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Old 02-01-2012, 09:27 AM   #41
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In most cases it would appear so. I would expect the failures in FIRECALC to be the profiles where the retiree came off a market peak and into a trough.
An excellent illustration of this can be found on the opening page of FIRECalc: A different kind of retirement calculator. The graph and accompanying description of three retirees starting with the same size portfolio retiring in three different years with dramatically different results was a real eye-opener when I first grasped what it was telling me.
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Old 02-01-2012, 09:57 AM   #42
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...(snip)...
It gets back to the 'value' of the market in the year you retire - and FIRECALC does not take that into account (just as well - it would get really messy), it treats a $1M starting portfolio as $1M, whether we are near a market peak, or in a trough. But as we can see now, a $1M portfolio at the end of 2002 was worth more than $1M at the end of 2000.
In general that is true. Of course, you could have invested that $1M back in 2000 in such a way that it grew nicely to 2002. But many of us did not including me (but you should see my current backtested methodology ).

FIRECalc doesn't allow for directional changes in investing methods and has limited investing options e.g. no TIPS, no international equities, etc. You could, I suppose run FIRECalc incrementally, i.e. one AA for the year 2000 and then use results for an AA shift in 2002. Still it is quite a decent tool to get a sense of the past going into the future.
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Old 02-01-2012, 11:33 AM   #43
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Thanks for all the good suggestions - no magic bullet but hey where would the fun be if everything was always black and white. I had forgotten the Otar book, I have a PDF copy and will take a look at it.

Thanks again for all comments.

Bob
I'll say it for the forum - you're welcome.

But, as you may have guessed by now, a good post (like this one) takes a life of its own, and very often a path far removed from the original. Pretty much like ER.
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Old 02-03-2012, 12:12 PM   #44
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I think by "successful" in your statement you mean that your portfolio will not run dry. I agree. That should be a piece of cake for 20 years or so if the future somewhat reflects the past and given a solid starting position.

Six years into FIRE, the concept I'm struggling with is whether I'm making some spending decisions that are too conservative and will likely wind up regretting not doing some things while they were age appropriate. Laying in my bed at the nursing home reminising about the Alaskan fishing trip DW and I decided not to take won't be a good thing. Especially if the most probable event is that my portfolio will survive.

Put another way, I'm feeling confident in watching my portfolio and determining that my spend rate is not putting me at risk of running out of money before I die. I'm feeling much less confident that I'm making good decisions about levels of spending so that later in life I don't have regrets about activities not done.

I understand that my 50/50 (SS/pension vs WR) income situation is likely causing this dilemma. If my situation was 90% - 100% funded by my FIRE portfolio, I'd probably still be entirely focused on portfolio preservation. And I certainly didn't have these feelings the first couple years of RE or during the recession. They've just popped up during the past year or so as the recovery has slowly moved along and as the idea of "not working" has become less novel.
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...
But DW and I do have some things we've loved to do all our lives and would like to do a little more of while we're on this side of the sod. And generally they're things that we're right on the edge of not being able to do anymore.

For example, we love to canoe-camp in Quetico Provincial Park. As youngsters, it was a cheap trip relatively speaking. To go today, we'd have to take a guide to do the heavy lifting. I just couldn't carry a canoe and a pack over a rough 600 rod portage anymore. Not even close. That makes the trip expensive and with the other stuff we have on the agenda for this year, we'd be pushing our planned WR a tad.

When we first RE'd (DW in 2002, me in 2006), going conservative on the activities list was easy. We could justify not doing things by simply saying we'd do them later when we had more confidence about "not running out of money." But as the age-appropriateness of some activities begins to stare us in the face, it's getting a little harder. Not doing some things and then later having the portfolio be just fine, maybe even with excess, will probably irk me. Especially now that I'm thinking about it a lot.

There's no right or wrong here. And in terms of life's priorities, these are all small potatoes. Recently, I'm just stuck on the issue of successful FIRE spending and realizing that, for us, it's possible to spend too little and well as too much.
i have long been a proponant of FIREes setting up their "income generation" (i put it in quotes because the money spent each year wont always be income, it can be principal) in 2 parts, 1st a very sure portion that is inflation protected which covers basic needs (and even some more if you want), an amout the FIREe could live on for the rest of his/her life and 2nd a portion devoted to providing discressionary spending. if you have a sufficient cola'ed pension or SS the 1st part maybe covered by that, if not maybe a CPI indexed annuity is the answer. or maybe some combination.

my point for this post is however how to spend the 2nd portion. just a thought but how bout amortizing (you know, like a mortgage payment) it over your expected life span. obviously this spending will lose to inflation over the years but thats ok, it allows you to spend more while you are younger. doing this also allows you to get aggressive with your life span, further increasing your spending in your younger years. what i mean by this is instead of using the conservative age at death of something like 90 or 100, for this 2nd portion you can use your statistical life expectancy of somewhere in the 70's or 80's (you get to pick this number w/o any risk to your subsistance). if that calculation produces a remaining life time of, say, 20 yrs, your discressionary spending would be at a rate of about 7% of that portion size (using 4% as your expected return in the amortization calculation). doing this, your risk of actually running out of income is near zero and you get to spend your portfolio to near zero (unless you die even younger than you planed for in 2nd portion calculation).

this is a major advantage. think of it, you get to draw down your portfolio (spending your money while you are young) worry-free (no running out of money) and regret-free (no leaving alot of money on the table). ( i thought it was worth repeating)
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Old 02-03-2012, 12:32 PM   #45
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Originally Posted by youbet
I think by "successful" in your statement you mean that your portfolio will not run dry. I agree. That should be a piece of cake for 20 years or so if the future somewhat reflects the past and given a solid starting position.

