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Old 03-12-2015, 03:21 PM   #41
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Thanks for VPW link. Have played with this before and agree with the approach.
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Old 03-12-2015, 04:45 PM   #42
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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.
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Old 03-12-2015, 05:24 PM   #43
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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.
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Old 03-12-2015, 09:37 PM   #44
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...

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.



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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.


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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.

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Old 03-12-2015, 10:51 PM   #45
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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. "
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Old 03-12-2015, 10:54 PM   #46
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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.
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Old 03-12-2015, 11:08 PM   #47
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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!

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Old 03-13-2015, 09:15 AM   #48
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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
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Old 03-15-2015, 07:58 AM   #49
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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?
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Old 03-15-2015, 08:36 AM   #50
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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.
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Old 03-15-2015, 09:48 AM   #51
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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.


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Old 03-15-2015, 10:09 AM   #52
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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.


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Old 03-15-2015, 10:29 AM   #53
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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.
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Old 03-15-2015, 10:29 AM   #54
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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.

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Old 03-15-2015, 10:40 AM   #55
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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 .


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Old 03-15-2015, 11:57 AM   #56
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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.)
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Old 03-15-2015, 02:19 PM   #57
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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.


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Old 03-15-2015, 03:23 PM   #58
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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.
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Old 03-15-2015, 04:31 PM   #59
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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.
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Old 03-15-2015, 06:05 PM   #60
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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...
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