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Old 10-20-2014, 05:05 AM   #101
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If the market drops 50%, you would have to be 100% in stocks to suffer an equivalent portfolio drop. You can tamp down the volatility with the proper asset allocation. Personally I am only 30% in stocks.
The VPW model doesn't change that much with changing asset allocations it seems. The difference between median and minimum withdrawal in the worst case scenario is still about x1.7 with 70% bonds (vs. x2 with 80% stocks).

The median does drop with 30% though if you go bonds heavy, so the minimum gets even lower.

The difference I think is in the fact that I am planning for a very long horizon (60+ years), so in fact VPW doesn't really do me much until I am well past the point where it matters.

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Other ways to damp down volatility is to delay S.S. to age 70. I have set aside cash that is not included in my VPW Portfolio to cover the Shortfall of S.S. --- So, when S.S. kicks in at age 70, it will contribute to a Steady portion of income that is not affected by the VPW withdrawal amount.
Not an option for me (not a US citizen), and my own version is too far away down the line and will be a pittance ($6k per annum I'm guessing at most).

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And yes, I would not have even considered retirement if my discretionary expenses were not much larger than my non-discretionary ones. I think every retiree should be able to easily cut their expenses in half. If they can't, they are asking for trouble.
Something to chew on for me, interesting view. I don't nearly have that much buffer right now (semi-FIRE). Thanks.
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Old 10-20-2014, 07:29 AM   #102
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The VPW model doesn't change that much with changing asset allocations it seems. The difference between median and minimum withdrawal in the worst case scenario is still about x1.7 with 70% bonds (vs. x2 with 80% stocks).
Yes, but 1.7x is mostly due to inflation. Look at the nominal values. Retirees have a lot more control over inflation than a dropping nominal value. Most retirees have their homes paid for and educations, which are a large part of CPI. You also tend to purchase items which are more favorable to the 'shopping basket' of inflation. So, you have a lot more choices here than you would first think.

And remember you are looking at historical worst case conditions.
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Old 10-20-2014, 10:43 AM   #103
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No, there is a Big Difference! ---- The VPW withdrawal amount is removed from the market entirely and put into a Cash account. A Conservative SWR leaves money in the Markets, which could possibly get 'pummeled' in a down market.
I'm not saying that one should pick a conservative SWR (say 2%) and stick it to no matter what and never increase it even if your portfolio goes gangbusters. My plan is to be aware of the failure probabilities at various rates (e.g., 2-5%) and then have variable withdrawals depending on portfolio returns. So if the portfolio does well, I will loosen up and withdraw more; if the portfolio is in decline revert back to the lower SWR percentages.

I don't have survey numbers but I suspect a fair number of people do this and I think this in practice may not be that dissimilar from VPW.

One reason I like the traditional SWR definition (e.g. trinity) is that it precise quantifies the standard of living and yields a failure probability. With VPW, the withdrawals are always changing and makes it difficult to "equalize" two different withdrawal algorithms. So even if I use variable withdrawals, the trinity SWR methodology is very helpful for planning purposes.

Anyway thanks for bringing up this topic. I think it's great that you've been a strong advocate for VPW and this really helps the discussions.
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Old 10-20-2014, 11:13 AM   #104
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And yes, I would not have even considered retirement if my discretionary expenses were not much larger than my non-discretionary ones. I think every retiree should be able to easily cut their expenses in half. If they can't, they are asking for trouble
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Something to chew on for me, interesting view. I don't nearly have that much buffer right now (semi-FIRE). Thanks.
1/2 ? I'm nearing a 3% WR. If I had to cut my expenses in half and still be at 3% I'd need to double my portfolio and my initial WR would be 1.5% ! Talk about conservative !
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Old 10-20-2014, 11:18 AM   #105
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1/2 ? I'm nearing a 3% WR. If I had to cut my expenses in half and still be at 3% I'd need to double my portfolio and my initial WR would be 1.5% ! Talk about conservative !
Not sure what you're saying here. Expenses and Withdrawal Rates are two different things.

Expenses are made up of discretionary and non-discretionary expenses. I made the point that retirees should have larger discretionary expenses than non-discretionary. Then cutting expenses in half would be easy, if need be.
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Old 10-20-2014, 04:06 PM   #106
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Not sure what you're saying here. Expenses and Withdrawal Rates are two different things.

Expenses are made up of discretionary and non-discretionary expenses. I made the point that retirees should have larger discretionary expenses than non-discretionary. Then cutting expenses in half would be easy, if need be.
I would agree with that for people who ER. But for many who reached and past normal retirement age their non-discretionary expenses are a very high percentage of their total expenses. It's just a fact of life for many, albeit an unhappy one.
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Old 10-20-2014, 05:34 PM   #107
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Not sure what you're saying here. Expenses and Withdrawal Rates are two different things.

