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Re: SWR of 6.21% for 26 years
Old 04-06-2004, 10:00 AM   #221
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Re: SWR of 6.21% for 26 years

It's tough to pick a floor ($750,000 or whatever). There are so many variables:

--Age makes a big difference. A 35 year old needs more than a 55 year old, in my opinion.
--How many people matters. A single person needs less than a married couple, but not double.
--Lifestyle matters.
--Location is a huge issue. Awhile back I posted some photos of homes for sale in Iowa (where I live). Very cheap. If I was in Boston or San Francisco, all bets would be off. I'd need to work longer.
--Health care is a huge issue. Someone willing to throw the dice can probably get by on less, unless their health tanks. At this point, I'm not willing to gamble and will need to pay the price in premiums.
--Working wife? That matters too. My wife plans to work part time for about four more years. She'll gross about $80,000 total over the four years ($20,000/year). But it will make a difference.
--SS matters. If I quit at 35 I get less than if I work to 50.
--Pension makes a big difference. Furthermore, whether the pension is COLA'd or not makes a big difference.

So it is really quite complex and individualized. I wouldn't even consider ER without knowing, in great detail, what my expenses are today, and what my income streams will likely be in the future. I don't believe in any short-cuts (be it percentage of income, or whatever).
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Re: SWR of 6.21% for 26 years
Old 04-06-2004, 12:24 PM   #222
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Re: SWR of 6.21% for 26 years

Well I took a couple of things into consideration in coming up with that number:

- Income level. I'm assuming most people who could amass 750k and come to the conclusion that they'd like to ER probably enjoy a fairly good lifestyle. I certainly do enjoy a good one, and my calculated withdrawal rate including everything under the sun like replacing cars and appliances runs to 24-30k per year. Thats without any debt. And with two people who like to eat my cooking, arent big on travelling, who are fine with a simple wardrobe, and no kids. All pretty iffy for high income earners.

- Sustainability. Regardless of age, you can have a fully sustaining portfolio if you have a 'nut' big enough to feed that income level with 100% firecalc results (with a little elbow room to spare). When I did some tinkering on this a while back, anything much under 650k wasnt always sustainable at the above withdrawal rate. 700-750k is about where a 30k withdrawal rate becomes sustainable.

Of course, if you have REALLY simple tastes, live in a state that envies "fly over" states, no debt, maybe willing to pull in a part time job or do some "in retirement work" like managing and repairing rental properties, or are willing to "eat into" the original portfolio amount, etc, etc...yes there are always marginal exceptions. I could kick by on under 10k a year, for example, which would reduce that floor to just a few hundred grand. I dont think I'd enjoy doing that for more than a few years.

On the other hand, if you still have debt like a mortgage, kids, upcoming college tuition, like to travel to expensive places, want to live in San Francisco, like to eat out 3 times a week, etc...750k just isnt going to be enough.

The other exception is you're John Galt and get by on wits and live by the skin of your teeth, the Terhorsts who have no considerable posessions and live constantly in travel to mostly inexpensive places, or some other untraditional approach...and these definitely bear some thought and consideration.

As far as a sustainable 6% SWR, isnt that what this thread started out to be and wasnt there some agreement that it wasnt likely to be sustainable? Again, there are potential exceptions.
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Re: SWR of 6.21% for 26 years
Old 04-06-2004, 12:29 PM   #223
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Re: SWR of 6.21% for 26 years

Quote:
SWR means what it means to you. *Key operative word being "SAFE", the rest being mechanical. *If you're sleeping good and living a good life, the rest is academic. *Arguably, interestingly academic, but thats it.
Which is why I like the "Base + Variable" systems. *The Variable portion allows the withdrawals to react to market returns more quickly and mechanically. *I run my portfolio in an asset allocation with rebalancing way because I wouldn't know when to "time" the market but the mechanical rebalancing helps to hold on to the runups in individual asset classes. *Similarly, a variable yearly topup allows for scaling back in poor portfolio sequences without any need for decisions.

By the way, a 3% Fixed (3% of initial portfolio + inflation adjustment) + 1.5% of current value WR is almost 100% "safe" for a 50 year period using FireCalc. *In the years that it did fail it failed very close to the 50 year mark. *Considering that my portfolio is more diversified than an S&P500 (lower volatility => more safety) and that I haven't included the "social security" payments from any of the 3 countries that my wife and I between us have claims on that isn't a bad level of safety. *Add in that we have access to the socialized medicine of 3 countries (not all the same as the social security countries) as another fallback if we need longer term medical care and that our regular yearly health insurance costs will be lower because we will be getting coverage outside the US.

