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Old 01-28-2008, 09:48 AM   #61
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I've been kicking around the idea of using a constant % withdrawal and banking any 'excess' that we don't spend in a year under that rule in a 'reserve' fund, MM / CD ladder / Treasury ladder or something ultra-safe. That fund could then be used for more spending in down years and/or big ticket fun stuff.
I posted a similar idea in one of the previous threads on this topic (probably during one of those early summer market drops ). Like Audrey, I figure that it will be pretty safe to pull 4%/year. Since our needs are quite a bit lower, we would put the extra into a "mad money" account that we could tap during periods where 4% is lower than we would like. Couple that with a cash bucket to draw on when the market is down (to avoid whacking equities at low points) and hope for the best. If the mad money account runs dry, things are not looking good - look at selling the weekend house, seriously downsizing, etc. If it all goes to hell we will have a lot of company. I hope some of you stay online so we can exchange horror stories. Maybe we can open a communal campground or something.
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Old 01-28-2008, 10:01 AM   #62
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I hope some of you stay online so we can exchange horror stories. Maybe we can open a communal campground or something.
Now there's the ultimate backup plan. We form a small company, everybody pitches in a few bucks, we buy 40 acres somewhere as a group. Then, everyone gets a small lot with electrical hookup, water, a cable hookup, and a hookup to the communal septic system. I'll bet for $30K each that 40 people could all have "worst case" insurance. Bring your own yurt/RV/converted shipping container/small cabin. We'll call this the "Firecalc Fireside Fishcamp Option."

Now, we need to decide who lives next to who. I've got strong preferences, so I'll go first . . .
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Old 01-28-2008, 10:19 AM   #63
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Now there's the ultimate backup plan. We form a small company, everybody pitches in a few bucks, we buy 40 acres somewhere as a group. Then, everyone gets a small lot with electrical hookup, water, a cable hookup, and a hookup to the communal septic system. I'll bet for $30K each that 40 people could all have "worst case" insurance. Bring your own yurt/RV/converted shipping container/small cabin. We'll call this the "Firecalc Fireside Fishcamp Option."

Now, we need to decide who lives next to who. I've got strong preferences, so I'll go first . . .
Sounds like Slab City!! UGH. My ex and I used to go fishing there sometimes back in 1980-82. Agh, the humanity.
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Old 01-28-2008, 10:30 AM   #64
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All would not be lost.

I'll have a little smoker shack going outside my yurt with a bunch of slabs of bacon in it going 24x7.

Pretty sure we'd have a couple of stills going around the fishcamp as well.
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Old 01-28-2008, 10:56 AM   #65
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Bring your own yurt/RV/converted shipping container/small cabin. We'll call this the "Firecalc Fireside Fishcamp Option."
I call dibbs on a bunk in SteveR's rolling palace.
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Old 01-28-2008, 11:03 AM   #66
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All would not be lost.

I'll have a little smoker shack going outside my yurt with a bunch of slabs of bacon in it going 24x7.

Pretty sure we'd have a couple of stills going around the fishcamp as well.
Slabs of smoked bacon is luxury.
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Old 01-28-2008, 11:03 AM   #67
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i would have to go shopping in order to spend 4% of my net worth yet no one's gonna be seeing me at the mall anytime soon. (would a mall be an example of concatenated consumerism?)

i've said it before. if a million bucks doesn't get you through life, life isn't worth it. death has got to be cheaper (& more secure) than this.

but just to make certain, i'm hoping to head off my worst case scenerio by reducing my swr to under 3% as i get my vagabond adventure touring of the world out of my system. but if take to it, i just might become a very secure lazy perpetually wondering bum.
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Old 01-28-2008, 11:21 AM   #68
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We're up to 64 posts. I think I can still say something that hasn't been said on this thread. This is the traditional "basic income" vs. "fun income" approach that has appeared on other threads.

Before I retired, I noted that if we deferred our SS start date to 66, we could live modestly on our SS benefit alone. We then put enough money into non-equities to comfortably get to 66.

Some people feel they can't get by on just SS. They can, of course, increase the SS benefit by deferring to 70. They can also buy a small CPI indexed annuity to supplement SS.