I understand that my 50/50 (SS/pension vs WR) income situation is likely causing this dilemma. If my situation was 90% - 100% funded by my FIRE portfolio, I'd probably still be entirely focused on portfolio preservation.
Glad you pointed that out. I don't have a pension or any retiree health care aside from Medicare (which is underfunded already). Not complaining, not something I didn't know going in. And I just retired 7 months ago, so I am being cautious here at the outset, I am sure I'll mellow (generational term).

And I have an actual written bucket list started when I was in my 30's (before the term came into popular use), 68 complete, 50 yet to be. And it's always been a dynamic list, not a 'must do' list. Works for me, but not essential. Life's a journey for all of us...
ok, i am thinking i need to address the "1st portion" i talked about in my last post. i will just add that if you dont have the adequate pension/SS and dont want to buy a CPI indexed annuity, you can treat the 1st portion in the conservative way you are now treating your entire portfolio. in other words, have 2 portfolios, for the 1st, investment decisions and WDs will be planed so that it will last till you are 90 or 100. this will provide you the assured "income" for the rest of your life, no matter how long you live. and the 2nd will be managed as i described in my last post.
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Old 02-03-2012, 03:20 PM   #46
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ok, i am thinking i need to address the "1st portion" i talked about in my last post. i will just add that if you dont have the adequate pension/SS and dont want to buy a CPI indexed annuity, you can treat the 1st portion in the conservative way you are now treating your entire portfolio. in other words, have 2 portfolios, for the 1st, investment decisions and WDs will be planed so that it will last till you are 90 or 100. this will provide you the assured "income" for the rest of your life, no matter how long you live. and the 2nd will be managed as i described in my last post.
While I am not a fan of annuities, I don't rule out buying one later in life to cover essentials or the "1st portion" as you describe. I plan to watch my asset balance continuously and if things go well, no annuity. If our asset balance starts to get anywhere near down to the cost an annuity, I will probably start to annuitize a portion and continue to monitor (most likely annuitize several chunks worst case). It's basically along the lines of Otar's green-yellow-red zones or this more concise 12 page explanation from fpanet http://www.schulmerichandassoc.com/M...cumulation.pdf I have pasted and recommended this link several times, so many have seen it already.
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Old 02-03-2012, 09:58 PM   #47
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While I am not a fan of annuities, I don't rule out buying one later in life to cover essentials or the "1st portion" as you describe. I plan to watch my asset balance continuously and if things go well, no annuity. If our asset balance starts to get anywhere near down to the cost an annuity, I will probably start to annuitize a portion and continue to monitor (most likely annuitize several chunks worst case). It's basically along the lines of Otar's green-yellow-red zones or this more concise 12 page explanation from fpanet http://www.schulmerichandassoc.com/M...cumulation.pdf I have pasted and recommended this link several times, so many have seen it already.
the problem with doing it the way you say you are going to is that when you get to the point of buying an annuity you will, by your own admission, only have the "1st portion" left and it must be used to buy the annuity so as to stave off disaster.

with your approach you "get" to continue to worry about whether your money will last your entire life time and potentially whether you didnt spend enough in your early years. what i suggested was a plan that 1) ensures you dont run out of money in your old age (reducing/eliminating that worry) and 2) spends more while you are younger (not leaving much if any on the table when you are dead thus reducing/eliminating that regret). it seems you missed the main thrust of my plan and instead went straight to the annuity. my plan doesnt NEED an annuity to work, the main point was 2 different "income" sources, 1 for necessities and 1 for discressionary, each with different WD methods.
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Old 02-04-2012, 09:52 AM   #48
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the problem with doing it the way you say you are going to is that when you get to the point of buying an annuity you will, by your own admission, only have the "1st portion" left and it must be used to buy the annuity so as to stave off disaster.
You'll have to show me where I said anything of the kind. I am aware that timing is troublesome, but I would act comfortably before my asset balance reached the threshold of (as you describe) my 1st & 2nd portion together. If I annuitize, it will begin long before we're down to funding just essentials.

I "went straight to the annuity" because we don't have pensions - your post only mentioned pensions or annuities, just following your suggested method. Incidentally, it's a bad time to buy an annuity.

Your approach assumes COLAd pensions and annuities are risk free, hopefully that proves to be true. If your 1st income source holds out, and you spend freely early on and live to be 100 following years of substandard returns, it could be an austere last 20 years. No thanks.

