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Old 04-04-2011, 10:35 AM   #41
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Historical data is all they have to work with, unless you are aware of a prescient alternative?

Started life as a molecular biologist, now a doctor, also published so I can see your point but as I noted above there are some compelling reasons why they updated the study. Of course the more interesting results will be in 10, 20 and 30 years when we will see what happened for those who retired into the Great Recession.

DD
I would bet that in 10, 20 or 30 years the results are very similar. But whatever they are we'll be left with the issue of using them to govern our present investing strategy for future income. It's sort of like arguing how many angels can fit on the head of a pin. My solution is to just go with 50/50 AA and generally trend towards more bonds and cash as I age, LBYM, and always withdraw less than the return of your portfolio. Maybe withdraw 1% less than your annual return up to a max of 4% or 5%. In negative return years live off cash and buy into the market to keep your principal stable.
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Old 04-04-2011, 10:39 AM   #42
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My solution is to just go with 50/50 AA and generally trend towards more bonds and cash as I age, LBYM, and always withdraw less than the return of your portfolio. Maybe withdraw 1% less than your annual return up to a max of 4% or 5%. In negative return yeMars live off cash and buy into the market to keep your principal stable.
I assume you will retire at (whatever) SS age, and not before your retirement income sources come "on-line"? IOW, not ER at all?

Just wondering...
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Old 04-04-2011, 10:42 AM   #43
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I assume you will retire at (whatever) SS age?
Nope, 50 is as early as I'd want to do it as the mortgage will be paid off by then, but I may wait until 55 as I'll get healthcare benefits from work. I get income from a rental property that already covers 50% of my expenses, excluding the mortgage, so I don't need to withdraw much from my portfolio to cover the rest.

I'm undecided whether to spend down my after tax money or do a small 72t to cover the gap between ER and 59.5. When SS and UK state pension come along those along with rental income should cover my expenses and I'll go into another accumulation phase.
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Old 04-04-2011, 10:50 AM   #44
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...I don't need to withdraw much from my portfolio to cover the rest.
IOW, you have no need to adhere to any study "suggested" results?

Why give opinions on a subject if what you are/planning on doing dosen't actually pertain to your life? Just wondering...
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Old 04-04-2011, 10:56 AM   #45
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IOW, you have no need to adhere to any study "suggested" results?

Why give opinions on a subject if what you are/planning on doing dosen't actually pertain to your life? Just wondering...
Not sure I understand the question. I'll be withdrawing enough to cover my expenses and my 50/50 AA is to balance risk and return. I'm interested in the probability of a portfolio's success, but as any engineer does I design for something with at least 100% extra in specification. So if a study says 4% is a SWR I'll shoot for 2%. I bought my rental property with this in mind. It's like an annuity in that it pays regular income, but I still own the principal, it goes up with inflation, and the return is better. The rental income plus 1.5% WR form my portfolio will cover my expenses. With SS I won't need any withdrawals. I've planned this with great regard to the way I live and plan to live in ER.
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Old 04-05-2011, 09:43 AM   #46
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Not sure I understand the question. I'll be withdrawing enough to cover my expenses and my 50/50 AA is to balance risk and return. I'm interested in the probability of a portfolio's success, but as any engineer does I design for something with at least 100% extra in specification. So if a study says 4% is a SWR I'll shoot for 2%. I bought my rental property with this in mind. It's like an annuity in that it pays regular income, but I still own the principal, it goes up with inflation, and the return is better. The rental income plus 1.5% WR form my portfolio will cover my expenses. With SS I won't need any withdrawals. I've planned this with great regard to the way I live and plan to live in ER.
So the 4% is of value to you in your planning. Your plan is robust but many will not want/be able to work and save enough to live off 2% - for them the 4% number takes on more significance.

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Old 04-05-2011, 09:52 AM   #47
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So the 4% is of value to you in your planning. Your plan is robust but many will not want/be able to work and save enough to live off 2% - for them the 4% number takes on more significance.

