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Old 11-14-2010, 11:08 PM   #21
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It is interesting to note that the three brothers are all having the same result so far in FireCalc terms: They have 100% success rates.
Also true, but the real point I was making was in response to T-Al's analysis, and I think he makes a good point that seems to get overlooked by many. If all three brothers had $1M in 1997, things would not look so different for them down the road, even though they retired at different times. In mid-2010, surely B#2 who retired in 2000 would be ahead of B#1 retiring in 1997 as B#2 was not drawing down as long. Just the opposite of what the story presents.

The 'three brothers' story seems to equate retiring with $1M as "apples-to-apples", but that means they were unequal in 1997, which hardly seems "apples-to-apples". Most people build their wealth over a long time, that $1M didn't just fall in their lap on the day they retired. It ignores what led up to having that $1M at that date. So a more relevant scenario is that they had close to the same amount in 1997 (maybe separated by 6 years of saving/investing).

The story still provides a valuable lesson. $1M at the top of a peak is not worth as much as $1M in a trough. I just take some exception to the implication that these are three similar scenarios. For a fuller lesson, they should present both cases, IMO.

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Old 11-15-2010, 04:39 AM   #22
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It is a simple illustration about the timing of the purchase of the S&P 500 index (the relative mark to market of the value of securities in the portfolio at different times), beginning to draw-down (when the market is up or down), and the effect on the the draw-down on the portfolio value. Many people are not familiar with all of the details... they just see the % rule of thumb.

Those 3 examples illustrated taking $1M and buying the S&P index at the bottom (of a bear market) versus the top (of a bull market).

This has been discussed in this forum.... stress on a portfolio of stock is greater if withdrawals begin right at the top of a market peak as opposed to the bottom of a trough. 4% of $1M is $40k. If the $1m is cut in half the following year... it is now 8+% of the portfolio... several years of 8+% withdrawals will take its toll.

IMO - if this happened to someone, they need to consider a reset. Conversely... if one is retiring while a bull is long in the tooth... they may consider a smaller WR% to do a sanity check to see if the portfolio can fund the retirement. However, at the trough, one should not consider the safe WR% (for a specific number of years) to fund future income.

One should do a health checkup yearly on the state of their portfolio of (stock/bonds), the market, economic conditions, their personal situation... to determine if the portfolio can continue to support the income level.

Still, most people would recoil in fear after seeing their portfolio cut in half. I think many would reduce spending out of fear.

I believe using a constant mix to fund retirement is risky. I prefer some form of a bucket approach. I think one of the most important things that people overlook is:

Managing one's securities should be handled differently during accumulation vs approaching decumulation (transition) vs decumulation.
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Old 11-15-2010, 03:17 PM   #23
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In 2008 his withdrawal rate exceeded 10%, but in 2009 it was "only" 9.2%...
Those numbers actually make me feel pretty good.

Consider: He retired at the very end of an equity bubble where the S&P 500 P/E reached over 40x, with a 75% equity allocation, followed by an immediate recession, then the Great Recession, and after all of that, he may still get two decades out of his portfolio.
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Old 11-15-2010, 04:06 PM   #24
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Those numbers actually make me feel pretty good.

Consider: He retired at the very end of an equity bubble where the S&P 500 P/E reached over 40x, with a 75% equity allocation, followed by an immediate recession, then the Great Recession, and after all of that, he may still get two decades out of his portfolio.
Yes, and not to mention a 6% WR! The conservative people here are shooting for closer to 3% - that might make a teensy difference over a few decades.

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Old 11-15-2010, 04:11 PM   #25
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... but it does make one think.


Fast forward to mid-2010:

Brothers 1 & 3 have portfolios valued at over $1,000,000 each.

Brother 2's portfolio is under $250,000.

Are you thinking about market timing?
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Old 11-15-2010, 06:17 PM   #26
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Three brother retire within a six-year time period. Each puts $1,000,000 into an S&P index fund and withdraws $5,000/month. No adjustments for inflation.

Brother 1 retires Jan 1, 1997.

Brother 2 retires three years later, Jan 1, 2000.

Brother 3 retires another three years later, Jan 1, 2003.

Fast forward to mid-2010:

Brothers 1 & 3 have portfolios valued at over $1,000,000 each.

Brother 2's portfolio is under $250,000.
As others have pointed out, Brother 2 never had as much money as Brothers 1 and 3.

Let's see.

Jan 1, 1997 - S&P500 was at 741
Jan 1, 2000 - S&P500 was at 1455
Jan 1, 2003 - S&P500 was at 909

Today, Nov 15, 2010 - S&P500 is at 1200

So, one can see that in the tremendous bull run from 1997 to 2000, Brother 1 would have seen his portfolio nearly double to $2M, if he was fully invested in the market. In 2000, at the same time that Brother 2 started to retire and draw $40K on a $1M portfolio, Brother 1 draw the same $40K on a $2M portfolio.

