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Re: SWR Inflation Adjustment
Old 12-21-2004, 09:00 AM   #21
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Re: SWR Inflation Adjustment

Quote:
2003 was also positive.

1997 through 2000 were all positive.

2001&2002 however were negative.
So, how did you decide what to withdraw in 2001 $2002?
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Re: SWR Inflation Adjustment
Old 12-21-2004, 09:30 AM   #22
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Re: SWR Inflation Adjustment

.....5%. That's what I've taken every year since 1997.

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Re: SWR Inflation Adjustment
Old 12-21-2004, 02:23 PM   #23
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Re: SWR Inflation Adjustment

Zipper,
Not sure your age and other circumstances, but 5% makes me nervous over the decades. (Of course its been fine for you over the past half-dozen years and the nice thing about this is you can always start today with a clean slate on SWR and just plan forward from here.)

Still all the SWR studies I've seen look a lot happier for a lot longer at 4% and below.

Just my 2 cents...
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Re: SWR Inflation Adjustment
Old 12-21-2004, 02:32 PM   #24
 
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Re: SWR Inflation Adjustment

Quote:
Zipper,
Not sure your age and other circumstances, but 5% makes me nervous over the decades. *(Of course its been fine for you over the past half-dozen years and the nice thing about this is you can always start today with a clean slate on SWR and just plan forward from here.)

Still all the SWR studies I've seen look a lot happier for a lot longer at 4% and below.

Just my 2 cents...
5% nominal is probably a lot safer than the 4% inflation adjusted.

He'll never run out of money, and if the market ever gets hammered by 50%, his withdrawal will be cut in half also - unlike the 4% inflation adjusted.

I'd say that the 5% without the inflation adjustment is very, very safe. -
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Re: SWR Inflation Adjustment
Old 01-05-2005, 02:30 PM   #25
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Re: SWR Inflation Adjustment

Just catching up on all the postings you lot have done while I was enjoying the holidays.

ESRBob and Zipper (and anybody else who uses variable withdrawal type system), do you use a fixed income buffer between your yearly spending and the withdrawal amounts? *Do you take that 5% of the current value and essentially average it with a CD ladder? *This would take a lot of the year to year variability out of your budget. *If you don't then why not?
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Re: SWR Inflation Adjustment
Old 01-05-2005, 05:13 PM   #26
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Re: SWR Inflation Adjustment

For those of you who are withdrawing a constant percentage of your portfolio's current balance: reconsider your approach.

I have looked into this recently. Your withdrawal amount is likely to fall much more than you think. See my post: The 4% Shocker dated Tue Jan 04, 2005.
http://www.nofeeboards.com/boards/viewtopic.php?t=3238

You can collect similar data on FIRECalc by setting its withdrawal amount equal to zero and setting its expenses to 4% (or some other percentage of the portfolio's current balance). However, you will have to make inflation adjustments manually. (FIRECalc's balances are in nominal dollars. That is, they are not adjusted for inflation.)

Have fun.

John R.
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Re: SWR Inflation Adjustment
Old 01-07-2005, 06:25 PM   #27
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Re: SWR Inflation Adjustment

Quote:
ESRBob and Zipper (and anybody else who uses variable withdrawal type system), do you use a fixed income buffer between your yearly spending and the withdrawal amounts? *Do you take that 5% of the current value and essentially average it with a CD ladder? *This would take a lot of the year to year variability out of your budget. *If you don't then why not?
Hyper,
I am intrigued, but not sure if I understand what you are thinking of. Could you explain your idea another way?

I tend to put a couple percent aside in short term corporate at beginning of year toward the SWR for the year, then rebalance around the remaining 98%.

Variability in the dollar amount I withdraw year to year (always 4% of portfolio value) for me comes from the overall growth or shrinkage of the portfolio, but as a semi-retiree, I just try to make a little more $ or spend a little less to account for the shrinkage in a down year.

Trying to think how a ladder on the CDs portion of the portfolio (I only have 5% or so in short term/ cash) would reduce overall variability enough to make a material difference in the amount I can withdraw?
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Re: SWR Inflation Adjustment
Old 01-08-2005, 07:21 AM   #28
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Re: SWR Inflation Adjustment

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Hyper,
I am intrigued, but not sure if I understand what you are thinking of. *Could you explain your idea another way?
Sure. *What I mean is that after you take the yearly withdrawal from the "investment" portion of your portfolio you would deposit it into the fixed income buffer (whether that is CDs or just a mason jar doesn't make any difference for the example). *Then you take 1/n from the buffer where n is the number of years that you set the buffer up to contain. *You would need to pre-fund the buffer with a guesstimate of your yearly income. *This would essentially average your income over the number of years in the buffer.

This is apparently what a poster known as "Galeno" over on TMF does with his 5% of current value withdrawals. *He has 6 years of income in his buffer split into 2 x 2-year CDs, 2 x 1-year CDs (or 2-year CDs with 1-year left), and 2 years income in money markets. *He then takes 1/72 nd of the amount every month.

The yearly variability in the x% of current value system is less than that in the base amount + %age of excess gains system (gummy's sensible withdrawals) but it would still smooth out the income. *If your portfolio dropped by 10% in one year and your income did that too that would be a big change but if you had a 5 year buffer then 2% per year would be easier (and it would be less if the portfolio regained ground in the next 4 years).

