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Old 02-15-2016, 05:28 PM   #101
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Are we limited to them only? Can I choose Candice Bergen?
Hmm - Liz Ann Sonders might meet your criteria.
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Old 02-15-2016, 09:21 PM   #102
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This is why I plan to stay with my company that provides a pension for the rest of my career.

The pension may be the only way I can make ER viable given my non-impressive income.
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Old 02-16-2016, 10:42 AM   #103
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This is why I plan to stay with my company that provides a pension for the rest of my career.

The pension may be the only way I can make ER viable given my non-impressive income.

I had a similar plan, but Megaconglomocorp had a different plan...

As for WR, I'm only on month two of FIRE, but my plan for the first few years is to take 4% in flat or good years, and dividends/interest only in down years. Once SS and DBP come on line later this year, my bare-bones, unclemick (minus the fish camp) lifestyle will be covered, so in down years, I'll just have to ratchet down a bit on the fun money.

Still, hanging around the house, entertaining myself, is better than having a j*b!
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Old 02-16-2016, 03:55 PM   #104
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I had a similar plan, but Megaconglomocorp had a different plan...
I have a public pension. I'd rather that than a private Megacorp pension because i feel it's safer from "changes". At least the unions an myself can lobby the politicians to protect it.
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Old 02-17-2016, 11:27 AM   #105
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I have a public pension. I'd rather that than a private Megacorp pension because i feel it's safer from "changes". At least the unions an myself can lobby the politicians to protect it.
It also helps that politicians have public pensions, too.
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bonds and dividends
Old 02-26-2016, 09:32 AM   #106
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bonds and dividends

Seems silly I don't know - but I was looking at year end tax stuff and I had never realized that bond funds also pay a dividend. I had thought that was just stocks.

When people talk about lower long term bond yields of 1-2% I'm assuming that includes the dividend? Is that right?

Thanks
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Old 02-26-2016, 09:38 AM   #107
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Seems silly I don't know - but I was looking at year end tax stuff and I had never realized that bond funds also pay a dividend. I had thought that was just stocks.

When people talk about lower long term bond yields of 1-2% I'm assuming that includes the dividend? Is that right?

Thanks
Bond interest and bond fund "dividends" are taxed the same - as ordinary income. Mostly the fund "dividend" is just an accumulation of bond interest payments.

And yes, "yield" includes those dividends.
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Old 02-26-2016, 10:11 AM   #108
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Depends on the bond.

Some bonds pay out regularly .... "Clipping coupons" as vernacular is the bond payment.

Other bonds are zero coupon and the interest earned is bundled and given when the bond matures.

Tax treatment on bonds is "interest" and taxed as "ordinary" income

Dividends receive a preferential tax treatment, at least as of today's tax code, at 15% ...and for some an additional 3.8% due to additional obamacare tax
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Old 02-26-2016, 10:35 AM   #109
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I don't really care about low bond interest rates. My pension, which covers half our spending represents my notional FI AA. Now equity returns do matter to me. Makes sense that they would be lower if the risk free interest rate is also lower. So to be safe I have generally just taken dividends from my nestegg. In the end though future returns are unknown. It's the actuals that count. Still seems fairly safe to start at 4% WR and then adjust according to experience.
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Old 02-26-2016, 10:46 AM   #110
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Originally Posted by newtoseattle View Post
Seems silly I don't know - but I was looking at year end tax stuff and I had never realized that bond funds also pay a dividend. I had thought that was just stocks.

When people talk about lower long term bond yields of 1-2% I'm assuming that includes the dividend? Is that right?

Thanks
Bonds pay dividends. CDs pay interest. They are taxed the same (unless it's a muni bond).
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Old 11-16-2016, 07:55 PM   #111
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I have been thinking about market valuations recently. CAPE10 is at 27!, and although 10-year treasuries have backed up to 2.25%, they are still about 150bp from median.

It was good to read this again - especially Gone4Good's portfolio discounting model for a withdrawal rate sanity check.
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Old 11-17-2016, 09:25 AM   #112
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Originally Posted by audreyh1 View Post
I have been thinking about market valuations recently. CAPE10 is at 27!, and although 10-year treasuries have backed up to 2.25%, they are still about 150bp from median.

It was good to read this again - especially Gone4Good's portfolio discounting model for a withdrawal rate sanity check.
Audrey,
In a recent post (here) , you mentioned that maybe a 4% withdrawal rate might be a bit conservative if it is paired with this portfolio valuation-weighting approach. I thought that might be the case, too, but as it turns out, 4% is probably not far off.

Assumptions: 30 year window, AA of 50% total market, 50% 5yr Treas.

Withdrawal method: a fixed percentage of each end-of-year portfolio value, no Clyatt 95% rule used

WR..........% of cases ending above real starting value.........Avg portfolio ending value
4%..............................54%............... .................................112%
4.1%...........................49%................ ................................108%
4.2%...........................44.8%.............. ................................105%
4.3%...........................41%................ .................................102%
4.4%...........................41%................ .................................98%

So, if we are using the "portfolio weighting" method, it would seem safe and appropriate to pick an annual WR that aims for the "center" of the expected distributions of the data set we are weighting to. If we pick the mean end portfolio value to represent that, then a WR of about 4.35% would be about right. If we want the median (just as many "failed" cases as successful ones), then a 4.1% rate looks about right.
There's probably way too much implied precision in the WRs suggested above based on our data set. I'd probably use approx 4.25% (again--after doing the weighting calculations every year) and feel pretty good about it. Or, use age-based WR numbers (Guyton, SAFEMAX, etc). Just the fact that we're calculating withdrawals based on end-of-year values will help assure that the portfolio won't grow to the sky or crash entirely.
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Old 11-17-2016, 09:58 AM   #113
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Just to be clear - those withdrawal rates leave you with the ending portfolio that you started with.

