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Old 11-30-2015, 08:01 AM   #121
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That depends on how much margin for error is in the portfolio and on a person's risk tolerance. Those without pensions will naturally be more cautious.
Along with those of us with non-COLAd pensions!
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This may need a separate thread, but who uses SWR as an actual withdrawal methodology vs a check?

My approach is my expenses are what I base my withdrawals on and then I calculate what the SWR is as a check only. Then that is tempered against what the immediate past real returns were against next year's expected real return..
Yes me too. I think of SWR as a planning approach to be tempered with reality.
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Old 11-30-2015, 08:11 AM   #122
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Along with those of us with non-COLAd pensions!

Yes me too. I think of SWR as a planning approach to be tempered with reality.

Just keep in mind there are millions who did little if any retirement planning and are suddenly or not so suddenly retired or soon to be retired .

I would not doubt that for many of them it's set and forget based on SWR - and some smart author will change SWR to "recharge amount" or some such term. For this population it's spend as much as we can until it's really unsafe. So, it serves as a stop sign, a cautionary warning, a red flag.

Of COURSE for us it's just a planning tool..but by nature we are ...planners.
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Old 11-30-2015, 09:32 AM   #123
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One reason I like historical estimates like FIRECalc is that there are so few assumptions made, just cranks out how well we would have done in the past, to answer a simple question - are we anywhere near reasonable.
This is also one very strong reason that I like Firecalc - there's little in the way of parameters that a modeler can tweak so the outputs can't easily be manipulated. I remember reading one MC paper by Pfau and seeing ~20 parameters used to generate stock/bond returns. Maybe that's okay for a paired study where two withdrawal methods are being compared but I wouldn't trust any absolute numbers about what was a safe withdrawal percentage.

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It is not that I am against modelling, I love it and have done a lot, stochastic, ARIMA, multivariate, etc. I just have a hard time figuring out the point of doing it to figure a SWR. We put in our assumptions (based on some info from the past) and churn out results. How it changes our estimated SWR, other than what we can already get from simplistic FIRECalc-like estimates, I haven't a clue. We are just pretending we know more than is possible.
I don't think we get a lot of precision from financial models (either expected return or MC models for determining SWR). But I do think they may be helpful directionally, (i.e.if a historical study suggests 4% was safe, then we should reduce/increase it based on portfolio expectations). I'd also be concerned if my W.R was lower than my expected portfolio return.

I don't consider myself a market timer but if the equity risk premium got too low (outlier levels), I would considered reducing my stock allocation in favor of bonds/cash/something else.
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Old 12-01-2015, 10:10 AM   #124
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For those already retired why do you forecast total returns at all? I've been retired 9 years and just spend what divs I get. These are very easy to forecast. Some years total return is great others not so much. Why forecast total returns other than to project what my heirs might get? Actual divs seem way more useful and certain? Even if you are not a div investor, why forecast returns once retired?
Here's an article from today's Globe and Mail on spending dividends.

Why high-net-worth investors should avoid living on dividends alone - The Globe and Mail
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Old 12-01-2015, 11:14 AM   #125
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Here's an article from today's Globe and Mail on spending dividends.

Why high-net-worth investors should avoid living on dividends alone - The Globe and Mail
Thanks. That was a good article. Agree that my income approach is not optimal. Problem is I kind of got stuck with it, ie I needed to own a lot of my employer's stock up until 6 months after I retired. By then the shares had appreciated so much, the cap gains tax would have been prohibitive to switch out. Couple that with the obvious knowledge and comfort ( not to mention continuing excellent performance) I have with this stock, I have been slow at switching out. So do I stick with the company I know, or look for something else, probably in the US market.

The recently announced tax increases also make my income approach less advantageous. Divs are taxed at about 30% while cap gains would be 24%. Also cap gains are only on the actual gain, not the whole proceeds.

Just hard to find something that might be better than what I have. CAGR total return since 1997 is about 12%. Got any ideas? Doubt index ETF's would match this, especially based on real returns people are forecasting in this thread.
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Old 12-01-2015, 11:21 AM   #126
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I would be more concerned about concentration and lack of diversification. Think like Enron and WorldCom. They had similarly stellar returns for many years leading up to their implosions. Can you hedge all or some of the market risk associated with your former employer stock?

Alternatively, you might be able to do an exchange of those shares with an ETF and receive ETF shares which would be more diversified though I don't know if that would be a taxable event in Canada. Or perhaps a similar transaction with the market maker of your employer stock.
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Old 12-01-2015, 11:27 AM   #127
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Thanks. That was a good article. Agree that my income approach is not optimal. Problem is I kind of got stuck with it, ie I needed to own a lot of my employer's stock up until 6 months after I retired. By then the shares had appreciated so much, the cap gains tax would have been prohibitive to switch out. Couple that with the obvious knowledge and comfort ( not to mention continuing excellent performance) I have with this stock, I have been slow at switching out. So do I stick with the company I know, or look for something else, probably in the US market.

The recently announced tax increases also make my income approach less advantageous. Divs are taxed at about 30% while cap gains would be 24%. Also cap gains are only on the actual gain, not the whole proceeds.

