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Old 07-04-2013, 09:16 AM   #21
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A couple of thoughts (although I'll admit I didn't read the paper):
- If stocks will have lower expected/average returns than in the past, this probably means they are less risky than in the past. Less risk means less variability of returns from year-to-year. Less variability correlates to higher SWR since you are less likely to get a really bad sequence of returns for the first few years of ER.
- Part of the reason that bonds have very low yields is that inflation (and inflation expectations) are currently low. Lower inflation means lower increase in spending each each year for someone using the "initial withdrawal of X% adjusted for inflation each year" method.
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Old 07-04-2013, 09:22 AM   #22
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But their ability to gain media attention and sell books certainly is. You can be the judge on which is the primary motivating factor.
This is true.
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Old 07-04-2013, 10:06 AM   #23
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...

But I think much of the results defy common sense. If you simply buy a 30 year ladder of TIPs bonds you'll get a real yield of ~.4% This means you have 100% SWR rate of 3.3% (spending principal)+.4%= 3.7%. The bad news is you have a 100% chance of being broke in year 31. But if you spend less than than 3.7% say 3.0% you can stretch your retirement.

When I look at my own portfolio its current yield was 2.7% at the beginning of the year, which is as low it has ever been. ... Meaning for an ~80% equity portfolio 2.7% is darn near the floor of a SWR not the ceiling.
But that isn't a 2.7% real return, is it? I'm not sure your comparison is apples-apples to TIPS?



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I tend to be very cautious by nature. But a 1.4% SWER does sound very low indeed. If these predictions come true, I guess some here may need to reconsider the use of SPIAs :-)
Maybe my perception is wrong, but it seems to me that most of the posters here are very willing to consider/reconsider SPIAs. But most of us (again, my perception) seem to want to reduce the number of years we hold them, as most of are very cautious about predicting the health of the insurer 40 years out. And from what I've read, SPIAs are relatively expensive right now.

If the future economy is bleak, I doubt the SPIAs are going to look amazingly attractive in comparison, where will that money come from? They can't give away candy and remain solvent for the long haul. That is a balancing act (plus expenses). They don't have any magic mojo.

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Old 07-04-2013, 11:09 AM   #24
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I didn't browse the paper yet, but I just bought a nice block of 30 Years TIPs at the last auction a couple of weeks ago and they went for 1.42% real. Theoretically, that gives you a 1.42% SWR for 30 years without touching inflation-adjusted principal.
The 1.42% SWR would only be possible if the gov't measured CPI reflected your personal rate of inflation. Or, in general, the personal rate of inflation for aging, retired folks. At our house, it wouldn't work. Our personal rate of inflation has been higher than the gov't published CPI figures the past several years. Food, travel, medical....... all bringing up our costs beyond the gov't figures.
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Old 07-04-2013, 11:50 AM   #25
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The thing is all these SWR forecasts from various "experts" change year to year based on the state of the current economy, when they are supposed to be predicting 30 years in advance..
+1
Exactly my thoughts - recency bias.

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Old 07-04-2013, 11:51 AM   #26
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Is the stock market historically high?

The indices may be high but relative to earnings?
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Old 07-04-2013, 12:48 PM   #27
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There is a point that Wade, and others, ignore. Even if future equity and fixed income returns prove lower, they are still a better deal compared with annuities. That is, less money needs to be saved to finance the same annual spending at a 95% portfolio survival level. Their analysis is also static, they don't show the benefit of rebalancing a diversified portfolio.

Future equity and fixed income returns may be lower than we are expecting, but an annuity now doesn't seem to be of help.
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Old 07-04-2013, 12:50 PM   #28
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Is that what he's advocating, annuities?
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Old 07-04-2013, 01:26 PM   #29
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Do you know that this is exactly what ***** said many years ago, and incidentally has to be correct, no matter how popular or unpopular it is among the retired and retire wannabes at any given time?

***** got a bit florid about it, but there it was, long ago in these very forums.

Ha
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Old 07-04-2013, 02:03 PM   #30
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I've seen historical CAPE data, and it does seem to have some predictive value.

But I just can't swallow the idea that earnings ten years ago have an effect on where the stock market will be 20 years from now.
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Old 07-04-2013, 02:21 PM   #31
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Is that what he's advocating, annuities?
In this paper I didn't see any reference to a solution, just an assumption that they can reliably predict future returns, and the oft mentioned 4% is likely to fail. In much of his other work, however, he has advocated annuities as a way to deal with the risk of portfolio failure.