Quote:
Sounds like you're grouchy with me. *Hope nothing I said made you upset, that certainly wasnt my intention. *But I probably made light of some serious concerns you had. *My apologies.
Not grouchy but it did appear that you were poking fun at me. *Sorry that I misinterpreted.

Quote:
That aside, the french laundry is good, and I have eaten there a couple of times. *I might be able to produce a better plate of food, but only because I have merely two people to think of, rather than a couple of hundred per day.

And I'm one heck of a lot cheaper. *
I could put out a single dish or two possibly near the same quality but I think the big difference is the sheer number of courses you get there and the variety of tastes that provides - that and the fact that somebody else washes the dishes. *The courses are small but after 8 or so of them you are full. *As for being cheaper that's not hard to imagine - the cost is pretty high there.

Quote:
By the way, did you ever make it to the Yankee Pier and did you like it?
Not yet, but it's on the "to try" list. *Thanks for the recommendation. *We haven't had time for a sit down nice meal out lately - too many home chores (repair the dishwasher, change the brakes on the car, install baseboard) that leave us too tired to go out.
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Re: SWR of 6.21% for 26 years
Old 04-06-2004, 12:44 PM   #224
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Re: SWR of 6.21% for 26 years

Just having a sporting good time and having fun, not intending for it to be at your expense. The problem with the internet is nobody can see the jester hat that I'm required by law to wear when posting.

I hope to god Anna Nicole Smiths granddaughter is cute and less weird than she is.

Dont get too tired and install baseboards on the car and brakes on the house.

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Re: SWR of 6.21% for 26 years
Old 04-06-2004, 04:16 PM   #225
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Re: SWR of 6.21% for 26 years

Quote:
Hello TH! *Noticed that you said that you would not recommend ER
on less thna 750K. *All you need is the motivation and a little luck.
Why do something that sounds harder than work? The other day someone posted that he was sitting in Thailand by a fan in 100 degree weather. Wouldn't most people rather get a job? Maybe just an attendant in a nice AC'd Movie Theater? I remember as a kid in the South, I was a pin spotter in a bowling alley before fully mechaical spotters were deployed. I looked forward very much to that job, because it was 95 outside, and a cool 70 inside. I wish I could have slept there.

Also, not to knock anyone's success, but if one were starting today, would he want to start out assuming luck? Game theory says that isn't a good idea.

Reminds of about twenty years ago, I was trying to describe to my Dad about ER. He said, well how much will you have to live on? I answered, well, I should pull about what a union hod carrier does. He said, that's nice, but are you sure this is a good use of a college education?

I feel like the song, "...don't do what I have done..."

It's true that many jobs stink, but some are pretty nice. If I were thinking of retiring with $750,000, I would think again and have a look at my possibilities in the job market. Of course, unless the $750,000 is in addition to various entitlements. Something which is not always stated as carefully as it might be by retirees.

Often I see some guy, with kids, no job, living pretty well. Look closer there is often a military pension, some disability payments, etc., etc. If one is planning to copy others, my idea is be sure you know everything there is to know about their situations.

Personally, unless I had a solid and meaningful pension, health insurance, SS, etc., I would not retire at an age under 50 with less than $2mm. If one adopts a 3% WR, that gives $60,000 before tax. The Wall Street Journal ran a story yesterday about a metals scavenger that expects to make $60,000 this year. Looks like the returns to capital are not too good, if it takes $2,000,000 to equal the income of a scavenger.

My figure of $2mm applies to someone with only a wife and no kids. OTOH, if you are alone, you are only rolling your own dice, so who is to say what you should be content with? I could live in a van, and I have seen old men living in vans, and looking pretty OK. I don't think I'd want to impose that risk on a woman. And no way on kids.

Mikey
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Re: SWR of 6.21% for 26 years
Old 04-06-2004, 04:24 PM   #226
 
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Re: SWR of 6.21% for 26 years

Hey TH! Your jester hat has always been obvious to me.
BTW, Anna Nicole Smith is seriously F**ked up.
Future generations are not likely to be much better.

Keep smilin'

John Galt
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Re: SWR of 6.21% for 26 years
Old 04-06-2004, 05:19 PM   #227
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Re: SWR of 6.21% for 26 years

Oh I know she's a piece of work, but she'd just be an emergency backup wife, as I already have one and she's terrific.

Come to think of it, maybe I should tell her about this plan...

Ok, I just asked, and she said if I become as rich as the guy that married anna nicole smith, it would be ok for me to marry her granddaughter when I'm 90.

