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Old 06-20-2014, 05:09 PM   #221
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I think this is perfectly fine but I look at how much actual dollars 4% is of my portfolio and I don't have the chutzpah to pull that out and spend it. Maybe after a few more years of withdrawals to get me used to spending without any income...
I did not feel comfortable with 4% either. I was spending 3% until recently, when home repair/improvement projects (on 2 homes) bumped it up to 4%. But then, I also sat down to figure out my future SS, and that took away my concern. As you are quite younger than me, a WR lower than 4% would be more comfortable.

About the RV vagabond lifestyle, I was kidding because it is usually not an option for a married guy. But I am sure many single guys would not have a problem.
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Old 06-20-2014, 05:57 PM   #222
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I haven't read all the post in this thread. But I retired October 2007, which was pretty close to the top at that time. I won't lie and say I wasn't worried after the big drop that followed. I did keep a close eye on my spending and I did have some cushion figured in. I also had several year of cash available.

Now I just keep rebalancing. I actually have more in cash than usual, but that's only because I'm getting ready to buy a new house and I've rolled over a 401k into a IRA.

And back then the market was around 14,000.
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Old 06-20-2014, 06:50 PM   #223
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Regarding a 'plan that works with a low AA' - I still bristle a bit at that. A low enough WR has historically worked with any AA - so if the 'plan' is to have a conservative WR, that is a testament to the power of a conservative WR, not a conservative AA. An AA above ~ 40/60 with a low WR still did better (supports a higher WR at 100% success, and provides a chance for growth) than did an AA below ~ 40/60 at that same low WR.

This seems to often be stated as if higher AAs were trading volatility and the chance for a big pay-off against security (not failing). But that is not the case historically. A low AA gets you lower volatility, yes, but also lower success rates.

So if you want lower volatility and a comparable success rate, you also need a relatively lower WR. It's just not a factor of the AA by itself. Sorry if I seem obsessive about this point, but I think it's important, and I hate to see less precise wording give misleading impressions.

Now, if low volatility and a high success rate is what someone is after, and they can afford to build up the portfolio to support that lower WR, then that is what they should do. But I will add that that lower volatility is at least partially an illusion. The lower WR% means a larger portfolio, so if one added that cushion with a higher AA, their dips would be cushioned as well (in absolute terms, not %-wise). OK....

Back to TIPS. After looking at the long term real returns of a 75/25 in the worst periods that we try to protect against, I see that they are very low, in the 0% - 1%. As I mentioned earlier, looking in a simple straight mathematical way, a portfolio with zero real return will support a 3.33% inflation adjusted WR for 30 years, and a 2.5% WR% for 40 years (note - that calculation leaves you right at $0, totally depleted in the last year). So TIPS, even around 1% real, essentially guaranteed, should do the trick, right?

I say that, but the devil's in the details. I know there are tax implications with TIPs, and I guess we'd need to build a ladder, so I guess there are some unknowns there as well. But it is interesting, and I plan to look into it some more.

-ERD50
I am okay with rephrasing it to lower volatility or lower sequence of returns risk if you would like. The Fido RIP does use terms like more and less risk and conservative portfolio for lower stock allocations, so I think I am using conventional terminology.

I am happy to call it whatever you want. I just want an AA that avoids that sinking feeling of losing many years of retirement living expenses in a single week or even a single day in the stock market.

The Fido RIP says my current AA's worst historical year is -5%. Their balanced AA suggestion has a worst year of -41%. I see no need to take on that kind of risk. We've met with Fido reps in person and they kept telling us we needed stocks for growth and 80% of our income in retirement. Between taxes and savings we have never lived on 80% of our earned income. And with a conservative AA we can still save money in retirement. Why take on more risk when we are a risk averse, not big spenders type of household?

In terms of income compared to the U.S. and especially other developed countries we feel fortunate as it stands:

OECD Better Life Index

Why not just sit back and enjoy what we have and not have an AA where we have to worry about the market even when it is up (because that means it might drop)?

I'd rather work on figuring out how to have a very pleasant, low stress retirement using the Bill Bernstein won the game approach.
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Old 06-20-2014, 08:26 PM   #224
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What are OMY and cFiresim?
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Old 06-20-2014, 08:32 PM   #225
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Why not just sit back and enjoy what we have and not have an AA where we have to worry about the market even when it is up (because that means it might drop)?

I'd rather work on figuring out how to have a very pleasant, low stress retirement using the Bill Bernstein won the game approach.
There are quite a few posters here who have a lot of dividend stocks, and they said that they only cared about the dividend income which tended to hold up well through the Great Recession, and not looked at the value of the stocks.

