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Re: Is 4% really safe?
Old 04-02-2006, 07:57 PM   #41
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Re: Is 4% really safe?

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Originally Posted by Nords
Yeah, but how many Lexuses (Lexii?) can your spouse drive?
Just the one, but daddy will need a new car soon...

And a housekeeper wouldnt suck.

The car dealer could do all my repairs and maintenance.

And some other guy could climb up on my roof the next time the ceiling develops a sprinkler system.

Then theres that 10 acres of land we keep talking about.

And the cottage up at lake tahoe.

Not to mention that pesky college thing thats going to show up in 16-17 years.
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Re: Is 4% really safe?
Old 04-03-2006, 12:03 AM   #42
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Re: Is 4% really safe?

A few comments and . . . from posts waaaaay up higher.

I said before that it's a worse failure to have 10 million on your deathbed than to realize (not discover, you'd see it coming earlier) you are out of money a year before you die.

People disagreed, but I phrased it in a particular way and I think the careful phrasing was missed entirely. Specifically, the situation means you spent many many years or decades of retirement not enjoying your money to the maximum extent possible vs discovering yourself out of money for a year of misery.

The focus I was suggesting was the differential in duration. Not the situation itself. You would have spent decades, not years, decades of retirement not maximally enjoying your money. Versus just one year having some government program feed you.

That is why it's a worse failure. The duration of the circumstances. Not the circumstances themselves. And. . . yeah, I know it's a tad bizarre, but you do have control over the duration of misery if you're out of money.

Might I also point out that those folks who asserted that happiness is not determined by how much they spend and that underspending doesn't mean they are under happy . . . in the interests of consistency have to adopt that same attitude at end of retirement. Just because the person is out of money and some government aid program is feeding him, well, if they are of the category described then that situation doesn't mean the old guy is unhappy. Maybe he sits in the park between government meals and is happy as a clam. (and I've surveyed clams, they are happy).

My apologies for not being able to quote from earlier in the thread. Bit of newbie on this interface.

One more point. My issue that Firecalc's SWR, for most people, should have an SS input -- and also a Medicare input showing a decrease in medical expenses . . . seemed to run into disagreement that medical expenses may not decline when Medicare kicks in because people can get expensively sick as they age.

Well, I think this misses the point. If someone on Firecalc was estimating his expenses, he estimated medical expenses too, and he did so for old age. Whether or not the person did the estimate well is not the point. The point is . . . Medicare kicking in at that age reduces whatever the estimated expenses were. It simply does because it's there and whatever your insurance premiums were the day before Medicare begain, they should have gotten smaller the next day.

So if the guy's estimate is wrong, it is wrong. But it is more probably wrong with no Medicare considered than with Medicare considered, and it's probability that we're dealing with.

Now maybe I don't understand this. Can someone say that private non group insurance past 65 is in fact available in the US and the premiums for the same coverage costs less than Medicare? I thought all private policies shut off for primary coverage at 65 because Medicare kicks in and they are at most supplemental. Anyway, I guess I can get educated. Which is it? Are typical private policy premiums for the same coverage as Medicare, at age 64, less than or more than Medicare's premiums 1 yr later?
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Re: Is 4% really safe?
Old 04-03-2006, 12:14 AM   #43
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Re: Is 4% really safe?

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The point is . . . Medicare kicking in at that age reduces whatever the estimated expenses were.* It simply does because it's there and whatever your insurance premiums were the day before Medicare begain, they should have gotten smaller the next day.*
My point is that extended stays in a full-care facility are not covered by Medicare. Medicaid, maybe, but not Medicare.

And Medicaid doesn't kick in until the assets are largely gone, which may also put a spouse in a very financially precarious position.

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Re: Is 4% really safe?
Old 04-03-2006, 12:14 AM   #44
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Re: Is 4% really safe?

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Originally Posted by rodmail
Which is it?* Are typical private policy premiums for the same coverage as Medicare, at age 64, less than or more than Medicare's premiums 1 yr later?
My premiums are about the same, but Medicare + Medigap provides better coverage than the plan I had. One additional factor is that Medicare ( and Medigap in my state) premiums do not change with age. So, the 65 y.o. is relatively overpaying, and the 90 year old is underpaying.