With only 5% in short term money then there is no real way to buffer using this. *This works with the "standard" FIRECalc/intercst model of having 20% or so in CDs or similar short term investments.

I was hoping that you or Zipper or perhaps someone else was using such a system so that I could find out how it was working and perhaps get some advice on the practicalities of it. *How has the x% withdrawal system been working out without a buffer? *What do you plan to do if your withdrawals end up changing very quickly?
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Re: SWR Inflation Adjustment
Old 01-08-2005, 09:32 AM   #29
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Re: SWR Inflation Adjustment

Hyper, I keep 20% of my IRA in Short Term Investment
Grade. This represents about 3.5 years of withdrawal.
The other 20% of my bond allocation is in Vanguard's
TIPS fund. I withdraw monthly from the Short Term
fund and rebalance everything at the end of the year
or more often if the situation dictates. My strategy
for withdrawal since about '92 has been to take a
fixed amount monthly to supplement SS and Laundry
income. I increase the amount from time to time as
needed. Currently, the withdrawal rate is about
4.8% of our total financial resources ..... but this is
what we need ..... not something based on a fancy SWR
calculation. However, if the number creeps above 5%
I will be inclined to look for frills to trim back.

Cheers,

Charlie
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Re: SWR Inflation Adjustment
Old 01-08-2005, 12:18 PM   #30
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Re: SWR Inflation Adjustment

Hyper,
I confess I haven't had to deal with a big plunge yet; I think I would just 'cheat' for a year, taking some decrease midway between last year's and the actual 4% of this year's reduced portfolio, remembering that dollar amount (hopefully not more than 5k or 10k) and then trying to either 'pay it back' the following year, earn 5k somewhere, or cut back on a vacation or something.

Also, my rule says to take a maximum of 4% of the portfolio -- if you've had a string of good years, it doesn't necessarily mean you crank up the spending if you don't need it. *That excess could either by stashed in a virtual 'bad year fund' to draw out, or could just ride along in the portfolio. *You'd bump up to 4% from 3.x or whatever as a way of getting the $ you need to make it in the *year after a downturn.

It also helps that I have a portfolio optimized to reduce volatility in returns. *Here are the back-testing statistics on the portfolio ( sort of Bernstein Gap/CoffeeHouse blend): *(totally underperformed during the dotcom hype, but otherwise has many nice things going on. *Disclosure: *I've only been following this portfolio or a close variant for the past 5 years)

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *60% S&P500
* * * * * *My Portfolio * * * *S&P 500 * * * *40% ST Treas
1989 * * *18.01 * * * * * * * * * * * *27.26 * * * * * * * * * * 21.82
1990 * * *-0.47 * * * * * * * * * * * *-6.55 * * * * * * * * * * * *0.06
1991 * * *19.09 * * * * * * * * * * **26.23 * * * * * * * * * * 22.21
1992 * * *5.05 * * * * * * * * * * * * * 4.46 * * * * * * * * * * **5.68
1993 * * *17.68 * * * * * * * * * * * * 7.04 * * * * * * * * * * * 8.12
1994 * * *2.57 * * * * * * * * * * * * -1.54 * * * * * * * * * * **-2.09
1995 * * *18.25 * * * * * * * * * * * *34.13 * * * * * * * * * * 26.88
1996 * * *12.79 * * * * * * * * * * * *20.26 * * * * * * * * * * 13.39
1997 * * *4.85 * * * * * * * * * * * * *31.03 * * * * * * * * * * 21.73
1998 * * *2.07 * * * * * * * * * * * * *26.66 * * * * * * * * * * 20.29
1999 * * *17 * * * * * * * * * * * * * * 20 * * * * * * * * * * * * *11.44
2000 * * *2.65 * * * * * * * * * * * * -11.34 * * * * * * * * * **-2.44
2001 * * *-0.2 * * * * * * * * * * * * *-12.92 * * * * * * * * * * -4.35
2002 * * *3.23 * * * * * * * * * * * * *-23.36 * * * * * * * * *-10.06
2003 * * *28.44 * * * * * * * * * * * **26.37 * * * * * * * * * * *16.5
2004 * * * *14.1 * * * * * * * * * * * * 10.88 * * * * * * * * * * *7.07

CAGR * * * ** 9.1 * * * * * * * * * * * * * **8.5
Standard Dev *7.06 * * * * * * * * * * *15.93

It would need to tank 20% for me to really feel the pinch -- of course it is possible, but less likely than in some other portfolios. *Again, I think I would just give myself a few years to adjust -- over the long run spending the few extra that year wouldn't kill you, as long as you are trying to reduce things in line with actual portfolio losses over the longer run. *

More likely is probably the slow squeeze where you spend as much in dollar terms as last year but don't quite catch up with increases in inflation -- I think figuring out how to cut 2% or 4% is probably a good exercise for someone like me with fat in the spending.

I could see how it would be hard for someone living on a much tighter budget with few if any discretionary expenses. *Still, even that person should probably be looking for more radical cost cutting (move house, get some part-time work, discover the joys of moving to Costa Rica) if they faced 5 bad years and the portfolio had dropped 40% or something -- I just don't think it would be wise to keep blithely spending away, giving yourself annual inflation adjustments and counting on some theoretical history-based model to bail you out over the long run. *
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