The point is that before you retire you plan to cover your basic income needs from low-volatility sources.

Any remaining assets are "fun money" and can be invested and spent however you like. You can do all equities and spend 10% of the balance each year if that feels good. You'll probably have decreasing amounts for fun spending, but you aren't putting your basic spending at risk.


(Sure, I know that SS isn't 100% guaranteed. For people my age (I was born in 1947) I think there will be no or small decreases. Even if they come, they will be somewhat means-tested. This means that if we lose SS benefits, it will be because our other investments did just fine. If I were a lot younger, I might plan on 75% of the SS benefit.)
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Old 01-28-2008, 11:37 AM   #69
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All would not be lost.

I'll have a little smoker shack going outside my yurt with a bunch of slabs of bacon in it going 24x7.

Pretty sure we'd have a couple of stills going around the fishcamp as well.

This is sounding better all the time . I'd better start cruising RV world.
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Old 01-28-2008, 11:50 AM   #70
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Hey, whats not to like? We've got a doctor, a lawyer, people who can fix and build stuff, folks who can keep computers running spiffy, people who can cook and make booze, plus a bunch of guys that know how to blow stuff up...in the air, on the ground and underwater.

Sounds like a good time to me.
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Old 01-28-2008, 12:01 PM   #71
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Have RV, but not sure I'm willing to keep it parked anywhere. If I can't afford enough gas to keep rolling, my RVing life is over....

Smoked bacon, or no...

Audrey

P.S. I might come by to visit.
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Old 01-28-2008, 12:32 PM   #72
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Hey, whats not to like? We've got a doctor, a lawyer, people who can fix and build stuff, folks who can keep computers running spiffy, people who can cook and make booze, plus a bunch of guys that know how to blow stuff up...in the air, on the ground and underwater.

Sounds like a good time to me.
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Old 01-28-2008, 01:14 PM   #73
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Hey, whats not to like? We've got a doctor, a lawyer, people who can fix and build stuff, folks who can keep computers running spiffy, people who can cook and make booze, plus a bunch of guys that know how to blow stuff up...in the air, on the ground and underwater.

Sounds like a good time to me.
Hey, it does sound like fun! Problem is, in a short time reality would set in, and this group would need some real life 'moderators' to step in.

Kinda like the Presidency, I'm not sure I'd trust anyone who wanted that job!

On a more serious note to this thread... yes, much of this thread has been covered before one way or another. But I had always thought of that 'success factor' in terms of the ending position, and was surprised at the actual deep dips that history threw at those survivors.

I did a quick spreadsheet, modeling a portfolio that dropped in buying power by 5% a year for seven years, and then rose 10% a year for eight years. Comparing a constant 3.5% spend rate (in 'today' $$) to a variable spend rate of 3.5% of NW:

Constant initial 3.5% hit a low of 46% of original NW, and ended at 59%.

Variable 3.5% of NW hit a low of 53% of original NW, and ended at 85%. However, if you take out a lump sum at the end equal to what you didn't spend over that time (to make it more apples-to-apples), you are back to ending the period with 70% of your NW.

Remember that the variable plan has you cutting your spending almost in half for a while.

So obviously, cutting spending in half in bad times improves your portfolio: 85% of NW preserved versus 59%.

Cutting in bad times, and then shifting that spending to better times also helps: 70% of NW preserved versus 59%.

But the dip only went from a low of 46% of NW with full spend to 53% of NW with cutting spending. Still a gut-wrenching drop. Maybe not as much difference as I would have thought for big spending cuts....

BTW, if anyone tries modeling something similar, I'm sure the results will vary depending when you calculate the withdraws and the market returns. I just threw the formulas together w/o any timing concern, but I used the same formulas for each of the cases.

-ERD50
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Old 01-28-2008, 02:01 PM   #74
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.... But I had always thought of that 'success factor' in terms of the ending position, and was surprised at the actual deep dips that history threw at those survivors.

I did a quick spreadsheet, modeling a portfolio that dropped in buying power by 5% a year ...
Exactly, the end value isn't going to mean much if along the way you are scared out of your wits !!! Or worse yet, you are scared out of a carefully crafted plan because it turned out not to be a plan for all seasons. So smart planners should look at the worst case drawdown.

