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Old 10-28-2008, 12:46 PM   #41
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Keep in mind that FIREcalc only looks at the *start* of your retirement. If it says you are "barely safe" with 4%, any downturn is going to say your current withdrawal rate is not "completely" safe. If you retired with 4% in 1972, by 1974 you would have looked "very critical" -- but eventually, you would have made it once the bull market returned in '82.
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Old 10-28-2008, 01:06 PM   #42
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Originally Posted by cashflo2u2 View Post
After running firecalc for several years using a cushion of a substantial amount for a terminal value and still showing 100% success rate, my portfolio just reached a value that firecalc says is the minimum amount (with no cushion terminal value) to achieve 100% success rate. Bogle was on CNN the other day and stated that IF one cannot afford to lose another nickel they MUST sell out even at these depressed market levels. Because of my age I cannot replace this stash. I am thinking of throwing in the towel and go either all fixed (mostly ginnemae) or 100% VWIN? Or should I grow a backbone and rebalance taking a lot out of fixed and into equities? Comments welcome.
You have to decide what's best for you. But keep in mind that what you are seeing with Firecalc is the timing affect of markets.

If your portfolio 'just' went into the point of not surviving 100% of the time, that's tellling you that With your current portfolio, you could STILL survive if we were STARTING into one of the major downturns right now.

And it's plain that we aren't just starting, we may or may not be close to ending, but with the market already down by 40%, it's certainly not in the beginning of a bear market.

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Old 10-28-2008, 02:22 PM   #43
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Originally Posted by cashflo2u2 View Post
After running firecalc for several years using a cushion of a substantial amount for a terminal value and still showing 100% success rate, my portfolio just reached a value that firecalc says is the minimum amount (with no cushion terminal value) to achieve 100% success rate. Bogle was on CNN the other day and stated that IF one cannot afford to lose another nickel they MUST sell out even at these depressed market levels. Because of my age I cannot replace this stash. I am thinking of throwing in the towel and go either all fixed (mostly ginnemae) or 100% VWIN? Or should I grow a backbone and rebalance taking a lot out of fixed and into equities? Comments welcome.
Cash flow,

Can you rebalance into ETF's that currently have high payout ratios without taking the full portfolio loss? If you wait for a good rebound and go into bonds the spreads between the two should narrow to minimize your losses. On the market recovery you should also make up some more ground.

Canadian Ishares XCB (Corp Bond) is currently paying 5.94% and that will likely go up within the month. The bond fund is anchored by Canadian banks and Insurers so you won't have to worry about default.

You might want to rebalance a certain percentage into bond or T bills and hold your worst losers for recovery if you suspect they will likely be there after the fallout. Go for yield if you rebalance.

I would check where your portfolio is from the date of retirement and make your decision from there. If you are up the hit is not so bad.
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Old 10-28-2008, 02:29 PM   #44
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Originally Posted by cashflo2u2 View Post
After running firecalc for several years using a cushion of a substantial amount for a terminal value and still showing 100% success rate, my portfolio just reached a value that firecalc says is the minimum amount (with no cushion terminal value) to achieve 100% success rate. Bogle was on CNN the other day and stated that IF one cannot afford to lose another nickel they MUST sell out even at these depressed market levels. Because of my age I cannot replace this stash. I am thinking of throwing in the towel and go either all fixed (mostly ginnemae) or 100% VWIN? Or should I grow a backbone and rebalance taking a lot out of fixed and into equities? Comments welcome.
I would not sell fixed to average down if you don't like your portfolio results right now. I sold all my fixed income at the start of the month and am down more than I would have been. This doesn't bother me as I have a long time horizon and I see the market rising over the next 10 years. But I wouldn't do it if I was retired as it compounds the losses if the market goes down further. It's a gamble...don't make it if you don't need the additional risk.
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Old 10-28-2008, 03:25 PM   #45
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OP -- if you cashed out yesterday you would have missed 10% today. If you cashed out today you could miss a big jump tomorrow -- or a big fall. Impossible to call em.
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Old 10-28-2008, 04:19 PM   #46
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Sorry things are so tight after all those years of hard saving. Little comfort that you have ample company.

If you MUST sell low to meet expenses, take out as little as you can. That part time job may not seem like much but it can make a big difference, if it's plausible for you.

You have expressed what everyone seems to be calling capitulation (" I am thinking of throwing in the towel and go either all fixed (mostly ginnemae) or 100% VWIN?"). Ironically, pundits often take that as a sign that a bottom is near.

