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Old 06-09-2015, 04:50 PM   #21
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That is, you'd have $491 "nominally" for life. But, and it's a big "BUT," who knows what the real value of that number will be in buying power as time marches on. I'm guessing if you live 20 yrs, the buying power would be halved.

Inflation has been so benign these past few years, it's easy to disregard. But who knows what the decades will bring? It's a real risk for non-cola'd annuities.
That's correct. But, the same math would work if I used cpi-indexed SPIAs. I used the non-indexed because quotes are harder to get on indexed annuities.
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Old 06-09-2015, 04:54 PM   #22
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That's correct. But, the same math would work if I used cpi-indexed SPIAs. I used the non-indexed because quotes are harder to get on indexed annuities.
Yes. I wasn't saying your math wouldn't work regarding the required investment return to cover the 60 yrs old to 70 yrs old period. I was just trying to remind folks about the inflation risk (recently very benign but who knows the future?) of non-cola'd annuities. An addition, not a correction.
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Old 06-09-2015, 06:38 PM   #23
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Would this work.

Let say you decide you need money for another 30 years. At that point you will be 95 and with your health and family background that is ten years past what you really think you will live. Firecalc says 3.5% (Im making up percentage because I'm too lazy to enter it) So you take your nest egg and live on 3.5% and the world is good.

Five years later, the market has been good to you and you now have 50% more than you had, even with the withdrawals. You run Firecalc again this time for 25 years and it say 4%. You reset and start your retirement over using the new amount, knowing that Firecalc says you will not run out of money before you expect to run out of time.

If the market goes down you just stay the course. You should not have not have to lower your withdrawal from a previous high point, unless you forecast living beyond 95. In my example, you figured your increase on only living 25 years and increased funds. If you now believe you will live to be 100, you would have readjust your SWR. However, that is the same for all of us that decide we are going to live longer than the what original SWR was figured on, and our nest egg is lower.

I will admit that I have not gone through ever scenario, but it seems like anytime your nest egg goes up beyond it's set point, you could reset, using a realistic expected life plus pad. As you get older, the projected end of life date becomes a little easier to grasp.

Now before people jump all over me, I don't do this! As I have posted before, we do not use our nest egg for necessary retirement spending. Currently money from our IRA is rolled over to savings, and will most likely continue to be that way. I have just always pondered why you could not reset your SWR based on expected age and nest egg.
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Old 06-09-2015, 07:42 PM   #24
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I see no reason that wont work. The market doesnt know when you retire. Neither does FireCalc. If FireCalc says 4% is safe 5 years after you retire, its the same as if the first 5 years never happened and the second FireCalc run was your first run.
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Old 06-09-2015, 09:46 PM   #25
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Would this work. ...

Five years later, the market has been good to you and you now have 50% more than you had, even with the withdrawals. You run Firecalc again this time for 25 years and it say 4%. You reset and start your retirement over using the new amount, knowing that Firecalc says you will not run out of money before you expect to run out of time.

If the market goes down you just stay the course. You should not have not have to lower your withdrawal from a previous high point, unless you forecast living beyond 95. ....
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I see no reason that wont work. The market doesnt know when you retire. Neither does FireCalc. If FireCalc says 4% is safe 5 years after you retire, its the same as if the first 5 years never happened and the second FireCalc run was your first run.
Right, that is essentially the 'Retire Again and Again' method.

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Old 06-10-2015, 10:24 AM   #26
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Would this work.

Let say you decide you need money for another 30 years. At that point you will be 95 and with your health and family background that is ten years past what you really think you will live. Firecalc says 3.5% (Im making up percentage because I'm too lazy to enter it) So you take your nest egg and live on 3.5% and the world is good.

Five years later, the market has been good to you and you now have 50% more than you had, even with the withdrawals. You run Firecalc again this time for 25 years and it say 4%. You reset and start your retirement over using the new amount, knowing that Firecalc says you will not run out of money before you expect to run out of time.

