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Old 08-01-2013, 04:19 PM   #121
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There is no "right" method. But what is clear is that there are times when you must reduce your withdrawals if you want the portfolio to survive. The thing I find attractive about the G-K method is that the rules for changing your withdrawals are defined and not seat-of-the-pants.
+1

My biggest concern is that when I am in my very old age, will I still be able to do the calculations and make the adjustments? Heck, will I even remember that I need to to them? At some point, I wonder if it wouldn't be better to just dump it all into the Pssstt Wellesly fund and trust them to continue to work their magic. One could do worse.
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Old 08-02-2013, 08:38 AM   #122
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FinleyG, I'm with you. It's clear to me that a flexible WR is better than working and saving up so long that I can put my retirement withdrawals on fixed, inflation - adjusted, 100% failsafe autopilot. Maybe it's not better (or clear that it's better) to others though. It's really a personal choice how much risk each person is comfortable with taking, and how to manage that risk in retirement.

As far as what investment performance to base a model on, in my view it shouldn't be the past and it can't be the future.... it should be based on your view of the future. You shouldn't just use past data because you don't have anything else to use. If you think past performance is the best indicator of future performance, then go ahead and use it. But if you think investment performance in a 7 billion inhabitant, globalized economy, post - industrial world will be fundamentally different from those in a post-WW2, cold war, flower child world, then you should do your best to build those differences into your model.
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Old 09-06-2013, 07:45 AM   #123
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First, I want to say that this is a great thread; worthy of being placed in the "Best Of" for easy reference.

I've read Clyatt's book and tested his method with FireCalc, and read the G-K papers which include data on the number of 'cuts' and 'freezes' that various WD rates would required; that data seems very consistent with the modeling results from Rayvt and Siamond.

I plan to use a variable withdrawal rate versus a fixed one because it seems to fit my situation best, and that's what I'd like to see some discussion on because I expect my situation is not uncommon.

All of this discussion on WD methodology ignores other income sources (pensions, SS or even annuities), which will make a substantial difference. While not everyone has a pension, most (maybe all) will receive SS. When these other income streams kick in, the required WD, whether fixed or variable, will/can go down. I know we can model this with FC, Fido RIP or other tools, and I do. But, the 4% fixed SWR and G-K WD rules don't take into account those other income sources, which will ameliorate the drops in any variable WD approach. This is one of the key factors in my decision to use a variable WD methodology because, the planned timing of my retirement and these other income sources make 'the worst case' not so bad for us.

I'd like to hear how other are accounting for this in their plans.
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Old 09-06-2013, 10:56 AM   #124
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Other income sources don't really come into play when you are looking at the topic of SWR.

SWR is the topic of taking withdrawals from retirement account(s) -- de-cumulation. How much income you need is a completely different topic.

What you are probably thinking about is changing your withdrawal at different points in time. Like taking a very high (unsustainable) rate now with the expectation of reducing it to a very low rate in the future when another income stream kicks in.

This is very personal to each person's individual circumstances, so it'd be rather clumsy to add this to the usual tools, like FC, etc.

What you could do with a spreadsheet is to put in your (high) SWR and current account value, and then note the value in X years (when the step comes in) and then re-enter that value and the new (low) SWR, and then check the final outcome.

If you want to make the effort, you could enhance the spreadsheet to have an initial SWR and then use a different SWR at a different date.
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Old 09-06-2013, 11:09 AM   #125
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This is very personal to each person's individual circumstances, so it'd be rather clumsy to add this to the usual tools, like FC, etc.
I don't think it is clumsy to add it to the usual tools. More work for sure, but not clumsy. There is a manual spending mode on Firecalc and the Fidelity Plan all you to vary spending.

For typical retirees who aren't retiring until they all of their income streams are online (SS, pensions primarily) then these calculators that assume a level WD rate are useful. But, for early retirees where it is common to withdraw more early on, then those type of calculators are not particularly useful.

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I'd like to hear how other are accounting for this in their plans.
I have a huge difference in WD between now (I'm not on SS yet and our expenses are higher than in future due to kids still at home) and later. So I mostly have used Firecalc and Fidelity RIP. When I've occasionally used others I have projected where I think our Portfolio will be at the time I will take SS and then model withdrawals from that point. I've tried to use varying models both optimistic and pessimistic.
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Old 09-06-2013, 11:42 AM   #126
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I'd like to hear how other are accounting for this in their plans.
I mainly have been using the Fidelity Retirement Planner and my own spreadsheets.

Inflation plus non-COLA pensions and fixed rate mortgages change the income and expense numbers every year, without even adding in the more dramatic changes like RMDs and college expenses.

Plus I leave in some margin for error and potential LTC costs. I'm not counting on spending down to zero at any age.
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Old 09-06-2013, 12:02 PM   #127
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I think the thing is, you only need the calc if you are right at the cusp of go/nogo, so there's not really much need to see it done with all that detail. If you have lots of money, then you are okay even with 5%. If you don't have a lot of money, then even a safe 3.5% is not enough income.

I'd say the cusp is in the range of $1M to $1.5M. If you have $2M, then 4% is $80k/yr, and that's a lot higher than the median income (about $55K). You won't get much sympathy from people if you complain that you only get $80K a year.

And what difference does it make if you retire with $500K and depend on some other income stream kicking in to keep you off the street? So you figure out that you'll just be barely okay in that case -- a string of bad years in the market and you crash & burn no matter what Firecalc shows.