Just hard to find something that might be better than what I have. CAGR total return since 1997 is about 12%. Got any ideas? Doubt index ETF's would match this, especially based on real returns people are forecasting in this thread.
It's ironic that you are asking me for advice, given that my bank and investment fees are paying for a tiny fraction of your pension!

I can't think of anything that would match your CAGR of 12%. You will surely be on the receiving end of a larger income tax bill from our new government, whereas I expect mine to go down by $670. Your bank stocks are probably as safe as any stock could be. You could still use a total return approach in organizing your "income". Also, if you wanted to realize some capital tax free, you could sell your principal residence in Canmore and move to one of your Ontario properties. Then you could sell that and move to your other Ontario property. Can't help you with the Arizona property, though. Nice problems to have.
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Old 12-01-2015, 02:11 PM   #128
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I would be more concerned about concentration and lack of diversification. Think like Enron and WorldCom. They had similarly stellar returns for many years leading up to their implosions. Can you hedge all or some of the market risk associated with your former employer stock?

Alternatively, you might be able to do an exchange of those shares with an ETF and receive ETF shares which would be more diversified though I don't know if that would be a taxable event in Canada. Or perhaps a similar transaction with the market maker of your employer stock.
Yes. It's a big concern. Have considered your ideas. Problem is I lose about 15% of portfolio value to taxes if I sell these shares. My plan is to gradually switch out over time. Have sold/ gifted couple million$ in last 2 years.
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Old 12-01-2015, 02:53 PM   #129
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It's ironic that you are asking me for advice, given that my bank and investment fees are paying for a tiny fraction of your pension!

I can't think of anything that would match your CAGR of 12%. You will surely be on the receiving end of a larger income tax bill from our new government, whereas I expect mine to go down by $670. Your bank stocks are probably as safe as any stock could be. You could still use a total return approach in organizing your "income". Also, if you wanted to realize some capital tax free, you could sell your principal residence in Canmore and move to one of your Ontario properties. Then you could sell that and move to your other Ontario property. Can't help you with the Arizona property, though. Nice problems to have.
Yes, agree that a less div centric approach to generating cash flow would save tax but at a very high up front cost. Our Canmore house is under water and the prospect of selling in the current market is very poor. Also, residing in Ontario increases max marg rate by several percentage points. Thanks for the ideas though. Yes, good problem to have.
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Old 12-01-2015, 05:05 PM   #130
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Yes. It's a big concern. Have considered your ideas. Problem is I lose about 15% of portfolio value to taxes if I sell these shares. My plan is to gradually switch out over time. Have sold/ gifted couple million$ in last 2 years.
LOL - given that what you've sold is more than most people here have to live on for ER, worrying about divs vs. CGs should be small potatoes in the grand scheme of things.
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Old 12-02-2015, 08:34 AM   #131
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Here's an article from today's Globe and Mail on spending dividends.

Why high-net-worth investors should avoid living on dividends alone - The Globe and Mail
My immediate reaction is "what portfolio can I construct that offers no dividends?" Typically the divvy payers are blue chip and the non-payers are higher risk and so more volatile.
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Old 12-02-2015, 09:42 AM   #132
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My immediate reaction is "what portfolio can I construct that offers no dividends?" Typically the divvy payers are blue chip and the non-payers are higher risk and so more volatile.
Yes, that was my thought too. If you reduce your WR to reflect the higher risk levels you will probably be no further ahead. Also, you might consider the need to hire an advisor to help transform your portfolio. Factor in their cost (say 50 bps) and it is unlikely you are ahead. The old tax tail?
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Old 12-02-2015, 09:44 AM   #133
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LOL - given that what you've sold is more than most people here have to live on for ER, worrying about divs vs. CGs should be small potatoes in the grand scheme of things.
Maybe so, but still a concern. I didn't get where I got without paying attention to the details.
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Old 12-02-2015, 10:08 AM   #134
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My immediate reaction is "what portfolio can I construct that offers no dividends?" Typically the divvy payers are blue chip and the non-payers are higher risk and so more volatile.
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Yes, that was my thought too. ...
BRK pays no dividends, and total returns have outperformed SPY and DVY:

PerfCharts - StockCharts.com - Free Charts

Although BRK appears more volatile, the 2007-2009 dp was no worse than DVY or SPY.

-ERD50
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Old 12-03-2015, 09:26 AM   #135
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BRK pays no dividends, and total returns have outperformed SPY and DVY:

PerfCharts - StockCharts.com - Free Charts

Although BRK appears more volatile, the 2007-2009 dp was no worse than DVY or SPY.

-ERD50
Yes I should have said more volatile rather than risk. If I can avoid selling on the dips using divvies to finance my budget, I will.

Also I avoid BRK because I disagree with some of their investments. (I live in Mexico half the year and observe the unhealthy consumption of Coke, for example. I also avoid the latest technology from Gillette. Also the high degree of concentration in insurance. And the bailout of Goldman Sachs.)

But that is just me and I do hold some companies that are less than sterling.
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