Guyton's Withdrawal Policy Statement article

[LOL!]

The Withdrawal Policy Statement
describes some things that might interest folks here. I'm not sure how long the link will last, so read it while you can.

An excerpt (fair use claimed):

A WPS could also specify the portfolio management approach (based on Guyton and Klinger, 2006) to identify the source of the ongoing withdrawals:

• Interest and dividend distributions are held in cash and not reinvested in shares
• Capital gains distributions are reinvested in IRA accounts and held in cash in after-tax accounts
• Following years with a positive return where an equity asset class exceeds its target allocation, the excess allocation is sold and the proceeds invested in cash to meet future withdrawal needs
• Portfolio withdrawals are funded in the following order: (1) cash, (2) withdrawals from remaining fixed income assets, (3) withdrawals from remaining equity assets in descending order (best first) of the prior year's performance
• No withdrawals are taken from any equity asset following a year in which it had a negative return if cash or fixed income assets are sufficient to fund the intended withdrawal

This article appears to be pertinent to a few other current discussions on the forum.

 

[Jake46]

This is a great article. I incorporated his suggestions of a Withdrawal Policy Statement into my Investment Policy Statement so it's all in one document.

 

[nun]

This is a great article. I incorporated his suggestions of a Withdrawal Policy Statement into my Investment Policy Statement so it's all in one document.

The article is good, and the part quoted nicely outlines some of the things to do when generating cash and income. But the advice seems like common sense and all the "strategies" would be offered up by lots of people on this forum. The author is the head of a "wealth management" firm and quotes 1% fee for managing up to $1M, that's $10k a year.......1/3 of my annual budget.
I can see that some people want to pay to have someone manage their money, but for $10k I'd want something a bit more special.

 

[JmfromTx]

Thanks for the link. It is very pertinent to some questions I have.

 

[LOL!]

... But the advice seems like common sense and all the "strategies" would be offered up by lots of people on this forum. ...

I think that's because we have linked previous Guyton articles here before. This article is more a summary of his past work than anything new. For example, his algorithm for how much to withdraw from a retirement portfolio based on the ups & downs has been discussed here before. We have learned some common sense from him I think.

http://www.early-retirement.org/forums/f28/guyton-review-of-2008-2009-wrt-swr-52389.html

http://www.early-retirement.org/for...nancial-planning-retirement-income-53464.html

Oh look, I even found that I started a thread on this WPS article back in June: http://www.early-retirement.org/forums/f28/article-withdrawal-policy-statement-50482.html Whoops!

 

[Moemg]

I liked the article especially how he handled one time expenses .

 

[Jake46]

The article is good, and the part quoted nicely outlines some of the things to do when generating cash and income. But the advice seems like common sense and all the "strategies" would be offered up by lots of people on this forum. The author is the head of a "wealth management" firm and quotes 1% fee for managing up to $1M, that's $10k a year.......1/3 of my annual budget.
I can see that some people want to pay to have someone manage their money, but for $10k I'd want something a bit more special.

I never considered hiring the guy. I just thought he had some good suggestions in this free article.

 

[nun]

I never considered hiring the guy. I just thought he had some good suggestions in this free article.

Hey, I'm with you. The articles are good and distributing them is a useful educational service. I'm just saying this isn't rocket science. His suggestions of how to take income seem pretty obvious to me. Like don't sell an equity that's had a bad year if you have cash or fixed income on hand. Duh! As a general rule I'm not going to sell an under performing asset if the reasons I bought it are still valid.

The withdrawal strategy paper is good too, but in a bad year it again seems obvious to rebalance and reduce the withdrawals so you aren't taking out more that you can generate.

I don't hold financial professionals in much regard as I find that most of the advice they charge for is pretty simple and the complicated advice is generally risky or simple advice made complex so they can justify higher fees. I'm sure there are advisers out who provide a good service for clients who don't want to manage their own money, but I'll never understand why someone would pay then 1% of their portfolio annually.

