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Old 06-11-2007, 07:30 AM   #21
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Hi All

Do I understand this correctly? The calculation of 25X expenses gives you a 4% safe withdrawal rate for 40-50 years with an approximate 60/40 stock/bond mix while preserving the portfolio (with the chance that the portfolio could grow if the market does well).

So, if leaving a chunk of change for heirs after you die is "not" a goal, is there a calculation or formula that is _____ X expenses = _____ withdrawal rate for 40 years using essentially all principal?

spncity
-----> not a math major
-----> not sure if this question makes sense :confused:
-----> wondering if willingness to use principal makes our FIRE target a lower sum and thus an earlier date
-----> I understand this is not a "fail safe" strategy, but as a backup plan, healthy spouse could be sent coaxed back to into workplace at least part-time in a prolonged "down" market, heh-heh.
The higher the expenses multiplier, the more likely you can leave something for heirs.
The lower the SWR, the more likely you can leave money to heirs.

For example, if you save 33X expenses, then you will more than likely have money left over. If someone else saved 50X expenses, they would probably have more left than you did.

If you withdraw 4%, you might leave something behind. If I withdraw only 3%, I would probably have more lying around. If someone else only withdrew 2%, they would have more left in the end than either of us.
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Old 06-14-2007, 08:57 PM   #22
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Thank you for replies!

Now, does anybody know where I can get a time machine - because I do an amazing job of retrospective stock picking...!
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Old 06-14-2007, 09:13 PM   #23
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Old 06-14-2007, 11:06 PM   #24
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If you withdraw 4%, you might leave something behind. If I withdraw only 3%, I would probably have more lying around. If someone else only withdrew 2%, they would have more left in the end than either of us.
That is the LBYM strategy. But if you invest like a VC and do it successfully, you can leave a big legacy. Most advice you will find here is related to LBYM and most efficient conservative investing. But that is not the only strategy.

However it does require a lot of work and living outside you comfort zone.
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Old 06-15-2007, 03:17 AM   #25
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My first response to the question is how can there be a formula when the nature of the stock and bond market is so uncertain, as is an individual's life expectancy ?

All one can do is use probability (math to develop expected ranges) of outcome (based on the past) which can be used to extrapolate a possible future. If we do not have world-wide collapse of the financial markets or extraordinary events, it is likely to be a reasonable guide for the future.

Although, a guide is like a road map. It indicates that the road should be there and in good working condition. However, as you drive down that road, you might find construction or obstacles that requires a temporary detour. You may need to adjust your expected speed and arrival time. The guidelines you outlined from the Financial Planning Whitepaper are similar to making travel adjustments... You may need to adjust your spending habits to govern the outflow of money to match your Portfolios expected inflow of capital (i.e., growth). Your expected portfolio performance (like your visibility when driving) is very near to you... the current performance. Similarly, you can only see so far ahead in your car.

If you use reasonable judgment and spending habits... and we do not have extraordinary events (that are catastrophic)... the 4% will work just fine. If things get bad, you will naturally tighten the belt and get by on less. In my book, it is better to tighten the belt early (and make a proactive decision) rather than have it forced on me by running out of money.

This is the risk we take.
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Old 06-15-2007, 09:08 AM   #26
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"If things get bad, you will naturally tighten the belt and get by on less"

I agree... Once my portfolio is positioned to provide a level of cash flow, my simple country boy approach is to evaluate the lay of the land every year and adjust spending accordingly.
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Old 06-15-2007, 09:17 AM   #27
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Do a search for "33% thats my story" and "cutting costs in retirement" as thread topics for some golden oldie info...
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