Further withdrawal study results from Darrow Kirkpatrick of Can I Retire Yet?

[audreyh1]

Quote:

Originally Posted by samclem Kirkpatrick ignored rebalancing in his first blast, which significantly reduced the utility of his findings (unless, for some reason, a person would want to depend entirely on withdrawals to keep their allocation in line. That makes sense only if a person is consumed with worry over cap gains taxes or doesn't have access to a tIRA, Roth IRA, or a 401K). His new effort still gives too little attention to rebalancing, as far as I can tell. If you are going to bring your portfolio back into balance, then which "withdrawal strategy" (his term for deciding which asset class to draw from) used makes almost no difference. He's only "discovered" that, without rebalancing, the high-return asset class (stocks) will grow to a larger share of the overall portfolio over time, and that this will improve returns (at the risk of higher overall volatility). Are there a lot of people who don't rebalance their portfolio as an independent step from taking their withdrawals?

Not us.

But after skimming a couple of the papers I'm kind of intrigued with the idea of only taking withdrawal from winners without further rebalancing, and allowing the gradual allocation drift. Would simplify and be a little more tax efficient as you note for us having most of our investments in taxable accounts.

Probably wouldn't work quite the way he has modeled, though, because right now all our mutual fund distributions are taken in cash and this is usually enough to fund the withdrawal. But then cap gains dists tend to go to zero after a rough market patch, and then get increasingly large as market rallies go on year after year. So maybe close enough anyway.

Hmmm - I did let things drift up a bit after 2002 and then got bit by 2008. Maybe I won't be able to do that after all.......

[dtbach]

Man I'm glad I have a pension and SS that will cover all essentials even if I blow all my investments. That way, I just take 4% out and don't have to worry about all this CAPE stuff and other things I can't get my head around.

You could drive yourself mad researching all this stuff. Once you guys figure out the best plan, let me know LOL!

[Markola]

Quote:

Originally Posted by harley So, when is one of these big brained economist types going to do a study on a SWR for a 50 year retirement? Or at least 40 years. I think they don't take us early retirement sorts into consideration.

Here is a good one: http://www.madfientist.com/safe-withdrawal-rate/

[nun]

Quote:

Originally Posted by Markola Here is a good one: Safe Withdrawal Rate for Early Retirees

Just run FIRECalc using 40 or 50 years as the retirement period. No need to give away your email.

[nun]

Quote:

Originally Posted by dtbach Man I'm glad I have a pension and SS that will cover all essentials even if I blow all my investments. That way, I just take 4% out and don't have to worry about all this CAPE stuff and other things I can't get my head around. You could drive yourself mad researching all this stuff. Once you guys figure out the best plan, let me know LOL!

There is no "best plan". There are a large number of possible outcomes with various probabilities and an enormous set of variables, many of which are unknown. If the statistics of past markets are relevant to future markets we can take an educated guess at how not to run out of money in retirement, but I get the impression that you know that already.

[papadad111]

Quote:

Originally Posted by dtbach Man I'm glad I have a pension and SS that will cover all essentials even if I blow all my investments. That way, I just take 4% out and don't have to worry about all this CAPE stuff and other things I can't get my head around. You could drive yourself mad researching all this stuff. Once you guys figure out the best plan, let me know LOL!

Yes. Good for you ... To have a pension and SS... Why even bother reading this thread...

As for the rest of us now FIREd and the coming generations who are on the path... where both a DB pension and 100% SS are both about as mythical as Santa Claus and the Easter Bunny, these withdraw studies are insightful and will become more and more relevant ... Especially as various taxation and retirement account and SS claiming rules change /shift / ebb and flow ...

Yes. Maddening. But hugely important for many.

[papadad111]

Quote:

Originally Posted by harley So, when is one of these big brained economist types going to do a study on a SWR for a 50 year retirement? Or at least 40 years. I think they don't take us early retirement sorts into consideration.

+1.

My conclusion is to discount the suggested safe WR of 25 or 30 years by at least 25% for 40 years and 40% for 50 year duration.

For 50 year duration , withdraw no more than current broad market dividend yield OR take the 10 year treasury rate + 25 to 50 basis points.

Both numbers approximate a perpetuity which is what's needed for a truly safe 50 year duration.

