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Old 11-01-2018, 06:39 AM   #141
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Taylor's situation gets quoted a lot over at BH. Not knocking it, but having 1mm back in 1982 was a decent amount, plus he happened to pick probably the best year ever to start a retirement historically speaking.


Exactly, 15% every year for the first 5yrs of retirement....not an expert just lucky
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Old 11-01-2018, 07:43 AM   #142
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Taylor's situation gets quoted a lot over at BH. Not knocking it, but having 1mm back in 1982 was a decent amount, plus he happened to pick probably the best year ever to start a retirement historically speaking.
Yes, he did and that's brought up just about every time he posts it. Regardless, there is a point to be made that there were people retiring in the past without a pension and for which backtesting of any kind didn't exist and they survived. And there were talking heads back then claiming that one could withdraw 8% and still be just fine. Regardless, now that we have some data available, and the tools to use them (and sometimes abuse them, unfortunately), I'd say we've made progress.
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Old 11-01-2018, 08:12 AM   #143
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If you decrease spending, then you're not doing SWR, you're now using a variable withdrawal method. (i.e. being flexible). For example, if you use a basic fixed % of your portfolio as your withdrawal method (not adjusting for inflation), spending can go up or down because it follows the returns of your portfolio.

Taylor Larimore, the grand poo-bah over on Bogleheads does this:

One of the great mysteries to me are the Great Debates over Safe Withdrawal Rates (SWR).
Taylor's situation gets quoted a lot over at BH. Not knocking it, but having 1mm back in 1982 was a decent amount, plus he happened to pick probably the best year ever to start a retirement historically speaking.
Yes, $1M in 1982 is over $2.6M today.

And 1982 was quite a year. I found that a 1982 retiree would have a 100% success rate to 2017 with a.... wait for it.... > 10.0% Withdraw Rate!!!

Plus, wouldn't they have some SS and/or pension?

I see the follow up post, fine he admits it was a good year. So what? Anyone who runs FIRECalc has seen the charts - many, many lines grow far above the starting portfolio. Most of are not that concerned about that, we are concerned about the bad starting years. We don't learn from the good examples, we learn from the challenging ones.

EDIT/ADD: see my next post for an actual answer to the question:
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Originally Posted by Beer-man Anyone know how much cutting spending during down markets increases your % of success? Could a 10% decrease in spending during a bear bump you from 70% to 100%?
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Old 11-01-2018, 08:16 AM   #144
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Taylor's situation gets quoted a lot over at BH. Not knocking it, but having 1mm back in 1982 was a decent amount, plus he happened to pick probably the best year ever to start a retirement historically speaking.
Yes, I don’t know why one would use this as an example for anything. It doesn’t let you know what might be safe. The “we withdrew what we needed..... tightened our belts when the balance dropped” doesn’t help someone who faces a bad sequence of returns or wishes to plan for it.

Sounds like they used the don’t let the portfolio balance drop strategy. Normally this is a low withdrawal rate strategy more equivalent to living off interest/dividends only. However, it becomes far more generous when you retire in the face of a great bull run in both stocks and bonds. I imagine some years their withdrawal rate was quite high.

OK, I get why Taylor doesn’t understand -
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One of the great mysteries to me are the Great Debates over Safe Withdrawal Rates (SWR).
but I certainly understand why the rest of us facing retirement study the issue almost ad infinitum.
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Old 11-01-2018, 08:40 AM   #145
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Yes, I don’t know why one would use this as an example for anything. It doesn’t let you know what might be safe. The “we withdrew what we needed..... tightened our belts when the balance dropped” doesn’t help someone who faces a bad sequence of returns or wishes to plan for it.

Sounds like they used the don’t let the portfolio balance drop strategy. Normally this is a low withdrawal rate strategy more equivalent to living off interest/dividends only. However, it becomes far more generous when you retire in the face of a great bull run in both stocks and bonds. I imagine some years their withdrawal rate was quite high.