The risk is real, I just don't see how Pfau offers any reasonable advice or options.
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Old 07-04-2013, 03:38 PM   #32
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In this paper I didn't see any reference to a solution, just an assumption that they can reliably predict future returns, and the oft mentioned 4% is likely to fail. In much of his other work, however, he has advocated annuities as a way to deal with the risk of portfolio failure.

The risk is real, I just don't see how Pfau offers any reasonable advice or options.

If I am not mistaken, Wade Pfau is currently employed by The American College in Bryn Mawr, PA. They issue the CLU and ChFC designations as well as others. They are traditionally an insurance-based educational arm of the industry. Keep this in mind when annuities are a recommended solution to a problem. Just sayin...
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Old 07-04-2013, 05:14 PM   #33
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The 1.42% SWR would only be possible if the gov't measured CPI reflected your personal rate of inflation. Or, in general, the personal rate of inflation for aging, retired folks. At our house, it wouldn't work. Our personal rate of inflation has been higher than the gov't published CPI figures the past several years. Food, travel, medical....... all bringing up our costs beyond the gov't figures.
I'm always surprised this doesn't receive more attention and how the government CPI is so widely accepted. The inflation rate has such an enormous influence on all of these models and yet the amount used has no bearing on what any individual experiences; talk about a flawed model.
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Old 07-04-2013, 05:50 PM   #34
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Cheer up, everyone some good news on the SWR front. Today I attended the July 4th banquet at the mobile home park where my mom lives. It is a nice park and a 55+ community and it has been in existence for around 40 years. There are perhaps 150 homes in there.

I asked several people, including a couple of folks who serve in formal elected offices for the park, how old was the oldest person still living in the park. They all said 90 years old (about 3 women this age or close). They couldn't think of any men that old still living there. So it looks like most of the older folks packed it in either to St. Peter or to a special care home . . . most of the other folks packed it in much earlier.

;-)
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Old 07-04-2013, 07:50 PM   #35
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But that isn't a 2.7% real return, is it? I'm not sure your comparison is apples-apples to TIPS?

Well since 80+% of the yield is from dividends and they historically increased at rate well above inflation. 10% of the rest is from inflation link bonds. I think it is an apples to apples comparison.

I also look at the M* Dividend newsletter which has a builder portfolio (dividend appreciation) with current yield of 3.3% and the harvest portfolio (high yield) with a 4.8% yield. Both portfolio have increased income at a rate faster than inflation. In particular a $1 million portfolio back in Aug 2005 would have an income of $36,552 and would now have an income of $59,020 and value of ~$1.8 million. Now this does include reinvestment of dividends. But even assuming a 45K average distribution for 8 years. would still leave an income of $47,216
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Old 07-04-2013, 08:41 PM   #36
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Cheer up, everyone some good news on the SWR front. ... I asked several people, including a couple of folks who serve in formal elected offices for the park, how old was the oldest person still living in the park. They all said 90 years old (about 3 women this age or close). They couldn't think of any men that old still living there. So it looks like most of the older folks packed it in either to St. Peter or to a special care home . . . most of the other folks packed it in much earlier.
;-)
So, cheer up, because you'll be dead in the next few decades?

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Old 07-05-2013, 12:12 AM   #37
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So, cheer up, because you'll be dead in the next few decades?

It seems like many on this board are planning for 100 year life spans and are worried about the SWR for that . . . probably no need to worry in reality . . .
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Old 07-05-2013, 12:19 AM   #38
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Yes, indeedy.

Give me another 20 years and I'm out.

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Old 07-05-2013, 01:12 AM   #39
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It seems like many on this board are planning for 100 year life spans and are worried about the SWR for that . . . probably no need to worry in reality . . .
I think those of us with parents and/or grandparents that lived to be 100 or so have to plan for at least that long.
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Old 07-05-2013, 01:26 AM   #40
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I like the fact that I'll only live to 80 or so, probably less. It makes financial planning easier. I don't need to keep my principal intact. I'm single, no kids, so it's okay if I deplete the principle. I'm hoping to keep it intact for the next decade or so. But after that, f*ck it.
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