Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Old 03-12-2015, 02:21 PM   #41
Thinks s/he gets paid by the post
RetireAge50's Avatar
 
Join Date: Aug 2013
Posts: 1,660
Thanks for VPW link. Have played with this before and agree with the approach.
RetireAge50 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-12-2015, 03:45 PM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 35,712
Quote:
Originally Posted by daylatedollarshort View Post
So what do you all think of this site:

Higher Safe Withdrawal Rates from a 100% Bond Portfolio? | Investing For A Living

His chart shows the 30 year SWR on an all TIPS portfolio (using yields from 9/23/2013) would have been 4.37%.
If a portfolio merely keeps up with inflation, a 3.33%WR will deplete it in 30 years. What he shows is TIPS gives you another 1%. That's reasonable I guess.

So, you are guaranteed for 30 years, but will be broke if you or your surviving spouse live longer than that. And in addition, you will not be leaving much behind, if you both die before 30 years.

A conventional portfolio gives you a chance to do better than the above, i.e. lasting longer than 30 years and likely with an even higher end value, but carries some risks. Nothing is ever guaranteed. So, one is free to choose his poison. This makes life interesting.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)

"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 03-12-2015, 04:24 PM   #43
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 757
Quote:
Originally Posted by Corporateburnout View Post
I agree that it's a comprehensive tool that uses various methods of planning such as conventional, Monte Carlo and upside investing and I've used it on and off since 2011 to figure out SS benefits , spousal benefits, taxes but one problem I have with it is not been able to figure out how to reduce spending if I want to leave a bequest in my estate. It insists on a higher annual consumption smoothing and then recommends you buy life insurance to achieve that end value bequest.
Try this…make a gift expense using the Special tab for the amount you want to bequest. Make the expense for the year of your planned expiration. That should give you an adjusted spending level for that bequest action.
__________________
Retired July 2013 at age 49.

Lazy Portfolio Investor:
AA: 55% Stocks
35% Bonds
10% Cash
NanoSour is offline   Reply With Quote
Old 03-12-2015, 08:37 PM   #44
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
Quote:
Originally Posted by RetireAge50 View Post
...

I think a balance can be had with money as well. Does taking only a 100% safe withdrawal rate really make sense? ....
I think it does, but others may feel OK taking their chances.

If you knew that a certain area had experienced snow loads of X#/square foot (or however they measure it), wouldn't you want your house to be designed to handle that snow load, with a little buffer for good measure? Or would you be OK living in a place for 30-40 years, figuring there was only a 10% chance the roof would collapse on the house and do major damage over that time, and maybe kill someone in their sleep?

You'd have to know what the cost difference is between a roof with a buffer, and a marginal roof. And the difference between a historically safe WR and a marginal one is probably less than 1% point. Put another way, a 3.25% WR versus a 4% WR means saving ~ 23% larger portfolio (or cutting spending) - so then you decide.

For me, I'd hate to end up in a position where I needed support from my kids. But if I do, at least I can say I planned for the worst in history, plus a little buffer - what more could I do?

But if I went in knowing my plan had failed in X% of past scenarios, I just wouldn't feel right.



Quote:
I know what you are talking about if you take money early at higher levels in down markets you would be permanently hurt.

But if markets fall 30% and you reduce spending 30% immediately do you still get hurt permanently?
Sure you would still get hurt permanently, because you were drawing down a higher % WR in the time before the fall, and some ways into it, before you decide to cut back.


Quote:
Most calculators use all these rules of thumb and constant spending. I think a custom/flexible/more real life approach is a better way. I may need to build my own model to prove it.
They are out there.

-ERD50
ERD50 is offline   Reply With Quote
Old 03-12-2015, 09:51 PM   #45
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 9,358
Quote:
Originally Posted by NW-Bound View Post
If a portfolio merely keeps up with inflation, a 3.33%WR will deplete it in 30 years. What he shows is TIPS gives you another 1%. That's reasonable I guess.

So, you are guaranteed for 30 years, but will be broke if you or your surviving spouse live longer than that. And in addition, you will not be leaving much behind, if you both die before 30 years.

A conventional portfolio gives you a chance to do better than the above, i.e. lasting longer than 30 years and likely with an even higher end value, but carries some risks. Nothing is ever guaranteed. So, one is free to choose his poison. This makes life interesting.
I'm thinking if I make it to 80 I'd start buying annuities when they are cheaper to buy at that age. Plus we'd still have SS, pensions and a mortgage free house in 30 years so we wouldn't be broke at 90 even if we spent down the portfolio to zero and didn't buy any annuities.

