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Old 04-24-2013, 01:55 PM   #41
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+1. If you look at other countries the 4% rule doesn't work....and it is not the way people in other countries fund their retirement, most buy annuities. The UK has introducing DC plans that use mutual fund in the accumulation phase, but the default income vehicle is still an annuity.
If I only felt comfortable with a 2% SWR and didn't have a pension covering essentials I would look carefully at annuities for at least my essential expenses. You should be able to cover them with a substantially smaller portion of your portfolio than would be dedicated to them at 2% or 3%.
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Old 04-24-2013, 02:02 PM   #42
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If I only felt comfortable with a 2% SWR and didn't have a pension covering essentials I would look carefully at annuities for at least my essential expenses. You should be able to cover them with a substantially smaller portion of your portfolio than would be dedicated to them at 2% or 3%.
I'm not sure an annuity is really much of a lifeboat against markedly lower growth going forward. If the underlying securities in which the insurer invests also underperform, they won't be able to pay out as promised. Their guarantees are largely backstopped by mutual agreement between the companies--good in case of a single isolated problem with a company, not useful at all if a significant percentage of assets are underperforming across the industry.
I see annuities as being potentially helpful in insuring against longevity risk, and that's about it.
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Old 04-24-2013, 02:45 PM   #43
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In the US. And during the time we were rising as a global economic superpower. Right? Because a 4% withdrawal rate doesn't have a good track record in most places over most time periods.
So, we're back to the (unanswerable) question of how applicable the past highly selective US data will be going forward.
This is similar to my thinking as well. I think of the first few decades after WW2 as an anomaly, a fortuitous best case scenario for the US economy when almost all economic factors seemed to line up favorably in a "perfect storm", that will likely never be seen again in our lifetimes.
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Old 04-24-2013, 03:10 PM   #44
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This is similar to my thinking as well. I think of the first few decades after WW2 as an anomaly, a fortuitous best case scenario for the US economy when almost all economic factors seemed to line up favorably in a "perfect storm", that will likely never be seen again in our lifetimes.
So the first few decades after WW2 were the 50's and 60's. I guess the 80's and 90's don't count then?? I guess you'll have to get by on a 1% withdrawal rate then.

Myself, I see fantastic things coming on line for the US. Cheap energy (haven't even started to touch most of the Bakken field, NG all over in New York and Penn, old fields in Texas brought to new life with fracking), IT advances with bio and nano tech. Stuff we haven't even thought of yet! Why the heck be so gloomy??

In 10 years I bet the "new normal" crap of now will be compared to the "new economy" buzz words of 1999.
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Old 04-24-2013, 03:23 PM   #45
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Why the heck be so gloomy??
I hope you are 100% correct. Maybe you will be. But we don't get to run a hundred trials and use the average, we get one shot at this.
Other countries have had rosy prognostications in years gone by, but the market didn't live up to their plans. There's no disputing that you are using the most prosperous years of the most prosperous country the world has known as your baseline, and assuming things will be about the same going forward. Trees do no grow to the sky. If you look at the demographic, economic, cultural, and political changes in the US since 1950, it's very hard to argue persuasively that the situation here hasn't changed in very important ways.

All of this is a good reason to take a "% of year end balance" rather than an ongoing inflation adjusted dollar amount. Whoever is right about future growth rates, adjusting as we go will let us enjoy it a lot more if things go through the roof, or successfully pare back if they don't. That decision (% of year-end balance or straight inflation adjusted dollar amount) probably makes a LOT more difference than whether we take 2.5% or 4%.
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Old 04-24-2013, 03:51 PM   #46
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I hope you are 100% correct. Maybe you will be. But we don't get to run a hundred trials and use the average, we get one shot at this.
Other countries have had rosy prognostications in years gone by, but the market didn't live up to their plans. There's no disputing that you are using the most prosperous years of the most prosperous country the world has known as your baseline, and assuming things will be about the same going forward. Trees do no grow to the sky. If you look at the demographic, economic, cultural, and political changes in the US since 1950, it's very hard to argue persuasively that the situation here hasn't changed in very important ways.