[razztazz]

Quote:

Originally Posted by papadad111 Yes. Good for you ... To have a pension and SS... Why even bother reading this thread... As for the rest of us now FIREd and the coming generations who are on the path... where both a DB pension and 100% SS are both about as mythical as Santa Claus and the Easter Bunny, these withdraw studies are insightful and will become more and more relevant ... Especially as various taxation and retirement account and SS claiming rules change /shift / ebb and flow ... Yes. Maddening. But hugely important for many.

Maybe a little tone deaf? Hey, I also have a pension and will have SS but I still like thrashing this stuff around. I thought I'd be over it by now but apparently I cannot give it up. Keep it coming. I'm still going to need the money

[hnzw_rui]

Quote:

Originally Posted by audreyh1 But after skimming a couple of the papers I'm kind of intrigued with the idea of only taking withdrawal from winners without further rebalancing, and allowing the gradual allocation drift. Would simplify and be a little more tax efficient as you note for us having most of our investments in taxable accounts. Probably wouldn't work quite the way he has modeled, though, because right now all our mutual fund distributions are taken in cash and this is usually enough to fund the withdrawal. But then cap gains dists tend to go to zero after a rough market patch, and then get increasingly large as market rallies go on year after year. So maybe close enough anyway. Hmmm - I did let things drift up a bit after 2002 and then got bit by 2008. Maybe I won't be able to do that after all.......

Based on historical returns (US, not Japan), it's basically the same as rising equity glidepath. Quite a tax efficient method way to do it though. Planning on doing something similar although thinking of starting with a 30/70 allocation to mitigate sequence of return risks during the first 5-10 years. Will probably cap equities at 70-80% though. I doubt I'd have the nerve to let it drift even higher.

[Totoro]

Quote:

Originally Posted by harley So, when is one of these big brained economist types going to do a study on a SWR for a 50 year retirement? Or at least 40 years. I think they don't take us early retirement sorts into consideration.

My small brain guess: Take world GDP growth for the next 50 years as proxy for earnings growth, add 2% of dividends (roughly the current dividend yield).

Maybe make small adjustments (up or down 1%) for taxes, concentration of wealth.

Done.

[nun]

Quote:

Originally Posted by papadad111 +1. My conclusion is to discount the suggested safe WR of 25 or 30 years by at least 25% for 40 years and 40% for 50 year duration. For 50 year duration , withdraw no more than current broad market dividend yield OR take the 10 year treasury rate + 25 to 50 basis points. Both numbers approximate a perpetuity which is what's needed for a truly safe 50 year duration.

That seems very conservative if you believe what drops out of FIRECalc. The 95% SWR for 30 years is 4%, for 40 years it's 3.6% and for 50 years it's 3.4%.

[nun]

Quote:

Originally Posted by hnzw_rui Based on historical returns (US, not Japan), it's basically the same as rising equity glidepath. Quite a tax efficient method way to do it though. Planning on doing something similar although thinking of starting with a 30/70 allocation to mitigate sequence of return risks during the first 5-10 years. Will probably cap equities at 70-80% though. I doubt I'd have the nerve to let it drift even higher.

I ER'ed two years ago with a 70/30 allocation. I have my expenses covered by a small pension and rent.....and then early SS in 8 years time......so I can afford to be aggressive and be on a "rising glide path". I've done some rebalancing and I reinvest dividends and plan to sell some winners if I need cash for large expenses.

[papadad111]

Quote:

Originally Posted by nun That seems very conservative if you believe what drops out of FIRECalc. The 95% SWR for 30 years is 4%, for 40 years it's 3.6% and for 50 years it's 3.4%.

Yes. That conservatism is by design because I don't trust firecalc results without some skepticism.

For one The dataset that firecalc uses is only USA market data and the world economy is and will continue to become more global in nature versus history implying USA market behaviors may make a right hand turn versus history. Secondly, the longer duration cycles are limited of the 40 and 50 year variety. Far far less proven.

Go out 100 years and the safe withdraw rate grows to over 6 percent ...hmm...

Of course no one knows if they face a 40 year retirement or a 2 day retirement before the grim reaper. So it's a gamble what ever you decide

For me, assuming a very low WR in age 40s (as if a perpetuity) and slowly increasing WR in age 50s to what eventually becomes a "normal duration retirement (statistically speaking of course)" at age 55 or 60 along the lines of 3% for a 25-30 year retirement seems to make sense.

That approach reduces sequence of return risk, allows money to grow a bit longer if there is no sequence of returns event and may provide a pleasant upside for me as we grow older ...or leave a bigger pot to heirs which would be bad for us but good for them...