Expenses are made up of discretionary and non-discretionary expenses. I made the point that retirees should have larger discretionary expenses than non-discretionary. Then cutting expenses in half would be easy, if need be.
the budget i set for our up coming retirement on july 31st at 4:30 pm has non descretionary spending at less than 1/2 the total budget.

we have quite a bit of descretionary spending built in because with 3 sets of kids,spouses and grandkids we do quite a bit of spending when we see them.

we also want the slack for the awe craps in life.
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Old 10-20-2014, 11:28 PM   #108
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Not sure what you're saying here. Expenses and Withdrawal Rates are two different things.
I suppose it depends on how you do the counting. Everything I have is included in my portfolio, as long as it is liquid (thus, RE is excluded). The only reason I withdraw funds are to pay bills, period (or give it away, which is the same -- its gone). To put it another way, if I can convert it to food in a short period of time (3-4 days max), I count it in the portfolio.
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Old 10-21-2014, 08:32 AM   #109
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For people with a large discretionary budget (eg 1/2 of total or more as being discussed), what does it cover?

I'm having a hard time seeing how we would spend our money other than travel and gifts/charity. Even travel is questionable as I don't think we could get enough done in one year ( to equal the none discretionary budget).

I suppose we could start shopping at whole paycheck.


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Old 10-21-2014, 10:28 AM   #110
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For people with a large discretionary budget (eg 1/2 of total or more as being discussed), what does it cover?

I'm having a hard time seeing how we would spend our money other than travel and gifts/charity. Even travel is questionable as I don't think we could get enough done in one year ( to equal the none discretionary budget).

I suppose we could start shopping at whole paycheck.
This is a 'No Problem' for me! We love to travel and eat at fine Restaurants. We are Living in the Bahamas for 3 months this winter. We have to rent an Apartment there and a Car. I like to Fly Fish and Fishing Guides are over $500 a day. I'll spend $10 Grand alone on Guide Fees just in the Bahamas. Last year we we spent $35 Grand on a 2 week African Safari. I enjoy Spending money.
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Old 10-21-2014, 10:32 AM   #111
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I suppose it depends on how you do the counting. Everything I have is included in my portfolio, as long as it is liquid (thus, RE is excluded). The only reason I withdraw funds are to pay bills, period (or give it away, which is the same -- its gone). To put it another way, if I can convert it to food in a short period of time (3-4 days max), I count it in the portfolio.
That's a fine system, but that's not how VPW works, which is the topic of this thread.

Each year I move the Calculated VPW amount to a Cash Spending Account, never to be invested in stocks or Bonds again. I do not include this in my portfolio. Expenses are withdrawn from the Spending Account Only.
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Old 10-21-2014, 12:24 PM   #112
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1/2 ? I'm nearing a 3% WR. If I had to cut my expenses in half and still be at 3% I'd need to double my portfolio and my initial WR would be 1.5% ! Talk about conservative !
Let me see if I can restate this so it is clearer. My current ER budget only includes 12% "discretionary" expense (definition of discretionary is travel and "spending money"). My WR is 3%

It was suggested that people should not retire until they could afford to cut their spending by 1/2. Put another way, it is suggested that one should not retire until they can afford 2x their non-discretionary expenses. Since I can't afford to fund 2x my budget (which is 88% non discretionary) with my current portfolio the only option I have is to double the portfolio if I want to stay at my desired 3% WR. Which means that my actual WR based upon my current budget would be 1.5% - which is a exceptionally conservative.
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Old 10-21-2014, 12:37 PM   #113
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Let me see if I can restate this so it is clearer. My current ER budget only includes 12% "discretionary" expense (definition of discretionary is travel and "spending money"). My WR is 3%

It was suggested that people should not retire until they could afford to cut their spending by 1/2. Put another way, it is suggested that one should not retire until they can afford 2x their non-discretionary expenses. Since I can't afford to fund 2x my budget (which is 88% non discretionary) with my current portfolio the only option I have is to double the portfolio if I want to stay at my desired 3% WR. Which means that my actual WR based upon my current budget would be 1.5% - which is a exceptionally conservative.
OK, I now see what you were saying. But, as I pointed out when using VPW (Withdrawals and Expenses are 2 different things)

However, if you used VPW (The topic of this Thread) you could withdraw over 4% of portfolio value and either increase your discretionary spending or squirrel it away in a Spending Account for future spending. If your non-discretionary spending was less than 50% of your initial Withdrawal Amount (which is what I meant to say, instead of discretionary expenses), you'd be good to go.

IOW - Get the Withdrawals out of the Stock/Bond Market so that it would not be subject to a future market downturn. (One of the advantages of VPW --- Selling more assets High and Fewer Assets at Lower Prices. A fixed SWR with Inflation Adjustment is bad news in a Bear Market, Especially early on in retirement!)
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Old 10-21-2014, 03:53 PM   #114
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I like VPW. Autopilot is an easy to use formula too.