Ha

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Re: Is 4% really safe?
Old 04-03-2006, 12:32 AM   #45
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Re: Is 4% really safe?

i see my expenses going up as i get older, not down. i can be very happy now in a roadside motel for a weekend get-a-way with my mountain bike. but when i'm in my 60's or 70's it might be nice to limo over to the first class flight and maybe some good hotels where they open the doors for ya. if you open the door for me now i'm gonna suspect something. but later in life, my guess is i'll appreciate it. and it'd be nice to be able to afford it.

as to healthcare. mom's in home care was about an extra $40k/year if i remember right and the last three have been at $60k+/year in locked unit of assisted living facility.

a friend of mine used to refer to dying today as nothing more than a complicated billing procedure.
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Re: Is 4% really safe?
Old 04-03-2006, 01:32 AM   #46
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Re: Is 4% really safe?

Our expenses are projected to go down over time. We have some unique expenses in the first 10 years of ER that will ramp down during that time. We plan on an initial SWR of 6 ish % initially and will evaluate each year to adjust as needed or spend more.

After about year 8 we should be down to 4 ish %. Later it will actually go back up due to RMDs on our IRAs so we want to actually spend one of them down a bit more than usual during the initial 10 years to keep the income more managable when RMDs do start. Don't underestimate the effects of growth over 20+ years and the impact on RMDs and taxes. :P

We also have a fall back position if it "hits the fan". We can run for the cabin and live there pretty well with very little expenses except for LPgas and electricity. Our expenses would go to under $35k/year. Our pension would cover most of that after tax and we would still have medical covered. Our lowest projected annual living expenses (bare bones but pre-dumpster diving) would be about $20k. I don't want to have to live on that but we could; I have done it many times before. My parents did for many years after they retired but in a lower COL area.

In our twighlight years, we expect to have more than we know what to do with. RMDs will continue to go up each year as our needs go down. We feel it is much better to spend early and often since we won't enjoy it as much when we are in our 80's....if we make it that far. Family history would indicate we should not have to plan for living much past 85.

6%, 4%, 2%? Whatever works for you over the LONG term. Ours will by design, vary over time with a heavy inital rate followed by a much smaller one. We will man the throttle each year and adjust as needed.

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Re: Is 4% really safe?
Old 04-03-2006, 07:57 AM   #47
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Re: Is 4% really safe?

Quote:
Originally Posted by rodmail


I said before that it's a worse failure to have 10 million on your deathbed than to realize (not discover, you'd see it coming earlier) you are out of money a year before you die.

People disagreed, but I phrased it in a particular way and I think the careful phrasing was missed entirely.*
Not at all.* I think there were two points made regarding your scenario.

1.* It's absolutely right for you but that doesn't mean it's right for everyone else.* If I can take a pass on a handful of extravagent items early in RE to significantly increase the probability of being able to self-fund my final years, I'd chose to do that.* But if that doesn't work for you, no problem.* I don't even mind that my tax dollars will be going into your welfare check.* Those sort of things happen and that's why we have a society that provides some minimal safety nets.

2.* Your scenario is only hypothetical.* There is no way to "see it coming" accurately as you suggest.* If we all could predict financial market performance and our longevity, plannng would get a lot simpler!* So your hypothesized scenario of being broke for one year might actually be no years, or two years, or three years......... or more.

Are you RE yet?*
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Re: Is 4% really safe?
Old 04-03-2006, 08:19 AM   #48
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Re: Is 4% really safe?

Quote:
Tryan clearly has the goal of giving money away and not enjoying it.*
Actually if I had my way ... I'ld die broke.* But with my DW 7 years younger, this is really not an option.* Her grand mother traveled Europe into her 80's ... DW will be around long after me;* need to plan for that.

I really don't see a 3% withdrawl rate for someone planning for 40+ years as too conservative.* And if the wad accumulates over the first 20 years ... I'll spend it.

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If that is the goal, work until you die.
Not an option ... fire'd last year.*
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Re: Is 4% really safe?
Old 04-03-2006, 08:21 AM   #49
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Re: Is 4% really safe?

Yep

In real life mine has varied over the last 12 years. I use both FireCalc and ORP to keep me on the beam via snapshots of different variations. Due to circumstances - actuals ran below 4% and close to current yield(aka the Norwegian widow).