Is that inflation adjusted as well? If in real terms as you said, yes.

Way more conservative than the SAFEMAX approach. It's a very, very high bar for "failure".

But clearly more difficult to model as theoretically the portfolio can't go to zero. What, then, to choose for "failure"?
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Old 11-17-2016, 01:30 PM   #114
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After reading some of the comments in this thread I made myself feel better reading Safe Withdrawal Rate for Early Retirees

I'm still concerned about the lower returns predictions over the next 9-10yrs which are crucial years for me to be FI by 50 but nothing I can do about it than just keep plugging away at it. Worst case I w*rk longer
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Old 11-17-2016, 01:34 PM   #115
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I have been thinking about market valuations recently. CAPE10 is at 27!, and although 10-year treasuries have backed up to 2.25%, they are still about 150bp from median.

It was good to read this again - especially Gone4Good's portfolio discounting model for a withdrawal rate sanity check.
my bond portfolio has taken a bit of a hickey...all munis I plan on holding to maturity though
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Old 11-17-2016, 04:44 PM   #116
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Holding stocks long-term is similar to holding bonds to maturity . . . you earn your current yield.
Almost, but not quite. It is the current earnings yield + future earnings growth. At a macro-level that's roughly world gdp growth, 2% - 3% typically. Bonds don't have that.

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At a 24x PE, we're getting an earnings yield of about 4%. At 16x we're getting an earnings yield of 6.25%. Therefore, all else being equal, you expect to earn 200bp less from stocks today over the long term than if you bought them at median valuations.
It's rather 4% - inflation (2%) + GDP growth (2%) = 4% real. Adjust according to expectations .. of course your point stands, lower multiples imply a potential bonus.
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Old 11-17-2016, 09:03 PM   #117
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Is that inflation adjusted as well? If in real terms as you said, yes.
Yes, inflation adjusted. So, a "failure" might just mean that at the end of 30 years the portfolio was just a tiny bit in real value from the starting amount.
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Old 11-17-2016, 09:14 PM   #118
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Yes, inflation adjusted. So, a "failure" might just mean that at the end of 30 years the portfolio was just a tiny bit in real value from the starting amount.
I remember a few years ago when Midpack discovered this FIRECALC quirk for the % of remaining portfolio method and pointed it out.

To me that means you aren't discovering some safe withdrawal rate for the discounted median case, but rather a rate at which the portfolio would likely be self-perpetuating. Quite a different animal.

If failure was allowed to be something like dropping below 1/2 of the original value in real terms, the supported withdrawal rate would be higher.
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Old 11-18-2016, 05:27 AM   #119
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I remember a few years ago when Midpack discovered this FIRECALC quirk for the % of remaining portfolio method and pointed it out.

To me that means you aren't discovering some safe withdrawal rate for the discounted median case, but rather a rate at which the portfolio would likely be self-perpetuating. Quite a different animal.

If failure was allowed to be something like dropping below 1/2 of the original value in real terms, the supported withdrawal rate would be higher.
And, just to clarify, the "failure" of a "% of remaining portfolio" withdrawal method method only means that the portfolio was below the real starting value at the very end of the period. It's just a snapshot at the end of the run.
But, the graphic showing the withdrawal amounts does show reference lines for the US poverty-level income for single person and two person households, though the numbers haven't been updated since 2006.

Below is the run for a $1M starting portfolio, 50% TM/50% 5yr Treas, using a 4.5% end-of-year withdrawal method. To me it looks like the overall trend of the 116 runs is slightly downward, and that there are a small but not insignificant number of case where, at some point, the real withdrawal amount dipped below $22,500 (i.e. 50% of the starting amount). Some folks might be comfortable with this, some might not.

What I haven't quite wrapped my head around:
1) This discussion is about making our withdrawals using a valuation-weighting method. The chart below shows the historical results of straight (non-valuation-weighted) withdrawals. After we apply our weighting, what would the real value of the withdrawal chart out to be? I think that they'd be more center-weighted, with fewer extreme highs and lows (because when the portfolio's value is lower, it is likely because valuations are low, and that would result in a higher effective WR during those years)
2) How would this weighted withdrawal method affect overall portfolio survival/growth? We're withdrawing a >higher< percentage of our portfolios when share prices (and also valuations, assuming earnings are less volatile than stock prices) are lower, which means an even greater number of shares are sold off during those times. That seems like a good way to prevent the portfolio from recovering when share prices revert to the mean.

Compared to a "fixed starting amount adjusted for inflation" withdrawal method, the "straight" "% of year-end portfolio value" withdrawal method does a better job of preserving portfolio value and of increasing total lifetime withdrawals, primarily because the value of the withdrawals is reduced when the portfolio (and share prices) are beaten down, and because "windfalls" are harvested if a portfolio soars. My (unproven) hypothesis is that a valuation-weighted withdrawal method, to some extent, would reduce these advantages.
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Old 11-18-2016, 08:03 AM   #120
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Thanks for the runs and comments.

Your posted graph was blank for some reason.
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