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Old 05-20-2013, 10:06 AM   #21
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Not only have all the qualified originators (and many but not all readers) gone to some/great lengths to explain the reader can't be guaranteed history will repeat itself, isn't it reasonable to assume everyone knows financial or any other history may not repeat?
The bold above is mine

You'd think it would be obvious, but there have been many discussions on how something that seems obvious to we ER nerds isn't so clear to the regular IRA owner. There was a recent post with a link to an article that had some incomplete, but still suggestively frighteningly high figures for the initial WR from baby boomer IRAs. If that is to be believed the owners hadn't even heard of 4% SWR never mind understood it.
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Old 05-20-2013, 10:15 AM   #22
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Re: hard terms - lots of good info on using 5% of remaining portfolio withdrawal instead of 4% inflation adjusted withdrawal (SWR). Goes a very long way to controlling end of plan residual while still allowing for maximum spending along the way and all but avoiding running out of money. Ideally, I'd think you'd want to use some income smoothing (5 years?) to avoid more radical fluctuations in withdrawals from year to year. I might start with % RP and go to SWR at a later age...YMMV

And here's something in-between that attempts to address "hard terms." A Variation on Remaining Portfolio Withdrawals - GRPWM
Thanks, I'll check out those links a little later. I should have been clearer, I meant to say I haven't defined it in hard terms for myself. As you say, I'd probably want to use some kind of smoothing - those are the details that I just have not set down in writing. I think it's important to pre-define this stuff, so we can see it more rationally when/if the time comes to act. Not that I wouldn't adjust based on circumstances/feelings, but it's good to have a baseline for your thinking as a reference.


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Old 05-20-2013, 10:21 AM   #23
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SWR for me equals "SOME" withdraw rate which covers annual expenses which I'm targeting for 2.5%, I think unless my BS bucket overflows or personal/family health becomes an issue then I'll shift my priorities.

For me, approaching mid-40s, not retired, probably somewhat FI @ 4% SWR based on current expenses, down shifting from FTE to contract employment, small pension at 55, SS when needed eventually, etc. Because of my age, spouse, kids, personal/family desires for enjoyment, and ever changing expenses.... it's hard to really say what truly is SAFE.
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Old 05-20-2013, 11:30 AM   #24
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This quote from the OP's post says it best, IMHO:


Quote:
Nisiprius requested clarification from Professor Philip L. Cooley, senior author of the Trinity study:
What the "4% SWR" means is not that you can treat a portfolio as if it were a guaranteed annuity. I think all the [Trinity] authors meant is that if it is late 2008 and your stocks halve in value, you don't need to halve your spending instantly. It's OK to cross your fingers and continue spending according to the 4%-then-COLAed plan, even though it means dipping into capital, and it's OK to go on doing that for a while.
Professor Cooley's response:You have hit the nail on the head! I've tried to explain that thought to journalists but they don't seem to get it. You've got it. Stay flexible my friend!, which is the advice we should give to retirees.
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Old 05-20-2013, 11:48 AM   #25
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Quote:
Nisiprius requested clarification from Professor Philip L. Cooley, senior author of the Trinity study:

What the "4% SWR" means is not that you can treat a portfolio as if it were a guaranteed annuity. I think all the [Trinity] authors meant is that if it is late 2008 and your stocks halve in value, you don't need to halve your spending instantly. It's OK to cross your fingers and continue spending according to the 4%-then-COLAed plan, even though it means dipping into capital, and it's OK to go on doing that for a while.

Professor Cooley's response:You have hit the nail on the head! I've tried to explain that thought to journalists but they don't seem to get it. You've got it. Stay flexible my friend!, which is the advice we should give to retirees.
The the bold statement makes me a bit crazy as it assumes that your portfolio is going to behave in a similar way to those historical portfolios in the Monte Carlo simulations.....and since when was crossing your fingers a way to manage money and when should you adjust your withdrawals.
For me staying flexible doesn't mean continuing the 4% "SWR" through a severe market down turn in the expectation that your portfolio will recover because that's what it did in the past.
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Old 05-20-2013, 11:51 AM   #26
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It's funny reading some of the posts how we/they try to twist the originators conclusions to mean something other than what they plainly said - citing concerns the originators never claimed! You can see it here and many other places, year in and year out, despite what the originators said.
I think that most of the people posting in this thread understand the definition of Safe Withdrawal Rate as used in the studies.

However, I think the variation you see is in people applying that to determine their own PWR (Personal Withdrawal Rate).

