SWR of 6.21% for 26 years

[John Galt]

Well Canada has some good fishing. Plus, they gave
us Gordon LIghtfoot and Joanie Mitchell. Otherwise
though....................

John Galt

 

[gummy]

typical american responses

ciao

 

[John Galt]

Hey gummy, I was just jerkin' your chain man. We love
Canada, especially those cool Mountie uniforms.
They still wear those, right?

John Galt

 

[BigMoneyJim]

typical american responses

ciao

Sorry, gummy, it's how we're raised and schooled. I really like Canada, though. It blows my mind how fast the culture shifts when driving over the border. That doesn't happen when driving from state to state. The cleanliness and scenery immediately improves when driving into Canada via Detroit.

 

[cute fuzzy bunny]

The same could be said of detroit and several sectors of hell

But seriously folks, some of my best friends are from canada. And two of my grandparents. But then again, as soon as the snow went down enough for the dogs to get some traction, they left.

 

[Hyperborea]

on 02.04.04 at 14:41:28, Hyperborea wrote:
In the words of Errol Flynn: Any man who has $10,000 left when he dies is a failure.

In the words of TH, anyone who lives 20 years longer than they thought they would and runs out of money wishes he was a failure

Well, $10,000 was worth a lot more when Errol Flynn said it.  

Seriously though, it is a balancing act.  I have no wish to fund a hospital wing after I die and I also don't wish to spend the last few years of my life in poverty.  How do we withdraw enough but just enough?  If you are retiring young (30's or 40's) then the compounding effect is even more.

There is the issue of utility.  Above a certain amount of money (which varies by person) each extra dollar is less valuable than the one before it.  Restricting your income in the earlier years of your retirement to amass a large amount for later retirement will result in lower overall utility.  Couple that with the reasonable expectation that needs as you age will decrease - less need for travel, less need for fast cars, less need for expensive toys, etc.

We do need to plan for the uncommon but still possible worst case - 4% withdrawals, diversified portfolios, fallback options, budget flexibility, and for the early retiree (40's and earlier) then some easy income job skills.  However, looking at the historical data we can see that this is not the common scenario.  In most cases we will instead be looking at how to deal with lots of money and big portfolios.  Do you want to reap it all as a lump sum when you're 90?  Leave it to your cat?  Turn your kids into spoiled trust fund babies?  Or sip at it gently over a 40-60 year retirement?

Living in another culture full time would be interesting.  Just not sure I'd want to work another 10 years to accommodate it.

This could actually shorten the amount of time required to retire depending on where it is you wish to live.  If you want to live in Paris or Tokyo that will increase the time but in most other cases it will be less.  Health insurance for those buying their own in retirement (all Americans under 65) will be much cheaper if you are not living in the US.

 

[Hyperborea]

We withdraw just what we need to pay the bills (and live comfortably). Our minimum withdrawal rate is then determined by things like the the price of electricity (rather than historical returns, Monte Carlo or mathematical gesticulation).
<snip>
Of course, whatever one does (rationally), one can argue:
"you're just calculating a SWR"  

IIRC your base living amount comes from an annuity (and possibly a university pension?) so there is no need for using a SWR on the remainder of the portfolio. This is what my parents who retired "early" (i.e. before 65 - just) do. They live off government pensions and my dad's company pension. The portfolio is only for "fun" money and spoiling grandkids and upgrading the toys. If it runs dry then they won't starve and they won't have to return to work and they'll still be able to make trips (just less frequently and less lavishly).

If one plans to retire long before being eligible for a government pension and with no corporate pension (almost nobody of my generation has one) then how does one size their withdrawals from a portfolio? The "standard" SWR numbers give at least an upper bound of reasonableness based on historical data. How much extra can I take if the portfolio does well? Perhaps, I can take a fraction of the gains (your sensible withdrawals) or perhaps I can take a fraction of the current portfolio value (galeno's method)? This has the benefit of allowing me to "front load" somewhat the withdrawals as your calculations show.

In my first n years of retirement my wife and I will be vagabonds with no permanent residence - perpetual travellers like the Terhorsts. Where we travel to will be based on input from our desires but also portfolio returns. Can we spend 4 months in Paris this year or only 4 weeks? It will depend on the amount we withdraw from the portfolio and that withdrawal will depend on what is "safe" to do so.

