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Retiring in a down market
Old 07-10-2016, 09:26 PM   #21
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Retiring in a down market

Lsbcal, Thanks for that VPW Table sample. I Googled the source on Bogleheads and want to experiment with it as it's one of the few calculators I've seen that includes international equities.

I have not FIREd yet but am planning for it. With apologies to the OP if this is slightly off-point, I have lately been enamored of what I understand is Audreh1's quite straightforward SWR method. Essentially, you withdraw 4% of a balanced portfolio's value every year. In up years, whatever the leftover is of 4%-less-expenses can be parked in cash, building in time a couple of years expenses in a cash cushion. Obviously, the key to this is LBYM by, in this case, having living expenses that are somewhat less than 4% of initial portfolio value.

In down years, any gap between the 4% SWR and your living expenses can be made up for by tapping the cash cushion and spending dividends and interest, and making lifestyle adjustments.

Once you have an ample cash cushion, you could reduce the 4% further to your actual living expenses, making the portfolio even more sustainable.

This approach appeals to me. It lets you start FIRE with a full 4% SWR, which I think we'll need at first, rather than something skimpier. In theory, I think the portfolio can never be depleted if annual returns of a 60/40 or so portfolio average north of 4%. If you think returns will be lower than that, you could start the fixed SWR at 3% or whatever covers your living expenses.

It seems safer than some other approaches because there is no inflationary adjustment upward to the SWR, which has always seemed random to me because some inflation is manageable through substitution effects so that the national rate might not apply to our personal situation. Rather than an inflationary adjustment, unavoidable spending inflation is met through compounding of the portfolio.

I hope I have that method right but, if I don't, please pardon my attribution, Audreyh1. Even if I screwed it up, I still like it because I like keeping my finances very simple, though I'd welcome the smart people here identifying the shortcomings in it. :-)
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Old 07-10-2016, 10:15 PM   #22
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Markola, what I like about VPW is that it is self contained and the data is all made available to us. It can be modified too though that is not necessary.

One could probably fairly easily modify VPW to test a scheme of 4% annual withdrawals or some such method. The year 1968 was a fairly bad start year in modern times so it's a good one to check.
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Old 07-11-2016, 12:00 AM   #23
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No matter how one implements his withdrawal method, financial survival is still about not overdrawing the long-term return of his portfolio (a higher withdrawal rate is permitted if a draw-down of the principal is acceptable).

All different ways of withdrawal for survival revolve around not increasing one's spending too much during boom years, in order to build up a buffer for lean years. Even so, in consecutive lean years, some cutbacks may be advisable. One can move around his money from one place to another or earmarking it in some ways, but if that money does not multiply because of poor market returns, no method will get you more money to spend.
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Old 07-11-2016, 05:02 AM   #24
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RADDR looked at this and did the math, based on a 4% withdrawal rate, and has been updating on a yearly basis. here's the thread discussion Raddr's Early Retirement and Financial Strategy Board • View topic - Hypothetical Y2K retiree update It is a very interesting discussion that explores the complexity of this issue much more thoroughly than any journalist I have read. The theoretical retiree is in a tough spot, but not broke.

We retired in '00, have faced severe market declines twice, and have a different experience from "Mr. Hypothetical", because these analyses are static and do not consider many variables that affect us in real life. We rebalance. When equity markets are down sharply we shift allocation from fixed income to equities, and when equities are pricey we lower our equity risk. We invest in equity markets around the world, not just S&P 500. Our withdrawal rate is now lower than it was in '00, and I'm not sure why, because I have the sense that our standard of living is the same.
There is a difference in results when bonds are used vs the cash in raddr's numbers . I don' t really know anyone who would have been in equity's/cash instead of equity's bonds
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Old 07-11-2016, 12:48 PM   #25
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Talk about a trampoline bounce and still going up. Retired date June 30, 2010.....DOW 9774....S and P.....1031......;
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Old 07-11-2016, 02:37 PM   #26
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Oh man! Our feet are so far off the trampoline I wonder if anybody is feeling like Wily the Coyote in the short moment he is suspending in thin air.
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Old 07-11-2016, 02:50 PM   #27
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Talk about a trampoline bounce and still going up. Retired date June 30, 2010.....DOW 9774....S and P.....1031......;
Be careful what you invoke!
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Old 07-11-2016, 02:56 PM   #28
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Oh man! Our feet are so far off the trampoline I wonder if anybody is feeling like Wily the Coyote in the short moment he is suspending in thin air.
Or flying up, up and away, in my beautiful balloon..



I retired in 2009. Being essentially a scaredy-cat, I never dreamed we would have a bull market as long and vibrant as we have had for the past seven years. What tremendously good luck for many of us.
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Old 07-11-2016, 03:20 PM   #29
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The pessimist in me says that all balloons eventually leak, if they do not burst.

And the higher you go, the more distance you will fall.
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Old 07-11-2016, 04:42 PM   #30
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I don't understand why you folks are so concerned. I remember plenty of the old guy's at work in late 1999 that took an early retirement program. 'Heck', they said, 'anyone can make 15% in the market!'
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Old 07-11-2016, 05:23 PM   #31
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The pessimist in me says that all balloons eventually leak, if they do not burst.

And the higher you go, the more distance you will fall.
So the richer you get the more you worry?
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Old 07-11-2016, 08:00 PM   #32
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I have not "drawn down" my portfolio at all since retirement 2011. I live off the income stream my investments generate. The stock and bond portion of that generates 4.5% a year. Don't invade principle and your money should last forever.


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Old 07-11-2016, 08:30 PM   #33
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So the richer you get the more you worry?
Getting rich slowly is preferable to me. When the market goes nuts and the P/E gets high like the current value of 24.70, it's getting frothy.

But it's OK. I cannot tell other people to buy or not to buy. I can only control my own buy/sell action. And it's getting harder to find stocks to buy, because the ones I think are cheap, I already have enough off.
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Old 07-12-2016, 03:43 AM   #34
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... I already have enough off.
Meant to write "... I already have enough of". I hate typos, particularly when they are my own.
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Old 07-12-2016, 06:44 AM   #35
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The pessimist in me says that all balloons eventually leak, if they do not burst.

And the higher you go, the more distance you will fall.
Unless you reach portfolio escape velocity, right?
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Old 07-12-2016, 07:13 AM   #36
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I have not "drawn down" my portfolio at all since retirement 2011. I live off the income stream my investments generate. The stock and bond portion of that generates 4.5% a year. Don't invade principle and your money should last forever.


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Agree and your heirs will thank you.
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Old 07-12-2016, 07:19 AM   #37
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We have had good fortune. Retired in an up market plus low inflation. Both have made a positive contribution to our net worth.
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Old 07-12-2016, 08:02 AM   #38
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Driving to Mecum auction yesterday
Forget about all this complicated sequence of return stuff.

I want to know what you bought at the Mecum auction! Did you have to raise your WR % afford it?
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Old 07-12-2016, 08:03 AM   #39
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As of Friday my portfolio is 2.5% higher than it was when I ER'd a little over two years ago. I hope that means I didn't retire into a down market.
maybe you aren't spending enough?
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Old 07-12-2016, 09:01 AM   #40
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maybe you aren't spending enough?
Perhaps, although I'm actually spending a bit more than I had anticipated once I got used to drawing from my portfolio rather than adding to it.
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