Fast forward to today, Brother 2 is in big trouble, while Brother 1 still has $1M. That's not surprising at all, except Brother 1 would be reminiscing of the $2M portfolio he used to have in 2000. Well, if Brother 1 was able to time the market rebalance appropriately, he would still have something more than $1M.

Now, consider the possibility of another brother, called Brother 4. This brother worked part-time, so as not to draw down his stash at all. He watched the market and made some trades rebalance moves, which although far from perfectly timed did help some. And this Brother 4 now has more than the other 3 brothers, although he bought a 2nd home and a motorhome.

Should this Brother 4 quit his part-time work now?
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Old 11-15-2010, 07:07 PM   #27
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...............
Should this Brother 4 quit his part-time work now?

Brother 4 never retired.
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Old 11-15-2010, 07:08 PM   #28
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Brother 4 never retired.
Well, not yet. He's waiting just one more year...
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Old 11-15-2010, 09:59 PM   #29
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And he changed his name to SW-Bound or Not Moving! OK, OK, all joking aside, I would take a part time job just to keep my brain juices flowing as long as I don't have to work with idiots or deal with politics which is pretty much my whole existence right now.
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Old 11-15-2010, 10:42 PM   #30
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I wouldn't take a part time job for all the tea in China. I'd rather do some SERIOUS belt-tightening, if necessary, than have to go back to work. The reduction in hours from full time to part time is nice, but half the hours doesn't mean half retired. It just means that you are still doing what someone else wants you to do, but you aren't as exhausted while doing it.

Being retired means that you can decide for yourself what to do with your own time. It's an experience that just can't be appreciated fully until one is fully retired, IMO.

FREEDOM - - so many dimensions

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Old 11-15-2010, 10:46 PM   #31
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OK, OK, all joking aside, I would take a part time job just to keep my brain juices flowing as long as I don't have to work with idiots or deal with politics which is pretty much my whole existence right now.
All joking aside here too, if you found one of those jobs then why the heck would you ever want to retire?
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Old 11-15-2010, 11:17 PM   #32
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Are you thinking about market timing?
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Old 11-16-2010, 12:52 PM   #33
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I wouldn't take a part time job for all the tea in China. I'd rather do some SERIOUS belt-tightening, if necessary, than have to go back to work. The reduction in hours from full time to part time is nice, but half the hours doesn't mean half retired. It just means that you are still doing what someone else wants you to do, but you aren't as exhausted while doing it.
I think going part time would work if I was slowly phasing work out, such as going from full-time down to part time, and then eventually phasing part time out once I wanted to be fully retired. But yeah, I don't think going back the other way would work out as well. Work is work, whether it's full or part time.

Even though I'm still a full-time employee, I went through something like this when I gave up my second job delivering pizzas. At my peak, I was working 5 days per week, easily 35+ hours per week, as I struggled to pay down the debt from my divorce. But then, when the finances improved I dropped down to 4 days, and ultimately just to three days, Thurs/Fri/Sat, 5-close. I finally got fed up and quit that job in late 2000, when my portfolio was at its then all-time high, and I thought I didn't need the money anymore.

And of course, a few weeks later, the market started to really crumble, so I decided to try going back to work, but in a reduced capacity. Instead of working 5-close those three days, I cut back to just Thursday and Friday, and would work from 5 until business slowed down and they cut me. My take home from that job dropped from around $300-350/week down to around $100-150, which was all I really needed. But I just started hating it. Having the 5 days off made me hate the days I had to work even more than when I only had 2, 3, or 4 days off.

I probably would have done better if I had just tried to cut back from 3 days to 2, rather than totally quitting, and then going back after a month.
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Old 11-16-2010, 06:05 PM   #34
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Well, Brother 4 has the choice of accepting only a job or project that he likes, that he feels is challenging, and working any hour or any way he likes. Of course he has to deliver results within a certain time frame. But is that any different than a full retiree who doing some housework for himself? Or Sister 1 who uses a Gantt chart to remind herself of a self-committed schedule to get moving?

And given a couple of days of consecutive market drop like today, Brother 2 will be loosing sleep, not knowing he should be selling or buying (remember that he is drawing $40K on a portfolio of only $250K now).

So, why should Brother 4 not be happy with his situation now, and to continue while he still feels content with it?
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Old 11-16-2010, 06:55 PM   #35
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.................
So, why should Brother 4 not be happy with his situation now, and to continue while he still feels content with it?
Brother 4 should be happy with his situation and continue paying taxes and social security on in bliss. Brothers 1,2 &3 appreciate it.
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Old 11-16-2010, 07:45 PM   #36
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I wouldn't take a part time job for all the tea in China. I'd rather do some SERIOUS belt-tightening, if necessary, than have to go back to work. The reduction in hours from full time to part time is nice, but half the hours doesn't mean half retired. It just means that you are still doing what someone else wants you to do, but you aren't as exhausted while doing it.
I agree. If someone retires and requires stock market returns to fund their lifestyle they should have some flexibility in their expenditures.

If the market crashes, plan on cooling it for awhile. If the market booms, have a party.

If it was me I'd gladly cut back during the dips to avoid going back to paid w*rk.
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