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Old 10-14-2014, 12:41 AM   #121
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What does the actual dollar value of the portfolio matter? His point was that anyone who is able to live on a WR of 1.5% is in good shape. His example of $15,000 out of a 1 million dollar portfolio was just an example. Or am I missing something?

No, that's how I read it, too.
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Old 10-14-2014, 01:27 PM   #122
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What does the actual dollar value of the portfolio matter? His point was that anyone who is able to live on a WR of 1.5% is in good shape. His example of $15,000 out of a 1 million dollar portfolio was just an example. Or am I missing something?
I think if someone is fearful enough of the future that he/she would plan a 1.5% WR, would be much better served by an annuity. In fact this is advocated by Bill Berstein as well.
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Old 10-14-2014, 01:46 PM   #123
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I think if someone is fearful enough of the future that he/she would plan a 1.5% WR, would be much better served by an annuity. In fact this is advocated by Bill Berstein as well.
Except that an annuity doesn't give you the option to adjust your WR upwards in the future if the feared worst-case scenario doesn't occur.
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Old 10-14-2014, 01:47 PM   #124
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1.5% is plain silly and bad advice.

30-year TIPS yield 1%. Even if you assume it's 0% you have a US federal garantueed financial reserve of 66 years.

If you retire at age 44 you can live up to 110 years old with that withdrawal rate.

Even 2.0% is for most of us here plenty conservative (50 years cash reserve - or retire at 60 with zero real return).
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Old 10-14-2014, 01:49 PM   #125
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Except that an annuity doesn't give you the option to adjust your WR upwards in the future if the feared worst-case scenario doesn't occur.
When do you know in the 'Future' that the 'worst-case scenario' didn't occur?
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Old 10-14-2014, 01:56 PM   #126
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When do you know in the 'Future' that the 'worst-case scenario' didn't occur?
Obviously, you can never know that it won't occur at some point in the future but as you age, and your nest egg doesn't have to last as long, the potential long-term effect of a bad sequence of returns will be less because, well, there won't be as much "long-term" left in your future.

It's a guessing game. I'm comfortable with the idea of making those kinds of rough risk assessments about the future as I age.
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Old 10-14-2014, 02:03 PM   #127
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Obviously, you can never know that it won't occur at some point in the future but as you age, and your nest egg doesn't have to last as long, the potential long-term effect of a bad sequence of returns will be less because, well, there won't be as much "long-term" left in your future.

It's a guessing game. I'm comfortable with the idea of making those kinds of rough risk assessments about the future as I age.
Personally, I think any fixed WR is silly. - A very Conservative 1.5% with 'Adjusting it up in the Future' when you may be too old to enjoy it, makes no sense at all. A 4% plus inflation WR is too risky.

There is a much better way called VPW, which lets you spend much more up front and only adjusts if and when market forces demand it.
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Old 10-14-2014, 02:16 PM   #128
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Personally, I think any fixed WR is silly. - A very Conservative 1.5% with 'Adjusting it up in the Future' when you may be too old to enjoy it, makes no sense at all. A 4% plus inflation WR is too risky.

There is a much better way called VPW, which lets you spend much more up front and only adjusts if and when market forces demand it.
It might seem silly to you, but if it gives an ER the confidence he/she needs to rest easy at night, what's the harm? Not everyone has a large enough portfolio, or a low enough cost of living, that they can get by on 1.5% but if they can, and it's what makes them feel comfortable in retirement, who are we to say they are doing something silly?

I accept that your way may be "better" but try explaining that to someone who prefers his/her way.