 

[donheff]

It was a pretty good article. The OP's quote was so familiar I thought I must have already read the article but I hadn't. The only thing new to me here was Guyton's embracing the "discretionary" fund. I have one of those but I decided to do it based on discussions here and didn't realize it is also a Guyton thing. I keep my discretionary funds embedded in my regular portfolio (i.e., I simply track the amount in my spreadsheet and don't use it in calculating SWR). If I need to tap it in a downturn I would repurchase any equities I needed to sell in an IRA to offset the withdrawal. I have considered separating this fund entirely to distance it psychologically but haven't ventured that far. Anyone else keeping such a fund? Do you keep it in a separate account?

 

[donheff]

I'm just saying this isn't rocket science. His suggestions of how to take income seem pretty obvious to me.

Maybe obvious to our readers but not so obvious to most - even to most intelligent people. I consider myself smarter than the average guy (I'm from Lake Woebegone) but these things were not obvious to me until I read about them here. Particularly difficult were withdrawal rules like these, buckets, etc. I have not yet read a book that lays withdrawals out well. I like having a simple set of rules laid out to follow when I withdraw my yearly expenses. And I like seeing the confirmation that the rules make sense from others here and from "experts" like Guyton. But I agree with your basic point - that advisors are not worth the price. You are a fool to trust one without doing the basic research to understand what they are proposing. But once you have educated yourself you no longer need the advisor.

 

[LOL!]

It was a pretty good article. The OP's quote was so familiar I thought I must have already read the article but I hadn't. The only thing new to me here was Guyton's embracing the "discretionary" fund.

But you responded to the summer thread on the same article! Here's your response:
http://www.early-retirement.org/forums/f28/article-withdrawal-policy-statement-50482.html#post943215

 

[donheff]

But you responded to the summer thread on the same article! Here's your response:
http://www.early-retirement.org/forums/f28/article-withdrawal-policy-statement-50482.html#post943215

The good news is that it seemed familiar because it was. The bad news is that it truly confirms that I have CRSS (Can't Remember Sh** Syndrome). The bigger problem is that I will have a tough time figuring out if I have started down the Alzheimer's road so I won't know when to take myself out of the game.

 

[chinaco]

Good article.

It is targeted towards financial planners to help clients understand their plan and formalize the general approach.

+1 on the one-time expenses.

Establishing a separate reserve fund is a good idea.

IMO - The reserve can also be handled as an accounting exercise where the reserve is part of the fixed allocation in the strategic asset allocation decision. Especially if one has excess assets. It is less about making sure you do not spend it (inflating one's yearly lifestyle/income) and more about not getting caught in the liquidity trap (especially for a unplanned/emergency scenarios).

 

[nun]

It was a pretty good article. The OP's quote was so familiar I thought I must have already read the article but I hadn't. The only thing new to me here was Guyton's embracing the "discretionary" fund. I have one of those but I decided to do it based on discussions here and didn't realize it is also a Guyton thing. I keep my discretionary funds embedded in my regular portfolio (i.e., I simply track the amount in my spreadsheet and don't use it in calculating SWR). If I need to tap it in a downturn I would repurchase any equities I needed to sell in an IRA to offset the withdrawal. I have considered separating this fund entirely to distance it psychologically but haven't ventured that far. Anyone else keeping such a fund? Do you keep it in a separate account?

We're on the same page. I wish that money management from budgeting to investing was taught in schools as it's becoming more important as DB plans are replaced with DC plans. The lack of financial knowledge combined with high investment fees and expenses are why most Americans are so ill prepared to retire.

I'm good with numbers, but I'm not a financial expert and my basic financial knowledge came from my parents who never bought on credit (except the house) and budgeted carefully. That was a good foundation and when I started to work it seemed pretty obvious to contribute to the 403b at least to the level where I got the max match....free money and tax savings....not too difficult. When it came to investing I did do a lot of reading and on the mutual fund websites and bought various books, but I've yet to be amazed at any of the strategies offered up as I was rebalancing before I knew what it was called. It just seemed sensible to lock in some profits according to sayings like

"Gather ye rosebuds while ye may"
"A bird in the hand is worth two in the bush"

and my favourite that I learned in high school English literature

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."