Due to death, Katrina and infamous march of time, not to mention the looming of RMD in 7 1/2 years: *will be ramping up spending this year (5% or so) and paying way more in taxes as a single person. Did get 85% trad IRA down with some mini Roth conversions.

The 4% rule, the various calculators, I use/d as working tools(dare I use that word) to keep me on the beam as ER progresses.

Put me in the variable camp ala the Bear: 'agile, mobile and hosile.'

For Defense - I keep a cut list budget wise - in case I have to fall back to the Norwegian widow position and live strictly on current yield until 'hard times' pass.
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Re: Is 4% really safe?
Old 04-03-2006, 08:32 AM   #50
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Re: Is 4% really safe?

Quote:
Originally Posted by Nords

What Cut-Throat and others are trying to point out is that calculators don't handle a variable SWR.
Huh? Aren't you familiar with the approach SG came up with using FIREcalc?

Set your annual withdrawal to 2%, then boost your portfolio expenses by, say, 3% to represent the variable portion of your draw.

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Re: Is 4% really safe?
Old 04-03-2006, 08:38 AM   #51
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Re: Is 4% really safe?

tryan

You are in a totally different ballgame. Have you trained DW in RE? Looked into setting up a hands off management structure of some sort?

The RE game is different breed of cat - I never really pumped the guys I knew during working years on how they planned to 'play the game in retirement'. Other than sell apiece here and there when the time was ripe. The other - train my son to take over.

What's da plan??

heh heh heh heh - I knew people who 'did' RE successfully in retirement but never paid attention to details - like us stock cats and calculators.
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Re: Is 4% really safe?
Old 04-03-2006, 08:44 AM   #52
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Re: Is 4% really safe?

Yep

SG came up with some pretty cool ways to 'hotrod' FireCalc.

Tryed some of his suggestions in the past - very enlightening.
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Re: Is 4% really safe?
Old 04-03-2006, 11:14 AM   #53
 
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Re: Is 4% really safe?

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Originally Posted by Cb
Huh? Aren't you familiar with the approach SG came up with using FIREcalc?

Set your annual withdrawal to 2%, then boost your portfolio expenses by, say, 3% to represent the variable portion of your draw.

Cb
Not sure I follow this. - Could you explain please.

What I was hoping to have a calculator do was take a lesser amount after down market years (which I would do anyway) and take a greater amount after up market years.

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Re: Is 4% really safe?
Old 04-03-2006, 11:45 AM   #54
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Re: Is 4% really safe?

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Originally Posted by Cut-Throat
Not sure I follow this.* *- Could you explain please.

What I was hoping to have a calculator do was take a lesser amount after down market years (which I would do anyway) and take a greater amount after up market years.

That's what I'm talking about...taking a portion (say, 2%) of your witrhdrawal on a "fixed" basis as per the traditional use of FIREcalc, and taking an additional percentage (say, 2.5%) as a portion of remaining portfolio...that portion swings around a bit based on recent market returns. Incorporating that bit of feedback boosts SWR's appreciably. See SG's study here:

http://www.s152957355.onlinehome.us/...num=1107790433

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Re: Is 4% really safe?
Old 04-03-2006, 11:56 AM   #55
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Re: Is 4% really safe?

Is 4% safe - yes and no.* This is what I wrote to help explain this too my wife.

4% withdrawal generally based on – 60% stock/40% bonds, U.S. history only, 25 yr life expectancy, no investing costs, mean reversion, annual increase for inflation

small total reits corp total bills* * Past U.S. investor averages (up to 200 yrs)
* * * * *stock* * * * * * * * bond
* * * * * *12* * * * * * * * * * * * * * * * * arithmetic return
* * * * * *-1* * * * * * * * * * * * * * * * * *near geometric return
* * * * * *-1* * * * * * * * * * * * * * * * * *survivor bias
* * * * * *10* * * * * * * * * * * 6* * * * * *nominal return
* * * * * *-3* * * * * * * * * * * -3* * * * * inflation
* * * * * * 7* * * * * * * * * * * *3* * * * * *saving
* * * * * *-2* * * * * * * * * * * -1* * * * * average down
* * * * * * 5* * * * * * * * * * * *2* * * * * *withdrawal

