Sequence of Returns

[Fermion]

Don't forget about SS which can offset some of the sequence of return issues.

Someone retiring with a 4% SWR that encounters a bad market pushing them up to an 6% SWR might consider taking SS early which could drop their SWR back to 4% or even lower with the same spending.

I haven't given a lot of thought to what I would do if faced with an extreme down market and a rapidly dwindling portfolio...would I take SS early to protect my remaining assets or delay SS and continue to spend down?

If the market dropped 50% and I was able to take SS early, I might really consider doing so and hoping the market and my portfolio recovered over the next several years.

[Cut-Throat]

Quote:

Originally Posted by Lsbcal Actually the portfolio went to zero at year 35 as per the VPW depletion plan to age 100. Suppose we set the depletion to age 115, that gives a 4.0% withdrawal rate in the first retirement year. Then the sequence looks like the following with less spending in one's 70's but you could really live it up in your 90's ( not my cup of tea):

Well, not only is it not your cup of tea or mine, it's not that realistic, so it is not much of a 'Plan'.

I have a number of acquaintances that are in their 80s and their 'Life' is pretty much over. Most things have been done, and they don't really want to do that much anymore.

Sure, there is always the odd 1 in 100 - 90 year old that is ready for most anything, but these are the anomalies. When you plug in 115 into a retirement calculator and get 'weird' results, don't be surprised. It is much better to plug in age 100 and at age 90 (If by a slim chance you even make it that far) and then reevaluate.

The biggest 'Failures' I see in people's Retirement Planning is that they will probably leave a Huge Pile at the end of plan. Which either means they scrimped in retirement or didn't retire early enough. Either way it is a Failure in my Book.

[Lsbcal]

I think we are basically on the same page CT. After I took a serious look at VPW I came around to your point of view. That said, a lot depends on one's portfolio size and spending habits. Some will find a 4.5% withdrawal more then enough -- that could be the couple with maybe $5M. I'm not quite there yet myself but find that 4.5% allows for a fullfilling retirement. Many here will have a smaller portfolio and so 4.5% will be easily spent ... and then some.

[bmcgonig]

Quote:

Originally Posted by Running_Man He advocates for a percentage of portfolio withdrawal to avoid sequence of return risk to call the drop in payouts that happen with a decline market risk instead of Sequence of returns and claims by doing this you have eliminated the sequence of return risks. In an example in the series after the ones you posted, he showed a portfolio using a 2.5% withdrawal, because when he looked at the data a 4.5% withdrawal he was using later had a failure in year 11, would have income drop to $16,000 a year from a starting value of $25,000 with a portfolio starting with 1MM dollars! His "solution", of having a large annual variable income swings on a 2.5% initial withdrawal rate in order to eliminate sequence of return risk to the terminal value of a all valuable portfolio is a non-starter for the vast majority of retirees. Of course I think he also advocates a very large position (15 years) in TIPS and offsetting that with an investment portfolio that you withdraw 2.5% from so for a retirement of 40K you would need 15K per year coming off in TIPS (or 225K invested in tips) and be willing to vary income from that, with the idea being after 15 years a normal 4% withdrawal rate from the portfolio will be ok. He seems focused with making sure there is a large estate for heirs, even tho his subtitle of his blog is retirement planning for the unwealthy. His advice is great for people concerned with leaving an estate, but for me not knowing 4 years down the road if I will be spending 31K per year or 51K per year is not a budgetable process and therefore a non-starter.

He actually doesn't recommend a variable withdrawal rate. He's a floor and upside investor:

http://theretirementcafe.blogspot.co...that-mean.html

He states:

Having read my last few posts on this topic, it would be reasonable to assume that I would advise retirees to spend down stock portfolios based on a percentage of remaining portfolio balance and not one based on constant-dollar withdrawals. But I don't.

I advise retirees to set aside the capital they need to generate enough income to cover non-discretionary spending in a safe TIPs bond ladder or fixed annuities. Then you will have some certainty that you can pay the bills. If you have cash left over, then invest that amount in stocks. None of the three (fixed annuities, TIPs ladders, or buy-and-hold stock portfolios) are exposed to SOR risk.


Sent from my iPad using Early Retirement Forum

[nun]

If you have low expenses going into retirement you will also minimize sequence of returns issues. This is where the old chestnut if paying off the mortgage works in your favour.

[pb4uski]

Quote:

Originally Posted by Fermion ....I haven't given a lot of thought to what I would do if faced with an extreme down market and a rapidly dwindling portfolio...would I take SS early to protect my remaining assets or delay SS and continue to spend down?...

+1 but if it happened we could tighten our belt on expenses, invoke my pension, or in a couple years, start SS earlier than we planned. As Teddy Kennedy would have said, I'll drive off that bridge when I get to it.

[daylatedollarshort]

Quote:

Originally Posted by nun If you have low expenses going into retirement you will also minimize sequence of returns issues. This is where the old chestnut if paying off the mortgage works in your favour.

I agree on the low expenses, especially low fixed expenses. I'm not so sure about paying off the mortgage, since money used to pay down a mortgage lowers asset income. There are always interesting pro and con threads here on the mortgage payoff topic.

I do think the value of low overheard sometimes tends to be underrated as a retirement factor compared to portfolio returns. The strategy at our house is to invest pretty conservatively and live well below our SS, pension and asset income in retirement and not have to worry too much about sequence of returns.