0.5 x (Last year's withdrawal amount x (1 + Inflation %)) + (Last year's ending balance / RMD)

Put retirement savings withdrawals on autopilot - MarketWatch
Yes, the author of VPW used RMD in his Calculations, with afew extra wrinkles, Asset allocation and 'end of plan' etc. etc. Also the ability to backtest. But a lot of it was RMD derived.
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Old 10-21-2014, 05:47 PM   #115
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Nice tool. I put in my rough stats and it allows me to spend almost double the 3% SWR I'm inclined to use since retiring at 33 (60 year retirement period?).

I checked out retiring in 1929 (on the cusp of the great depression) and the worst years in a 92% stock portfolio had me spending $20k ($29k if I had 50/50 stock/bonds). My actual budget is $32k/yr, so I could spend close to $60k the first year using the 5% WR in the VPW calc. Then the Great Depression happens and I'm stuck living on 20-29k.

29k isn't hard at all - just a tiny bit less vacationing, and maybe paying closer attention to the groceries we buy (less sushi, more hamburgers ).

20k? That would be bare bones with deferred maintenance on the house and cars. I'd probably pick up some part time work if it got that bad.

The calculator confirmed basically what I assumed all along. That we can spend substantially more than 3% SWR in most years in most scenarios.
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Old 10-21-2014, 06:21 PM   #116
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Nice tool. I put in my rough stats and it allows me to spend almost double the 3% SWR I'm inclined to use since retiring at 33 (60 year retirement period?).
Yes, I think the VPW tool is better used for someone in their 50's and 60's with maybe a 40 year retirement period. Retiring at age 33 is almost unfathomable to me. I don't think I started earning any money until I was 33.

So, yes I think the VPW tool is going to give you some 'Wild' numbers at your age. 60 Years is a long time, so maybe Wild Numbers are on the menu! Also, the 92% Stock Portfolio is a source for the Wild Gyrations. Most Retirees withdrawing from a Portfolio would not be more than 60% Stocks. I am at 30% Stocks.
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Old 10-21-2014, 06:28 PM   #117
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Sounds like a new twist on an old strategy, and whenever someone says something like 'It can't fail," I cringe. A subject has a medical emergency, needs to access large amounts of money for years - it can fail; and maybe the system can allow you you to "spend more money", but it might be more prudent not to.

I'll stick to my 2% withdrawal, watch the portfolio continue to slowly grow over the years, and if there's no medical emergency or need, my son can have the security of inheriting a large nest egg.

I already spend as much as I want...


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Old 10-21-2014, 06:36 PM   #118
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Sounds like a new twist on an old strategy, and whenever someone says something like 'It can't fail," I cringe. A subject has a medical emergency, needs to access large amounts of money for years - it can fail
That's what Insurance is For!

And your 2% SWR will fail sooner. It's less safe!
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VPW - Best Withdrawal Calculator I've seen to date.....
Old 10-21-2014, 09:28 PM   #119
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VPW - Best Withdrawal Calculator I've seen to date.....

In your opinion - not mine.

Insurance does not cover all costs, nor does long term care coverage. MIL spent $5k a month over what her LTI paid - for three years. That doesn't take into consideration the four years she previously lived in a care center under conditions LTI didn't cover. Or other out of pocket costs. She was 85. Had she followed the VPW path - and withdrew then spent more money just because she could - she may have gone broke.

And since you know absolutely nothing about my finances, it's naive of you to tell me my withdrawel strategy will fail - for all you know that money is put into a savings account and never spent - which is possible for me to do.

...or that I have about twenty years of expenses in cash accounts, with a life expectancy of maybe fifteen years...

.. And a pension which covers all my needs - I only draw from the portfolio so I can travel most of the year.

It may also interest you to know that FireCalc suggests my portfolio will likely double (average scenario) in the next fifteen years given my current rate of withdrawal - even more when I extend the time to 35 years.

Want to reconsider your prediction? Lol

Looking back over this, I just realized it came across as arrogant - not my intent. My apologies. There is no one strategy suitable for everyone. No one has a crystal ball to predict what will happen. There is no basis for your comment that one strategy will fail before another.
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Old 11-07-2014, 06:12 PM   #120
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VPW advocates a certain approach to withdrawal; one that works for some but not others. There are some good threads on BH regarding this approach and the tool. The tool was developed by a guy named 'long invest' with the help of 'cuthroat' and others.

If you're interested in a variable withdrawal strategy, or strategies, I suggest trying 'cFIREsim' which is a great retirement calculator that evaluates multiple variable withdrawal strategies (VPW, Hebeler, Guyton-Klinger, Clyatt, etc.). It's well worth a spin or two.


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