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Old 05-20-2009, 07:17 AM   #21
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Although we can debate the pros and cons of various withdrawl rates ad nauseum, nothing substitutes for a robust starting balance. I believe that many who wind up experiencing sleepless nights are those who didn't have an adequate cushion to begin with. Start out with a robust nestegg and you can adjust your WD to suit economic circumstance . . . start out with an anemic nestegg and you will likely have to push your luck.
True, but it is just another spin on the same words.

A large starting balance (always a good thing), just means a lower starting WR.

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Old 05-20-2009, 07:17 AM   #22
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(1) How could one think that one of the most important decisions of your life could be a "no brainer"? Thinking is required.

(2) See http://bobsfiles.home.att.net/PrepareForRetirement.html for various charts of SWR vs duration, and vs. financial conditions at the start.

(3) Re-engage brain.
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Old 05-20-2009, 07:48 AM   #23
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While I understand the theory behind the 4%, in actual retirement years it is not that simple a rule to enforce.

I retired at age 59. My wife was to retire the same age, but has yet felt comfortable enough to do so (even if financially, she's OK).

Currently, my withdrawal rate against our combined retirement portfolio is 2.7% (in the third year of retirement). Since my income was higher during working years, and continue to be during retirement it make sense (rather than a 2% & 2% = 4% rate). BTW, all calculations for our portfolio's are "merged" - that is our AA is based upon all holdings in our combined portfolios (I'm more agressive; my DW not so), along with witdrawl forecasts.

However, my wife is expected to retire and claim SS at age 62 (next year). I will not take SS till age 70; that's another subject, and I won't go into the reasons here.

My wife will have two small pension payments (single life) starting at age 65, in addition to her SS and portfolio withdrawals.

So what does this all mean? Simply, you can't follow the "4% rule" unless all your retirement income sources are available on day one of retirement. Additionally, if your plan is based upon a combined plan of both partners, both should retire within the same year (just to make it easier to measure that 4%).

I have/will have a total of four income sources. My wife will also have four. The important thing is that my income sources (starting at age 59) will not come "on-line" till age 70, when my SS starts. My wife? SS at age 62, two pension payments at 65. This leads to an 11 year span of increasing income, as our "sources" become available.

Projections show from the current 2.7% withdrawal, it will increase over the years till a bit over 10% at age 70. At age 71 (the first full year of my SS income) it drops to less than 4% and stays there till our late 80's, early 90's (with the plan going to age 100).

So should we spend less now, and for the next years to keep it at/under 4%? Of course not. If we did, our estate will certainly be large, but it will be at the "expense" of not having a good early retirement lifestyle, as we do now.

Again, the 4% is a good starting point, but it must be observed in your own personal life as to how rigidly you need to follow it.
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Old 05-20-2009, 07:50 AM   #24
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I think all we can say with reasonable certainty is that it's safer now, in hindsight, than it was if you started it 18 months ago.
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Old 05-20-2009, 11:42 AM   #25
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I think all we can say with reasonable certainty is that it's safer now, in hindsight, than it was if you started it 18 months ago.
True. However I can imagine that many perceive may it the opposite. Since they have seen what can happen, they feel less sanguine about withdrawal rates going forward.

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Old 05-20-2009, 12:07 PM   #26
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But I never planned to take 4%. If my memory is correct, 4% is only good for 25-30 years and then you run out of $$$, right?
You're joking of course?
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Old 05-20-2009, 12:17 PM   #27
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Originally Posted by Geoffrey View Post
Although we can debate the pros and cons of various withdrawl rates ad nauseum, nothing substitutes for a robust starting balance. I believe that many who wind up experiencing sleepless nights are those who didn't have an adequate cushion to begin with. Start out with a robust nestegg and you can adjust your WD to suit economic circumstance . . . start out with an anemic nestegg and you will likely have to push your luck.
Gosh..... what a concept! More money is better! I certainly agree with you even if your position is stating the obvious!
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Old 05-20-2009, 12:17 PM   #28
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I'm a percent-of-total fan -- maybe 4.5% per annum, with Clyatt's 95% rule as a backstop. I don't see the economic fluctuations as a reason to back away from that. But it might test your ability to tighten the belt here and there, or maybe stash away a reserve in the good times (maybe a ceiling of 5% in any given year).

I like never running out of money even it it means a little pinching here and there. Heck, we've done that most of our lives.
We decided to use the 4/95 rule to ER in May 08 since it was the only one I knew would support a 40+ year ER with purchasing power intact at the end. However, I didn't fully comprehend the implications of a 27% decline in my portfolio in the very first year!

See table below. 1st year decline in portfolio is 27%, then a steady 7.5% return each year. Withdrawal is 4% of portfolio or 95% of previous year withdrawal - whichever is higher.

I don't know what Bob's model portfolio returned last year, but mine doesn't mirror his exactly - the -27% is the hit my portfolio took in 2008.

