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Morningstar Withdrawl Strategies Study
Old 09-28-2012, 11:02 AM   #1
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Morningstar Withdrawl Strategies Study

Interesting study from Morningstar (June 2012) on various withdrawl strategies.

Some of the first pages are pretty mathematical, but scroll down and keep reading.

http://corporate.morningstar.com/ib/...Portfolios.pdf
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Old 09-28-2012, 12:36 PM   #2
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So based on their (single) withdrwal rate efficiency metric the "Mortality Updating failure Percentage" withdrwal scheme wins the race. And the classic SWR with inflation adjustments loses out and comes in last.

My take... Just like stock market indicators, there is no single metric that can tell you when to buy and when to sell. Similarly there is no single metric that can tell you how best to optimize your nestegg.

But the study indeed has value, perhaps we can takeaway the idea that there are better ways to utilize the nestegg. The plan that came in highest is as good as any of them. Wouldn't it be nice though, if the stock market behaved better so that we could all plan accordingly.
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Old 09-28-2012, 01:07 PM   #3
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An indicator of income each year during retirement would have been nice. I suspect their favored methods would result in higher spending later in retirement. The standard 4% rule usually leaves a lot on the table as portfolios grow in retirement. Not sure I want to buy my Ferrari when I'm 90 though.
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Old 09-28-2012, 06:04 PM   #4
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An indicator of income each year during retirement would have been nice. I suspect their favored methods would result in higher spending later in retirement. The standard 4% rule usually leaves a lot on the table as portfolios grow in retirement. Not sure I want to buy my Ferrari when I'm 90 though.
I've said it before (and I'll probably repeat myself as Alzheimers approaches): I've used the various SWR methods ONLY to know when to pull the plug for ER. IOW, when I got to the point that I could live on about 3.5% or so of my stash, I considered myself FI. But, once I retired, actually taking withdrawals was more of a seat of the pants approach, moderated by current economic conditions as well as gut feel. My point is that once one ER's, I think a slavish approach to withdrawal rates is problematic. YMMV as always.
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Old 09-28-2012, 06:06 PM   #5
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IOW, when I got to the point that I could live on about 3.5% or so of my stash, I considered myself FI. But, once I retired, actually taking withdrawals was more of a seat of the pants approach, moderated by current economic conditions as well as gut feel.
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Old 09-28-2012, 06:16 PM   #6
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I only glanced at the article, but this quote got my attention:

"The main idea behind WER is the calculation of how well, on average, a given
withdrawal strategy compares with what the retiree(s) could have withdrawn if they possessed perfect information on both the market returns, including their sequencing, and the precise time of death."


If I knew exactly how the market segments will perform every year, when I would die, what inflation would be each year, etc. it would sure make planning easier, wouldn't it? Everybody has different circumstances. I think it does emphasize the need to periodically review your portfolio and make adjustments as necessary.
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Old 09-28-2012, 06:46 PM   #7
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If I knew exactly how the market segments will perform every year, when I would die, what inflation would be each year, etc. it would sure make planning easier, wouldn't it?
If you could bottle that calculation, it would probably be as important as E=mc2 ...
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Old 09-29-2012, 12:28 PM   #8
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Not sure I want to buy my Ferrari when I'm 90 though.
Reminds me of Second Hand Lions...
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Old 09-29-2012, 12:36 PM   #9
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Old 09-29-2012, 01:34 PM   #10
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I only glanced at the article, but this quote got my attention:

"The main idea behind WER is the calculation of how well, on average, a given
withdrawal strategy compares with what the retiree(s) could have withdrawn if they possessed perfect information on both the market returns, including their sequencing, and the precise time of death."


If I knew exactly how the market segments will perform every year, when I would die, what inflation would be each year, etc. it would sure make planning easier, wouldn't it? Everybody has different circumstances. I think it does emphasize the need to periodically review your portfolio and make adjustments as necessary.
I think that's the point of their preferred method. It gives a rule for adjusting current withdrawals based on past portfolio performance.
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Old 09-29-2012, 03:21 PM   #11
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Sigh. I suppose the article has higher class and better math than my Unified General theory of Chickenheartedness. That along with my annual belly button quiver check gets me by.

heh heh heh - but I doubt if I could ever get a paper published on it. . Handgrenade and horseshoe wise still 2 - 6% with 4% benchmark give or take a tad.
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Old 10-03-2012, 05:04 PM   #12
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Reminds me of Second Hand Lions...
One of my all time favorite movies!!!!!!!

"The kid gets it all - bury us in the garden next to the damn lion."
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