Isnt she the best?
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Re: SWR of 6.21% for 26 years
Old 04-17-2004, 01:32 AM   #228
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Re: SWR of 6.21% for 26 years

2) We are generally in agreement that the number generated by the conventional methodology studies does not provide true safety in the event that a worst-case scenario pops up in one's retirement. There have been a good number of posters who have said that those using the 4 percent number or the 6 percent number need to include a good bit of slack in their plans to cover themselves in the event of a worst-case scenario. By definition, the SWR number is the number that works in the worst case, so not much slack should be necessary if the number were being calculated properly.

I want to know the maximum that I can withdraw so that I don't spend too little and leave a big estate or spend too much and run out of money so I was very happy to see this.... but then I saw this:

The approach that I take with the data-based SWR concept is to include a caveat that the number works if the future is not worse than the past. By the phrase "if the future is not worse than the past," I mean to cover the possibility of economic calamities like hyperinflation or nuclear war or political instability,<b> anything so bad that it could cause the U.S. stock market to perform worse than you would otherwise expect to see it perform given how it has performed in the past.</b> I do not include within the caveat the possibility that we will see lower returns as the result of starting from higher valuation levels because that it is a result you would expect given that higher valuation levels have always caused lower long-term returns in the past.

IOW, the "data based swr" would be like the regular (?non data based swr) except that it would consider valuation. I am not sure that I can imagine let alone list all of the events that might cause lower performance of the market than in the past

I understand that there is no number that will work with 100 percent certainty. I am not sure that it is such a big deal not to cover the possibility of things like nuclear war, however. In the event of nuclear war or hyperinflation, all bets are probably off anyway. There simply is no way to effectively account for that sort of thing in your investment strategies.

here I can think of many other possible calamaties (other than high p/e ratio) and I assume that there are more than I can imagine and I think that it would be a "big deal" to include all of them so I am struggling to see how uncertainty has been reduced....

The more precise way to say things is to say "the conventional methodology is analytically invalid for purposes of determining SWRs."

?maybe this means something to you swr afficianados

I have trouble reconciling these two statements:

It is a matter of different strokes for different folks, not a matter of declaring some folks right and other folks wrong.

That said, the conventional methodology number might work for retirements that do not experience a worst-case scenario. In any event, some retirees may reasonably view the true SWR number as overly conservative and may elect to employ the conventional methodology number in their plans.

if there is a true swr number aren't the people using the "other" number wrong?

I have failed to understand ***** on several other boards in the past so I guess I am not learning
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Re: SWR of 6.21% for 26 years
Old 04-17-2004, 03:48 AM   #229
 
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Re: SWR of 6.21% for 26 years

There is no absolute SWR, just like there is no Santa Claus. For those who have to get 100% comfortable first,
SWR might as well be STILL WISHING for
RETIREMENT. It's fun to debate though.

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Re: SWR of 6.21% for 26 years
Old 04-19-2004, 10:15 AM   #230
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Re: SWR of 6.21% for 26 years

if there is a true swr number aren't the people using the "other" number wrong?

The conventional methodology tells you the true historical surviving withdrawal rate (HSWR) and the data-based methodology tells you the true safe withdrawal rate (SWR). Which number is right or wrong in a given circumstance depends on the purpose for which you are making use of an analytical tool to inform your investment strategies in that particular circumstance.

That's my take on it, ataloss.
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Re: SWR of 6.21% for 26 years
Old 04-19-2004, 06:22 PM   #231
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Re: SWR of 6.21% for 26 years

Quote:
The conventional methodology tells you the true historical surviving withdrawal rate (HSWR) and the data-based methodology tells you the true safe withdrawal rate (SWR).
I think the word "true" in this quote is terribly misleading. Some withdrawal rates have been determined from past data, but they are only based on that data. Others are determined from Monte Carlo studies and so on. There isn't anything about any of these that makes one of them "true" in the sense that the other SWR are "false" SWR. People look at the data and that's what they come up with.

I personally take SWR with a grain of salt - a guideline, since no one can predict the future. One SWR for everyone under any circumstance makes even less sense.

arrete
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Re: SWR of 6.21% for 26 years
Old 04-20-2004, 12:23 AM   #232
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Re: SWR of 6.21% for 26 years

Quote:

Why do something that sounds harder than work? The other day someone posted that he was sitting in Thailand by a fan in 100 degree weather. Wouldn't most people rather get a job?
Oh, I dunno, I like my fan alot Sure, I have a/c, but I've acclimated to the hot weather. Maybe its not for everyone, but it works for me. I really have no problem staying busy: lots of reading, swimming and some traveling around Thailand. Time seems to go by pretty fast.

If I have a job, I'm back to spending my time according to someone else's dictates. Naaa, no thanks.