If we look at the historical record those 4% (approximately) withdrawals were only required for safety in a small number of sequences. Most of the sequences would have allowed greater withdrawals but how do we know which they are in advance? We can't (or at least those of us who are rational don't claim to know) so all we can do is react to increasing (or decreasing) portfolio values. This will require a new withdrawal calculation on a regular basis.

 

[Hyperborea]

I'm hoping that, one day, I run across somebuddy who actually does some mathematical (or other) analysis to determine a SWR and actually follows what the mathematics regurgitates.

As I understand it the ex-MF poster Galeno uses an SWR calculation for his withdrawals.  He apparently divides his portfolio into two portions - a fixed income buffer (FIB) and the "equities" portion (though I think he has high yield bonds, REITs, and some other stuff in there - perhaps "investment" portion would be better).  Yearly he withdraws 5% of the current value from the "equities" portion and places it in the FIB.  After that he reallocates the FIB into 3 pieces: 1/3 money market; 1/3 1-year CDs (and/or 2-year CDS with 1-year left to maturity); 1/3 2-year CD.  Half of that money market is spent over the course of the coming year.  Now, I've never met Galeno but this is what I have gathered after reading his posts and exchanging some conversation with him.

 

[cute fuzzy bunny]

Seriously though, it is a balancing act. I have no wish to fund a hospital wing after I die and I also don't wish to spend the last few years of my life in poverty. How do we withdraw enough but just enough? If you are retiring young (30's or 40's) then the compounding effect is even more.
[...]
Do you want to reap it all as a lump sum when you're 90? Leave it to your cat? Turn your kids into spoiled trust fund babies? Or sip at it gently over a 40-60 year retirement?

I'm going to wait until i'm 85 or so, then marry Anna Nicole Smith's granddaughter.

Actually I sincerely hope to god I have this problem to ponder nearly every day for the rest of my life... "What to DO with all this money!".

 

[Hyperborea]

Hyperborea wrote:
Do you want to reap it all as a lump sum when you're 90?  Leave it to your cat?  Turn your kids into spoiled trust fund babies?  Or sip at it gently over a 40-60 year retirement?

I'm going to wait until i'm 85 or so, then marry Anna Nicole Smith's granddaughter.

Actually I sincerely hope to god I have this problem to ponder nearly every day for the rest of my life... "What to DO with all this money!".

I have no guarantees that I'm going to make it to 85 - a reasonable probability (long lived grandparents and personal good health) but no guarantees. Also are lots of dollars at 85 going to be as valuable as an extra couple of thousand or so every year (or most years) between now and then?

 

[cute fuzzy bunny]

I'm way too ornery to die before then, plus everyone in my family going back 5 generations made it to at least 90 My dad is 70 and is still going strong.

With regards to a few extra thousand between now and then, I spend what I want within reason, and dont feel like I'm missing out on anything at all. If I felt I was, I'd spend it!

If I happen to come up with a few extra bucks in the portfolio when I'm old as a result, maybe I'll buy something silly, give it to some charity that I like, or heck, leave it in an estate to my dogs. Better than getting anxiety over paying the bills and making eating dog food no longer an optional activity.

 

[Cut-Throat]

hyper,

I'm with you on spending it, before you are to old to enjoy it. I have some older friends that are closing in on 80 and it ain't pretty!

So, I will spend more in the first 20 years of retirement than I will spend in the last 20 years.

 

[JWR1945]

Better than getting anxiety over paying the bills and making eating dog food no longer an optional activity.

People wouldn't say things like this if they were aware of the cost of dogfood.

Have fun.

John R.

 

[cute fuzzy bunny]

I just got back from the feed store and can file a full report if necessary.

About $10 a bag for cheap stuff, $28-35 for the "good stuff", and $48 a bag for stuff that I'd open a bottle of wine to have with.

 

[Skylark]

EEUUWWW!

DRY Dog Food?

Lighten up on the cost savings campaign a little bit, canned is much better!

 

[cute fuzzy bunny]

Pfft...the dogs are sampling three kinds...duck and sweet potato, white fish and sweet potato, and lamb and duck. Quinoa and Amaranth, rye and brown rice. Cranberries, blueberries, carrots, apples, peas, garlic, yucca, green tea, kelp. All human grade ingredients.

Better than the stuff I eat...whats that paste in the cans again?!?

 

[cute fuzzy bunny]

Just in case anyone is worried about my diet or excessive cost savings...