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Old 10-14-2014, 07:15 PM   #129
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I got a shock today. A coworker who is very close to retiring made some comment about "if her father had lived, he would be 100 today". I made some comment about how her generation could live into their 90's. She said she couldn't afford living that long because she didn't have the money. I don't know her very well but do know her husband is one of those people that could never keep a job. She buys her lunch (sometimes breakfast) every day and goes on nice vacations every year. She said I would have no problem with retirement money because I am lucky. She thinks it's too late for her to catch up so why try. She doesn't know how much money we have but knows we collect cars. She thinks I'm "lucky" and doesn't seem to realize I worked and saved for what I have. When we first got married, we did our share of partying and going places with friends but we also both worked 2 jobs for a few years, paid off our mortgage in 10 years and saved a good portion. Maybe this is the mentality of those people that will be living on social security only. We are lucky and they are not. I'm still a little shocked at her thinking.
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Old 10-14-2014, 07:33 PM   #130
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The people who don't save might not be able to retire. "Retirement" is a new phenomenon, it was rare and short just a few generations ago here in the US, and remains so in most of the world. So those who choose not to save will have the same options people in their older years have always had.
Actually, they'll have it quite a bit better. By transferring wealth from young/higher-income to old/lesser income people, SS will help them and assure they will have at least some resources to keep the wolf from the door. They also continue to live in one of the most robust and productive economies in the world, affording them opportunities to continue work that older people wouldn't have in most of the world. And they have all the benefits of living in an affluent society: clean water, functioning courts, good roads, a safety net, etc. And, if the light bulb comes on in time, they can save and invest as much as possible at lower costs than ever before.
In short, it is all relative. If you compare their situation to a prodigious long-term saver in an first-world economy, it doesn't look very rosy. But by all other measures it is not bad. I hope they take the second option as their frame of reference.
+1

So, some people have to work until they die. They should be thankful that they have a job. I wouldn't spend too much time worrying about them.

I have a bad day, and am feeling very grouchy, and not my usual nice self. Maybe I will never be nice again.
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Old 10-14-2014, 07:36 PM   #131
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.............I have a bad day, and am feeling very grouchy, and not my usual nice self. Maybe I will never be nice again.
Do a little plumbing. That always cheers me up.
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Old 10-14-2014, 07:38 PM   #132
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The coffee comments I see here make a lot of sense. Seems trivial, but that fancy coffee a day really adds up. Now I know we are spreading love and creating jobs, but man, it is an expensive habit.

I'm not sure my dad ever. EVER. And I mean EVER bought lunch in his entire 47 years work. I don't think he even bought gum. The man brought his own sandwich, fruit and coffee every single day.

I bring my lunch most days and drink the company coffee most days. But I admit even this LBYM cheapskate goes to lunch at least 1x per week and every few weeks I get that coffee.

It is no wonder some people can't save anything and their ship sails off without them.
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Old 10-14-2014, 07:42 PM   #133
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+1

So, some people have to work until they die. They should be thankful that they have a job. I wouldn't spend too much time worrying about them.

I have a bad day, and am feeling very grouchy, and not my usual nice self. Maybe I will never be nice again.
For sure, retirement is not a right by any means. It has to be earned, saved for and held as a goal. Those that choose to 'work until they die', choose just that. We should be thankful that they continue to fund the social security coffers.

I for one, will be thankful for fewer Fly Fisherman on Grand Bahama Island this winter. Hopefully those that choose to continue to work will be paid an honorable wage and not reduced to Slaves, because of 'Market Forces'. We are more civilized than that and can afford better.
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Old 10-14-2014, 07:58 PM   #134
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We know lots of people who have confided financial worries to us over dinner or lunch, then ordered more wine or cocktails or told us about their latest cruise, shopping, expedition or RV purchase. I don't get it either but I've gotten used to it and just try to be a sympathetic listener. I think many who post here with LBYM lifestyles are just wired differently or maybe we just resist advertising better.
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Old 10-14-2014, 11:31 PM   #135
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The people who don't save might not be able to retire. "Retirement" is a new phenomenon, it was rare and short just a few generations ago here in the US, and remains so in most of the world. So those who choose not to save will have the same options people in their older years have always had.
Actually, they'll have it quite a bit better. By transferring wealth from young/higher-income to old/lesser income people, SS will help them and assure they will have at least some resources to keep the wolf from the door. They also continue to live in one of the most robust and productive economies in the world, affording them opportunities to continue work that older people wouldn't have in most of the world. And they have all the benefits of living in an affluent society: clean water, functioning courts, good roads, a safety net, etc. And, if the light bulb comes on in time, they can save and invest as much as possible at lower costs than ever before.
In short, it is all relative. If you compare their situation to a prodigious long-term saver in an first-world economy, it doesn't look very rosy. But by all other measures it is not bad. I hope they take the second option as their frame of reference.
+1
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Old 10-15-2014, 07:35 AM   #136
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Good article, thanks for the link. I found it odd that he didn't mention SS and pensions. One could have a higher SWR at 50 with SS / pensions kicking in at 65 or before, especially if SS and pensions alone were enough to retire on.

