VPW - Best Withdrawal Calculator I've seen to date.....

[Lsbcal]

Right on Spudd. Being very careful in this analysis is important. Wouldn't want to spend and then have regrets. I'm still trying to fully understand the assumptions in the "Table" tab.

 

[longinvest]

But the withdrawal percentage moves up too so the spending decline is not linear.

If you look at this example File:VPW.jpg - Bogleheads you will see that the portfolio declined to 40% of the original 17 years after retiring in 1966. The spending went down from an original $48K in 1966 (4.8% initial WR) to about $28K (inflation adjusted) in 1982 before moving up again. So the spending was cut in real terms but not quite by 50% ... it was 58% of the starting spending.

I prefer to look at it in terms of WR (e.g. always applied to the strart portfolio), instead of in terms of how much it dropped.

It's like if the 1968 retiree had a variable WR that started at 4.8%, and got the WR down to 2.8% in 1982, and then got back a higher WR.

You could compare this to having had a 2.8% WR all along... VPW tries to only cuts spending when it becomes important to do so.

 

[FUEGO]

Looks good, longinvest. I like the changes and it actually makes it clearer having the "inflation adjusted" and non inflation adjusted side by side.

 

[longinvest]

I just tried it. My AA is 60/40. Not sure of my actual international equity allocation but I estimated 15%.

So it starts me at 4.5% and it goes up from there, never lower. My actual draw is going to be more like 2.5 to 3% in my first year.

I started at 1972. For a 46 year run, the lowest WR is 4.5%.

Sounds too good to be true ...

The VPW percentage must be applied to the current portfolio balance at the time of withdrawal.

Here's an example of a VPW table for spending $10 in 5 days:
20%
25%
33%
50%
100%

The percentage is always increasing, but not the withdrawal:
$10 x 20% = $2 (remains $8)
$8 x 25% = $2 (remains $6)
$6 x 33% = $2 (remains $4)
$4 x 50% = $2 (remains $2)
$2 x 100% = $2 (remains $0)

If your $10 was invested and its value changed all along, you would still be able to spend the entire amount in 5 days, but you could get more or less than $2 per day, depending on the market value.

 

[explanade]

The VPW percentage must be applied to the current portfolio balance at the time of withdrawal.

How is that different from sticking to a static SWR?

I haven't withdrawn from my retirement assets yet, just FIRE'd in September.

Or I should say, I haven't redeemed any investments to use as my withdrawal.

If I withdrew 4% of a $1 million portfolio in the first year and withdrew 4% of whatever the balance is at the start of the second year, isn't that withdrawing the percentage against the "current" balance (at the time of the withdrawal)?

 

[spicoli]

How is that different from sticking to a static SWR?

I haven't withdrawn from my retirement assets yet, just FIRE'd in September.

Or I should say, I haven't redeemed any investments to use as my withdrawal.

If I withdrew 4% of a $1 million portfolio in the first year and withdrew 4% of whatever the balance is at the start of the second year, isn't that withdrawing the percentage against the "current" balance (at the time of the withdrawal)?

The 4% SWR from the Trinity study, withdraws 4% of the initial portfolio and adjusts that amount each year for inflation, regardless of what the current value of the portfolio is.

If you withdraw a fixed 4% each year of the current portfolio that would be a constant percentage withdrawal method.

VPW uses a variable percentage based on your user inputs. Each year use the VPW table and take the percentage X your current portfolio to get your withdrawal amount.

 

[Independent]

The link the the OP doesn't work for me. But, it seems that other people are finding this calculator somewhere. Can somebody recommend a link?

 

[Major Tom]

The link the the OP doesn't work for me. But, it seems that other people are finding this calculator somewhere. Can somebody recommend a link?

From post #219 by Lsbcal -

Variable percentage withdrawal - Bogleheads

 

[Live And Learn]

I love the new version even more than the first. This helps me to see that even if I had retired in 1968 that I could still spend my "average" budget right through retirement until things "picked up".

I could use this as a "withdrawal" guide and not necessarily a "spend guide" early on, until the dreaded "sequence of returns risk" period were "over" (when that might be is in the eye of the beholder - is it 5 years ? 10 years ?).

I would do exactly as FUEGO suggested and "bank" anything that I didn't use in the early years of ER until I felt sequence of returns risk is over (sequence of returns is exactly what happened to the 1968 retiree).

I also like that I can now see the inflation adjusted withdrawal amount right on the front tab.

This is a really nice tool in the arsenal. I'll use it along with FIDO RIP to check myself year over year. With these tools I feel a little better every day about my chance of not outliving my portfolio with my date of March 1, 2015.

 

[NanoSour]

Variable percentage withdrawal - Bogleheads

 

[Independent]

From post #219 by Lsbcal -

Variable percentage withdrawal - Bogleheads

Thanks, that version worked.

 

[Cut-Throat]

I just tried it. My AA is 60/40. Not sure of my actual international equity allocation but I estimated 15%.

