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Old 07-07-2014, 06:14 PM   #21
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Maybe I'm missing something, but it appears to me Wade Pfau is putting out conflicting information about the safety of the 4% WR.
Pfau's two views aren't really conflicting but the explanation in the blog post is not very clear. In the second case, he's saying that the regression's best estimate at current PE10=26 is that the maximum sustained WR (MWR) rate is 4.2%.

The regression should be designed to predict the *average* MWR so roughly half the time the number will be higher and half the time the number will be lower.

In other words, at PE10=26, you will have a 50% failure rate if you use a WR of 4.2%.

Obviously, 50% failure rate couldn't be called safe and it's why he says "The safe withdrawal rate would need to be scaled down below this, as safe withdrawal rates are more conservative than best guesses about withdrawal rates."

I hope this clarifies things, but I'm not great at exposition either.
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Old 07-07-2014, 06:22 PM   #22
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Originally Posted by Midpack View Post
....

During the retirement spending years, SWR might be a decent rough guide on what to expect, but almost all of us will have to adjust spending/withdrawals up or down (could be substantial) as the years pass, no way around it. One need only look at the basic output of FIRECALC to see that clearly - ...
I don't see how you come to this conclusion.

' almost all of us will have to adjust .... no way around it' ? With the defaults, 95% of the people historically needed no adjustments. That's not 'almost all needing to adjust', it's only a small minority who needed to adjust (historically, of course).

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Old 07-07-2014, 07:16 PM   #23
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Pfau's two views aren't really conflicting but the explanation in the blog post is not very clear. In the second case, he's saying that the regression's best estimate at current PE10=26 is that the maximum sustained WR (MWR) rate is 4.2%.

The regression should be designed to predict the *average* MWR so roughly half the time the number will be higher and half the time the number will be lower.

In other words, at PE10=26, you will have a 50% failure rate if you use a WR of 4.2%.

Obviously, 50% failure rate couldn't be called safe and it's why he says "The safe withdrawal rate would need to be scaled down below this, as safe withdrawal rates are more conservative than best guesses about withdrawal rates."

I hope this clarifies things, but I'm not great at exposition either.
Photoguy-I think this is well stated.

I am a Pfau fan. I like the data-based, analytical approach to his blog, and it contains a lot of useful links and reference info. For example, his recent posts on SWR investment approaches recommended by Kitces and Guyton, and his March 2014 post on various investment strategies were both very informative for me and great departure points for further study.
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Old 07-07-2014, 08:29 PM   #24
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I don't see how you come to this conclusion.

' almost all of us will have to adjust .... no way around it' ? With the defaults, 95% of the people historically needed no adjustments. That's not 'almost all needing to adjust', it's only a small minority who needed to adjust (historically, of course).

-ERD50
I think will 95% will feel the need to adjust (either upwards or downwards). It is hard to imagine any Y2K retiree looking at 10+% withdrawal of their current portfolio in Jan of 2009 and thinking everything is going to be ok for the next 20 years.

It is possible that the Y2K retiree maybe still be ok in 15 years but I wouldn't bet big money it.

My starting withdrawal was under 3%, and my investments s outperformed the 75/25 benchmarks and I still cut spending in 2009.
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Old 07-07-2014, 08:45 PM   #25
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Not sure which concerns me more - that I have a 10% chance of running out of money before I'm 90, or that I only have a 40% chance of living to 90......
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Old 07-07-2014, 09:05 PM   #26
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I think will 95% will feel the need to adjust (either upwards or downwards). ...
I can't say what others would 'feel' or not. But I wasn't responding to a statement about 'feelings', I was responding to 'but almost all of us will have to adjust spending/withdrawals ..., no way around it.'.

That didn't make sense to me, based on history, and we don't know the future.

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Old 07-08-2014, 06:12 AM   #27
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Not sure which concerns me more - that I have a 10% chance of running out of money before I'm 90, or that I only have a 40% chance of living to 90......

Does that mean you only have a 4% chance ( 0.4x0.1 ) of having to worry about it?



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Old 07-08-2014, 06:51 AM   #28
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I've come to the conclusion SWR is most useful during accumulation to estimate "how much" one needs to retire, it's good for that. After spending, the user need only factor in years, risk tolerance, other income sources, etc. to decide when to (voluntarily) pull the retirement trigger.

During the retirement spending years, SWR might be a decent rough guide on what to expect, but almost all of us will have to adjust spending/withdrawals up or down (could be substantial) as the years pass, [U
no way around it[/U]. One need only look at the basic output of FIRECALC to see that clearly - anyone think the future will be more predictable?

Articles about SWR are useful, as long as you recognize it's an academic exercise by definition. There is no "right" or wrong...
This is the way I've always looked at using FIRECALC or any other retirement spending tool. A few years back someone suggested that i "...measure with a micrometer and cut with a chainsaw..." Guilty as charged and not ashamed, either. The "measuring" part is before ER, IMHO. the "cutting" takes place after ER. Each of us has our own take on all of this, so YMMV.
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Old 07-08-2014, 07:15 AM   #29
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This is the way I've always looked at using FIRECALC or any other retirement spending tool. A few years back someone suggested that i "...measure with a micrometer and cut with a chainsaw..."
Most FIRECalc power users prefer an axe. Chain saws are so darn noisy.
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Old 07-08-2014, 08:13 AM   #30
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During the retirement spending years, SWR might be a decent rough guide on what to expect, but almost all of us will have to adjust spending/withdrawals up or down (could be substantial) as the years pass, no way around it. One need only look at the basic output of FIRECALC to see that clearly -
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I don't see how you come to this conclusion.