Our dinner tonight was boiled tiny white potato's, halved and topped with sour cream and caviar, followed by sandwiches of smoked oysters, minced celery hearts and mustard greens tossed with a dressing of olive oil, fresh squeezed lemon juice, garlic and lousiana hot sauce.

Of course, I made it myself in about ten minutes and the ingredients ran me about $8, most of which was the big dollop of caviar.

Since I used fat free sour cream and only enough olive oil to generate an emulsion, the total fat in the meal was under 6 grams, plus about half a days worth of complex carbs and proteins.

The dogs settled on the lamb and duck with quinoa, amaranth, cranberries, sweet potato, yucca and whatever the hell else was in that mixture.

Gosh darn it, but dont we all just hate this lousy sub 4% SWR... 8)

 

[Hyperborea]

Gosh darn it, but dont we all just hate this lousy sub 4% SWR... 8)

That's a little disingenuous.  Everybody can live just fine on a 4% SWR.  H3ll, you could eat at the French Laundry every night of the week (if you could get a table), drive a new Porsche 911 Turbo every year, and spend the summer in Cannes on a 4% SWR too.  Of course I've left out the important fact of what the portfolio amount is and how many years you'll need to work to build it up.

What I was saying was not that 4% of my planned portfolio isn't enough - 3% would be fine and in tighter situations we could get by on perhaps 2%.  What I was saying was that I want to collect the likely but not guaranteed excess returns in a slow sip every year rather than save them up for a big gulp when I'm at an age where others will have to do the gulping for me - if I make it there.

 

[cute fuzzy bunny]

I'm sorry, I wasnt directing any of that post in your direction at all. It was a playful (but truthful) post for those who might be concerned that I was taste testing dog food a little too often, or for those who think living on a 4% SWR means eating cheap tuna out of a can. I love my doggies more than some people love their children...I wanna know what they're eating!!!

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.

If you feel safe with your withdrawal, be it 1%, 4%, or 72%, then thats what matters. If you can live a pleasing lifestyle on a 4% SWR, and ER sounds good to you, do it. If 4% sounds like a big crimp in what makes you happy, and you've carefully looked at why money stuff makes you happy and found it with sound foundation, then save some more. Money stuff never made me happy, I just thought it did. If you need on average (note ON AVERAGE) a lot more than 4%, rethink...I dont think you have a sustainable situation with an 8%+ before taxes/inflation/expenses/etc rate of return.

Your point on portfolio size is very relevant...but I suspect I dont have a whole lot more or less than most people here who have revealed. I wouldnt recommend ER on a lot less than $750k (without a mortgage or other significant debt), and would think one would be fairly set on $2M+. Add your debt load to these numbers, interest included, to get a fair floor. Thats for folks who cook their own fine meals and live well on simple entertainment.

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.

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.

p.s. My fiancee says I'm also a lot cuter than Tom Keller I think that means she's not leaving me a tip...

By the way, did you ever make it to the Yankee Pier and did you like it?

 

[John Galt]

Hello TH! Noticed that you said that you would not recommend ER
on less thna 750K. I recall that in Paul Terhorst's book he opined you could do a "bare bones" on a net worth
of $100,000 but you might need to work part time.
That was a long time ago. However, I still believe
in the $50.00 per day rule for truly "bare bones"
retirement. This is with no pension, no SS, no debt,
no pets (maybe one cat or a fish), driving a beater
car (or no car), cheap rent in a low cost area, no or little health insurance, not much traveling, not much eating out and budgeting like crazy. You should be able to get 6%
on $300,000, if you put it all to work and of course
your personal property would be worth little or nothing.
Now, we don't live this way, and my net worth
(even before my divorce was never anywhere close
to $750,000. I think you might be giving an excessively
gloomy picture to "wannabees". I have run the numbers
and like Paul Terhorst, I used to be an accountant.
All you need is the motivation and a little luck.
How about a real life example? My son is 39 and never
made $18,000 a year in his life. Yet, he lives well by his standards and has no financial difficulties. In fact he is finishing up his bachelor's degree and planning his next
adventure as I write. Eventually, his might be a story
of a kind of perpetual retirement, never having had a real "career".

John Galt

 

[Bob_Smith]

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).

 

[cute fuzzy bunny]

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.

 

[Hyperborea]

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.

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.

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.

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.

 

[cute fuzzy bunny]

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.

 

[haha]

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