Still chilling by the fan

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Re: SWR of 6.21% for 26 years
Old 04-20-2004, 03:50 AM   #233
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Re: SWR of 6.21% for 26 years

I personally take SWR with a grain of salt - a guideline, since no one can predict the future. One SWR for everyone under any circumstance makes even less sense.

I don't think there is too much difference in our viewpoints as a practical matter, arrete. I certainly do not believe that all aspiring early retirees should be using the same withdrawal rate. The SWR tool is a mathematical construct, so I believe that the calculation should be done objectively. But I also believe that each aspiring early retiree should be subjectively determining his or her own personal withdrawal rate (PWR).

At the calculation stage, you just report what the data with a bearing on the question of what is safe says; there are limits on what reasonable people should come up with at that stage. But at the application stage, it is perfectly appropriate for optimists to employ a higher number than pessimists. Optimists might take SWR Plus One as their PWR and pessimists might take SWR Minus One. The optimists know that it is always possible that a worst-case scenario will not pop up in one's particular retirement, and the pessimists know that it is always possible that we will see an economic event in the future worse than any we have seen in the past.

SWR analysis is an exercise in data collection and mathematics at the calculation stage. It is an exercise in the use of subjective judgment and the assessment of personal risk-tolerance at the application stage.
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Re: SWR of 6.21% for 26 years
Old 04-20-2004, 11:25 AM   #234
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Re: SWR of 6.21% for 26 years

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I personally take SWR with a grain of salt - a guideline, since no one can predict the future.
Yup, the future is essentially unknowable so the best we can do is use history as a guide. Whether that means using straight historical data (intercst, Trinity, etc.) or extracting the statistical properties of the data (Monte Carlo) all of them use historical data. It is entirely possible that the future will be worse than the past and it is also possible that the historical asset balance won't work in the future as it did in the past (i.e. loss of US dominance, maturing of the US economy and slower growth).

It is extremely prudent for any early retiree to have some fallbacks in their plans such as being willing and able to scale back withdrawals, being more diversified than the "standard" portfolio, a house that can be downsized or reverse mortgaged, etc.
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Re: SWR of 6.21% for 26 years
Old 03-18-2005, 12:34 PM   #235
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Re: SWR of 6.21% for 26 years

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If you retire now (at S&P around 1100), your SWR should be about 6.21%, given the assumption that the 30 yr period 2000-2029 would not be worse than the worst 30 year period from the past.

Reason: *If you had $1000000 at the beginning of 2000, FIRECalc will tell you that your SWR for 30yrs is 4.19%, using the defaults. *If you stick to 4.19% withdrawal, at the end of 2003, your nest egg will be about $674000. *Yet, you should be OK to continue withdrawing $41900, plus inflation adjustment til 20209. *Hence, if you had $1mil at the end of 2003, then you should be able to withdraw $41900*1000000/674000=$62166, or about 6.22% annually, inflation adjusted. *Of course, if you *believe that 2000-2029 period will be worse than the worst we've ever experienced then, your personal SWR will be less than that.
Ok, I read about 7 or 8 pages and then stopped so I could collect my thoughts and respond. If anyone has already made this point then I take it all back!

Here's the key to the puzzler above: the calculator assumes that you're going to withdraw the same amount every year (after adjusting for inflation). This means that some years, you're potentially going to be taking out more than the initial % in year 1 and some years you're going to be withdrawing less than the initial % than you took out in year 1.

The flaw in the logic as explained by amt is when you're taking a % of the CURRENT VALUE of the portfolio rather than the initial value of portfolio. 6.22% this year, could be 2.5% next year and 8% the year after that. That's the beauty of SWR in the first place when stacked up against historical data.

In other words, amt is correct in saying 6.22% can be withdrawn for the next 26 years, but wrong in comparing the % withdrawal to the CURRENT VALUE of the portfolio. AND this is only if you go by the SWR model at all.

Please correct me if my logic went south.
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Re: SWR of 6.21% for 26 years
Old 03-18-2005, 02:21 PM   #236
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Re: SWR of 6.21% for 26 years

Quote:
In other words, amt is correct in saying 6.22% can be withdrawn for the next 26 years, but wrong in comparing the % withdrawal to the CURRENT VALUE of the portfolio. AND this is only if you go by the SWR model at all.

Please correct me if my logic went south.
amt is saying that 6.22% (plus inflation) is totally safe for any portfolio with 26 years to go, not just the current one. [IIRC, amt was talking about 29 years fo go. Don't worry about that.]

This is an artifact of the assertion that the original 4% [or 3.9%?] withdrawal rate is truly 100% safe. It was safe for 100% of the 30-year historical sequences. But that does not guarantee total safety looking forward. Instead, it is a good idea to introduce probability and statistics into our analysis.