I've always used the spreadsheet FIRECalc spits out. You may have to munge it a little after that. For instance you can find the minimum of a time series by using the MIN function in Excel. That's how I easily got the maximum drawdown in my worst case scenario which was retire in 1966 and by 1982 the portfolio was 38% of the start value. Yee gads, if that even started to happen I'd be forced into taking steps to modify the spending/investing plan (as mentioned in my post above). I don't think I could tolerate more then about a 50% drawdown.
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Old 01-30-2008, 09:21 PM   #75
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I'll have a little smoker shack going outside my yurt with a bunch of slabs of bacon in it going 24x7.
And Scott Adams completes the circle for us. Like everyone else in America, when I was working I was sure he had a source inside my organization. Now I wonder if he's not lurking on this board.

http://dilbert.com/comics/dilbert/archive/dilbert-20080130.html
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Old 01-30-2008, 09:31 PM   #76
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Ah, the circle of bacon life.
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Old 02-01-2008, 01:35 PM   #77
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Actually, I think we've finally outed CFB -- he is Scott Adams!

I'm in for a spot in the campground. Who's collecting the 30k?

Seriously (or unseriously), while markets are going up, we're all growing our confidence in ER based on the financial possibilities. I think the discipline now is that if markets go down, we don't get panicky-obsessed about the money side of ER. Instead we need to start thinking about the whole bigger purpose of this path -- it is about Freedom, about Living Life, about Discovering. If the money gets tight, then find a cheaper way to live! Some of the most uptight and unhappy people I know are the ones with the most money.

Sure a certain amount of money/savings is essential to ER, but if we're looking at today's stock market to figure out if we can ER or not, or whether the path is viable, I think that misses the point. The point is to hope for the best, but be prepared to make trade-offs if the finances run against you for a sustained period, and at every turn, keep focussed on the benefits of having your life back, your time, your freedom to fully access all this life has to offer. ER is like getting out of prison. Let's not recreate a new prison called 'financial anxiety'.
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Old 02-01-2008, 02:11 PM   #78
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Let's not recreate a new prison called 'financial anxiety'.
Sometimes easier said than done.......

In preparing for ER, I used a number of tools, including FireCalc, to test if I had enough to reasonably conclude I could afford to stop working. Having worked with statistics on the job for a number of years, I was well aware that FireCalc's definition of success means any non-zero or positive outcome. The successful outcomes, however, are distributed from + $1 to a real multiple of the beginning amount....... normally quite a wide dispersion skewed to the right.

My opinion is that there is little about the world economy today to make it less variable than historically. As tested by FireCalc, I expect the probability of depleting my portfolio at my WR is very low. But when I create a histogram of the possible ending values outputted by FireCalc, I clearly see there is a significant probability that I'll have a close call either mid-course in the withdrawal phase, by the end of the withdrawal phase, or both.

Before I actually pulled the trigger and retired, I spent time becoming comfortable with the "close call" concept and that as long as I didn't hit zero, it was a success. It was easy to say and hard to do........

I'm still not sure how I'll react if my net worth trends down over several years at a slope which would intersect the zero line long before my anticipated departure from terra firma.

To those of you with generous pensions, oversized portfolios supporting low WR's or both, congratulations! You'll probably won't have the opportunity to see the ground rushing up at you as you free fall through economic downturns. But to those who have little ongoing income and are counting on a full 4% WR to support your desired lifestyle, my hat is off to you. You're really walking the talk!
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Old 02-01-2008, 04:36 PM   #79
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To those of you with generous pensions, oversized portfolios supporting low WR's or both, congratulations! You'll probably won't have the opportunity to see the ground rushing up at you as you free fall through economic downturns.
About six months before I retired I broke my knee sky diving so the ground rushing up image is scary. Luckily, I have a good pension so I will land in a marsh, not on rocks.
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Old 02-01-2008, 05:20 PM   #80
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Didn't ESRBob cover this with his 95% rule? Basically you adjust the 4% by only taking 95% of what you took last year if it is a down year - it allowed for a graceful reduction.
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