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Old 11-17-2016, 10:52 AM   #121
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...You are 'compartmentalizing' the funds you withdrew from one account and placed in another. That transaction didn't change your net worth. It didn't change what you would enter into FIRECalc (other than the AA assignment, if the AA of those accounts were different)...
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It depends if you are talking about the success/failure of that particular pool of money. But that is not the same as the success/failure of the retiree, who depends on his/her entire portfolio.

I don't see the advantage of talking about the success/failure of a subset of my portfolio...
I look at this the same as increasing one's cash AA when the market is doing well with both stocks and bonds. When both stocks and bonds do well, there's nothing to do to protect against both doing poorly later, other than going to cash now.

There's no tool to evaluate the enhance safety of this Tactical AA strategy of going to cash, so people just put that money aside, to isolate it from the potential decline of the "regular" balanced portfolio, and feel safer.

Note that FIRECalc allows part of the AA to be in cash or short-term fixed income. However, it is a fix AA, and not a variable cash AA that is allowed to grow when the traditional 60/40 or 50/50 AA's is producing growth exceeding the norm.
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Old 11-17-2016, 11:05 AM   #122
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I have a wide range of outcome in my mind, depending on how the market works out.

Best case: I maintain the two houses I have now, and the motorhome. Each year, I do a 2-month long RV trek, take a 1-month European trip, and a 1-week cruise. My stash grows so much, but I do not know what to do with it despite giving some to charities, so will die rich. Upon my death or DW's, whatever occurs later, my two children immediately enter ER with the money left behind.

Worst case: I lose both houses, and go live in the 25' RV, parked on New Mexico state land for a couple of bucks a day.

The future has to fall somewhere within those extremes. And if I am OK with those two extremes, it should be OK with whatever in between.

Of course, I prefer it to be one case than the other. But that shows the flexibility that I have. Have not discussed it with my wife. No point in worrying her needlessly.
Wouldn't your worst case be something more like move to a low cost of living scenic location with a Mediterranean climate like Portugal? An AARP article says in Cascais, "A comfortable life can be had on $25,000 a year; frugal comfort on $20,000 a year. Dinner out: $40 for two."
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Old 11-17-2016, 11:09 AM   #123
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Sure, that sounds like something more fun than a little motorhome in the high plain of New Mexico. I was just using it as a metaphor to show I can cut my expenses drastically, and can still enjoy life.

But moving abroad takes some paperwork and dealing with red tape, compared to just driving my motorhome where I want to go. Hopefully it will never become so dire. I enjoyed my travel in Spain, but have not been to Portugal which has an even lower cost of living. And I want to see Portugal no matter what. That's in the back burner.
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Old 11-17-2016, 12:59 PM   #124
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No - I disagree. If some folks here are assuming that all investable assets must be counted as part of their retirement portfolio, and subject to the same AA across the board I don't know where they got that assumption. That is not stated in any of the studies of portfolio survival. I challenge any such "accepted" definition in this forum. I have been here a long time, and I am not the only one that does not share that assumption. ...
First, I didn't say (and my example showed this), that all accounts are subject to the same AA. I showed that one should sum all their investible assets, and then look at the total AA in order to see the big picture.

As far as it not being stated - I think it is such a basic concept that it is accepted by default. Look at this from firecalc.com:


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FIRECalc can tell you how much you would have needed to insure that you wouldn't have depleted your portfolio if things are as bad as 1973. Or 1929. Or any of the past years for which we have data.

At the right, enter how much you need, how much you have,
It doesn't say anything about a segment of your finances, to see how that segment would do. Your net worth is your whole nut.

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What about funds set aside for children's college? What about funds set aside of other things but not retirement such as saving for a new car or house down payment. Prudent financial planning/management recommends compartmentalizing your assets such that each can be invested according to the financial goals and timeframe for each intended purpose. No financial planning recommendation says: all investable assets must be included in your retirement portfolio, and you must apply the same AA and withdrawal rate to all those assets.
OK, for simplicity, you could pull out a known amount for a known upcoming expense, like college education - and then take a look at the portfolio going forward without either the funds or the expense. That's no different from entering it as cash, and entering the expense later, but that's more entries in firecalc.

But that's different from an ongoing strategy of pulling excess based on market returns, taking it out of the equation, and then spending that accumulation on various things in various years, and trying to discuss this in terms of the standard inflation adjusted withdrawals and 'portfolio survival'. Again, not that there's anything wrong with that approach, but as far as making comparisons to how firecalc works, and all those terms, well, it just isn't a part of how it works.

For example, you could have pulled an excess for many years and set it aside, but never got excited about any big purchase, so it just sits there. Then let's say the market melts down and your 'compartmentalized portfolio' fails, but then you 'refill' from your off-the-books stash.

Did your portfolio (the whole nut) actually fail? I'd say no, but I think you would say yes. This is why I say it is confusing. A big picture view has no such uncertainty in terms.