DD
Without my rental income I'd have to take out 3%. My strategy is based on that regular rental income along with LBYM, small required withdrawals and then state pensions. My current expenses excluding mortgage are $30k a year and I'll pull the plug once the mortgage is paid off and I reach the $1M portfolio. That isn't a rare scenario here, the thing that is a bit different about me is the rental income that isn't linked to the performance of my investments. I feel that it's important to have a diversity of income streams that cover basic expenses so you're not completely dependant on the variable stock and bond markets. For some that might be a SPIA for me it is a rental.
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Old 04-18-2011, 11:02 AM   #48
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Boy oh boy. Tough crowd here. I will await (without holding my breath) for the nun/haha peer reviewed, academic journal article that better addresses for the masses what is a reasonable withdrawal rate from a portfolio should be. These are the same authors that published the original article in 1998. Here, and elsewhere the question has been raised as to what the impact of the great recession would be on the SWR as proposed by the Trinity study - the numbers are now updated. There has also been a lot of controversy about the 4% as an absolute rule, or as a guideline, they have now clarified that beyond the notation in their original publication that it was for planning purposes only.
Back on topic for a minute, I started a response that just grew too long for this thread. I turned it into a blog post: Back to the Trinity Study | Military Retirement & Financial Independence

I appreciate the Trinity guys refreshing their topic once in a while. I think the biggest advantage of 4% is that it gives us all a starting point to come up with thousands of options, just as asset allocation gives us all a way to tailor our ERs to our preferences.
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Old 04-19-2011, 02:52 PM   #49
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Back on topic for a minute, I started a response that just grew too long for this thread. I turned it into a blog post: Back to the Trinity Study | Military Retirement & Financial Independence

I appreciate the Trinity guys refreshing their topic once in a while. I think the biggest advantage of 4% is that it gives us all a starting point to come up with thousands of options, just as asset allocation gives us all a way to tailor our ERs to our preferences.
First trip to your blog. Looks like a lot of work labour of love.
Nice summary of the issues and will be a great resource when this rant debate resurfaces.

DD
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Old 04-19-2011, 03:41 PM   #50
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I took a look at the blog. It's a pretty good overview of some common SWR methods...

My one comment is that your method doesn't have to be an all-in approach. One could use a very conservative approach to provide for a living baseline. Then with whatever "extra" stash is available beyond the living baseline, one could use a more aggressive approach. That's probably the best option to spend the stash while you are young enough to enjoy it, yet with this hybrid approach you will almost certainly avoid eating dog-food in your senior years.
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Old 04-19-2011, 06:08 PM   #51
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On the blog a reoccurring view of Bernstein's quote "A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless." is presented.

This thought has been quoted to imply that 80 percent success rates are equal in survival probability to 100 percent success rates which they surely are not.
This mathematical error has been repeated enough to become integrated into financial planning by apparently the Trinity study. Unless the financial failures calculated were due to economic, political or military continuity which is certainly not the case used in the TRINITY study then that is an additional chance of failure is not a subset of the Bernstein's withdrawl from his mule calculation but a unique seperate calculation.

If you accept the calculation from Bernstein on that part -- the calculation by Trinity is the remainder of the other 80% of which the 75% success yield's a total expected success rate =
( .2 X 0% <Bernstein's rate of non continuity of financial society>) + (.8 X .75% <financial continuity expected success rate>) = 60% success rate for 7% non inflation indexed withdrawals. Therefore to utilize a withdrawal calculation near 100% would actually improve your chances of not going bust in your retirement by 33.33% which is very statistically significant.
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Old 04-19-2011, 07:43 PM   #52
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Why doesn't some group do a study on retirees who regularly take 3 or 4 % but one year and only one year they go crazy and take 7% for the trip of a life time ? That would be interesting !
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Old 04-19-2011, 07:53 PM   #53
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On the blog a reoccurring view of Bernstein's quote "A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, thatís about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless." is presented.