OK, I get why Taylor doesn’t understand -

but I certainly understand why the rest of us facing retirement study the issue almost ad infinitum.
The problem with an ad-hoc withdrawal methodology such as Taylor's is that it doesn't really lend itself to rigorous mathematical analysis, such as many of us here and over on BH like to do. Now, much more data exists for backtesting. For those of us with a strong math background, we tend to like to roll-our-own analysis. For others, the online tools exist now that didn't exist back then. Was Taylor lucky? Absolutely! Do we know how that would have worked out for him had he retired in the late 1960s? Could he have tightened his belt enough to still pay the bills? No idea - it's ad-hoc and we don't know what it costs him to live.

Also, I'm fairly certain that there are more details than Taylor is probably ever going to reveal and given that he's well into his 90's, probably never will. Who even knows exactly how he spent his money in the up years or whether he sometimes kept it for another rainy day instead of using it for travel, charity, etc. each time there was a surplus. I'm sure he has SS and he has mentioned that when he reached a certain age, he purchased a SPIA. He also appears to have the benefit of good health as well. Good for him.

Back to our spreadsheets!
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Old 11-01-2018, 08:41 AM   #146
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Anyone know how much cutting spending during down markets increases your % of success? Could a 10% decrease in spending during a bear bump you from 70% to 100%?
Someone else asked something like this recently (or stated that they would just adjust spending). I asked - and when and by how much and how long would you need to cut spending. They did not report back.

A lot of people just assume some adjustments will do it. It's not so easy. So here's some actual data. Hold onto your hats (you may need to sell those hats)...

I ran a 40 year profile in FIRECalc, using a $1,000,000 starting portfolio for easy math. "INVESTIGATE" tells me that an initial $46,182 (4.62%) spend will result in an ~ 70% success rate.

Then I cut the the years to 5, 4 then 3 to try to find where it dropped by 50%. I assumed that would be the 'alarm' to cut spending - but use whatever point you want. At year 4, one line dipped to $470K, close enough.

So then I added $23,000 of 'off-chart' inflation adjusted income in year 2022 (that might be one year off?). That would be the same as cutting spending in half. How long did I need to do that to reach 100% for the 40 year period?

Any guesses? 5 years? No! 7, 10? No! 14 years!

So if you retired at 55 with a plan to cover the possibility of reaching age 95 (not uncommon for one of a married couple), that means cutting spending in half from age 59 to age 73. And you can't get those years back.

Here's a link to play with: https://goo.gl/NQVNpB

For reference, a 100% successful WR for those 40 years was $33,413 (3.34%). Up to each person, but I'd prefer to start with $33,413 with a high confidence that I will not need to cut spending, versus $46,182, and possibly need to cut spending in half for a decade and a half.

edit/add: Another interesting point - while the 70% path starts out spending 38% more than the 100% path, but over the full 40 year period (after cuts to reach 100%), it amounts to an average of only 14.7% more. And the 70% path doesn't catch up in total amount spent until age 80.

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Old 11-01-2018, 08:57 AM   #147
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I always "fudge" the numbers until I can show a multi-million dollar balance when I die. I then share them with my "young wife" just before bedtime and hope she shows her appreciation!

Since you are airing the dirty laundry...did the fudge work last night? I prefer caramel.



In all reality, two of your statements are totally irrelevant to the OPs topic, but I certainly am guilty of swerving off topic as well.
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Old 11-01-2018, 09:22 AM   #148
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I need a perpetual retirement for my special-need son so I use 100% success rate with nest egg NEVER dropping the initial amount during the entire 30 year back testing period.
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Old 11-01-2018, 09:37 AM   #149
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....Now about 9 years later, Bernstein seriously backpedals on his advice about AA oriented retirement investments in general, because he discovered that a large number of his clients were spooked out of the market in 2008/2009 and never got back in. Thereby ruining their chances of recovery.

