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Old 10-24-2013, 07:19 AM   #61
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Just to be extra clear, VPW keys each year off your portfolio's current cumulative value, not off of last year's performance. So one has to be prepared for long consecutive strings of low (and high) withdrawal years relative to your original withdrawal.

Last year's stock market performance may not have that much of an effect on your withdrawal (and this can be considered a positive, also).

Also, with VPW, you should be more conservative about estimating your life expectancy since you are guaranteed to end with little money, unlike traditional withdrawal plans. So you have to make sure that your guess is right. I noticed that some people don't consider this when comparing.

I would carefully understand the assumptions that went into the VPW projections for real returns. Personally, I think the default values are somewhat optimistic, especially for bonds.
Yes, you have to be flexible in your spending, which I'm sure we are here. Especially when I see a lot of folks here talking about 2.5% or 3% withdrawal rates. But as I said, we're all big boys and girls here, so I think everyone on this forum already knows the downside, otherwise we wouldn't be here in the first place.

While the portfolio can move around a lot, you are taking an ever larger percent. I've always maintained that you should have twice as much as you 'need' or you shouldn't retire in the first place. And if you cannot handle the volatility, you are probably invested too much in stocks in the first place. And volatility can be 'tamped down' by taking your Social Security at age 70, buying annuities, and investing less in stocks.

What you have to remember is the old fixed SWR problem; if person A retires with $1 Million and the next year the portfolio is cut in half, he still takes his 4%. Person B who retirees that year with half a million only gets half of what person A is getting. How does that make sense? VPW does not have this problem.

So, the big downside to VPW is that you might have to settle for less some years than others. The big downside to a Fixed SWR is completely going broke if it is too high or leaving a huge pile of money at the end if it's too low. Good luck on predicting the markets! I'll take VPW any day!
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Old 10-24-2013, 10:02 AM   #62
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Good luck on predicting the markets! I'll take VPW any day!
You seem convinced, as am I. I don't exactly use any withdrawal method, but I do set a conservative variable withdrawal amount as a check on what I spend from my investment cash earnings. In my opinion, while both variable rates and SWR attempts have weaknesses (as have been well profiled in this thread), variable wins hands down since you do not wake up one day broke. Maybe you move into subsidized housing, and eat more frozen fish than fresh, but you are not broke.

Why do you expend so much effort here proselytizing? A healthy ecosystem has many agents making different attempts to succeed. Some will work, some will fail. As long as yours is one that works, it's all good.

Ha
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Old 10-24-2013, 10:24 AM   #63
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Why do you expend so much effort here proselytizing? A healthy ecosystem has many agents making different attempts to succeed. Some will work, some will fail. As long as yours is one that works, it's all good.

Ha
You're right.....I'm out of here now.
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Old 10-24-2013, 10:37 PM   #64
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You're right.....I'm out of here now.
I found your posts to be very helpful. Thanks.
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Old 10-24-2013, 10:52 PM   #65
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I found your posts to be very helpful. Thanks.

+1

I like to hear different viewpoints. If nothing else, it makes me think. My withdraw 'plan' is a hybrid/mutt of several different ideas. A conservative 'HSWR' to begin, tempered by several other factors as time goes on.

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Old 10-25-2013, 10:17 AM   #66
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VPW Posting

Perhaps I'm a little computer stupid, but I couldn't see how or where to put the portfolio value.
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Old 10-25-2013, 10:22 AM   #67
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+1

I like to hear different viewpoints. If nothing else, it makes me think.

-ERD50
+1 (2?)

I also like to hear about other ideas since I'm sure I'll end up with a combination plan. Thanks!
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Old 10-26-2013, 07:58 AM   #68
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Perhaps I'm a little computer stupid, but I couldn't see how or where to put the portfolio value.
Click on the tab labeled, "Backtesting," and enter your total retirement asset amount in the box labeled, "Initial Portfolio."
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Old 10-27-2013, 02:33 PM   #69
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Click on the tab labeled, "Backtesting," and enter your total retirement asset amount in the box labeled, "Initial Portfolio."
Thank you, very clear now except I see nothing on taxes. and what if some of spending is from IRA Roth vs IRA Traditional.
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Old 10-30-2013, 07:17 AM   #70
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Thanks, this helps.

I set Data Set to "Shiller" and the AA to 75/25.

I didn't test every year, but I did check those where FireCalc SWR's tend to fail -- late 1960s and early 1970s. It turns out that 3.7% is the lowest number that gets through all of those years. So, if we're going to use backtesting, I'd test against 3.7% or $37,000.

The worst start year was 1966, where the $37,000 constant dollar withdrawals ended 35 years with a balance of $46,000.

That may also be the worst year for variable percentage withdrawals. The initial withdrawal is $53,000, it eventually drops to $22,800 before recovering.

Of course, the percentage withdrawals are scheduled to go to zero in the 36th year, and they do.

The VP withdrawals start at $53,000 and stay above $37,000 for 8 years.
Then they drop below, and stay below for the next 13 years.

To me, this 3.7% is a better comparison than "3% or even 2.5%".

