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Jim Collins Post--Another SWR Strategy
Old 09-10-2017, 12:27 AM   #1
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Jim Collins Post--Another SWR Strategy

Lots of different SWR strategies. Here's another I found interesting:

Sleeping soundly thru a market crash: The Wasting Asset Retirement Model
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Old 09-10-2017, 01:01 AM   #2
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WARM elevates expense management (which you can control) over portfolio performance (which you can’t control). In the process, WARM lowers the risk of outliving your money, removes the need for expert advisors, and cuts income taxes. The price you pay for all this tranquility is: (1) a slightly larger nest egg; (2) a slightly lower burn rate; or (3) a thoughtful mix of each.


By simply dividing the total portfolio by estimated years of life, neglecting investment returns and ignoring social security, WARM (Wasting Asset Retirement Model) gives a lower spending rate from a portfolio, but the author claims better sleep. Requires portfolio about 20% larger than a 4% SWR spending plan.

Seems like a wasteful way to calculate, although it is novel.
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Old 09-10-2017, 03:51 AM   #3
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WARM elevates expense management (which you can control) over portfolio performance (which you can’t control).......
growing older, thanks for the summary.

FN
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Old 09-10-2017, 05:38 AM   #4
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WARM elevates expense management (which you can control) over portfolio performance (which you can’t control). In the process, WARM lowers the risk of outliving your money, removes the need for expert advisors, and cuts income taxes. The price you pay for all this tranquility is: (1) a slightly larger nest egg; (2) a slightly lower burn rate; or (3) a thoughtful mix of each.


By simply dividing the total portfolio by estimated years of life, neglecting investment returns and ignoring social security, WARM (Wasting Asset Retirement Model) gives a lower spending rate from a portfolio, but the author claims better sleep. Requires portfolio about 20% larger than a 4% SWR spending plan.

Seems like a wasteful way to calculate, although it is novel.
my feeling too . most americans can't even make the grade for a conventional 4% swr . to require 20% more is silly
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Old 09-10-2017, 06:25 AM   #5
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On the start of blog, I thought rayinpenn wrote it!
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Old 09-10-2017, 08:05 AM   #6
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"Save more" is not a helpful contribution to the field of retirement finance, IMO.

Yet you see it all the time.
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Old 09-10-2017, 08:08 AM   #7
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By simply dividing the total portfolio by estimated years of life, neglecting investment returns and ignoring social security, WARM (Wasting Asset Retirement Model) gives a lower spending rate from a portfolio, but the author claims better sleep. Requires portfolio about 20% larger than a 4% SWR spending plan.

Seems like a wasteful way to calculate, although it is novel.
Not really. It simply reflects the fact that if you have relatively fewer years left capital reserves starts to dominate returns on capital.

In my case 37 years old. Say maximum life = 100; 63 years left => withdrawal rate of 1.6%. This less than half what most others would say is reasonably ok to make it.

For my granny: 86 years old .. >7%.

I treat is as a sanity check and a 'lower floor' for spending. It's simply the amount in % you can spend if you invest inflation-neutral.
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Old 09-10-2017, 09:35 AM   #8
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the problem is you can't avoid sequence risk and according to milevsky , for the exact same average return the order can have a 15 year difference in how long the money lasts over a 30 year period .
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Old 09-10-2017, 10:19 AM   #9
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the problem is you can't avoid sequence risk ...
Sure you can. Or, more accurately, you can reduce it to being very low.

Using the bucket approach, I have enough cash and near-cash assets (the short term bucket) to fund our lifestyle for at least five years. The rest of the portfolio is in a "long term" bucket and may even be 100% equities. During a five year time span, the market can be up, down, or sideways. When it's up and maybe when it is sideways, I sell from the long-term bucket keep the short-term bucket topped off. When the market is abysmally down, aka sequence-of-returns risk event, I do nothing. So, just before the crash I will have 4-5 years of spending in my short term bucket. Even if the crash and recovery spans 4 years, I am a happy guy and remain highly confident that I will eventually be able to replenish my short term bucket by selling assets that have recovered from the crash.
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Old 09-10-2017, 10:34 AM   #10
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I too think this is overly-simplistic and doesn't fully contemplate a 1970s style inflation issue. (Though breaking those inflationary means big interest rates which ironically serves to provide some protection to the value of cash.)

That said, on my FIRE analysis spreadsheet I do have a "how long would it last" row where I divide remaining balance by my estimated withdrawal rate. It serves to remind me that fancy math can overshadow the simplicity "that pile of money would last 35 years assuming returns simply match inflation."
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Old 09-10-2017, 10:37 AM   #11
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How to deal with inflation: trim that spending!

Hmmmmmmm....
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Old 09-10-2017, 10:57 AM   #12
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How to deal with inflation: trim that spending!

Hmmmmmmm....
I think that, actually, is more sensible than obsessing over withdrawal rates to the tenth of a percent. Really, these calculations are garbage-in, gospel-out for the most part. As Taleb's turkey learned, inductive reasoning can lead to seriously wrong conclusions. Turkey Problem - Nassim Taleb

Life is unpredictable. Investment returns are unpredictable. Hence, spending cannot be predictable. Cars, travel, charity, gifts to family, steak or chicken, etc. are all things that can be managed. Medical events cannot. Even housing cost can be managed if circumstances dictate.