-ERD50
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Old 11-17-2016, 01:41 PM   #125
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On the thread about portfolio return YTD, there are posters who say "this account of mine has wonderful return of so and so". Well, owning individual stocks, I can always point to some stocks where I double my money, while neglecting the ones where I lost my shirt.

I have that big pile of cash, and it is included in Quicken. Even the cash in my checking account is included (used to be in the mid 5 figures). And my total return always includes the effect of the meager yield of all that cash.
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Old 11-17-2016, 03:16 PM   #126
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Believe it or not, I can actually follow ERD50's and Audrey's treatment of their portfolios. Seems to me very fine points of differences. I'm not feeling misled at all.
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Old 11-17-2016, 03:17 PM   #127
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On the thread about portfolio return YTD, there are posters who say "this account of mine has wonderful return of so and so". Well, owning individual stocks, I can always point to some stocks where I double my money, while neglecting the ones where I lost my shirt.
...
Is that why you are just shown in silhouette?
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Old 11-17-2016, 03:52 PM   #128
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What's wrong with a silhouette?

Anyway, I do not have problems with how people manage their money. It really depends on what one's definition of a portfolio is.

Mine happens to include every bit of cash. Well, not the loose coins in the ashtray of my car, or the few dollar bills in my wallet, but everything else is on that Quicken screen. Quicken also immediately subtracts out any charges that I make with my credit cards, my HD and Lowe's cards, and it reminds me that I am that much poorer. I like it.

Every so often, people ask about net worth on this forum, and I am among the people who do not count the value of their home(s). No, it's not on Quicken.

I guess I could guesstimate RE values and add it to the Quicken screen to feel better, but I just don't. True, it's in my networth, but it is illiquid and I do not expect to spend it any time soon, so why bother? Maybe Audrey thinks of her secret pile of "off-portfolio" cash the same way.

PS. I've got some gold coins. They are not on Quicken either.
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Old 11-17-2016, 03:54 PM   #129
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I have that big pile of cash, and it is included in Quicken. Even the cash in my checking account is included (used to be in the mid 5 figures). And my total return always includes the effect of the meager yield of all that cash.
How do you get a Quicken return report to include your cash accounts? I have not been able to get Quicken to include my cash accounts in the performance report so I have to add them manually.
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Old 11-17-2016, 04:03 PM   #130
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I lied and told it that these are "investing" accounts instead of "banking" accounts.

I thought that fooled it, but maybe not.

PS. They all add up in the left-hand panel under "Net Worth", but not all appear in the right-hand panel under "Portfolio".

PPS. For the record, I use the "Net Worth" number, then adjust for expenses when computing return. So, the return number that I compute by hand includes the effect of the last dollar of idle cash, however minimal that is.

The big cash items like I-bonds and Stable Value Fund, plus the cash sprinkled throughout all accounts are tallied up by Quicken in its AA report. They all show up in the right-hand panel under "Portfolio".
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Old 11-17-2016, 04:26 PM   #131
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But let's all remember that the 4% "rule" is a guideline, not set as an actual fact.
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Old 11-17-2016, 04:41 PM   #132
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How do you get a Quicken return report to include your cash accounts? I have not been able to get Quicken to include my cash accounts in the performance report so I have to add them manually.
In Account Details make the account an Investment account rather than a Spending account.

The problem is that if you withdraw from that account then for some reason you'll get some screwy results. For example, my cash allocation is in a Discover Bank online savings account that is included in my Investments and earns 0.95% and my monthly "paycheck" is a transfer from that account to my local credit union that I use to pay my bills. If I run a YTD Investment Performance report in Quicken for just that account it says the return is -31%, but i know the return is really 0.95%.

As all result I just exclude that account when I run an Investment Performance report and it is usually pretty close since my cash allocation is small.
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Old 11-17-2016, 05:16 PM   #133
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...I'm just conservative for my personal comfort. It's my version of belts and suspenders...
I'm not sure that "belts and suspenders" works for everyone.

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Old 11-17-2016, 05:39 PM   #134
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First, I didn't say (and my example showed this), that all accounts are subject to the same AA. I showed that one should sum all their investible assets, and the look at the total AA in order to see the big picture.

As far as it not being stated - I think it is such a basic concept that it is accepted by default. Look at this from firecalc.com:




It doesn't say anything about a segment of your finances, to see how that segment would do. Your net worth is your whole nut.



OK, for simplicity, you could pull out a known amount for a known upcoming expense, like college education - and then take a look at the portfolio going forward without either the funds or the expense. That's no different from entering it as cash, and entering the expense later, but that's more entries in firecalc.

But that's different from an ongoing strategy of pulling excess based on market returns, taking it out of the equation, and then spending that accumulation on various things in various years, and trying to discuss this in terms of the standard inflation adjusted withdrawals and 'portfolio survival'. Again, not that there's anything wrong with that approach, but as far as making comparisons to how firecalc works, and all those terms, well, it just isn't a part of how it works.