All of this is a good reason to take a "% of year end balance" rather than an ongoing inflation adjusted dollar amount. Whoever is right about future growth rates, adjusting as we go will let us enjoy it a lot more if things go through the roof, or successfully pare back if they don't. That decision (% of year-end balance or straight inflation adjusted dollar amount) probably makes a LOT more difference than whether we take 2.5% or 4%.
Not arguing with what you say, just that many here are far too gloomy about the future. As one poster stated, the US was in a perfect environment after WW2 and the 50's and 60's were great. But then came the 70's and the world had caught up to us and in fact was better off in some ways as they had all new factories build from the ashes, while we had our factories from the 40's. And how cheerful were most of us in the glorious 70's?? High inflation, stagnant economy, Japan kicking our butts in cars, etc.

But then a little thing came along called the PC and that interesting connection called the internet and a whole new paradigm came. WW2 was long gone by this time so lose that canard. Productivity expanded, information was instantly available and whole new industries emerged (Oracle, Microsoft, Apple, Yahoo, and on and on), stuff nobody anticipated. And so it came to be that the 80s and 90s were great for investments, just like the 50s and 60s.

With new energy sources coming on line (who saw that?? the US will be an exporter in a few years) our industries will be extremely competitive going forward. Now if congress will pass a budget and stop fiddling with countless regulations, the gears of industry can start moving again.

Sorry if I've been too optimistic for some. But please consider that the possibilities may be better than what "the new normal" assumes. The younger generations are going to push us old fogies out of the way and create their own world and it most likely will be better than ours.
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Old 04-24-2013, 04:01 PM   #47
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So the first few decades after WW2 were the 50's and 60's. I guess the 80's and 90's don't count then?? I guess you'll have to get by on a 1% withdrawal rate then.
IMO the growth after the early 1970s was more fueled by debt -- personal, corporate *and* government debt -- than by equity. That's when we started building the economic "house of cards". We kept making promises based on the economic assumptions of the "perfect storm" era, and eventually we could only do it with more and more debt.

I'm not an extreme pessimist about the future I don't know how we can come close to the "glory days" of the US economy with this much debt, this much unemployment and seemingly no (peaceful) catalyst to kickstart the economy, good domestic jobs and get the debt down as a percentage of GDP if not in absolute terms.
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Old 04-24-2013, 04:17 PM   #48
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My 2% plan lets me sleep at night.
Unless you can only get 1% or worse
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Old 04-24-2013, 04:28 PM   #49
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Unless you can only get 1% or worse
I'm taking 4% (maybe more). When the $$ runs out when I'm 94, I can laugh and say I had a damn good time
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Old 04-24-2013, 04:42 PM   #50
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I'm in the optimistic camp myself. I don't see anyone poised to eat our lunch and I expect technology to continue to amaze. That said, I manage my finances like a pessimist since I don't want to be caught with my spend thrift pants down if I guessed wrong. This way, I can splurge later and/or leave a big nest egg. In the meantime, I am living quite well spending less than 3%.
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Old 04-24-2013, 06:56 PM   #51
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You have to hand it to Yahoo to be "fair and balanced". I noticed the article from OP was last week. Now this week, they have put this article in their financial section. The article goes into the 4% rule and is suggesting it is not viable, now. I know everyone's situation is unique, but the articles defiantly contrast each other.

The old rule of thumb that allowed retirees to withdraw 4 percent of their savings per year should be thrown out the window in today's low-yield world, a study released in January found. Using the traditional 4 percent withdrawal rate, portfolios will run dry at a higher rate than ever before, found researchers Michael Finke, Certified Financial Planner professional; Wade D. Pfau, Certified Financial Analyst; and David Blanchett, CFA and CFP. Based on the real yields offered on five-year Treasury Inflation Protected Securities as of January 2013, the failure rate for retirement account withdrawals, or when they run out of money, using a 4 percent per year schedule is as high as 57 percent.

The original study that arrived at the 4 percent withdrawal rate was done by William Bengen and was based on a real return on bonds of 2.6 percent. The asset-allocation mix necessary to successfully draw down a portfolio in Bengen's study required that a portfolio devote at least 50 percent to stocks.

The study released this year used a 50-50 allocation between stocks and bonds and concluded that under current market conditions, "Even a 3 percent withdrawal rate has a more than 20 percent failure rate for all asset allocations," according to the paper, "The 4 percent rule is not safe in a low-yield world."

http://finance.yahoo.com/news/retiri...183331108.html
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Old 04-24-2013, 07:27 PM   #52
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The study released this year used a 50-50 allocation between stocks and bonds and concluded that under current market conditions, "Even a 3 percent withdrawal rate has a more than 20 percent failure rate for all asset allocations," according to the paper, "The 4 percent rule is not safe in a low-yield world."

