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Re: Getting to Enough
Old 02-19-2005, 10:28 AM   #21
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Re: Getting to Enough

I've started a new board, "The Best of Hoco-mania", on the REHP forum

Please find something constructive to do with your time, intercst.
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Re: Getting to Enough
Old 02-19-2005, 02:09 PM   #22
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Re: Getting to Enough

Oh, well. If anyone want to continue with comments on the original post, start a new thread.

I declare this thread kayaked.

arrete
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Re: Getting to Enough
Old 02-19-2005, 07:16 PM   #23
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Re: Getting to Enough

Before we climb in our kayaks and float away from this thread, I'd like to say, "Nice post, arrete".

I have made a lot of use of spreadsheets and calculators in getting to FIRE. I get criticized by others on these boards fairly regulary for discussing the details of the numbers and results. But, like you, I have never taken any of the calculations to be precise and accurate. On the other hand, perturbation calculations of various input variables can be very instructive. If I change an input variable over a reasonable range of expectations and the overall prediction doesn't change much, I've learned something valuable. In contrast, if a minor tweak makes the difference between dying of starvation or living large, I know I need to work hard to understand that variable. The more I use retirement calculation tools, the more I understand and appreciate their limits and the more comfortable I feel about my own retirement.

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Re: Getting to Enough
Old 02-19-2005, 07:56 PM   #24
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Re: Getting to Enough

Quote:

My husband faces a similar situation with a lot of stock in GE. *He can't sell the stock within the 401K (he no longer works for GE
Arrette,
If your husband has left GE, I believe he should be able to rollover his 401k to a self-direct IRA. Depending on the 401k, usually you can take the stock or have it liquidated during the rollover.
Once in the self directed account, you can retain whatever position you want in GE and diversify the rest.
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Re: Getting to Enough
Old 02-20-2005, 07:05 AM   #25
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Re: Getting to Enough

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But, like you, I have never taken any of the calculations to be precise and accurate. *On the other hand, perturbation calculations of various input variables can be very instructive. *If I change an input variable over a reasonable range of expectations and the overall prediction doesn't change much, I've learned something valuable. *In contrast, if a minor tweak makes the difference between dying of starvation or living large, I know I need to work hard to understand that variable. The more I use retirement calculation tools, the more I understand and appreciate their limits and the more comfortable I feel about my own retirement.
I do love spreadsheetology. *Out of curiosity, what have you found as an example of a minor tweak making a big difference? *I assume you are referring to what in the trade is called a sensitivity analysis.

Quote:
If your husband has left GE, I believe he should be able to rollover his 401k to a self-direct IRA.
He certainly could do this, but then he would lose the advantage of receiving the the stock all at once and paying personal rate (call it about 28%) on the cost basis. *Then if he waits a year, and want to sell, he pays long term capital gains rate (15%) on the profit . *If, on the otherhand, he rolls the stock into an IRA, he has to pay the personal rate *on the entire amount when he takes it out

Tax-wise, take the stock all at once is preferable.

arrete
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Re: Getting to Enough
Old 02-20-2005, 09:07 AM   #26
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Re: Getting to Enough

Thanks again arrete...I'm just now working through this scenario (above company stock in 401 K issue)

And thanks to salaryguru for not calling this thread kayaked just yet!
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Re: Getting to Enough
Old 02-20-2005, 09:23 PM   #27
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Re: Getting to Enough

Quote:

I do love spreadsheetology. *Out of curiosity, what have you found as an example of a minor tweak making a big difference? *I assume you are referring to what in the trade is called a sensitivity analysis.
I can think of a few examples:

When I was doing portfolio allocation studies several years ago I was surprised first at how little the stock/bond allocation mattered to SWR until I looked at low stock allocations. Then I was surprised at how quickly SWR dropped off for low stock allocation.

Most recently I was surprised at how much SWR could be increased by using a required/discretionary budget split. With as little as 25% of your budget considered discretionary (based on portfolio value instead of inflation) you could increase SWR by over 30%. Of course SWR takes on a slightly different meaning for this study, but it is still a huge impact.

I've also spent some time looking at terminal value sensitivity to input parameter variations. Some pretty surprising results related to interest rates on debt have come out of those simulations.

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Re: Getting to Enough
Old 02-21-2005, 02:41 AM   #28
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Re: Getting to Enough

Some pretty surprising results related to interest rates on debt have come out of those simulations.

I agree wholeheartedly with the point that SalaryGuru is making in this post.