I don't think that very many - if any - have in mind to rigidly apply the type of SWR that has been used in the studies on portfolio survivability. And, I don't really think that the authors of those studies intend for people to do so anyway.
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Old 05-20-2013, 01:03 PM   #27
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I think that most of the people posting in this thread understand the definition of Safe Withdrawal Rate as used in the studies.
Some (half?) undoubtedly do. However, we see it misinterpreted at least as often as it's fairly defined, even on this forum, even arguably this thread.

This is just one of several retirement fundamentals that will be asked, answered, misinterpreted and repeated forever...
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Old 05-20-2013, 03:22 PM   #28
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Some (half?) undoubtedly do. However, we see it misinterpreted at least as often as it's fairly defined, even on this forum, even arguably this thread.

This is just one of several retirement fundamentals that will be asked, answered, misinterpreted and repeated forever...
Another notion that seems not to be well understood by some is the difference between total returns and a cash yield approach to the draw down phase of a portfolio. If you don't fully appreciate the thinking behind the total returns approach then drawing down capital as the 4% rule might have you do can seem uncomfortable.

As for history not repeating- of course this is so.
However, its also the case that greedy people populate the world and are trying to create some wealth for themselves. If the whole international trading system doesnt somehow collapse then the forces that created past wealth are still very much in play ( not withstanding the de-leveraging). That's a good enough basis for me to plan based on things like Firecalc. There were some ugly periods in that data.

My deterministic plan does assume more conservative returns than would have been used before the 08-9 crash. Trimming historical returns by 1-2% seems pretty conservative to me. However, that deterministic plan does not address the risk of timing of returns.

So, each analysis has its place in helping to paint the big picture.

In any case, the collapse of the system is not something I expect i can plan my way around.
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Old 05-20-2013, 05:15 PM   #29
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Another notion that seems not to be well understood by some is the difference between total returns and a cash yield approach to the draw down phase of a portfolio. If you don't fully appreciate the thinking behind the total returns approach then drawing down capital as the 4% rule might have you do can seem uncomfortable.
Even understanding Total Return I don't like the 4% as it is often proposed. I'm ok with Total Return if you do it in retrospect and keep your spending to be less than Total Return minus inflation, but just using yields and dividends would make me more comfortable.
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Old 05-21-2013, 04:40 AM   #30
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To answer the OP's question, SWR in my opinion is the absolute or relative amount of money that can be taken from one's financial portfolio over the remaining years of a individual's lifetime expectancy without portfolio failure.

It may be a good idea to create a FIRE wiki page on key concepts to refer to when needed.
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Old 05-21-2013, 08:06 AM   #31
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To answer the OP's question, SWR in my opinion is the absolute or relative amount of money that can be taken from one's financial portfolio over the remaining years of a individual's lifetime expectancy without portfolio failure.

It may be a good idea to create a FIRE wiki page on key concepts to refer to when needed.
SWR has already been clearly defined, it's really not subject to opinion any more than redefining any other word or term. And the first post was based on an SWR wiki link that was included.
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Old 05-21-2013, 08:23 AM   #32
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When DH retired 3 years ago I ran Firecalc and saved the results and was doing some reorganizing on my computer and came across them the other day. What is sort of interesting to me is that those results are of only historical interest to me at this time.

What matters to us is how much we have now and what we can withdraw going forward...not so much what Firecalc said 3 years ago.

Our situation is a little more complicated than some as we have high withdrawals until the kids are out of school and completely gone then our projecting spending goes down markedly.

Still, I suspect that even when we are withdrawing a more even amount I will continue to run retirement planners periodically and would be more inclined to go bay the situation at that time rather than looking at what the planner originally said.
Our situation is very similar to yours. I have a "plan" that I adjust and reviewing frequently. SWR is not much use to my plan except as a second check on my withdrawal plan. I have projected spending for 30 years with adjustments for college and other life events that affect spending. I use that deterministic spending profile as an input to firecalc to get a feel for how likely it might be that I/we will be successful.
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Old 05-21-2013, 09:58 AM   #33
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To answer the OP's question, SWR in my opinion is the absolute or relative amount of money that can be taken from one's financial portfolio over the remaining years of a individual's lifetime expectancy without portfolio failure. ...
SWR has already been clearly defined, it's really not subject to opinion any more than redefining any other word or term. ....
+1 Midpack. The "R" in SWR stands for "Rate" - rate is always relative, not absolute. One cannot have an 'opinion' on this, it is fact. Throwing in 'opinions' for fact just confuses and makes it hard to have an intelligent discussion. There is already enough uncertainty in things financial, w/o misusing standard definitions.

$30,000 from a $1,000,000 portfolio is a Withdraw Rate of 3%.

$30,000 is the withdraw amount.

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