The S&P is paying only 1.85% now, but one can get up to 2.5% with a basket of value stocks. Suppose you put your money in that black box, and just spend the 2.5% that it spits out, which increases with time too to match inflation, and not look inside that box. Would that make you feel OK?

Do you get better and more secure income than that 2.5%, I am curious?

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What are OMY and cFiresim?
OMY is One More Year of w*rk for people who want to beef up their stash some more. cFiresim is a retirement calculator similar to FIRECalc.
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Old 06-20-2014, 08:59 PM   #226
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A simple method might be take 4% of current portfolio value (not starting value adjusted for inflation).
This idea is more robust wrt failure, but at the cost of higher income variability. I would prefer this. ...

Who would head to Europe when his portfolio was down 20% or more? I wouldn't even do this at a 10% drawdown.

I would not like this, but even if securities suffered some more, or didn't bounce back, or inflation picked up less than disastrously, I should nevertheless be ok to stay in the game. ...
Well, this is definitely in the 'to each his own' area, but I strongly prefer to plan on a lower average WR%, and to maintain that through ups/downs. Part of that is that we have always been LBYM, so where would we cut? We do have a bigger home than we need now, but I'm not sure i makes sense to sell it in a downturn, and anywhere we would want to live probably won't be all that much cheaper.

If I told DW (or myself for that matter), that the market is down, we need to cut spending, I would feel that I 'failed' - I should have found employment if I couldn't maintain our lifestyle.

A few posters do have discretionary spending that they say they could cut to the bone and still be happy - so the variable plan could work well for them. I really want what I have now. More would be better, but no big deal. Less would take some soul-searching.

The only time I went to Europe on my own dime was 2011. Market had recovered by then, but that deep dip was still fresh in my memory. The budget could handle it.

This thread has renewed a few questions that I need to think about:

1) TIPS

2) When would I need to cut spending? I slept fine in the last crash, I'm not going to cut spending if a two year bear comes around, they happen regularly. But at some point, an extended bear means trouble - how do you act in time, but not over-react to market gyrations? I do not believe this is as simple as many think. That could be its own thread, but I really should attend to some other things for the next week or two ...

3) And just how much could I cut spending? This is a high COL area, and our kids and parents are here, so moving may not be in the cards right now.


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To me much bigger risks would be accidents or sickness, or some boneheaded investment error.

Ha
That's for sure. That's one of the reasons I try to limit my annual driving miles. I could never get on a motorcycle or bicycle on public ways. If I 'wipe out', finances won't matter.

-ERD50
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Old 06-20-2014, 10:12 PM   #227
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There are quite a few posters here who have a lot of dividend stocks, and they said that they only cared about the dividend income which tended to hold up well through the Great Recession, and not looked at the value of the stocks.

The S&P is paying only 1.85% now, but one can get up to 2.5% with a basket of value stocks. Suppose you put your money in that black box, and just spend the 2.5% that it spits out, which increases with time too to match inflation, and not look inside that box. Would that make you feel OK?

Do you get better and more secure income than that 2.5%, I am curious?
We don't have a set AA. We just have a retirement plan that assumes 1% real with pad in it for less and we play it buy ear. Today we had an auction order in for 30 year TIPS that came in at 1.116%. Not great by ER forum standards but more than our plan calls for.

I would probably not feel okay with a high allocation of value stocks but I am sure for some people that could work great. I would personally be sad seeing the NW go down and it is the feeling sad part I want to avoid.
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Old 06-20-2014, 10:27 PM   #228
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I did not suggest that stock income investing will work for you. I am just trying to see what you will accept as sufficiently "safe". Different people find comfort at different points on the risk/reward trade-off curve, and out of curiosity I am just trying to see where you are. There is a poster who's only comfortable with CDs and annuities, but he has not posted for a while.

You said you play it by ear, but what parameters are you monitoring and what are you willing to change? Again, I am just trying to understand a different way one can finance the retirement.
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Old 06-20-2014, 10:32 PM   #229
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I don't remember seeing this Variable "use it up" spread sheet mentioned here before, very different from the have more at the end than started with most shoot for. I'm guessing not many fans here, as little to no inheritance would be left.

Variable percentage withdrawal - Bogleheads
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Old 06-20-2014, 11:48 PM   #230
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I did not suggest that stock income investing will work for you. I am just trying to see what you will accept as sufficiently "safe". Different people find comfort at different points on the risk/reward trade-off curve, and out of curiosity I am just trying to see where you are. There is a poster who's only comfortable with CDs and annuities, but he has not posted for a while.

