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Re: Is 4% really safe?
Old 04-03-2006, 12:45 PM   #61
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Re: Is 4% really safe?

On the long term care thing......

It seems that what you need to do is either buy long-term care insurance, OR earmark a certain amount from your portfolio in today's dollars that might be tapped into for say 2.5 to 3 years of living in such circumstances. *I think the average time in a nursing home is less than that. *Maybe set aside for 5 years if you want to be more conservative. *If it makes you feel better, subtract this amount from your portfolio when you compute your annual SWR.

In most cases with a prudent SWR, you're portfolio is well on it's way to having excess left over anyway - so unless you go through several bad years when starting out, you may be covered even if you don't subtract the "set aside" amount when computing your annual draw.

The "good news" is that once you are ready for a nursing home, your time line has shrunk big time - in most cases your portfolio doesn't have to last that long so you can afford larger drawdowns.

If you leave a surviving spouse - then you don't want to draw down the portfolio too much, but a single person doesn't need quite as large a portfolio as a couple either. *A healthy spouse may be the best reason to use the "set aside" for at least a couple years of long term care.

If you can't afford to "set aside" for long term care out of your retirement portfolio then you might want to buy long term care insurance instead.

Not sure if this made a whole lotta sense...... (it does to me - just not easy to explain).

Audrey
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Re: Is 4% really safe?
Old 04-03-2006, 06:11 PM   #62
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Re: Is 4% really safe?

Hereís my summary of what I believe Iíve read on this thread and elsewhere:

4% is considered the default initial withdrawal rate, indexed for inflation, but thatís only ďsafeĒ if:

Your total investment costs, including trading costs, arenít above about 0.2%.

You keep a large percentage of your portfolio in equities, to prevent inflation from eating you alive later, and youíre in index funds or otherwise manage not to underperform the market.

Your portfolio is fully tax-sheltered, or you pay all taxes out of your withdrawal, including capital gains taxes.

During a bull market, you never increase your withdrawal more than the index, because youíre going to have to rely on those gains to get you through the next bear market.

Youíre brave enough to stay the course even if the stock market drops 75% again.

Youíre willing to have your money run out in about 30 years.

OR

You plan to die early.

Or youíre willing to take your own life if you donít.

Or you feel youíll retain the ability in your old age to earn some money if needed, or to cut your expenses.

Or youíre confident stocks will do better than they have in the past.

Or you just want to retire early and are willing to take your chances.

Of course, all bets are off if the Chinese and the Saudis call in the U.S. governmentís debt, leading to a collapse of the economy like weíve never seen before.

Jim
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Re: Is 4% really safe?
Old 04-03-2006, 06:40 PM   #63
 
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Re: Is 4% really safe?

Jim,

And don't forget - We're all dead in the long run!

What;s with the 666 - Are you the antichrist or something?
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Re: Is 4% really safe?
Old 04-03-2006, 06:47 PM   #64
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Re: Is 4% really safe?

Jim666, that is why a Gold Hedge is important, as well as holding other currencies.

I do not know about others, but I assume that most have some Government Pensions, some Company Pensions, that the 4% withdrawal is from a Managed Portfolio, so swings are not really dramatic??
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Re: Is 4% really safe?
Old 04-03-2006, 06:55 PM   #65
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Re: Is 4% really safe?

"What's with the 666 - Are you the antichrist or something?"

In numerology, they add up the numbers in your birth date until they each come down to a single digit. My month, day, and year each becomes a 6. I've heard that the antichrist thing is a misreading of Revelations. 6 has always seemed to be my lucky number.

Yes, I agree, in the long run we're all dead.

Jim
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Re: Is 4% really safe?
Old 04-03-2006, 06:56 PM   #66
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Re: Is 4% really safe?

Jim666, here is what I've concluded over the past few years:

- 4% appears to be a pretty conservative SWR based on historical returns of US large cap stocks and non-indexed FI investments. Heavy equity allocations appeared to have been optimal in the past

- more recent studies by folks like Jared Kizer and raddr and others suggest that broader diversification into asset classes such as international equities, REITS, commodities, TIPS, and value stock indexes ought to improve SWR's somewhat.