I was thinking the same thing....and trying to determine my SWR, given the pensions and SS....still looking into that and trying to find references.


Also, I drink the really good coffee a few days/week and enjoy every drop, without much thought to it, but only because I don't really have any other spending "vices" lol.

Tres
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Old 10-15-2014, 08:12 AM   #137
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I know some people saving little or nothing for retirement and living large. I suppose it's a choice and a tradeoff and I won't judge them unless they have their heads in the sand about it.

I could accept that they would rather live better while younger. The cost of that in exchange is either a very meager retirement, or working at least some forever.

It's a terrible tradeoff in my opinion, but I won't try to make that decision for others.
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Old 10-15-2014, 09:26 AM   #138
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Good article, thanks for the link. I found it odd that he didn't mention SS and pensions. One could have a higher SWR at 50 with SS / pensions kicking in at 65 or before, especially if SS and pensions alone were enough to retire on.

I was thinking the same thing....and trying to determine my SWR, given the pensions and SS....still looking into that and trying to find references.


Also, I drink the really good coffee a few days/week and enjoy every drop, without much thought to it, but only because I don't really have any other spending "vices" lol.

Tres
If you don't need to leave an estate from your portfolio, the safe withdrawal rate for a 30 year retirement at even zero real return is 3.3% and at 50 years still 2%. Today the twenty year TIPS are at .55% real, which is low even by recent yields, but still higher than zero, so I think 1.5% is pretty conservative.

My goal is a zero SWR once we done paying for college, receiving SS and pensions, and still working part-time. I like seeing the NW go up. It can go to the kids or charity. I feel like whatever I save in my bargain hunting means more money for the food bank or elephant sanctuary some day. Today we are going to the Asian Art Museum in San Francisco with free passes and train tickets from the library and I scored a free Android phone this morning from one of my little online endeavors.
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Old 10-15-2014, 10:07 AM   #139
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so I think 1.5% is pretty conservative.
Very conservative.
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Old 10-15-2014, 10:55 AM   #140
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If you don't need to leave an estate from your portfolio, the safe withdrawal rate for a 30 year retirement at even zero real return is 3.3% and at 50 years still 2%. Today the twenty year TIPS are at .55% real, which is low even by recent yields, but still higher than zero, so I think 1.5% is pretty conservative.

My goal is a zero SWR once we done paying for college, receiving SS and pensions, and still working part-time. I like seeing the NW go up. It can go to the kids or charity. I feel like whatever I save in my bargain hunting means more money for the food bank or elephant sanctuary some day. Today we are going to the Asian Art Museum in San Francisco with free passes and train tickets from the library.
Perhaps Dr Bernstein regards pension obligations and SS as shaky pillars?

He's not quite pessimistic enough to assume a long-term zero real return rate on the 60/40 mix, but the 2% drawdown may not last a 50-year horizon with an unlucky returns sequence. No idea whether he's also projecting greater volatility in annual returns going forward than what we have seen in the past.

On the other hand his opinion may be safe to disregard based on his second to last paragraph
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