Hang in if you can.
I second this advice.

A few points I have not seen brought up:
  • What is the payout (dividends and capital gains) of the portfolio?
  • 100% firecalc is excellent, I have read many other threads where anything above 80% is wasted anyway.
  • So are we talking about keeping firecalc from going below the 100% mendoza line or are we talking about avoiding a 50% survival rate?
  • why were you 100% equites when in draw down phase?
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Old 10-28-2008, 06:38 PM   #47
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I think this thread brings to the forefront the issue of successfully executing a 4% SWR means that at some point in your retirement you run a good chance of being faced with a reduction (in some cases substantial) of your starting balance. How you react to that reality will determine your success or failure. Its not as easy as some would believe.
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Old 10-28-2008, 08:32 PM   #48
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I think this thread brings to the forefront the issue of successfully executing a 4% SWR means that at some point in your retirement you run a good chance of being faced with a reduction (in some cases substantial) of your starting balance. How you react to that reality will determine your success or failure. Its not as easy as some would believe.
Exactly. If you look at all the lines on a FC graph you see some that drop perilously low before turning up and succeeding in the long run. It's easy to look at that in an academic sense and just see the 100% success result and not really think about what that scenario means in real life. It's another thing altogether to live thru a large drop not knowing for certain what the future holds.

If you aren't ready and able to tough thru that worst case scenario you need to plan accordingly with either a larger portfolio or smaller WR.
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Old 10-28-2008, 09:33 PM   #49
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I greatly appreciate all the responses. It is very heartened. A few more specifics and answers to some questions.

  • I retired 7 years ago at age 61.
  • 100% vs. 90% success rate. Even though the 90/10 sounds like good odds, the 10% represents catastrophic failure to me so I weight it much more heavily in this circumstance, to the point that I cannot tolerate it and go for 100%.
  • At the time I retired, never heard of SWDR or and WDR for that matter. At some point I discovered the SWDR concept and firecalc. I have done a “look back” calculation to see how far off I drifted. When I retired, my shortfall was $15,000 a year (SS, pension, rental income less expenses). I think I would have taken about 3 1/4% of my portfolio as an annual distribution. If I had followed that rule, my cumulative distribution to date, adjusted for CPI inflation, should have been $124,000. My actual withdrawals have been $162,000. My portfolio balance, after rising substantially, is back down close to the balance it was at retirement (unfortunately I fooled around with some penny stocks when things were good). After moderate cut back in expenses, my withdrawal rate is about 3% of my current portfolio. This is less than what my proforma inflation adjusted rate of distribution would have been from original retirement date, but of course I cannot make up for the over distribution I did of $38,000. Of course my life span is now 7 years less and I am using 21 years to lift off, a 3% inflation rate, portfolio is 55/45. I am not sure if I understand the nuances of not running firecalc after one retires, but if I “pretend” I am retiring 1/1/09, using the output that says what the beginning portfolio balance should be to get 100% success rate, it shows a balance needed of about 15% less than my current balance (the narrative shows one figure and the little chart below it shows another).
  • This has been mentioned, but the firecalc shows a potential worse case drawdown where the balance gets to a point that I don’t think anyone with blood in their veins could tolerate.
  • For anyone’s benefit, when I retired I had a fantasy of saving money from not going out to lunch everyday, coffee out at break twice a day, commuting expenses, clothes, etc. Yes, I was going to make my lunch at home and coffee, no commuting, no more suits, hang around the house, etc. Well, that lasted about 6 months. I go out to lunch often with my cronies, go out for coffee for excitement and now my retired wife goes with me, I drive around town a lot more, took up golf, gourmet cooking, drink twice as much wine, got a second dog, etc. etc. Plus, when I retired I just estimated my expenses using good old Kentucky windage. I now use Quicken and keep track of every penny.