Interesting you can advise me (others) without knowing a) if we want to spend more now (DW & I don't) and b) what our expenses are relative to our nest eggs.

We all make our plans and live with those choices. And I am not criticizing your choice BTW...
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Old 02-04-2012, 09:51 PM   #49
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You'll have to show me where I said anything of the kind. I am aware that timing is troublesome, but I would act comfortably before my asset balance reached the threshold of (as you describe) my 1st & 2nd portion together. If I annuitize, it will begin long before we're down to funding just essentials.
see quote below. maybe i read too much into the statements i highlight in red but when i read them it seemed you would only annuitize if your asset value dropped to the point that you only had enough assets to annuitize. sorry if i read too much into your statement.

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Originally Posted by Midpack
While I am not a fan of annuities, I don't rule out buying one later in life to cover essentials or the "1st portion" as you describe. I plan to watch my asset balance continuously and if things go well, no annuity. If our asset balance starts to get anywhere near down to the cost an annuity, I will probably start to annuitize a portion and continue to monitor (most likely annuitize several chunks worst case). It's basically along the lines of Otar's green-yellow-red zones or this more concise 12 page explanation from fpanet http://www.schulmerichandassoc.com/M...cumulation.pdf I have pasted and recommended this link several times, so many have seen it already.
your next point

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I "went straight to the annuity" because we don't have pensions - your post only mentioned pensions or annuities, just following your suggested method. Incidentally, it's a bad time to buy an annuity.

Your approach assumes COLAd pensions and annuities are risk free, hopefully that proves to be true.
maybe i wasnt clear enough with my approach. granted it is easier to explain when an annuity or pension/SS is covering the "1st portion", but what i am saying can also be applied to a decumulaton w/o either. let me illustrate by considering the case of a "conservative" retiree 60yo who thinks that a SWR is 3% in the classic sense (3% is the starting wd and then the wd is increased by CPI every year thereafter and doing that the portfolio will support 30 yrs of such). the key here is that this is a true SWR meaning no eating cat food in old age (as this is for illustration i pick 3% because there has been much discussion about what the true SWR is but it could just as easily be 2% if you would rather) and this person wants to have no regrets later in life concerning experiences missed due to being too frugal (so would like to spend more earlier in life, sorry if this doesnt fit you midpack). so to flesh this out lets assume this person has $2M in assets and therefore is thinking s/he can have a SWD of $60k: with "1st portion" expenses of $30k and the rest will be used as discressionary. my idea is for this person to split (can be a physical split or just a paper split) his/her portfolio into 2 pieces of $1M each. for "1st portion" expenses use the 3% SWR on the 1st piece of the portfolio resulting in a $30k SWD. however for the discressionary expenses i am suggesting amortizing the 2nd piece of the portfolio. if the term of the amortization is 30 years then the constant WD would be approx $49.5k/yr. doing this would front end load the discressionary money. but maybe that isnt enough, well then this person could amortize using his/her expected life span, lets say it is 15 yrs, giving approx $81.3k/yr. well what if that is too scary? well then lets try amortizing over 15 years but leaving $500k in the portfolio at the end of that 15 yr time frame to be used to buy an annuity. that yields approx $55.2k/yr for those 15 yrs. if none of these 3 suit your needs the alternatives are endless but my point is that treating the 2nd portion a little more realisticly WRT life expectancy allows larger WDs and probably fewer "i didnt do such and such because i was concerned about running out of money when i am too old to get a job" regrets later in life. please feel free to comment on these examples so that i can tell if what i am trying to say is coming across.


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If your 1st income source holds out, and you spend freely early on and live to be 100 following years of substandard returns, it could be an austere last 20 years. No thanks.
it will only be "austere" if in your planning you made your "1st portion" funding austere. in my approach there is no requirement for that. when it comes to "substandard returns", since the 1st portion, by definition produces a SAFE WR, your last 20 years wont be "austere" unless you didnt adequately forecast your living expenses. however this problem isnt unique to my approach, any retirement decumulation faces that same problem. (o and BTW this is where that annuity/pension/SS helps)


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Interesting you can advise me (others) without knowing a) if we want to spend more now (DW & I don't) and b) what our expenses are relative to our nest eggs.

We all make our plans and live with those choices. And I am not criticizing your choice BTW...
my original post was directed toward comments about older aged regrets of not spending enough at a younger age therefore i did know a) and when it comes to b) i only need to know that there is room in the retirement budget for discressionary things i.e. there are "2nd portion" funds because my idea is how to spend that "2nd portion" down.
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Old 02-07-2012, 08:07 PM   #50
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I am not retired yet but after I FIRE I will update my Excel spreasheet a few times a year and adjust my WR accordingly. Additionally, I can always go back to work a few days a month in case things don't go according to plan...
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Appreciate any suggestions.

Bob
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Old 02-08-2012, 02:48 AM   #51
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in our case I just plan on spending income generated by the portfolio, ie interest and mostly dividends. Keep a large cushion in cash. We are quite lucky that this provides a generous spending level. it would be more difficult if I had to sell securities on a regular basis to fund our spending. Portfolio yield is a little under 4% currently.
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