Critics of the Data-Based SWR Tool have held it to an impossible standard. What some have suggested is, unless you can predict with exact precision what the prices of stocks will be for every year in the future, SWR analysis has no value. I reject this suggestion out of hand.

The point of SWR analysis is not to predict the future with precision. It is to use what has happened in the past to develop insights as to what may happen in the future. What you are doing is assigning probabilities to various future outcomes.

It is much like preparing a weather forecast. When the weather-man says "There is an 80 perecent chance of rain tomorrow," we all know that there is a chance that it will not rain. So it is with SWR analysis. When we say "the SWR for an 80 percent S&P portfolio in January 2000 was 1.6 percent," we are not saying that a plan calling for a 4 percent take-out is certain to fail. We are saying that you had better keep your slicker and galoshes close at hand because there is a darn good chance that you are in for some stormy weather. *
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Re: Getting to Enough
Old 02-21-2005, 06:04 AM   #29
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Re: Getting to Enough

Quote:
I was surprised first at how little the stock/bond allocation mattered to SWR until I looked at low stock allocations. Then I was surprised at how quickly SWR dropped off for low stock allocation.
Was there a particular point (inflection point? Can't remember terminology) where the SWR took a dive depending on the stock/bond mix? It might be interesting as you grow older to nudge your portfolio in that direction, but not past it.

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Re: Getting to Enough
Old 02-21-2005, 09:38 AM   #30
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Re: Getting to Enough

Yep. Less than 20% stocks in the mix produces lower returns without significantly lowering volatility and more than 80% stocks produces higher volatility without significantly increasing returns.

Some folks still go 100% bonds or 100% stocks. Historically, the data says they're not doing themselves any favors.
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Re: Getting to Enough
Old 02-21-2005, 09:54 AM   #31
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Re: Getting to Enough

Quote:

Was there a particular point (inflection point? *Can't remember terminology) where the SWR took a dive depending on the stock/bond mix? *It might be interesting as you grow older to nudge your portfolio in that direction, but not past it.

arrete
Hi arrete,

The inflection point depends on the kind of bonds you use and the length of retirement. For 30 years and TIPS or I-bonds, the inflection point is fairly low (10% to 30%). For commercial paper it was significantly higher (50% to 60%). These numbers change if you include social security, pension or other annuities. Also, although TIPS and I-bonds produce higher SWR with lower stock mixes, they also produce much lower average terminal values. In other words, while the safety of outspending your retirement in 30 years is increased, so is the risk of outliving your retirement.

As TH mentions, this issue is also often viewed from the perspective of risk (as defined by the beta of the investment). Bernstein shows the inflection point in a risk-return plot that is a little bit different than the inflection point on a SWR-allocation plot. But you end up with similar conclusions about optimum allocations. Again, your original point about using all the tools helps to understand the issue from multiple angles.

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Re: Getting to Enough
Old 02-21-2005, 10:08 AM   #32
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Re: Getting to Enough

although TIPS and I-bonds produce higher SWR with lower stock mixes, they also produce much lower average terminal values.

This makes sense to me. TIPS are a less volatile asset class. You would expect them to be safer. They are not a growth-oriented asset class. So, in best case scenarios, you would generally expect stocks to do better.

you end up with similar conclusions about optimum allocations.

I question whether this is so for those who engage in switching. If you lower your stock allocation at times of extremely high stock valuations, it allows you to buy more shares when prices return to more moderate levels. That provides you with the stability you require at times when stock prices are most volatile on the downside, plus the long-term growth potential associated with stocks at times when the downside risk has been diminished.
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Re: Getting to Enough
Old 02-21-2005, 10:17 AM   #33
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Re: Getting to Enough

Are the geese returning northward already?
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Re: Getting to Enough
Old 02-21-2005, 10:42 AM   #34
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Re: Getting to Enough

Quote:
Are the geese returning northward already?
Yep . . . As my Papa used to say, "When you hear the geese, it's time to get the kayaks out."

Papa was a wise ole man.
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Re: Getting to Enough
Old 02-21-2005, 11:01 AM   #35
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Re: Getting to Enough

salaryguru,

Have you looked at how following market timing "gurus" either in the media or on the internet affects your portfolio performance? Following market timing or "switching" strategies how quickly does one have to take on paying employment to avoid exhausting their portfolio?

