income does of course changes. The % yield is the easiest representative figure to pull although it is dependent on per-share value as well as the declared dividend stream. The OP mentioned AT&T. One needs only go to 2002 and 2003 to find significantly lower per-share dividends

I am not interested in quibbling over the best depiction of the fallacy of absolute safety in dividend income. Only to underscore that those who blindly ascribe to this notion are deluding themselves. I personally have been whacked in the pocketbook by changing REIT yields...
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Old 05-25-2015, 06:02 PM   #37
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Dividend income does of course changes. The % yield is the easiest representative figure to pull although it is dependent on per-share value as well as the declared dividend stream. The OP mentioned AT&T. One needs only go to 2002 and 2003 to find significantly lower per-share dividends
Actually, AT&T's dividend increased in each of those years, and there were 25 cent/share in special dividends in 2003.

You have to go to 1987, 1993 and 1998 to find times when AT&T's dividend was cut, but in each case it was because of share splits, so an investor's dividends received would have remained the same or increased.

So while this was not a good example, the general point is still valid: companies can and do cut their dividends from time to time. This is why it is important to be diversified. Husband and I hold three REITs, 10 companies, and four mutual funds (in his defined contribution pension plan).

When he leaves his company and we can invest the pension plan in real investments, I should increase the total holdings from 13 to 15 to spread things out a it more so that we are not hit too hard if one or two companies/trusts cut their dividends/distributions.

Over time, the trend is upward.

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I am not interested in quibbling over the best depiction of the fallacy of absolute safety in dividend income. Only to underscore that those who blindly ascribe to this notion are deluding themselves. I personally have been whacked in the pocketbook by changing REIT yields...
I am not sure where you got the idea that someone here was suggesting that there is absolute safety in dividend income. It wasn't from me.

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So there is some risk here: dividends and distributions could be reduced, although the companies I've bought haven't done so, even in 2008. They are more likely to go up, and some have either corporate policies to increase their dividends (like Brookfield renewable BEP.un) or have a track record of doing so like AT&T.
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