Something I saw once, for retirement planning:
Investments, IRAs, and 401(k) to live on;
Company pension for trips to Europe or Bahamas;
Social Security for lap dances.
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Old 09-06-2013, 07:07 PM   #128
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Originally Posted by Huston55 View Post
I plan to use a variable withdrawal rate versus a fixed one because it seems to fit my situation best, and that's what I'd like to see some discussion on because I expect my situation is not uncommon.

All of this discussion on WD methodology ignores other income sources (pensions, SS or even annuities), which will make a substantial difference. While not everyone has a pension, most (maybe all) will receive SS. When these other income streams kick in, the required WD, whether fixed or variable, will/can go down. I know we can model this with FC, Fido RIP or other tools, and I do. But, the 4% fixed SWR and G-K WD rules don't take into account those other income sources, which will ameliorate the drops in any variable WD approach. This is one of the key factors in my decision to use a variable WD methodology because, the planned timing of my retirement and these other income sources make 'the worst case' not so bad for us.

I'd like to hear how other are accounting for this in their plans.
I asked myself plenty of questions in this respect, and I ended settling on a simple principle in my Excel sheets. Any extra cash (small job, lump sum, pension, SS), recurring or not, goes in my portfolio balance when received. Any dividend is automatically re-invested (DRIP). And the withdrawal method has to be an adaptive one, which accounts for variations of the portfolio, whether it comes from market upticks or new income.

Of course, I don't mean it literally, you don't want to add $25K of SS to your portfolio, and withdraw $60k the day after. You would of course just keep the $25k and withdraw $35k. But your model (Excel, whatever) will be set up as I explained, to figure out that $60k is the withdrawal of the year, and take in account the portfolio value change.

With a 4% fixed WR, modified to account for 4% of each new cash deposit, the outcome isn't quite satisfying, as you get more and more incremental money as you get older (that is, when the SS/Pension start), which is usually not a goal. But you could plan around it by taking more than 4% for your early retirement, then change your WR in a much more conservative manner when SS kicks in. Anyhoo, this fixed approach is just a really bad model...

With a modified version of G-K (accounting for the portfolio increments), this works fine. Other adaptive methods (notably the VPW recently discussed at length in the Bogleheads forum) play beautifully well with such approach.

The beauty of doing so is three-fold:
1. it eliminates the discontinuities of lump sums & SS/Pension kicking in, as the adaptive algorithms typically adjust in a more progressive manner than a big bundle of cash suddenly showing up
2. it unifies everything, lump sums, recurring income, occasional jobs, etc
3. if your portfolio balance is at real low point, a good adaptive algorithm will NOT increase your withdrawal, while your additional income will help the portfolio recover. This saves many methods from failing in real bad years like 1965/66.
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Old 09-06-2013, 07:21 PM   #129
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One of the calculators I came across lets you enter SS amounts and other one time or recurring income streams that come in at some point later down the line.

It was the Financial Mentor one.
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Old 09-07-2013, 02:31 PM   #130
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Originally Posted by Huston55 View Post
First, I want to say that this is a great thread; worthy of being placed in the "Best Of" for easy reference.

I've read Clyatt's book and tested his method with FireCalc, and read the G-K papers which include data on the number of 'cuts' and 'freezes' that various WD rates would required; that data seems very consistent with the modeling results from Rayvt and Siamond.

I plan to use a variable withdrawal rate versus a fixed one because it seems to fit my situation best, and that's what I'd like to see some discussion on because I expect my situation is not uncommon.

All of this discussion on WD methodology ignores other income sources (pensions, SS or even annuities), which will make a substantial difference. While not everyone has a pension, most (maybe all) will receive SS. When these other income streams kick in, the required WD, whether fixed or variable, will/can go down. I know we can model this with FC, Fido RIP or other tools, and I do. But, the 4% fixed SWR and G-K WD rules don't take into account those other income sources, which will ameliorate the drops in any variable WD approach. This is one of the key factors in my decision to use a variable WD methodology because, the planned timing of my retirement and these other income sources make 'the worst case' not so bad for us.

I'd like to hear how other are accounting for this in their plans.
We are in a Golden situation similar to what you are talking about. We retired a little over five years ago with combined pensions in the 80's which are now in the 90's. My wife took SS a little over three years ago her benefit is just over 20, I will get spousal next year and close to max at 70. MRD's will also kick in shortly there after. If you base your retirement budget on your base income( for u s pensions) everything else is inflation protection and increased investing. Perhaps your question might be centered on safe nest egg investment rate. That's how we are handling it. Continuing to build and sure enhance your lifestyle and spend more but make sure the nest egg is still growing.
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Old 09-07-2013, 02:42 PM   #131
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[QUOTE="TuborgP;1355556"]

We are in a Golden situation similar to what you are talking about. We retired a little over five years ago with combined pensions in the 80's which are now in the 90's. My wife took SS a little over three years ago her benefit is just over 20, I will get spousal next year and close to max at 70. MRD's will also kick in shortly there after. If you base your retirement budget on your base income( for u s pensions) everything else is inflation protection and increased investing. Perhaps your question might be centered on safe nest egg investment rate. That's how we are handling it. Continuing to build and sure enhance your lifestyle and spend more but make sure the nest egg is still growing. I know the dollar amounts are high but the principle is to wait for retirement until you can live on your fixed income streams or enough have kicked in. If it s only a couple of years have that amount in cash independent of your long term nest egg. We retired at the end of 07 and the crash didn't really hurt us because we had any bridge money needed to my wife's SS secured.
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