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Powell article about 4% withdrawal
Old 04-05-2012, 06:02 AM   #1
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Powell article about 4% withdrawal

4% solution for retirement doesn

MarketWatch's Robert Powell writes about a Merrill Lynch white paper on 4% withdrawal rate. I don't think there's lots that's new here for people on this board, but it's an interesting summary with links to various studies.
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Old 04-05-2012, 06:27 AM   #2
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You may find this link interesting also, along the same lines: Withdrawal Methods - Bogleheads

Not sure which method I will use yet... possibly a dynamic one with annual readjustments.
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Old 04-05-2012, 07:26 AM   #3
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You have to remember that it is in Merrill's (and othe FA's) best interest to have people work forever and not withdrawal a dime. Their goal is to have people work until they are 90 and then die at their desk. Also, high expectations get in the way of their 1 to 1 1/2% fee and crappy investments they stuff into their clients accounts.

I worked with a guy that had a mild stroke at age 65. He thought it was time to retire and he called his FA. He had about $3MM and a decent pension. The advisor told him he really needed to keep working until he was 70 and then they could revisit it. He said "enough" and fired his advisor.
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Old 04-05-2012, 08:37 AM   #4
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Another basic article on 4% SWR, but nothing really new. The Merrill Lynch paper seems to conclude you can't blindly follow the 4% withdrawal methodology --- who on earth would? You have to be prepared to make adjustments along the way, up and/or down. There are at least 6 tools in the 'retiree toolkit,' 'systematic withdrawals from a volatile portfolio' is just one of the tools...
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Old 04-05-2012, 10:46 AM   #5
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Originally Posted by obgyn65 View Post
You may find this link interesting also, along the same lines: Withdrawal Methods - Bogleheads

Not sure which method I will use yet... possibly a dynamic one with annual readjustments.
This is a really great article! I have not seen it before. I just turned it into a Word file for my library.

This should be in our permanent files if possible.
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Old 04-05-2012, 12:32 PM   #6
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Quote:
Originally Posted by sparkee View Post
4% solution for retirement doesn

MarketWatch's Robert Powell writes about a Merrill Lynch white paper on 4% withdrawal rate. I don't think there's lots that's new here for people on this board, but it's an interesting summary with links to various studies.
I found it interesting in that it prompted me to think more about the risks. There are many situations me and DW may find ourselves in, in addition to the variations that the market or economy may provide. What would I plan for DW if I die before starting SS? What about if she survives me after I start SS? What if I survive her? What if we have the house paid off and what if we don't? What are the tax implications for mortgate or not?

I've thought about these in isolation, but never really put the risks and situations down on a piece of paper. Think I'll try to list them along with how to cover that risk in these different situations. Ok, the article didn't mention all that but it did start me to thinking again...
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Old 04-05-2012, 02:29 PM   #7
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We can't know the future.

My belief is that you can't have a hard and fast rule. If you keep your expenses managable and get rid of debt, you have a lot of flexibility. Without a mortgage, housing expenses that aren't flexible are taxes, insurance and to some extent utilities. I guess health insurance isn't flexible. But everything else is to some degree. My plan is to be very, very conservative in spending for the first year or two and see where we are. FIReCALC and my spreadsheets say we are unlikely to ever run out of money, so I keep changing the assumptions.

If, for example, we think our full retirement annual budget will be $Y, I plan on having $Y + some cushion in cash and another $Y in cd's or whatever minimal interest we can get. Y is a number I think is more than enough to live on, based on current expenses. I really think Y is a higher number than we will spend in year 1, but I don't know for sure and can't until we get there.

In year 2, if Y>actual expenses, we'll add whatever interest, dividends and profits we made during year 1 to the Y bucket or whatever you want to call it, so that we have enough for year 2 in cash and enough for year 3 in cd's.

If actual expenses > than Y, I guess you cut actual expenses in year 2 and/or do something to generate more Y.

The "Y + cushion" I'm using for cash flow forcasting is a number that is higher than what we are spending now and hopefully even more higher than what we will spend in year 1. If we hunker down for that first year or two and Y is higher than what it costs to live, we'll be golden in our golden years. If Y is way too low and we can't make on that, and can't reduce expenses, there will have to be a major re-evaluation.

Does that make sense?
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Old 04-05-2012, 02:30 PM   #8
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Oh, and the other part of it is that I want to have a sense that income and dividends generated from retirement accounts, savings and eventually SS will be greater than Y.
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Old 04-05-2012, 03:03 PM   #9
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... a mild stroke...
Oxymoronic.

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Originally Posted by Ed_The_Gypsy View Post
This is a really great article! I have not seen it before. I just turned it into a Word file for my library.
This should be in our permanent files if possible.
I think Bogleheads has built one of the best financial wikis on the Web.
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Old 04-05-2012, 03:12 PM   #10
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I think Bogleheads has built one of the best financial wikis on the Web.
+1!
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Old 04-05-2012, 07:48 PM   #11
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Quote:
Originally Posted by sparkee View Post
4% solution for retirement doesn
MarketWatch's Robert Powell writes about a Merrill Lynch white paper on 4% withdrawal rate. I don't think there's lots that's new here for people on this board, but it's an interesting summary with links to various studies.
I had read this article earlier today when I received the daily e-mail with the personal finance articles, and had a good laugh.

Some selected quotes from the article:

Quote:
"In its study, for instance, Merrill ran one set of simulations assuming a 65-year-old woman had a $1 million portfolio with 60% in stocks and 40% in bonds. With an initial spending rate of 2.5% or 3%, the authors said itís unlikely that the woman would run out of money over her lifetime.
Wow - that 1% annual wrap fee and absurd commissions pays for this rocket science? Let's see, a person who is 65 is withdrawing 2.5% or 3%, and it's "unlikely" they'll run out of money

But the kicker is later on in the article:

Quote:
By the way, the authors of Merrillís white paper used the following expected returns in making its asset allocation recommendations: U.S. stocks, 9.5%; U.S. bond, 5.3; and U.S. cash, 3%.
Even back in 2006, I wouldn't have used expected returns this high, much less these days!

And even with those absurd investment return assumptions, they still dare say that a 4% rule of thumb (for simple back of the envelope calculations) is a terrible idea!
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Old 04-06-2012, 07:58 PM   #12
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You may find this link interesting also, along the same lines: Withdrawal Methods - Bogleheads

Not sure which method I will use yet... possibly a dynamic one with annual readjustments.
While a big time fan of the Boglehead approach I was somewhat turned off by Jack Bogles approach to stocks during the big downturn - ie when you can't stand to lose any more then sell - just when a stand was needed he folded in my eyes. Anyway I digress.
Like most of us have done, we always adjust our expenses to match our comfortable withdrawals and income. I think the dynamic approach is most appropriate.
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Old 04-06-2012, 09:28 PM   #13
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In this attachment to the article, I thought the SWR adjustments were interesting depending on if you are male or female or two people together joint.

Looks like a 0.2% SWR reduction if there is a couple versus one person - which actuarial sense...

http://i.mktw.net/_newsimages/pdf/Ac...ndingRates.pdf
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Old 04-06-2012, 10:22 PM   #14
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This is a really great article! I have not seen it before. I just turned it into a Word file for my library.

This should be in our permanent files if possible.
I added it. You can find it under Links - Retirement Planning Resources.
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Old 04-07-2012, 01:11 PM   #15
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I added it. You can find it under Links - Retirement Planning Resources.
Dynamite, Alan! Many thanks!
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