' almost all of us will have to adjust .... no way around it' ? With the defaults, 95% of the people historically needed no adjustments. That's not 'almost all needing to adjust', it's only a small minority who needed to adjust (historically, of course).

-ERD50
Sounds like you're looking at downside only. Note I said adjust "up or down". From your position, most would end up with a residual, millions of $ in many cases - could be far more than you started with. A small residual is one thing, but I assume most people don't plan on an unlimited upside residual. They'd adjust...
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Old 07-08-2014, 09:06 AM   #31
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Sounds like you're looking at downside only. Note I said adjust "up or down". From your position, most would end up with a residual, millions of $ in many cases - could be far more than you started with. A small residual is one thing, but I assume most people don't plan on an unlimited upside residual. They'd adjust...
But you said: 'almost all of us will have to adjust .... no way around it' .

No one will 'have to adjust' on the upside. There is a way around it - just don't do it . They could if they want, or they may decide not to because the future is still unknown to them. Or, they may want to leave a large inheritance or charitable donation.

Based on history, I could raise my WR% right now, but I'm not because I want some buffer for the downturns.

Again, based on history (all we can really discuss in absolute terms), only 5% would have to adjust. That is not almost all, very far from it - in fact it is about the opposite from 'almost all'. My replies are based on your wording and words have meanings. That's why your statement is confusing to me. It just does not seem to match the historic reality.

Did you mean something else?

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Old 07-08-2014, 10:29 AM   #32
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This is the way I've always looked at using FIRECALC or any other retirement spending tool. A few years back someone suggested that i "...measure with a micrometer and cut with a chainsaw..." Guilty as charged and not ashamed, either. The "measuring" part is before ER, IMHO. the "cutting" takes place after ER...
Hence, my often looking at Quicken to monitor my "cutting", to make sure that it has not turned into a hack job.
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Old 07-08-2014, 11:17 AM   #33
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Not sure which concerns me more - that I have a 10% chance of running out of money before I'm 90, or that I only have a 40% chance of living to 90......
At 4% I have an 8% failure rate. But, what really fascinates me is all those little FireCalc lines that show me passing on with unspent millions in my bag of assets. I hope those heirs appreciate my LBYM lifestyle.
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Old 07-08-2014, 01:55 PM   #34
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But you said: 'almost all of us will have to adjust .... no way around it' .
OK, I should have said most of us will probably choose to adjust over the course of our years in retirement, and the FIRECALC results demonstrate why. I thought it was well established that few if any will follow SWR throughout retirement, some may have to cut spending (the 5%) and if history is any guide others will be able to spend more during retirement than initial SWR results suggest. No way around the historical fact that most will have an opportunity to adjust.
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Old 07-08-2014, 02:14 PM   #35
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According to Otar, adjusting withdrawals in the distribution phase will not help in any case when the withdrawal rate is lower than the sustainable rate. I think I read somewhere on Pfau's blog that his idea of a true safe withdrawal rate today is below 3% based on current valuations. Then you have Buffet saying he doesn't think today's markets are overvalued based on valuations. Who to believe?

The value of Pfau's work (and Otar's and Bernstein's for that matter) is their treatment of PF's owned by those who have undersaved for retirement (who use a w/r above 5%, for example).
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Old 07-08-2014, 02:23 PM   #36
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Sometimes I wonder if we can't just wrap up this whole debate in the following way:

If you have less than roughly 15 years saved up (WR >6%), you will go broke. Unless you die within 15 years.

If you have more than 50 years saved up (WR 2%), you'll be fine. Unless the world ends. In that case, your savings won't matter anyway.

Anything in between, it depends. So, stay flexible.

Shame you can't publish academic papers that are this short.
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Old 07-08-2014, 02:35 PM   #37
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Sometimes I wonder if we can't just wrap up this whole debate in the following way:

If you have less than roughly 15 years saved up (WR >6%), you will go broke. Unless you die within 15 years.

If you have more than 50 years saved up (WR 2%), you'll be fine. Unless the world ends. In that case, your savings won't matter anyway.

Anything in between, it depends. So, stay flexible.
Sounds like Otar's zone strategy.
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Old 07-08-2014, 02:37 PM   #38
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Sounds like Otar's zone strategy.

Yep. Good observation.


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Old 07-08-2014, 04:19 PM   #39
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If you have less than roughly 15 years saved up (WR >6%), you will go broke. Unless you die within 15 years.

If you have more than 50 years saved up (WR 2%), you'll be fine. Unless the world ends. In that case, your savings won't matter anyway.

Anything in between, it depends. So, stay flexible.
Well stated.
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Old 07-08-2014, 07:18 PM   #40
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According to Otar, adjusting withdrawals in the distribution phase will not help in any case when the withdrawal rate is lower than the sustainable rate. I think I read somewhere on Pfau's blog that his idea of a true safe withdrawal rate today is below 3% based on current valuations. Then you have Buffet saying he doesn't think today's markets are overvalued based on valuations. Who to believe?

The value of Pfau's work (and Otar's and Bernstein's for that matter) is their treatment of PF's owned by those who have undersaved for retirement (who use a w/r above 5%, for example).
Buffet has become a cheerleader for the market and for bureaucracy. THE S&P is overvalued by his own stated favorite measure, the ratio of stock prices to GDP.

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