So it starts me at 4.5% and it goes up from there, never lower. My actual draw is going to be more like 2.5 to 3% in my first year.

I started at 1972. For a 46 year run, the lowest WR is 4.5%.

Sounds too good to be true ...

Does FireCalc also seem to good to be true when you end up with far more Millions at the end of your plan than you started with most of the time?

 

[audreyh1]

What the data showed me was an obvious fact that my mind was refusing to see: Any money not spent (and thus left in the portfolio) at market peak will be decimated by the upcoming bear market, making little difference on withdrawals during the bear market.

For this very reason, I won't put unspent funds for a given year back into the portfolio, but rather keep in it funds not vulnerable to a long bear market. It can be applied toward lean years when portfolio withdrawals are reduced.

 

[Lsbcal]

Really good thought Audrey. I think this has been mentioned but not quite in this way.

Maybe put it in a short term bond fund. Or some good book keeping method.

 

[Cut-Throat]

Really good thought Audrey. I think this has been mentioned but not quite in this way.

Maybe put it in a short term bond fund. Or some good book keeping method.

On 10-18-2014 in this thread. - Post #92

I am taking the defaults and am actually withdrawing what VPW tells me to. It goes into a Cash "Spending Account", never to be invested again. You can also use this account to "Buffer" shortfalls in Withdrawals.

 

[Lsbcal]

Cut-throat, I am now giving you an honorary electronic laurel wreath for your contribution here!

I'm coming around to the VPW methodology slowly. Creating a spending pool is a new thought for me. OK, it may be just a mental crutch, but right now it is appealing. Of course, my immediate thought is how should I invest it so it can grow even bigger? Oops, this is becoming circular reasoning.

 

[youbet]

Does FireCalc also seem to good to be true when you end up with far more Millions at the end of your plan than you started with most of the time?

No, it's just descriptive statistics at work.

 

[Independent]

For this very reason, I won't put unspent funds for a given year back into the portfolio, but rather keep in it funds not vulnerable to a long bear market. It can be applied toward lean years when portfolio withdrawals are reduced.

This looks like a version of market timing to me.

Looking at your total asset allocation, you shift to a more conservative ratio when market values get up above X% of your initial value. You plan to move back to your original AA when market values get below Y%.

I'm not saying that's a bad idea, in fact, I find it appealing. But, I think it's a different idea than making my spending track market values.

 

[audreyh1]

This looks like a version of market timing to me.

Looking at your total asset allocation, you shift to a more conservative ratio when market values get up above X% of your initial value. You plan to move back to your original AA when market values get below Y%.

I'm not saying that's a bad idea, in fact, I find it appealing. But, I think it's a different idea than making my spending track market values.

LOL!

Except there is no timing (anticipating the near-term future) involved, just a reaction to past events, just like rebalancing. Saying there may be a bear market at any point and maintaining a short-term buffer, or saying that investments go up over the long-term and creating an AA accordingly is not timing.

I see my funds as being in two camps: short-term, and long-term. The long-term is invested in a fixed AA that is designed to withstand inflation, and hope for long-term market appreciation in spite of events like bear markets. The short-term is isolated from events like bear markets, and is there to spend now or in the near future. Once it's withdrawn, I don't think it should be risked again - that is all.

People who reinvest their unspent funds are hoping to optimize their long term return. I'm hoping to minimize my short-term volatility in spending year-to-year. I count on my long-term funds only, i.e. my retirement portfolio, to provide the long-term growth, and withdrawal is calculated based only on the long-term funds value.

If it's not obvious, I use a constant % withdrawal method - a fixed % based on end of year portfolio value. So some years I withdraw more than others. Allowing the unspent funds to accumulate simply gives me some "income smoothing" year-to-year rather than dealing with sudden changes in my spending or worrying about suffering a shortfall next year.

I actually keep at least 2 years worth of spending in short-term funds, as well as some monies earmarked for certain one-time expenses. It simply means that large market swings don't have an immediate impact on me, and if I do have to reduce spending, it can be done gradually rather than abruptly.

This is my "sleep at night" strategy and allows me to ignore market volatility.

 

[Chuckanut]

This looks like a version of market timing to me.

Almost any decision to buy or sell can be a version of market timing. However, IMHO, when people talk about market timing they usually are referring to making asset changes based upon some supposed ability to predict the short term future of the market.

When I buy or sell to adjust my AA, I have no idea what the short term market will do. Or even the medium term market. I just figure it will follow the long term past, going up and down at times that are completely unknown to me. Alas, I can't read minds, my crystal ball is cracked, and my time machine is broken.

 

[Chuckanut]

If it's not obvious, I use a constant % withdrawal method - a fixed % based on end of year portfolio value. So some years I withdraw more than others. Allowing the unspent funds to accumulate simply gives me some "income smoothing" year-to-year rather than dealing with sudden changes in my spending or worrying about suffering a shortfall next year.

+1

I think you are very wise.