I am a happy turkey right now, relying on inductive reasoning to believe that we have more more money than we will ever need. But the farmer with the axe might come up behind me at any time. There's nothing I can do about that.
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Old 09-10-2017, 04:25 PM   #13
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I think that, actually, is more sensible than obsessing over withdrawal rates to the tenth of a percent....Cars, travel, charity, gifts to family, steak or chicken, etc. are all things that can be managed...Even housing cost can be managed if circumstances dictate.
How Much Can You Safely Withdraw from Your Portfolio Each Year in Retirement? - SimplyRich

How Would Less’s Retirement Approach Have Worked from 1966-1982? - SimplyRich
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Old 09-10-2017, 04:36 PM   #14
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Excuse me, but I think your links are naked.
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Old 09-10-2017, 04:39 PM   #15
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It would be nice if you included a short descriptive or snippet of each article.
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Old 09-10-2017, 09:32 PM   #16
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Sure you can. Or, more accurately, you can reduce it to being very low.

Using the bucket approach, I have enough cash and near-cash assets (the short term bucket) to fund our lifestyle for at least five years. The rest of the portfolio is in a "long term" bucket and may even be 100% equities. During a five year time span, the market can be up, down, or sideways. When it's up and maybe when it is sideways, I sell from the long-term bucket keep the short-term bucket topped off. When the market is abysmally down, aka sequence-of-returns risk event, I do nothing. So, just before the crash I will have 4-5 years of spending in my short term bucket. Even if the crash and recovery spans 4 years, I am a happy guy and remain highly confident that I will eventually be able to replenish my short term bucket by selling assets that have recovered from the crash.


Interesting. Does that mean your short term bucket is 16-20% of the total? I think I've stumbled into a similar approach that I need to refine.
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Old 09-10-2017, 10:28 PM   #17
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I think that, actually, is more sensible than obsessing over withdrawal rates to the tenth of a percent. Really, these calculations are garbage-in, gospel-out for the most part. As Taleb's turkey learned, inductive reasoning can lead to seriously wrong conclusions. Turkey Problem - Nassim Taleb

Life is unpredictable. Investment returns are unpredictable. Hence, spending cannot be predictable. Cars, travel, charity, gifts to family, steak or chicken, etc. are all things that can be managed. Medical events cannot. Even housing cost can be managed if circumstances dictate.

I am a happy turkey right now, relying on inductive reasoning to believe that we have more more money than we will ever need. But the farmer with the axe might come up behind me at any time. There's nothing I can do about that.
Things that cost $1 in 1999 when I retired, cost $1.45 now. And that's for less than 20 years. That's a lot of belt tightening already. 30-35 years is going to be a lot worse. I don't get the shrinking budget approach to dealing with long-term inflation.
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Old 09-11-2017, 03:47 AM   #18
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Sure you can. Or, more accurately, you can reduce it to being very low.

Using the bucket approach, I have enough cash and near-cash assets (the short term bucket) to fund our lifestyle for at least five years. The rest of the portfolio is in a "long term" bucket and may even be 100% equities. During a five year time span, the market can be up, down, or sideways. When it's up and maybe when it is sideways, I sell from the long-term bucket keep the short-term bucket topped off. When the market is abysmally down, aka sequence-of-returns risk event, I do nothing. So, just before the crash I will have 4-5 years of spending in my short term bucket. Even if the crash and recovery spans 4 years, I am a happy guy and remain highly confident that I will eventually be able to replenish my short term bucket by selling assets that have recovered from the crash.
you are not doing anything with buckets that spending directly from stocks and bonds directly does not do . in fact not using buckets does it better . in a down market you are not selling stocks with a portfolio of stocks and bonds with little cash .. you would be rebalancing taking your spending money from bonds and even buying stocks to build your allocation back up with the extra in a bad down turn . .

buckets are a mental mirage . i use a bucket system but it is a mental thing . nothing really changes because you put some of the bond budget in cash except you get a lower overall return because cash rarely produces what bonds do.

in reality that is all you are doing , you are just taking some bond money and putting it in a lower returning investment rather than use the bonds directly. with buckets you rebalance by number of years of money left in the buckets vs rebalancing by performance like a convention spending plan does .

don't be fooled by your thinking . conventional rebalancing is doing the same thing without buckets . you are are really just rebalancing using different criteria .


interesting interview with kitce's on buckets
http://www.morningstar.com/cover/vid...aspx?id=601506
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Old 09-11-2017, 08:08 AM   #19
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By simply dividing the total portfolio by estimated years of life, ...
Isn't this the rule for RMDs?
Or, if we set real returns at 0%, the VPW?
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Old 09-11-2017, 08:11 AM   #20
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it is but rmd's are screwy as is for a withdrawal rate . most of us don't need those big withdrawals at 85 , you need them in the reverse if anything .
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