Instead, he now recommends covering at least 20 years of (after pension, SS) income needs with high quality low-volatility investments - CDs, short-term bonds, TIPs, SPIAs and only when that was covered should you invest additional money in equities.
https://www.whitecoatinvestor.com/be...-win-the-game/
It's amazing to me that such a smart guy didn't conclude that his clients had a behavorial problem that needed fixing but rather, jumped to a conclusion that the principles that he previously espoused were broken and needed fixing.
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Old 11-01-2018, 10:02 AM   #150
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It's amazing to me that such a smart guy didn't conclude that his clients had a behavorial problem that needed fixing but rather, jumped to a conclusion that the principles that he previously espoused were broken and needed fixing.
I guess it doesn't surprise me. How would he know his clients would bail? Until faced with something that appeared to be armageddon, few clients perhaps had reacted such a way.

How would you fix such a behavioral problem? I don't think you can. I think he adjusted his recommendations, because he did not believe he could adjust his clients' behavior. People coming to him for help were already perhaps more vulnerable and they didn't have confidence to invest independently?
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Old 11-01-2018, 10:06 AM   #151
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It's amazing to me that such a smart guy didn't conclude that his clients had a behavorial problem that needed fixing but rather, jumped to a conclusion that the principles that he previously espoused were broken and needed fixing.
While I tend to agree, micro economics is a behavioral science where human behavior and tendencies are key. Think of the shape of demand curves, etc. As you change the price of widgets and note the variation in quantity demanded you also note that you must change the widgets (or peoples' impression of them) in order to shift the demand curve (as opposed to moving along the demand curve).

audreyh1 hit it on the nose:

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I think he adjusted his recommendations, because he did not believe he could adjust his clients' behavior.
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Old 11-01-2018, 10:43 AM   #152
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I concede that he couldn't have anticipated that his clients would bail, but a wholesale change in approach is an overreaction. I'm guessing that not all of his clients bailed. There are hundreds or thousands of us here who stayed the course.... perhaps we didn't have the courage to sell bonds and buy stocks as our AA was screaming at us to do but we did have the courage to stand pat and divert withdrawals to bonds.

If he had decided to retain his old approach but added his new approach for "conservative investors" (aka those who bailed) then that would have been a more credible adjusment.

That said, I suspect that his clients that bailed tended to be more affluent. Let's say that they had a 3% WR... 20x would be 60% bonds and 40% stocks so while that isn't for me, it is within the realm of reasonableness I guess.
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Old 11-01-2018, 11:11 AM   #153
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Yes, he did and that's brought up just about every time he posts it. Regardless, there is a point to be made that there were people retiring in the past without a pension and for which backtesting of any kind didn't exist and they survived. And there were talking heads back then claiming that one could withdraw 8% and still be just fine. Regardless, now that we have some data available, and the tools to use them (and sometimes abuse them, unfortunately), I'd say we've made progress.
Agree with the above, but obviously in anyone's retirement survival, luck plays some role.
I think Peter Lynch was the SWR of 7% reference until Bill Bengen came along.
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Old 11-01-2018, 11:15 AM   #154
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Someone else asked something like this recently (or stated that they would just adjust spending). I asked - and when and by how much and how long would you need to cut spending. They did not report back.

A lot of people just assume some adjustments will do it. It's not so easy. So here's some actual data. Hold onto your hats (you may need to sell those hats)...

I ran a 40 year profile in FIRECalc, using a $1,000,000 starting portfolio for easy math. "INVESTIGATE" tells me that an initial $46,182 (4.62%) spend will result in an ~ 70% success rate.

Then I cut the the years to 5, 4 then 3 to try to find where it dropped by 50%. I assumed that would be the 'alarm' to cut spending - but use whatever point you want. At year 4, one line dipped to $470K, close enough.

So then I added $23,000 of 'off-chart' inflation adjusted income in year 2022 (that might be one year off?). That would be the same as cutting spending in half. How long did I need to do that to reach 100% for the 40 year period?