For example, you could have pulled an excess for many years and set it aside, but never got excited about any big purchase, so it just sits there. Then let's say the market melts down and your 'compartmentalized portfolio' fails, but then you 'refill' from your off-the-books stash.

Did your portfolio (the whole nut) actually fail? I'd say no, but I think you would say yes. This is why I say it is confusing. A big picture view has no such uncertainty in terms.

-ERD50
Many of the studies work the other way - they ask how do much you want to withdraw (including taxes you will have to pay) and then tell you how large of a retirement portfolio you need to support that annual income given a 30 year retirement based on the Trinity rules or whatever.

I see no benefit in looking at the AA of my total net worth - that is not something I am trying to manage or have a target for. I only need to look at the AA of the portfolio that I have invested for my retirement income. That's the only part that I withdraw from annually and rebalance to a given AA that was selected based on portfolio survival criteria. I don't need to project the long-term performance and survival of the remainder of my assets.

I'm not using inflation adjusted withdrawals or discussing that scenario. I'm using % remaining portfolio. Neither am I changing my withdrawals based on some perceived market excess in the portfolio as the % withdrawal rate is the same year after year as the portfolio grows and shrinks. My income varies from year to year based on the size of the portfolio each year on Dec 31. I choose to manage the variability in income versus my spending by allowing unspent funds to accumulate, and doing so outside of my AA rebalanced retirement portfolio as I choose not to expose those unspent funds to market forces. Recalculating some AA taking into account these unspent funds provides me no benefit.
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Old 11-18-2016, 09:45 AM   #135
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What about funds set aside for children's college? What about funds set aside of other things but not retirement such as saving for a new car or house down payment...
I treat the college fund as part of my portfolio, but the withdrawals are booked as future liabilities, same as car purchases.
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It depends if you are talking about the success/failure of that particular pool of money. But that is not the same as the success/failure of the retiree, who depends on his/her entire portfolio...
After being retired for 6 years, I received an inheritance. I added it to my investable assets and recalculated my WR. Then we lowered our need for withdrawals by living in a low cost place for 5+ months a year.
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Mine happens to include every bit of cash. Well, not the loose coins in the ashtray of my car, or the few dollar bills in my wallet, but everything else is on that Quicken screen. Quicken also immediately subtracts out any charges that I make with my credit cards, my HD and Lowe's cards, and it reminds me that I am that much poorer. I like it.

Every so often, people ask about net worth on this forum, and I am among the people who do not count the value of their home(s). No, it's not on Quicken...
Again net worth is a totally different animal that investable assets. Yes we could turn real estate into an investable asset but until we do, it is a lifestyle expense.
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Old 11-18-2016, 09:50 AM   #136
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...Again net worth is a totally different animal that investable assets. Yes we could turn real estate into an investable asset but until we do, it is a lifestyle expense.
RE is definitely not investable asset, unless it is for rental. It's just a money pit. However, it is definitely "spendable" asset in dire situations. I keep that in the back of my mind, but do not have it in Quicken or any spreadsheet.
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Old 11-18-2016, 10:17 AM   #137
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FWIW, my retirement assets include all financial assets other than a few local bank accounts that I use to pay my bills... online bank account that is my cash allocation, all tIRAs, Roths, HSAs, taxable accounts, CSV of life insurance (that I view as a bond equivalent). The local bank accounts float around usually in the $5-$40k range depending on what we are spending but I don't consider it part of my retirement assets.

My retirement funds also exclude my homes, cars, etc.
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Old 11-18-2016, 06:07 PM   #138
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The problem with returning unspent funds to the retirement portfolio, is that none of the models work that way. They assume once your withdrawal is withdrawn, that's it - it's never returned.

If you do return unspent funds - your actual withdraw rate for a that year was lower than you calculated when you made your initial decision. Now you don't have a fixed withdrawal amount or rate anymore - it's jumping up and down depending on whether you spent all your income or not. The model goes out the window.
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Old 11-18-2016, 06:36 PM   #139
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The problem with returning unspent funds to the retirement portfolio, is that none of the models work that way. They assume once your withdrawal is withdrawn, that's it - it's never returned.

If you do return unspent funds - your actual withdraw rate for a that year was lower than you calculated when you made your initial decision. Now you don't have a fixed withdrawal amount or rate anymore - it's jumping up and down depending on whether you spent all your income or not. The model goes out the window.


I think it is cool how you do it and you have explained it well in this and other threads. I like it when people share their withdrawal strategies. I'm surprised when people get all crazy about definitions of words and such.

For me I'm piling everything together and using a RMD approach starting at age 50. I have a stable value fund where I will keep all the cash.
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Old 11-18-2016, 06:40 PM   #140
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...
The model goes out the window.
You say it like it's a bad thing. But, maybe we should take a closer look.

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