If the market goes down you just stay the course. You should not have not have to lower your withdrawal from a previous high point, unless you forecast living beyond 95. In my example, you figured your increase on only living 25 years and increased funds. If you now believe you will live to be 100, you would have readjust your SWR. However, that is the same for all of us that decide we are going to live longer than the what original SWR was figured on, and our nest egg is lower.

I will admit that I have not gone through ever scenario, but it seems like anytime your nest egg goes up beyond it's set point, you could reset, using a realistic expected life plus pad. As you get older, the projected end of life date becomes a little easier to grasp.

Now before people jump all over me, I don't do this! As I have posted before, we do not use our nest egg for necessary retirement spending. Currently money from our IRA is rolled over to savings, and will most likely continue to be that way. I have just always pondered why you could not reset your SWR based on expected age and nest egg.
I'll look at it this way. The 3.5% comes from some back-testing or Monte Carlo analysis that had a 95% confidence level. That is, you think the 3.5% will fail 5% of the time.

Looking at the individual scenarios in the analysis, you see that none of the failures started with strong returns. All the failures had average or below average (usually below) in the first five years.

If the analysis is reliable, a portfolio growth of 50% indicates that you are in the 100% success group of scenarios. If you continue with your original withdrawal level (which is now 2.33% of your current portfolio) you have a 100% chance of success.

Buy upping your SWR to 4.0%, you put yourself back into the 5% risk of failure world.

I'll try an analogy. Let's suppose someone pays me $$$ to let him shoot at me once from a distance. I'm fairly confident he only has a 5% chance of hitting me, so I take the risk.
He misses on the first shot. Should I say "I'll play again. I'll get a second $$$, and the chance of him hitting me is still just 5%"?
If he misses on the second shot, should I play a third round?

Somehow, ratcheting seems like it introduces more risk.

I might try this rule instead: I'll take the greater of 3.5% of my (inflation adjusted) original portfolio, or 2.33% of this year's portfolio.
Without the ratchet, I will drop my withdrawals when the market goes down.

Another approach, is that I ratchet up, but only to the 100% success SWR.

(Oh, and since I know I've lived the first 5 years, if I'm still in good health, I should change my end point to 26 years or whatever.)
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Old 06-10-2015, 10:37 AM   #27
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...

Buy upping your SWR to 4.0%, you put yourself back into the 5% risk of failure world.

I'll try an analogy. Let's suppose someone pays me $$$ to let him shoot at me once from a distance. I'm fairly confident he only has a 5% chance of hitting me, so I take the risk.
He misses on the first shot. Should I say "I'll play again. I'll get a second $$$, and the chance of him hitting me is still just 5%"?
If he misses on the second shot, should I play a third round?

Somehow, ratcheting seems like it introduces more risk.
...
I think there is a flaw in your analogy.

The historical reporters like FIRECalc are already running all the available scenarios. That 'second shot' is in all of them.

Again, we have to stick to the historical data itself, the future is unknown territory. But re-running FIRECalc isn't a 'second shot'. All the shots were included, so the second run can't be worse than the first, it was already considered.

It's easier to see if you use a 100% success rate for the time period. Obviously, if there are no failures in the first run, there can't be any in the second either. One caveat - as your subsequent runs are for shorter and shorter time periods, FIRECalc can include more and more complete sets of data (ie, a 50 year run does not include 1965 and later, as those are less than complete, inclusive 50 year runs). *(see edit/add note)

In your analogy, it would be more like you spin the wheel and FIRECalc spits out data for one specific randomly chosen starting year - 95% of the time you win (with defaults), yeah! Then your 'second shot' would be like another spin, and another random start year. Etc. But that is not how it works.

* edit/add: I think the killer year is 1966, so for now, as long as you are using less than about a 46 year period (47-48? - gotta watch the 'inclusive math)), you should not run into this apparent anomaly.

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Old 06-10-2015, 10:54 AM   #28
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Even rerunning firecalc, you are "adversely selecting" the a probability worse (lower) line in firecalc each time you adjust.

In essence, if the future mirrored the past in firecalc, over enough adjustments(could take a long while), you would end up at the lowest possible line, meaning you would always be "close" to not having enough.