Immediateannuities.com shows $600 monthly income (if DH was 80 today starting our annuity income next month) for each $100K purchase.

This is similar to what is outlined here:

http://www.texasenterprise.utexas.ed...rement-payouts

"The amount of money investors should spend on TIPs and annuities, as well as the proportions of the two products, depends on current interest rates and other market conditions. In today’s financial markets, an investor can invest $100,000 in TIPs and annuities to fund an annual inflation-adjusted payout of about $4,700 starting at age 65. The specific implementation would require an $85,000 outlay to TIPs and $15,000 to a deferred annuity. "
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 03-12-2015, 09:54 PM   #46
Thinks s/he gets paid by the post
RetireAge50's Avatar
 
Join Date: Aug 2013
Posts: 1,660
For the 1 point (probably $15,000/year) I would probably hire someone to shovel the roof in the rare snow event and be using it in the meantime to go skiing and snowmobiling.
RetireAge50 is offline   Reply With Quote
Old 03-12-2015, 10:08 PM   #47
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
Quote:
Originally Posted by RetireAge50 View Post
For the 1 point (probably $15,000/year) I would probably hire someone to shovel the roof in the rare snow event and be using it in the meantime to go skiing and snowmobiling.
It's only an analogy - maybe you can buy your way out of a record snow build up, but you can't buy your way out of running out of money!

-ERD50
ERD50 is offline   Reply With Quote
Old 03-13-2015, 08:15 AM   #48
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,743
Quote:
Originally Posted by NanoSour View Post
Try this…make a gift expense using the Special tab for the amount you want to bequest. Make the expense for the year of your planned expiration. That should give you an adjusted spending level for that bequest action.
Thanks. It worked
Corporateburnout is offline   Reply With Quote
Old 03-15-2015, 06:58 AM   #49
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 815
Most state pensions are still using 7 to 8% expected returns in their calculations. I wonder why that is. Do they know something we don't?
Gatordoc50 is offline   Reply With Quote
Old 03-15-2015, 07:36 AM   #50
Recycles dryer sheets
 
Join Date: May 2011
Posts: 325
SS will kick in a year from now with $40K extra per year and wife's SS will kick in a few years later. That will help offset lower total returns in the market.
sanfanciscotreat is offline   Reply With Quote
Old 03-15-2015, 08:48 AM   #51
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 9,343
Quote:
Originally Posted by Gatordoc50 View Post
Most state pensions are still using 7 to 8% expected returns in their calculations. I wonder why that is. Do they know something we don't?

Well I have an opinion and I'm certain you do too. And the answer has nothing to do with "they know something". And to make matters worse, the actuary people have just updated life expectancy tables. Seems a 65 year old will now live about 2 years longer than the previous estimate. Old codgers refusing to die isn't a good thing either for the systems.


Sent from my iPad using Tapatalk
Mulligan is offline   Reply With Quote
Old 03-15-2015, 09:09 AM   #52
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,069
Quote:
Originally Posted by ERD50 View Post
Average? Wow, so that means you run FireCALC with a 50% success rate? That allows for a 6% WR for 30 years, or 5.2% for 40 years, or 5.11% for 45 years.









No, if we are well below average, but still not much worse than the worst of the past, someone with a 3%~3.5% WR will likely be in good shape. Someone with a 5-6% WR may well be screwed.



-ERD50

No , erd50, that is not what i mean. You lost context somewhere.


Sent from my iPhone using Early Retirement Forum
dallas27 is offline   Reply With Quote
Old 03-15-2015, 09:29 AM   #53
Recycles dryer sheets
fanmail's Avatar
 
Join Date: Sep 2012
Posts: 58
Quote:
Originally Posted by Gatordoc50 View Post
Most state pensions are still using 7 to 8% expected returns in their calculations. I wonder why that is. Do they know something we don't?
Considering several almost went bankrupt in 2008, I would say no they don't.
fanmail is offline   Reply With Quote
Old 03-15-2015, 09:29 AM   #54
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
Quote:
Originally Posted by dallas27 View Post
No , erd50, that is not what i mean. You lost context somewhere.

..
OK, can you explain then? It does seem to me that using average returns would be roughly equivalent to to a 50% success rate in FIRECalc. Though that is really median success - half succeed, half don't, rather than average, but probably close.