I suppose I could use more specific numbers, but still would appreciate any additional comments.
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Old 10-28-2008, 10:35 PM   #50
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Originally Posted by cashflo2u2 View Post
Bogle was on CNN the other day and stated that IF one cannot afford to lose another nickel they MUST sell out even at these depressed market levels.
Does anyone have a link to this interview? I'd like to see what he said in context. I think there is a difference between "cannot afford to lose another nickel they MUST sell " and "cannot stand to lose another nickel they MUST sell ". I'm curious to see which he meant. I'd tend to reluctantly agree with the former, but not with the latter. I googled around but couldn't find it.
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Old 10-28-2008, 10:44 PM   #51
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Does anyone have a link to this interview? I'd like to see what he said in context. I think there is a difference between "cannot afford to lose another nickel they MUST sell " and "cannot stand to lose another nickel they MUST sell ". I'm curious to see which he meant. I'd tend to reluctantly agree with the former, but not with the latter. I googled around but couldn't find it.
This is the NYT article from the past weekend: http://www.nytimes.com/2008/10/26/bu...ss&oref=slogin

It is cannot afford to lose...

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Old 10-28-2008, 10:46 PM   #52
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Nevermind, I think I found it (CNBC, not CNN). Expert Advice: Bogle, Cohen, Doll, McCulley Weigh In - Financials * Europe * News * Story - CNBC.com If this is the same one, I think you misinterpreted his words. (My emphasis below)

"This is my tenth bear market and what's different about this one is that the problems of the financial markets are spreading over to the real economy," Bogle said.

"If you're a speculator, I have absolutely no advice to give you," Bogle said. "Get out of the market now."

But investors allocating their assets intelligently -- with diversified stocks and a reasonable position in bonds -- should "fight it out" and not change their strategy, he said.
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Old 10-28-2008, 10:50 PM   #53
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Ah, good. Mine was different. But still, what he said was

"So this isn’t the time to sell, he said, but he allows one big exception: “If you cannot afford to lose another penny, then you simply have no recourse but to get out of the stock market.”

I still don't see that as a recommendation to sell, unless you are in an absolutely critical situation. I didn't get the impression that was true for the OP.
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Old 10-28-2008, 10:51 PM   #54
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This is the NYT article from the past weekend: http://www.nytimes.com/2008/10/26/bu...ss&oref=slogin

It is cannot afford to lose...

DD
Thanks for tracking that article down, DD--it is interesting to read.
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Old 10-29-2008, 05:47 AM   #55
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Cashflo, your last post said volumes. It looks like you can still have a great retirement you just need to set priorities. You note some places that you are spending more money, but this is discretionary spending. sometimes you need to take a look at what you are spending vs. what you can afford to spend.
Most of us do it all the time but don't even think about it. Putting off buying a new car for instance or cutting down eating out.
If your lifestyle includes going out for coffee and meals, driving more etc. there are probably lots of ways you can decrease your expenses and stack the odds in your favor to continue to live off your savings/pension/SS. Hard choices maybe but also necessary choices we all are facing.
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Old 10-29-2008, 07:36 AM   #56
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i might rebalance into 100% cash today

there is a 30 day trading restriction on my 401k and the way it looks like the bottom won't be reached for about that long
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Old 10-29-2008, 09:11 AM   #57
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cashflo2u2,

Let me rephrase what I think has been alluded to in a number of the above posts.

Typically with FireCalc, we look at 30-year time periods, the start of which rolls through the years, beginning in 1871 and ending in 1978 (the starting point of the most recent 30-year interval). Some of those periods start near market highs, some near market lows, and some in between. The FireCalc result we all hang our hats upon is the 4% WR which was safe 95% of the time. If one could run FireCalc (and I don't know how to do this without actually going in and looking at the individual 30-year period's data), I am pretty one would find that starting the "retirement clock" after the market had dropped 40%, would lead to a SWR in those instances which is considerably higher than the 4% number (or whatever number one used for a SWR - even a 100% safe one). This is why I think restarting your clock now (even with a 21-year time horizon) could be very misleading, because any failures FireCalc reports are probably the ones that started right around those same market highs.

If you retired in 2001, it looks like the market was down somewhere between 10% and 20% from its 2000 high. By choosing a SWR that was 100% safe back then, it seems to me you have most likely been sufficiently conservative.

This is my understanding of the way FireCalc works - I'm sure others will chime in if my interpretation is incorrect.
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Old 10-30-2008, 09:27 AM   #58
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cashflo2u2,

Let me rephrase what I think has been alluded to in a number of the above posts.

Typically with FireCalc, we look at 30-year time periods, the start of which rolls through the years, beginning in 1871 and ending in 1978 (the starting point of the most recent 30-year interval). Some of those periods start near market highs, some near market lows, and some in between. The FireCalc result we all hang our hats upon is the 4% WR which was safe 95% of the time. If one could run FireCalc (and I don't know how to do this without actually going in and looking at the individual 30-year period's data), I am pretty one would find that starting the "retirement clock" after the market had dropped 40%, would lead to a SWR in those instances which is considerably higher than the 4% number (or whatever number one used for a SWR - even a 100% safe one). This is why I think restarting your clock now (even with a 21-year time horizon) could be very misleading, because any failures FireCalc reports are probably the ones that started right around those same market highs.