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Old 06-10-2015, 11:46 AM   #29
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Carrying it to extreme my thought process was this.

When I'm 95 my portfolio has performed at the high end. When I started it said 4% of one million $40,000, plus annual inflation. So here I am with an expected life of two years, an and $8,000,000 in the bank. Not sure what I would spend it on, but I think I would be taking out a heck of a lot more than what I started at. i.e. I would reset long before that point. Ucretch's first post was more in line with my thoughts. Firecalc does not know when you start. As long as you adjust remaining life it should work.
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Old 06-10-2015, 02:09 PM   #30
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Somehow, ratcheting seems like it introduces more risk.
Ratcheting up definitely increases the risk. The question is whether it's worth the tradeoff of more spending money.
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Old 06-10-2015, 02:26 PM   #31
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Ratcheting up definitely increases the risk. The question is whether it's worth the tradeoff of more spending money.
I'd agree with this. Growing my portfolio by 50% in the first five years is a Good Thing. I've got an important piece of uncertainty behind me.

Now, the question is how I respond to that good news.
A) I could use it entirely to increase my spending - ratchet up, or even spend 1/3 of my new portfolio in one year.
B) I could use it entirely to sleep better at night - keep my original spending plan, but note that I have a lot more margin than when I started.

Or, I could use some of A and some of B. Maybe spend some extra in only one year, but still leave more in the portfolio than I started with.
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Old 06-10-2015, 04:07 PM   #32
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I think there is a flaw in your analogy.

The historical reporters like FIRECalc are already running all the available scenarios. That 'second shot' is in all of them.

Again, we have to stick to the historical data itself, the future is unknown territory. But re-running FIRECalc isn't a 'second shot'. All the shots were included, so the second run can't be worse than the first, it was already considered.

It's easier to see if you use a 100% success rate for the time period. Obviously, if there are no failures in the first run, there can't be any in the second either. One caveat - as your subsequent runs are for shorter and shorter time periods, FIRECalc can include more and more complete sets of data (ie, a 50 year run does not include 1965 and later, as those are less than complete, inclusive 50 year runs). *(see edit/add note)

In your analogy, it would be more like you spin the wheel and FIRECalc spits out data for one specific randomly chosen starting year - 95% of the time you win (with defaults), yeah! Then your 'second shot' would be like another spin, and another random start year. Etc. But that is not how it works.

* edit/add: I think the killer year is 1966, so for now, as long as you are using less than about a 46 year period (47-48? - gotta watch the 'inclusive math)), you should not run into this apparent anomaly.

-ERD50
I guess no analogy is perfect. I'll just drop it and go to the FireCalc back-testing.

If I just load FireCalc, and don't change any assumptions, I'll get 6 failures in 115 runs - 1965, 66, 67, 68, 69, and 73.

If I change the "years" to 25, and change the payout from $30,000 to $32,250 (i.e. 4.3%) I also get 6 failures in the same 6 years. (I pick up an extra 5 start years, but none of them is a failure.)
So, it looks like 4.3% is a reasonable SWR for 25 years.

Now I change FireCalc* so it withdraws $30,000 for the first 5 years. Then, if the 5th year ending balance is more than 150% of the (inflation adjusted) original $750,000, I will calculate a new withdrawal amount of 4.3% of the end of 5th year balance, and carry it forward with inflation.

It turns out that only 14 start years hit the 150%, and they are all successes with this ratcheted payout.
We could say "that's no additional risk". Or we could note that since we're looking for events that only occur 5% the time, we just didn't get the additional one failure due to statistical variation.

I dialed back the 150% to 120% and tried again. This time, I had 40 start years hit the 120%, and two of them became failures 1960 and 1961. I'll say that the ratchet created failures where there had been none before.

The original FireCalc run didn't have this ratchet up withdrawal plan, so introducing changes the failure rate.

As I mentioned above, I'd rather use my strong early years to do a combination of a somewhat better payout, and also reduce my risk.