- the more recent studies of variable withdrawal approaches suggest they might help even more.

So what's a brother to do? *Here's what I'm doing:

- planning for a 55 year retirement period (one of us living beyond 100)

- padding our budget (50/50 basic needs/discretionary)

- assuming the worst wrt to health care costs (but still somewhow living to 100+)

- diversifying broadly, driving down portfolio SD below the portfolio options modeled in *FIREcalc

- using only a 2% fixed + 2% variable withdrawal strategy in the event that future returns are lower than the worst modeled in FIREcalc.

- not ruling out the possibility of having to work at some point to fill in any gaps should all the above prove to be insufficient.

Cb
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Re: Is 4% really safe?
Old 04-03-2006, 07:38 PM   #67
 
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Re: Is 4% really safe?

Quote:
- planning for a 55 year retirement period (one of us living beyond 100)
I've got a friend that is 83 - He has to pee every 10 minutes. - Are you sure want to live to 100?
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Re: Is 4% really safe?
Old 04-03-2006, 07:59 PM   #68
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Re: Is 4% really safe?

Quote:
Originally Posted by Cut-Throat
I've got a friend that is 83 - He has to pee every 10 minutes. - Are you sure want to live to 100?
Can I get back to you when I'm 82?

The Vanguard Longevity calculator say I've a ~33% shot at making 86, and one of us has a 4% at 102. I'm planning for either (very little difference anyway)

http://flagship2.vanguard.com/VGApp/...ireContent.jsp

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Re: Is 4% really safe?
Old 04-03-2006, 09:39 PM   #69
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Re: Is 4% really safe?

Quote:
Originally Posted by Cut-Throat
I've got a friend that is 83 - He has to pee every 10 minutes. - Are you sure want to live to 100?
What does your friend think about that question? Of course he must spend a lot of his thinking time in the bathroom...
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Re: Is 4% really safe?
Old 04-03-2006, 09:47 PM   #70
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Re: Is 4% really safe?

Quote:
Originally Posted by Cut-Throat
I've got a friend that is 83 - He has to pee every 10 minutes...
Might not be be much of a problem if he's a real whiz at peeing...

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Re: Is 4% really safe?
Old 04-03-2006, 10:11 PM   #71
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Re: Is 4% really safe?

Quote:
Originally Posted by Jim666
Hereís my summary of what I believe Iíve read on this thread and elsewhere:
James......

By golly, I've think you've got it!

youbet
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Re: Is 4% really safe?
Old 04-03-2006, 10:30 PM   #72
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Re: Is 4% really safe?

Jim666

Close enough to receive the 'honorary order of the hand grenade.'

I'll save my Norwegian widow counterpoint agrument for a later date.

heh heh heh heh
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Re: Is 4% really safe?
Old 04-03-2006, 11:21 PM   #73
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Re: Is 4% really safe?

Quote:
Originally Posted by Cut-Throat
What;s with the 666 - Are you the antichrist or something?
just wait till all the crazies come out by june "06/06/06"
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Re: Is 4% really safe?
Old 04-04-2006, 07:33 AM   #74
 
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Re: Is 4% really safe?

Quote:
Originally Posted by Nords
What does your friend think about that question? Of course he must spend a lot of his thinking time in the bathroom...
He is pissed about it. Very Pissed!
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Re: Is 4% really safe?
Old 04-04-2006, 08:59 AM   #75
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Re: Is 4% really safe?

Quote:
Originally Posted by Cut-Throat
I've got a friend that is 83 - He has to pee every 10 minutes. - Are you sure want to live to 100?
My father wears a condom like catheter and leg bag. He started wearing it several year ago. Seems to live with it well enough. He doesn't have to worry about wet dreams.
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Re: Is 4% really safe?
Old 04-04-2006, 09:06 AM   #76
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Re: Is 4% really safe?

Quote:
Originally Posted by MJ
My father wears a condom like catheter and leg bag. He started wearing it several year ago. Seems to live with it well enough. He doesn't have to worry about wet dreams.
Or at least, unsafe wet dreams...

(Hey, the topic was about safe withdrawals...)

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