If you retired in 2001, it looks like the market was down somewhere between 10% and 20% from its 2000 high. By choosing a SWR that was 100% safe back then, it seems to me you have most likely been sufficiently conservative.

This is my understanding of the way FireCalc works - I'm sure others will chime in if my interpretation is incorrect.
Well said, I'll second that.
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Old 10-30-2008, 03:24 PM   #59
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Originally Posted by cashflo2u2 View Post
I greatly appreciate all the responses. It is very heartened. A few more specifics and answers to some questions.

  • I retired 7 years ago at age 61.
  • 100% vs. 90% success rate. Even though the 90/10 sounds like good odds, the 10% represents catastrophic failure to me so I weight it much more heavily in this circumstance, to the point that I cannot tolerate it and go for 100%.
  • At the time I retired, never heard of SWDR or and WDR for that matter. At some point I discovered the SWDR concept and firecalc. I have done a “look back” calculation to see how far off I drifted. When I retired, my shortfall was $15,000 a year (SS, pension, rental income less expenses). I think I would have taken about 3 1/4% of my portfolio as an annual distribution. If I had followed that rule, my cumulative distribution to date, adjusted for CPI inflation, should have been $124,000. My actual withdrawals have been $162,000. My portfolio balance, after rising substantially, is back down close to the balance it was at retirement (unfortunately I fooled around with some penny stocks when things were good). After moderate cut back in expenses, my withdrawal rate is about 3% of my current portfolio. This is less than what my proforma inflation adjusted rate of distribution would have been from original retirement date, but of course I cannot make up for the over distribution I did of $38,000. Of course my life span is now 7 years less and I am using 21 years to lift off, a 3% inflation rate, portfolio is 55/45. I am not sure if I understand the nuances of not running firecalc after one retires, but if I “pretend” I am retiring 1/1/09, using the output that says what the beginning portfolio balance should be to get 100% success rate, it shows a balance needed of about 15% less than my current balance (the narrative shows one figure and the little chart below it shows another).
  • This has been mentioned, but the firecalc shows a potential worse case drawdown where the balance gets to a point that I don’t think anyone with blood in their veins could tolerate.
  • For anyone’s benefit, when I retired I had a fantasy of saving money from not going out to lunch everyday, coffee out at break twice a day, commuting expenses, clothes, etc. Yes, I was going to make my lunch at home and coffee, no commuting, no more suits, hang around the house, etc. Well, that lasted about 6 months. I go out to lunch often with my cronies, go out for coffee for excitement and now my retired wife goes with me, I drive around town a lot more, took up golf, gourmet cooking, drink twice as much wine, got a second dog, etc. etc. Plus, when I retired I just estimated my expenses using good old Kentucky windage. I now use Quicken and keep track of every penny.
I suppose I could use more specific numbers, but still would appreciate any additional comments.
If you have a 3% withdraw rate, something I would consider is trying to use dividend payout as the primary method of withdrawing.

Many threads and posters here suggest they get a 3.5%+ yield on their portfolio from dividends- from stocks and REITs. If you can set up portfolio this way, I would think success rates would be infinite- because you would never or rarely have to sell a share to generate income.

This is my preferred withdraw strategy if I can accumulate enough money to pull it off.
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Old 10-30-2008, 05:17 PM   #60
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This is the way I look at using firecalc. It isn't "god" and capabable of telling you 100% safe or not. There is a flaw in its modeling capabilities...

If you re-run and adjust upwards when the market is good, even if you always goto 100% safe, you are slowly putting yourself into the position to experience the worst case scenario. (You will run out of money)

If you re-run and adjust downwards when the market is bad until you get 100% safe, you are slowly putting yourself into the "best case" scenario (you'll die very rich).
Well said.

Also consider that past returns are no guarantee of future results. Firecalc just back-tests your scenario against historical results. There are no guarantees that your retirement might not experience worse results than ever seen before in US history. Remember that the US stock market has been the global winner in the time period that Firecalc uses for its calculations. I recommend for your reading enjoyment this article from September 1998: Stocks? For the Long Run?
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