Retiring on CDs Not Viable - Yahoo! Finance
The article kind of wanders about. Talks about CDs, TIPS and then 50-50 allocations, and ends with a question of whether we are entering the "the age of annuities."

No wonder people get confused and have to pay a FA 1% a year.
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Old 04-24-2013, 07:46 PM   #53
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Based on the real yields offered on five-year Treasury Inflation Protected Securities as of January 2013, the failure rate for retirement account withdrawals, or when they run out of money, using a 4 percent per year schedule is as high as 57 percent.

.... and concluded that under current market conditions, "Even a 3 percent withdrawal rate has a more than 20 percent failure rate for all asset allocations," according to the paper, "The 4 percent rule is not safe in a low-yield world."
I'm pretty ignorant when it comes to financial matters, but to me, a study based on bond yields "as of Jan 2013" and "current market conditions" is kind of flawed. As I understand it, SWR are based on the whole history of the market, not current conditions. But maybe I'm missing something.
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Old 04-24-2013, 07:47 PM   #54
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Not arguing with what you say, just that many here are far too gloomy about the future. <>Sorry if I've been too optimistic for some. But please consider that the possibilities may be better than what "the new normal" assumes.
It isn't that you are too optimistic, it is that you seem certain about things that no one can be certain about. What you are selling is faith. I think faith is often a good thing to have, but selling it is more a job for politicians and generals.

In a earlier post you said
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Certainly 4% was a valid SWR for them. And for the vast majority of people on this forum.
With regard to your parents, the information is all or mostly in, so you can deem their 4% adequate. But as to "the vast majority of people on this forum", I'd say that might be hard to know. First what their situations are, and second, what the future holds in store, no matter what your opinions about energy and nanotechnology might be.

Why would you want to sway the presumably well considered opinions of strangers participating on a discussion board?

Ha
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Old 04-24-2013, 08:07 PM   #55
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I'm pretty ignorant when it comes to financial matters, but to me, a study based on bond yields "as of Jan 2013" and "current market conditions" is kind of flawed. As I understand it, SWD are based on the whole history of the market, not current conditions. But maybe I'm missing something.
Totally agree. It is as if they took the situation today and straight line extrapolated it -- but only for the fixed/bonds. Never mind in today's world over the last 3 years or so would be awesome at 50/50 due to the equity element.

It is almost as if the assumption is equities will do what they do over the long term, but bonds and fixed are doomed forever.
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Old 04-24-2013, 08:18 PM   #56
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The article kind of wanders about. Talks about CDs, TIPS and then 50-50 allocations, and ends with a question of whether we are entering the "the age of annuities."

No wonder people get confused and have to pay a FA 1% a year.
That is exactly what I thought... I opened the link expecting a read an article about seniors who have all their money in CDs and quickly draining their accounts. Instead it became an article about withdrawal rates and hardly anything about the headline. I have read that at websites such as MSN and Yahoo oftentimes, the person who writes the article, does not have any control over the title.
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Old 04-24-2013, 08:51 PM   #57
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I think most people look at SWR studies to see what will succeed in the future. I think this is the wrong way of thinking about the data / studies. I see them as more useful to define what will likely fail (if it didn't succeed in the past I don't think it will work going forward).
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Old 04-24-2013, 09:48 PM   #58
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And during the time we were rising as a global economic superpower.
Since I often see this argument made to justify the view that "this time it's different," I want to remind you that the U.S. was already the world's largest economy by 1900.

So it really was in 1900 that the argument should have been made that "we've just finished growing to global preeminence. Where is there left to go?"

For an investor, that would have been very, very costly reasoning then, as I suspect it is now.
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Old 04-25-2013, 05:54 AM   #59
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What's interesting to me about all these discussions about "safe" withdrawl rates is that they have little relevance to what people actually do. Who on earth takes 4% from their portfolio and then that plus inflation for the next 30+ years? I get so much more out of discussions around real world strategies and approaches. My parents never invested in stocks, lived responsibly, had a good and happy life and a comfortable retirement. More to learn from them than a hypothetical spread sheet analysis.
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Old 04-25-2013, 06:09 AM   #60
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I think the point that cannot be overlooked is that very well-respected experts are making it clear there are strong indications that what worked in the past - financially - will no longer work. So while we may be able to learn from the past with regard to health, attitude, and other matters of perspectives, this one specific aspect of life very likely requires a change in thinking.
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