The summary is still that percentage withdrawals have a lot going for them, but people embarking on this method should think ahead to whether they can really live on a lot less than their initial withdrawal if they happen to catch a bad retirement year. It's clear to me in this case that people who want to spend the $53,000 in the first year need some plan to live on less than $37,000 if the need arises. Those who really need at least $37,000 in every year should not start with $53,000 in the first year.

IMO, models using percentage withdrawal methods should have an additional input of "The smallest withdrawal I'm willing to accept in any year". That would help focus the user on the downside risk.


edit: I did a little more on this. I modified the VPW worksheet to accept a minimum $ withdrawal. To offset the fact that I'd be withdrawing "too much" in some down years, I also put in a maximum $ withdrawal.
Of course, if I set the minimum to $37,000, then I need to set the maximum to about $37,000, too.
Other possibilities (all approximate) are:
Min: $35,000 Max: $42,000
Min: $33,000 Max: $46,000
Min: $31,000 Max: $51,000



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Originally Posted by Cut-Throat View Post
You are now 'developing' a different tool. I believe that there already is 'Floor and ceiling' type withdrawal plan, for those that want that. Also, some folks buy an annuity with part of their portfolio + social security for necessities.

This was never intended for the one withdrawal method for everyone. For myself, VPW works perfectly as designed.
Using a 'floor & ceiling or 'guardrails' approach is our plan. We plan to use a 'Guyton-Klinger' approach, which enables higher beginning WDR but, also has the possibility of a lower WDR...or, a higher one. For example, with our AA, we forecast surviving a 40 yr period beginning with a 5.3% 'real' WDR, which has the possibility of reducing to a 'real' 3.7% WDR over an eight year period but, also has the possibility of increasing to a WDR >5.3%.
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Old 12-26-2013, 01:07 AM   #71
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Answering the poster who likes to see other WD calculators, Henry Hebleler's Autopilot WD is half of (last year's WD + inflation adjustment) plus half of (ending portfolio balance divided by RMD longevity number). To start retirement, use 4% as "last year's WD".

Note the income smoothing and inflation adjustments in the first half, and the portfolio balance and age considerations in the second half.
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Old 12-26-2013, 06:59 AM   #72
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Answering the poster who likes to see other WD calculators, Henry Hebleler's Autopilot WD is half of (last year's WD + inflation adjustment) plus half of (ending portfolio balance divided by RMD longevity number). To start retirement, use 4% as "last year's WD".

Note the income smoothing and inflation adjustments in the first half, and the portfolio balance and age considerations in the second half.
That's what I like about Bud, simple and effective.

But, the Autopilot approach seems to naturally suppress WDRs for younger retirees; the younger, the more suppression. For example, 55 yo retiree who's portfolio gains 4% in his first year of retirement will take a WDR reduction of >16% in the year after that gain; seems rather punitive. That suppression effect seems to last until age 72.

So, for the FIRE retiree wanting a front-end loaded but still safe WDR approach, this is likely not it IMO.
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Old 12-26-2013, 02:19 PM   #73
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The calculator gives me the same results as does FireCalc.
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AA = 60/35/5. Expected CAGR = 5.7%. GSD (5y) = 7.8%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.5%. Net Port Yield = 1.7%. Term = 36 yr. FI Duration = 4.9 yr. Portfolio survival probability = 86%.
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Old 12-26-2013, 03:14 PM   #74
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+1

I like to hear different viewpoints. If nothing else, it makes me think. My withdraw 'plan' is a hybrid/mutt of several different ideas. A conservative 'HSWR' to begin, tempered by several other factors as time goes on.

-ERD50
+4 or something...

And absolutely. The different viewpoints are the most valuable to me, personally, as they provide me with a more robust way of thinking about an issue. For example, actually read the BH thread on this a couple (?) weeks ago, but decided against looking at the tool. Now, after this discussion, I will. Thanks to all for their input.
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Old 05-06-2014, 02:32 PM   #75
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Is there an updated link to the spreadsheet? I'm getting this when I try to download:
Disabled link

Access to this link has been disabled. Please ask the owner of the shared link to send a new link to access the file or the folder.
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Old 05-06-2014, 08:14 PM   #76
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Is there an updated link to the spreadsheet? I'm getting this when I try to download:
Disabled link

Access to this link has been disabled. Please ask the owner of the shared link to send a new link to access the file or the folder.
Check over on Bogleheads. I think Dropbox broke a bunch of links due to a security issue. B/H will have the current one.
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Old 05-07-2014, 04:38 AM   #77
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I kept trying and eventually it worked. Thanks.
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Old 05-07-2014, 05:19 AM   #78
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Found it on Bogleheads here.

Variable percentage withdrawal - Bogleheads

I'm happy to see this thread resurrected as I start the transition process.
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Old 05-07-2014, 10:26 AM   #79
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Very interesting and helpful! Thank you.
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Old 10-14-2014, 02:13 PM   #80
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I have started to play with VPW for next year's withdrawal rate/amount. Let's see what it comes up with.
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