YearInitial ValueWithdrawalAfter Withd.ReturnFinal Value
1$1,000,000.00$40,000.00$960,000.00-27.00%$700,800.00
2$700,800.00$38,000.00$662,800.007.50%$712,510.00
3$712,510.00$36,100.00$676,410.007.50%$727,140.75
4$727,140.75$34,295.00$692,845.757.50%$744,809.18
5$744,809.18$32,580.25$712,228.937.50%$765,646.10
6$765,646.10$30,951.24$734,694.867.50%$789,796.98
7$789,796.98$31,591.88$758,205.107.50%$815,070.48
8$815,070.48$32,602.82$782,467.667.50%$841,152.74
9$841,152.74$33,646.11$807,506.637.50%$868,069.62
10$868,069.62$34,722.78$833,346.847.50%$895,847.85
11$895,847.85$35,833.91$860,013.947.50%$924,514.98
12$924,514.98$36,980.60$887,534.387.50%$954,099.46
13$954,099.46$38,163.98$915,935.487.50%$984,630.65
14$984,630.65$39,385.23$945,245.427.50%$1,016,138.83
15$1,016,138.83$40,645.55$975,493.277.50%$1,048,655.27

It takes 15 years to return to the original withdrawal amount - in NOMINAL dollars! And, you would have to survive on 75% of your initial withdrawal (nominal $s) in year 6.

Interestingly, if you take just the 4% (and not limit lowering withdrawals to 95% of previous year), it still takes 14 years to return to the original nominal withdrawal amount. You live with a steep 30% lowering of your spend in the first year, and then slowly get back.

We had decided that we would go back to work if the returns were bad in the initial years, which we are in the process of doing, so we're not in a bind.
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Old 05-20-2009, 12:29 PM   #29
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Nice chart, Walkinwood. Puts a little reality under all the glib assertions that "If things get tough, we'll just cut back for a while". A long while it appears.

Ha
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Old 05-20-2009, 12:34 PM   #30
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Thanks Ha!

It wasn't like I was eager to start looking for work
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Old 05-20-2009, 12:50 PM   #31
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However, I didn't fully comprehend the implications of a 27% decline in my portfolio in the very first year!
I just tried it with a withdrawal rate of 0.0% (no withdrawals). It still takes 7 years to get back to where you started, in nominal dollars again!

We sure took a hit, didn't we.

I think that probably we can take comfort in the fact that usually the market rebounds sharply after a big fall such as we have had, so instead of 7.5% we might be getting several times that return for a few years. Of course, there are no guarantees.
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Old 05-20-2009, 12:55 PM   #32
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We decided to use the 4/95 rule to ER in May 08 since it was the only one I knew would support a 40+ year ER with purchasing power intact at the end. However, I didn't fully comprehend the implications of a 27% decline in my portfolio in the very first year!
There isn't a SWR strategy in existence that would have protected you from the unfortunate timing you ran into, and it sounds like you handled the worst-case-scenario like a champ.

Still, if you hadn't gone back to work and used the traditional withdrawal strategy, you would still be withdrawing your inflation-corrected initial withdrawal amount to this day (and beyond), despite a 27% drop in portfolio value. Very few intrepid souls would have stayed with that strategy for long given what we are going through currently.

The Clyatt plan seems to heartlessly make you adapt as conditions change -- to me a good thing. I like the idea of paying my dues in the year they are incurred, thereby reducing the drastic peaks and valleys in income over the longer term.
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Old 05-20-2009, 12:58 PM   #33
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I just tried it with a withdrawal rate of 0.0% (no withdrawals). It still takes 7 years to get back to where you started, in nominal dollars again!

We sure took a hit, didn't we.

I think that probably we can take comfort in the fact that usually the market rebounds sharply after a big fall such as we have had, so instead of 7.5% we might be getting several times that return for a few years. Of course, there are no guarantees.
The trouble with supposing that is that it would right away put most equity valuations back into meaningfully over valued. In the past when equities have fallen this much they have been very undervalued at the bottom. (Other than 2003)

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Old 05-20-2009, 01:09 PM   #34
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Hmmm - in 16th yr of ER - I really, really really do not to repeat 1965 to 1982.

I ain't gonna work on more (fingers crossed).

.

heh heh heh -
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Old 05-20-2009, 04:14 PM   #35
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I'm 47, planning to be able to live to 100, although I don't expect to. R
I'm 51....my plan goes to 92 years old. Egads...I can't imagine living another 41 years....
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Old 05-20-2009, 04:59 PM   #36
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I'm 51....my plan goes to 92 years old. Egads...I can't imagine living another 41 years....
Hey, you might end up looking like my aunt - she turned 92 last week:
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Old 05-20-2009, 05:07 PM   #37
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Hey, you might end up looking like my aunt - she turned 92 last week:
Ahhhh....such a lovely lady...

My great grandmother was a beautiful woman, even in her late years. I don't think I'm going to take after her....
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Old 05-20-2009, 05:54 PM   #38
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Your Aunt looks good and here is my Mom who is 93 and keeps us hopping . She still does the New York Times crossword in record time .
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Old 05-20-2009, 06:12 PM   #39
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The trouble with supposing that is that it would right away put most equity valuations back into meaningfully over valued. In the past when equities have fallen this much they have been very undervalued at the bottom. (Other than 2003)

Ha
You are of course referring to the US stock market. There are other markets in the world where this is not necessarily so.
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Old 05-20-2009, 06:26 PM   #40
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You are of course referring to the US stock market. There are other markets in the world where this is not necessarily so.
I'm all ears. What are your favorites?

Ha
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