Now with international averages, investing costs, no mean reversion, conservative retiree.

small total reits corp total bills* Past averages and extrapolated returns
* * * * *stock* * * * * * * * bond
* * * * * *12* * * * * * * * * * * * * * * * * *arithmetic return
* * * * * *-1* * * * * * * * * * * * * * * * * * near geometric return
* * * * * *-1* * * * * * * * * * * * * * * * * * survivor bias
* * * * * *10* * * * * * * * * * * 6* * * * * *nominal return
* * * * * *-3* * * * * * * * * * * -3* * * * * *inflation
* * * * * *-2* * * * * * * * * * * -1* * * * * *investing costs
* *6* * * *5* * * 4* * * *3* * * 2* * * 1* * saving u.s. domestic investor
* * * * * *-1* * * * * * * * * * * -1* * * * * *lower* international
* *5* * * *4* * * 3* * * *2* * * 1* * * 0* * saving u.s. global investor
* * * * * *-1* * * * * * * * * * * -1* * * * * * lower international
* *4* * * *3* * * 2* * * *1* * * 0* * * -1* *saving u.s. international only investor
* * * * * *-2* * * * * * * * * * * -1* * * * * * withdrawal

Near 0% after tax net real return by late life from ever more conservative portfolios.

Divide after tax fixed pensions and mixed portfolios annually over IRS life expectancy, spending part and investing the rest, thus adjusting fixed pensions for past inflation and matching conservative withdrawals to 401k type plans required minimum distributions.

Bernstein “Four Pillars of Investing” book (efficientfrontier.com)
Bogle “Common Sense on Mutual Funds” book (vanguard.com, related sites)
Hebeler “JK Lassers Your Winning Retirement Plan” book (analyzenow.com)

Jorion “Long term risks of global stock markets” article* fin. mgmt. 2003
Cooley, Hubbard, Walz “Retirement savings: choosing a withdrawal rate…”paper
Charnes, Robinson “Sustainable withdrawals” paper (includes synopsis of other articles)
Dimson, Marsh, Staunton “Irrational Optimism” paper
Jorion, Goetzmann “Global stock markets of the 20th century” paper
Dichev “What were investors actual historical returns” paper
Lewellen “Predicting stock returns with financial ratios” paper
Campbell, Thompson “Predicting the equity premium out of sample” paper
Frazzini “Dumb money: mutual fund flows and the cross section of returns” paper

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Re: Is 4% really safe?
Old 04-03-2006, 11:58 AM   #56
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Re: Is 4% really safe?

To my knowledge the Cooley, Hubbard, Walz “Retirement savings: choosing a withdrawal rate…”paper was the origin og the 4% drwa.
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Re: Is 4% really safe?
Old 04-03-2006, 12:00 PM   #57
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Re: Is 4% really safe?

'of the 4% draw'. Interrupted while typing.
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Re: Is 4% really safe?
Old 04-03-2006, 12:08 PM   #58
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Re: Is 4% really safe?

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To my knowledge the Cooley, Hubbard, Walz “Retirement savings: choosing a withdrawal rate…”paper was the origin og the 4% drwa.
Correct. The paper is known as the Trinity Study (Cooper, Hubbard and Walz were business professors at Trinity University), referenced by Scott Burns in several of his columns.

http://www.dallasnews.com/s/dws/bus/.../trinitystudy/

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Re: Is 4% really safe?
Old 04-03-2006, 12:29 PM   #59
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Re: Is 4% really safe?

My point is that by introducing non-U.S. history and adjusting the average returns for historic investing costs, most of the twists and turns article writers use to raise the withdrawal rate are just data mining.


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Re: Is 4% really safe?
Old 04-03-2006, 12:36 PM   #60
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Re: Is 4% really safe?

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What's da plan??
Well the RE training sessions started when I left the day job. *Little slow at first but it's catching on.

Long term I'll drop all the real estate (probably around the time SS and pension kick in - 23 years out) and set up a dividend paying stock portfolio (a lesson from the Norwegian widow). *This way the DW will be pretty much on auto-pilot.

All of this subject to change - of course - but it's a start.
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