Doing so automatically rejects the notion that any withdrawal rate (other than zero) can be 100% safe.

Have fun.

John R.
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Re: SWR of 6.21% for 26 years
Old 03-18-2005, 02:44 PM   #237
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Re: SWR of 6.21% for 26 years

Quote:
amt is saying that 6.22% (plus inflation) is totally safe for any portfolio with 26 years to go, not just the current one. [IIRC, amt was talking about 29 years fo go. Don't worry about that.]

This is an artifact of the assertion that the original 4% [or 3.9%?] withdrawal rate is truly 100% safe. It was safe for 100% of the 30-year historical sequences. But that does not guarantee total safety looking forward. Instead, it is a good idea to introduce probability and statistics into our analysis.

Doing so automatically rejects the notion that any withdrawal rate (other than zero) can be 100% safe.

Have fun.

John R.
Well, nothing in life is 100% safe, especially not future performance based on past results. What I'm saying is that firecalc bases withdrawals amounts on the INITIAL VALUE of the portfolio, not ongoing values. So in year 10, if the value is less than the initial value, the % withdrawn may be higher, but it doesn't make the SWR any more or less valid.

Bottom line, either go with the SWR based on historical performance or not. Or better yet, do as some do and take the SWR based on current value, WHICH IS NOT what firecalc does!

I actually am wondering how that much that changes the outcome. I'm betting that if you put a cap on the withdrawal amount and then decreased it in down years, your probability of success would increase tremendously. That's all this is, probability, with that 100% chance scenario in firecalc being a VERY deceiving concept, since, of course, there is no guarantee that you'll have any funds left after x number of years with a 4% SWR.
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Re: SWR of 6.21% for 26 years
Old 03-18-2005, 03:45 PM   #238
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Re: SWR of 6.21% for 26 years

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That's all this is, probability, with that 100% chance scenario in firecalc being a VERY deceiving concept, since, of course, there is no guarantee that you'll have any funds left after x number of years with a 4% SWR.
It's not "deceiving". *What it may be is a mismatch of expectations. *The conditions that FIRECalc uses for success is that you can make every withdrawal over the time period specified using historical data. *There are studies out there that add to the success conditions. *Some of these are things like nominal portfolio value maintained at end of period or inflation adjusted value maintained at end of period. *You can make your definition of success anything that you want but the more conditions that you need then it is likely that the SWR will be lower.

It will also mean that the results become less "representative" as you slice the historical data set into smaller and smaller piles - we've only got somewhere between ~4 and 100 30 year data sets depending on how you count the overlap. *With the size of the current data at some point you have to add some other "things" to the mix. *That can be logic or reasoning though you have to be careful with that as there are very few things in financial theory that aren't also using the same limited data set. *One other thing that can be added is feedback or adaptation in the withdrawal rate. *This doesn't require as exact an understanding of the "one true blessed" SWR as these algorithms will adjust to the actual portfolio results. *There are a number of proposals floating around about this - everything from drawing a fixed percentage of the current value of the portfolio to more complicated base amounts plus percentages of the gains to just adjusting by the "seat of the pants".
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Re: SWR of 6.21% for 26 years
Old 03-18-2005, 05:22 PM   #239
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Re: SWR of 6.21% for 26 years

Hyper pretty well nailed it.

IMHO, one should just take what they need
to maintain a comfortable but LYBM lifestyle.

SWR calculations are just a sanity check at
best.

Cheers,

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Re: SWR of 6.21% for 26 years
Old 03-19-2005, 03:31 AM   #240
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Re: SWR of 6.21% for 26 years

I enjoy fiddling with the SWR numbers, even if the
endless debate gets a bit tedious. Charles'
"sanity check" point is well taken. What I do is try to imagine all of the worst-case scenarios that could possibly befall us and then have some idea how we
would deal with them. And here (I apologize as I
repeat myself).................if I lost 100% of my fixed income
portfolio (that's half of our net worth), I still would not have to go back to work. We would sell/lease one residence,
reverse mortgage the other one and collect our SS.
It wouldn't be pretty but it wouldn't derail the ER train.

JG
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Will you stay 5 more years for $1,000,000? honobob Other topics 18 12-17-2006 10:31 AM
Strategy for a (substantially) higher withdrawal hankjoy FIRE and Money 87 05-24-2004 09:18 PM
SWR, terminal values, TIPS, I-bnds & comm paper sgeeeee FIRE and Money 144 02-25-2004 04:35 PM
$50 a day? No way! patnbj FIRE and Money 112 01-30-2004 09:21 PM

 

 
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