* Yes, "change FireCalc" means to go offline and code a new payout formula.
Since FireCalc will produce detailed Excel worksheets that we can download, this is possible, though a little time consuming.
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Old 06-10-2015, 05:21 PM   #33
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SWR - No Heirs

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Old 06-10-2015, 05:22 PM   #34
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SWR - No Heirs

For the record - if you, or anybody else here needs an heir, my good wife and I will be you heir's. We'll even execute your will in good faith, assuming we got a little. :-)

Certainly there are worse options than using a forum member.







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Old 06-10-2015, 05:28 PM   #35
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(investable_assets + 401k + IRA)/(70 - AGE) = withdrawal rate

At 70 with no money get SS and live rest of life off of it.

If you were a high earner you are looking at 3k plus a months of SS at time when you spending goes down. Good enough IMO. Enjoy healthy years . If you have spouse high earner you are looking at 7k a month.

You do not need to worry about any MEANS tests since you will be broke by the time you get SS.

If any means testing ever passes I would right away institute plan how to spend money or give it to my kids by the time I am 70. Who are those morons that come up with those ideas ?
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Old 06-10-2015, 06:09 PM   #36
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They are the same morons that have passed all the laws we are living under.
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Old 06-10-2015, 06:10 PM   #37
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If they ever do means testing, there will be loopholes, there always are.


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Old 06-10-2015, 10:09 PM   #38
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...
...
I dialed back the 150% to 120% and tried again. This time, I had 40 start years hit the 120%, and two of them became failures 1960 and 1961. I'll say that the ratchet created failures where there had been none before.

The original FireCalc run didn't have this ratchet up withdrawal plan, so introducing changes the failure rate. ...
I'm tempted to say that something in your coding accounts for this. Unless I'm missing something, it doesn't seem to add up.

Those years that peaked at 120%, were also part of the runs in FIRECalc that passed (they were the starting year when they were at 120% of some earlier reference), so if they passed at 4.3% as part of that run, they must also pass when you bring the rate to 4.3% at 120%.

It doesn't make any difference how you got there, if year X can survive 25 years at 4.3%. The 5 years previous could be low or high withdraws, but if you take 4.3% of a value at year X, that's all there is. History doesn't matter.

Did I not follow something in your explanation?

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Old 06-11-2015, 09:08 AM   #39
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I'm tempted to say that something in your coding accounts for this. Unless I'm missing something, it doesn't seem to add up.

Those years that peaked at 120%, were also part of the runs in FIRECalc that passed (they were the starting year when they were at 120% of some earlier reference), so if they passed at 4.3% as part of that run, they must also pass when you bring the rate to 4.3% at 120%.

It doesn't make any difference how you got there, if year X can survive 25 years at 4.3%. The 5 years previous could be low or high withdraws, but if you take 4.3% of a value at year X, that's all there is. History doesn't matter.

Did I not follow something in your explanation?

-ERD50
Regarding the coding, just download the detail for 1960 and you can check my numbers. I'll be happy to walk through my approach with you.

The issue is that year X did not survive 25 years at 4.3%. If I run Firecalc at 4.3% for 25 years, I'll get 6 failures. One of them is X = 1965.

If I start in 1960 and ratchet up 5 years later, I'm putting myself into that 1965 failure situation.

OTOH, if I run Firecalc at 3.33% for 25 years, I'll get zero failures. Even 1965 survives.

The person who starts in 1960, collecting $30,000 on a $750,000 portfolio, has good news after 5 years. His portfolio grew in spite of his withdrawals. He is in a stronger position than when he started, $30,000 is only 3.33% of his $900,000 portfolio. Even though the years after 1965 are tough, he has built up enough cushion to survive. Firecalc has no cases of 3.33% withdrawal rates failing in 25 years.

But, by ratcheting up, he gives away his cushion. He switches out of a 100% success rate into a 95% success rate. Of course, we should expect that 95% of the time he simply enjoys his higher payout. But, 5% of the time he will trade into a failure.
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Old 06-11-2015, 09:19 AM   #40
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Regarding the coding, just download the detail for 1960 and you can check my numbers. I'll be happy to walk through my approach with you. ...
OK thanks, I will run through this later, don't have time right now.

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