-ERD50
ERD50 is offline   Reply With Quote
Old 03-15-2015, 09:40 AM   #55
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 9,343
Quote:
Originally Posted by fanmail View Post
Considering several almost went bankrupt in 2008, I would say no they don't.

I'm guessing they are staying with the current rate based on one of the two successful strategies that have survived the test of time... 1) Head in the sand or 2) Whistling through the graveyard .


Sent from my iPad using Tapatalk
Mulligan is offline   Reply With Quote
Old 03-15-2015, 10:57 AM   #56
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 35,712
I remember back in 2001-2002, after the internet bubble has burst, BusinessWeek had an article on how some pension funds were still using 9% or higher in their projection. They were backing up that number with the recent market performance of 1980-2000, so still claimed that it was conservative.

It takes a long time for pension funds to revise the number downwards, because that would cause them to admit that they are short, requiring a huge injection of cash that they do not have, or to cut benefits. In the case of public pensions, that would cause a political turmoil that they do not want to face.

As an example, here's an excerpt from The Pension Fund That Ate California (2013).
... a public finance expert at Stanford University, estimated that CalPERS’s long-term pension debt is a sizable $170 billion if CalPERS achieves an average annual investment return of 6.2 percent in years to come. If the return is just 4.5 percent annually—a rate close to what more conservative private pensions often shoot for—the fund’s long-term liability rises to a forbidding $290 billion. By contrast, CalPERS itself estimated its long-term unfunded liability at merely $80 billion, using a lofty projected annual investment return of 7.75 percent. (The fund has recently cut that estimate to 7.5 percent.)
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)

"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 03-15-2015, 01:19 PM   #57
Thinks s/he gets paid by the post
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 1,568
Quote:
Originally Posted by Gatordoc50 View Post
Most state pensions are still using 7 to 8% expected returns in their calculations. I wonder why that is. Do they know something we don't?

It means they don't want to put in more $ now to fund a lower return, or somebody else can worry about it later.


Sent from my iPhone using Early Retirement Forum
__________________
You know that suit they burying you in? Thar ain’t no pockets in that suit, boy.
gcgang is offline   Reply With Quote
Expected Returns
Old 03-15-2015, 02:23 PM   #58
Thinks s/he gets paid by the post
RetireAge50's Avatar
 
Join Date: Aug 2013
Posts: 1,660
Expected Returns

I think 7% is a reasonable expectation. Wellesley is a conservative fund and it has averaged 10.08%/year for 45 years.

Edit: Half of it will be taken care of by inflation. So if businesses cannot generate 3 or 4 percent real then something drastically went wrong.
RetireAge50 is offline   Reply With Quote
Old 03-15-2015, 03:31 PM   #59
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 815
Quote:
Originally Posted by RetireAge50 View Post
I think 7% is a reasonable expectation. Wellesley is a conservative fund and it has averaged 10.08%/year for 45 years. Edit: Half of it will be taken care of by inflation. So if businesses cannot generate 3 or 4 percent real then something drastically went wrong.
Well, I think there has been a fundamental change in how the pensions are invested. In 1992, long treasuries were yielding 8% and many pensions were invested nearly completely in bonds. Now they are yielding 2.5% and the pensions are heavily invested in equities and alternatives. The good news is that they have a longer horizon than any of us here but it's going to be a bumpy ride.
Gatordoc50 is offline   Reply With Quote
Old 03-15-2015, 05:05 PM   #60
Recycles dryer sheets
 
Join Date: Jun 2014
Posts: 440
Quote:
Originally Posted by Gatordoc50 View Post
Most state pensions are still using 7 to 8% expected returns in their calculations. I wonder why that is. Do they know something we don't?
I suspect it has to do with being able to tell voters that pensions are fine without needing more taxes . People won't dig into the details until it's too late...
petershk is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Morningstar Expected Future Returns Article Animorph FIRE and Money 9 12-13-2013 03:17 PM
M* "Asset Allocator" tool: low expected annual returns... FIREd FIRE and Money 34 06-12-2007 04:23 PM
Investors' actual returns versus total returns JohnEyles FIRE and Money 0 11-14-2006 12:20 AM
Expected returns? Professional Advisors? Edgar FIRE and Money 30 04-15-2006 01:27 PM
Interesting study on P/E ratios & expected returns Cb Other topics 2 06-30-2002 09:48 PM

» Quick Links

 
All times are GMT -6. The time now is 01:47 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.