This thought has been quoted to imply that 80 percent success rates are equal in survival probability to 100 percent success rates which they surely are not.
This mathematical error has been repeated enough to become integrated into financial planning by apparently the Trinity study. Unless the financial failures calculated were due to economic, political or military continuity which is certainly not the case used in the TRINITY study then that is an additional chance of failure is not a subset of the Bernstein's withdrawal from his mule calculation but a unique seperate calculation.

If you accept the calculation from Bernstein on that part -- the calculation by Trinity is the remainder of the other 80% of which the 75% success yield's a total expected success rate =
( .2 X 0% <Bernstein's rate of non continuity of financial society>) + (.8 X .75% <financial continuity expected success rate>) = 60% success rate for 7% non inflation indexed withdrawals. Therefore to utilize a withdrawal calculation near 100% would actually improve your chances of not going bust in your retirement by 33.33% which is very statistically significant.
I don't get this analysis.

If there is a 20% chance of societal calamity, then in that case there is no safe withdrawal rate that works.

What is the point of calculating a SWR if the world changes dramatically for the worse? Would any resonable amount of money always help in that case ?
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Old 04-19-2011, 08:21 PM   #54
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I don't get this analysis.

If there is a 20% chance of societal calamity, then in that case there is no safe withdrawal rate that works.

What is the point of calculating a SWR if the world changes dramatically for the worse? Would any resonable amount of money always help in that case ?
My casual study of history, especially in the last hundred years, suggests that entering a period of calamity with a lot of money works out much better for most than entering the period with little.

You may need to do investment and financial maneuvers that would be considered crazy in normal times, but if times are not normal...
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Old 04-19-2011, 08:45 PM   #55
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Dr Bernstein's point is quoted here at the end of Part III:
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So live a little, and enjoy your money, for tomorrow we may be consumed by the ghosts of Hitler, Lenin, and Attila the Hun.
Your planned 40 yr retirement can be ruined by:

1) You die
2) Your spouse dies
3) You both die
4) The world as we know it ends
5) Sh*t happens

Do you want to spend an extra 10 years working and saving to increase the probability of your portfolio surviving from 80% to 95% if there is a > 20% chance it won't matter? Or would you rather take your chances knowing you may have to reduce your spending or go back to w&*k if you have an unfortunate sequence of returns.

DD
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Old 04-19-2011, 08:50 PM   #56
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Your planned 40 yr retirement can be ruined by:

1) You die
2) Your spouse dies
3) You both die
4) The world as we know it ends
5) Sh*t happens
Well worth keeping in mind.
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Old 04-19-2011, 08:51 PM   #57
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My thought is that these things are pseudo issues. In reality, there is no way to rationally think through it, so most people will knowingly or unknowingly let their impusles and prejudices and habits of mind decide for them. Just like we decide most other things.

Ha
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Old 04-19-2011, 08:59 PM   #58
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Why doesn't some group do a study on retirees who regularly take 3 or 4 % but one year and only one year they go crazy and take 7% for the trip of a life time ? That would be interesting !
You should write up your experiences and send them to Trinity for a starting point of their next research paper...
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Old 04-19-2011, 09:06 PM   #59
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Dr Bernstein's point is quoted here at the end of Part III: Your planned 40 yr retirement can be ruined by:

2) Your spouse dies

5) Sh*t happens

Been there done that !
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Old 04-19-2011, 11:00 PM   #60
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Reading the Boglehead thread and this one, one thing struck on discussing SWR that we often forget the very real possibility that you will die before the age of 90 or 100.

Intercast did a post on this years ago but I haven't seen much else on the subject. I think it would be very nice addition to FIRECalc or another calculator.

I think it is safe to say that the SWR forum members here and also at Bogleheads are using have become more conservative in the last few years, which is entirely understandable. So I think it is valuable that Trinity authors have updated their work and are showing that 4 and even 5% withdrawal rates are reasonably safe. For those of us lucky/obsessed/disciplined enough to save more than we need it doesn't matter much. But for the zillions of people who's portfolio haven't recovered, seen their home values drop, and often had job loss, pay cut etc it is helpful to know that even with this crisis. A million dollars plus SS will still provide a comfortable retirement for most places in the US.
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