 

[Lsbcal]

...(snip)...
If it's not obvious, I use a constant % withdrawal method - a fixed % based on end of year portfolio value. So some years I withdraw more than others. Allowing the unspent funds to accumulate simply gives me some "income smoothing" year-to-year rather than dealing with sudden changes in my spending or worrying about suffering a shortfall next year....

I too am using a constant withdrawal percentage. Well at least I thought it was a good idea for the last year.

Looking at VPW, I'm asking myself if the constant I chose was well thought out. VPW is suggesting 5.3% for 2015.

I had figured on maybe 3.5% and that would probably allow us to do a lot of fun things plus not have to skimp in between vacations. SS and medicare help a lot in making 3.5% comfortable. This figure was based on FIRECalc, a personal rebalance spreadsheet with history going way back, plus trying to be conservative.

I think that I can now raise that WR to somewhere higher then 4% at least. I think this will change my way of thinking and actually make spending more enjoyable as opposed to falling into too much of a defensive mindset.

I could put some of any unspent funds into a spending surplus pool as discussed above. But it should not grow too large or I would just be doing saving in a different way and going back to my old parsimonious ways.

 

[audreyh1]

I too am using a constant withdrawal percentage. Well at least I thought it was a good idea for the last year.

Looking at VPW, I'm asking myself if the constant I chose was well thought out. VPW is suggesting 5.3% for 2015.

I had figured on maybe 3.5% and that would probably allow us to do a lot of fun things plus not have to skimp in between vacations. SS and medicare help a lot in making 3.5% comfortable. This figure was based on FIRECalc, a personal rebalance spreadsheet with history going way back, plus trying to be conservative.

I think that I can now raise that WR to somewhere higher then 4% at least. I think this will change my way of thinking and actually make spending more enjoyable as opposed to falling into too much of a defensive mindset.

I could put some of any unspent funds into a spending surplus pool as discussed above. But it should not grow too large or I would just be doing saving in a different way and going back to my old parsimonious ways.

I'm sticking with the 3.X% something spending rate until I reach 65 years. Then I'll reevaluate.

If my unspent funds appear to be growing too much, I'll just start spending a bit more.

 

[Independent]

LOL!

Except there is no timing (anticipating the near-term future) involved, just a reaction to past events, just like rebalancing. Saying there may be a bear market at any point and maintaining a short-term buffer, or saying that investments go up over the long-term and creating an AA accordingly is not timing.

I see my funds as being in two camps: short-term, and long-term. The long-term is invested in a fixed AA that is designed to withstand inflation, and hope for long-term market appreciation in spite of events like bear markets. The short-term is isolated from events like bear markets, and is there to spend now or in the near future. Once it's withdrawn, I don't think it should be risked again - that is all.

People who reinvest their unspent funds are hoping to optimize their long term return. I'm hoping to minimize my short-term volatility in spending year-to-year. I count on my long-term funds only, i.e. my retirement portfolio, to provide the long-term growth, and withdrawal is calculated based only on the long-term funds value.

If it's not obvious, I use a constant % withdrawal method - a fixed % based on end of year portfolio value. So some years I withdraw more than others. Allowing the unspent funds to accumulate simply gives me some "income smoothing" year-to-year rather than dealing with sudden changes in my spending or worrying about suffering a shortfall next year.

I actually keep at least 2 years worth of spending in short-term funds, as well as some monies earmarked for certain one-time expenses. It simply means that large market swings don't have an immediate impact on me, and if I do have to reduce spending, it can be done gradually rather than abruptly.

This is my "sleep at night" strategy and allows me to ignore market volatility.

I suppose we're using "market timing" differently. I'm using it to mean:
A. changing your total asset allocation in response to some economic indicator. In this case, the indicator is "market value of the long term portion of my total asset portfolio".

You're using it to mean:
B. changing your total asset allocation based on a belief that you have a better crystal ball than other investors.

I can see that you are not doing B. But, I think you are doing A.

The standard concern about percent-of-current-balance withdrawal strategies is that they assume the followers will accept substantial swings in their annual spending. But, that statement assumes that people are going to spend exactly 100% of what they withdraw.

You've got a different plan. You're stabilizing your spending by adding another asset class. If we wanted to backtest your plan, we would need to add a short term asset column to the VPW worksheet and have money going into and coming out of that column at various times based on some rule that seems reasonable to you.

Again, I'm not saying it's a bad plan, just that it's different from the VPW worksheet.

 

[Independent]

Almost any decision to buy or sell can be a version of market timing. However, IMHO, when people talk about market timing they usually are referring to making asset changes based upon some supposed ability to predict the short term future of the market.

When I buy or sell to adjust my AA, I have no idea what the short term market will do. Or even the medium term market. I just figure it will follow the long term past, going up and down at times that are completely unknown to me. Alas, I can't read minds, my crystal ball is cracked, and my time machine is broken.

As above, I think we may not be communicating due to different meanings for the same words.

Suppose I buy and sell solely to maintain a fixed asset allocation. I would not call that "market timing".

I'm using "market timing" to mean some deliberate change in asset allocation. As in the post above, I can think of at least two different reasons for that type of change.