You said you play it by ear, but what parameters are you monitoring and what are you willing to change? Again, I am just trying to understand a different way one can finance the retirement.
Our parameters are to just try to average out to 0 - 1% real, of course more is better, with low volatility. My husband suggested I tell you our investment plan can be summed up in two words: TIPS and a condo.
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Old 06-21-2014, 01:28 AM   #231
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OK. One has to do what he/she is comfortable with. I will not deny that the stock gyrations of the last decade were quite exciting and who can say that they will not repeat?

I just looked at my diary and found the following records.

Mar 24, 2000 S&P @ 1527
Oct 09, 2002 S&P @ 777

That's a drop of 50%. My portfolio dropped 44%.

Oct 09, 2007 S&P @ 1565
Mar 09, 2009 S&P @ 677

That's a loss of 57%. My portfolio dropped 37%.

So, I can claim that between the recession of 2001-2002 and the Great Recession I learned a thing or two, although my normal AA has been around 70-80% stock, 5% bonds, and with the rest mostly in cash (I-bonds, money market, stable value funds). Will see if I can maneuver faster when the next big crisis hits.

I should add that in between the above recessions I managed to beat by a large margin the S&P which was flat. It was both scary and exciting.
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Old 06-21-2014, 10:43 PM   #232
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I don't remember seeing this Variable "use it up" spread sheet mentioned here before, very different from the have more at the end than started with most shoot for. I'm guessing not many fans here, as little to no inheritance would be left.

Variable percentage withdrawal - Bogleheads
I don't get the impression that the majority here are all that worried about whether or not they leave an inheritance.

But most conservative withdrawal plans will end up leaving something (maybe a lot) on the table if things don't go as bad as worst case history. Since the future cannot be predicted, it's not easy to plan to use it all up before you expire.

https://personal.vanguard.com/us/ins...etirement-tool

A 90 YO male has ~ 5% chance to live to 100. But if he makes it to 95, (a 29% chance), he has a 17% chance to live to 100. So even a 90 YO may not want to spend down too quickly.

So I think these ideas are worthwhile - some others are based on a revised RMD formula. All worth considering, IMO.

-ERD50
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Old 06-21-2014, 11:13 PM   #233
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I don't get the impression that the majority here are all that worried about whether or not they leave an inheritance.

But most conservative withdrawal plans will end up leaving something (maybe a lot) on the table if things don't go as bad as worst case history. Since the future cannot be predicted, it's not easy to plan to use it all up before you expire.

https://personal.vanguard.com/us/ins...etirement-tool

A 90 YO male has ~ 5% chance to live to 100. But if he makes it to 95, (a 29% chance), he has a 17% chance to live to 100. So even a 90 YO may not want to spend down too quickly.

So I think these ideas are worthwhile - some others are based on a revised RMD formula. All worth considering, IMO.

-ERD50
Running alternate tools is another check on where you stand, offer another perspective in a down cycle.
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Old 06-22-2014, 02:26 AM   #234
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When people reach their late 80s, can they spend a lot?

Other than for something like long term care?
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Old 06-22-2014, 08:51 AM   #235
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When people reach their late 80s, can they spend a lot?

Other than for something like long term care?

Well that is pretty pricey in and of itself. That is basically why I am still saving. Them senior casino shuttles may help with the draw down rate though. Thanks to the above post, I need to remind myself if I make it to 90 not to look at actuarial table. Long term planning would consist of waking up and determining what to eat for dinner if I am still alive then.


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Old 06-22-2014, 09:53 AM   #236
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When people reach their late 80s, can they spend a lot?

Other than for something like long term care?
I am okay with keeping a nest egg into old age for financial security and leaving it to the kids and charity. I do not think having the last check bounce would make us any happier. Plus I do not know how to do that. With medical advances who knows how long we might live and incur medical costs and long term care costs well into old age. I don't want to have to worry about running out of money at 95, if I am fortunate to live that long.

There is a quote by Bertrand Russell that I like, "The thing that I should wish to obtain from money would be leisure with security."
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Old 06-22-2014, 10:29 AM   #237
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You should note that the graph produced is presenting median results so if the tool says you have a 40% to live to age 85, there is a spread of outcomes with a spread in longevity with, for example a lower decile of 79 and an upper decile of 91! Such is the complexity of statistics...

(and I think life expectancy is far more important than SWR in determining portfolio performance! I use the upper decile in our planning.)
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Old 06-22-2014, 11:50 AM   #238
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Low nineties is entrance the top decile in my case, at 100 I would enter the 1% club, bittersweet. In the near generational future, longevity could well factor as a true wild card for early retirement due to advances.

http://www.cdc.gov/nchs/data/nvsr/nvsr62/nvsr62_07.pdf
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Old 06-23-2014, 10:37 AM   #239
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- low investment returns
- lower amount saved/earned
- higher life span
- expensive end of life care

The "perfect storm" for some future retirees.
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