Thanks for your insight on this.
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Re: Getting to Enough
Old 02-21-2005, 11:10 AM   #36
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Re: Getting to Enough

Here's a tutorial published at the Gummy Stuff web site that relates to these questions:

http://www.gummy-stuff.org/JWR.htm
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Re: Getting to Enough
Old 02-21-2005, 11:14 AM   #37
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Re: Getting to Enough

Heres another one...

http://search.ebay.com/snake-oil
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Re: Getting to Enoughu hav
Old 02-21-2005, 11:37 AM   #38
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Re: Getting to Enoughu hav

That's a cop-out. It's not a real response.

I put up my "What Bernstein Says" post on August 27, 2002. That's 30 months ago. Bernstein says that the conventional methodology (the methodology used in the study published at RetireEarlyHomePage.com) is "highly misleading." He said that because the conventional methodology makes no adjustment in the SWR for changes in valuation levels and Bernstein believes that changes in valuation levels affect long-term returns as a matter of "mathematical certainty." He even went to the trouble of calculating what the SWR was at the top of the bubble, and his analysis produced a number a full 2 percentage points lower than the number identified by intercst as "100 percent safe."

We have examined the historical data every which way it can be studied in the 30 months since, and every examination has pointed to the same conclusion--Bernstein was right, intercst was wrong. In those 30 months, we have not seen one post that made a reasoned argument for why Bernstein is wrong. SalaryGuru took a step in the right direction with a post put to the NFB board a week or two ago. He at least was honest in acknoweldging that he thinks Bernstein is wrong rather than engaging in the standard deception claiming that Bernstein did not in fact say what he in fact said.

Bernstein said what he said, and what Bernstein said was important news to aspiring early retirees. If the best that the DCMs can do is put forward links to snake oil sites, they are insulting the intelligence of the board community to keep at this after all this time. There is a time to say that enough is enough, and I think that we are far past that point now. Enough is enough.

If you want to join SalaryGuru in saying that you think that William Bernstein is wrong, that is your right. Bernstein is not God. People are allowed to say that they think he is wrong. But Bernstein is not selling snake oil. Bernstein is not a troll. Bernstein is not mentally ill.

If you have some reasoned argument for disputing what Bernstein says, please put it forward. If you do not, I ask that you kindly knock off the nonsense and permit those community members who wish to engage in reasoned discussions of what the historical data says re SWRs do so in peace.
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Re: Getting to Enough
Old 02-21-2005, 11:49 AM   #39
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Re: Getting to Enough

I put up my post "What does Bernstein say about SWR?" on TMF REHP on November 24, 2002 and that's well that's almost 27 months ago so that must mean something (other than the fact that I was alive and posting to TMF REHP board 27 months ago I'm not sure what though). *After digging through Bernstein's online journal Efficient Frontier it was clear that:

Bernstein believes that a 4% withdrawal from a mixed equity/bond portfolio should be about 4% of the original value adjusted for inflation or a flat 5%.

http://www.efficientfrontier.com/ef/998/hell.htm
Quote:
One point cannot be made often enough -- when you retire, are you going to be withdrawing a fixed inflation adjusted amount on a regular basis, or are you going to be withdrawing a fixed percentage of your portfolio? This is not a semantic fine point. If you need a fixed amount, plan on withdrawing no more than about 4% of your starting amount in inflation adjusted terms. A fair dollop of bonds won't hurt in this situation.

If you can be more flexible and spend a fixed percentage of your nest egg each year, then you can indeed keep you entire retirement stash in stocks and spend 5% annually. Just remember that your stipend will likely fluctuate wildly over the decades of your retirement. Keep a few cans of Alpo in the cupboard if you decide to go this route.
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Re: Getting to Eno
Old 02-21-2005, 12:06 PM   #40
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Re: Getting to Eno

I understand, Hyperborea.

What you are doing here is tying this back to Arrete's thread-starter. I think it is fair to say that Bernstein is more pro-stock at these valuation levels than I am. That doesn't change the fact that he said on Page 234 of his book "The Four Pillars of Investing" that the SWR for a high-stock portfolio at the top of the bubble was not 4 percent, but 2 percent.

The fact that the SWR was 2 percent does not mean that a law has been passed that no one may take out 4 percent. You may take out whatever you please. Arrete said that she used the REHP study number as a mere rule of thumb, and it of course her right to do so.

It is NOT anyone's right to deny the results of the Bernstein calculation. He calculated the number and he determined that the SWR was 2 percent and not 4 percent. Are we in agreement that that is the number that Bernstein came up with when he calculated the SWR that applied for a high-stock portoflio at the top of the bubble?
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