Any guesses? 5 years? No! 7, 10? No! 14 years!

So if you retired at 55 with a plan to cover the possibility of reaching age 95 (not uncommon for one of a married couple), that means cutting spending in half from age 59 to age 73. And you can't get those years back.

Here's a link to play with: https://goo.gl/NQVNpB

For reference, a 100% successful WR for those 40 years was $33,413 (3.34%). Up to each person, but I'd prefer to start with $33,413 with a high confidence that I will not need to cut spending, versus $46,182, and possibly need to cut spending in half for a decade and a half.

edit/add: Another interesting point - while the 70% path starts out spending 38% more than the 100% path, but over the full 40 year period (after cuts to reach 100%), it amounts to an average of only 14.7% more. And the 70% path doesn't catch up in total amount spent until age 80.

-ERD50
Didn't Big ERN run some numbers which are in conclusion with your findings in a general sense?
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Old 11-01-2018, 11:39 AM   #155
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It's amazing to me that such a smart guy didn't conclude that his clients had a behavorial problem that needed fixing but rather, jumped to a conclusion that the principles that he previously espoused were broken and needed fixing.
I guess it doesn't surprise me. How would he know his clients would bail? Until faced with something that appeared to be armageddon, few clients perhaps had reacted such a way.

How would you fix such a behavioral problem? I don't think you can. I think he adjusted his recommendations, because he did not believe he could adjust his clients' behavior. People coming to him for help were already perhaps more vulnerable and they didn't have confidence to invest independently?
But I still feel that the principles and the behaviors should be kept separate. A principle is a principle. If behaviors mean you have trouble following that principle, the principle isn't wrong, but you may need to make adjustment to the implementation to account for behaviors.

It's like the analogy I've used with fear of flying. If flying really disturbs you, avoid it. But don't try to tell me that flying is more dangerous than driving. They are two separate things, and it only confuses things by blending them.

-ERD50
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Old 11-01-2018, 12:34 PM   #156
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So I'm trying to redefine Success (to me) in this area.

If my health remains good, I have a paid off house, and make it to 70 before starting SS, I think just having $300K of today's dollars at age 70 would still put me in a better situation than 80% of my fellow Americans. This could really increase what I could spend from 60 to 70.
Honestly how many cars will i buy after 70? 90% of the people I know over 80 don t want to travel much. Even just SS at that level covers all expenses and one of two cruises a year.
This success has a known end date as opposed to trying to look for my expiration tag.

If course that puts long term care pretty much into the hand of Medicaid. And even more a problem is what would I spend the extra on? Four months of travel and gifting some to DM and DDs this year and I'm still under last year's restricted spending.
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Old 11-01-2018, 01:10 PM   #157
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...having $300K of today's dollars at age 70 would still put me in a better situation than 80% of my fellow Americans. This could really increase what I could spend from 60 to 70.
Honestly how many cars will i buy after 70? 90% of the people I know over 80 don t want to travel much. Even just SS at that level covers all expenses and one of two cruises a year.
This success has a known end date as opposed to trying to look for my expiration tag.
Being better off than 80% of fellow Americans is irrelevant, as my wife always tells me, even when I'm talking about the 95 percentile. (The lesson is that comparing yourself to others is not what's important).

The question is, are you comfortable with the standard of living the asset level you're talking about will provide? Does it afford you the ability to do the things you want to do? $300K at 4% is $12K annual spend. There's not much cusion for emergencies, and even a couple of dental crowns could wipe out some of that, or an expensive hospital stay, or a new house roof. If that's all you need on top of SS, then you're good, except the whole Medicare/LTC thing, and the lack of budget for contingencies. Maybe a reverse mortgage would be in order.

BTW, my 81 year-old dad's girlfriend's father is 94 and is still driving. He just bought a new car last year! Of course, a $30K car in relation to his $3M+ in assets is pretty insignificant!
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Old 11-01-2018, 01:11 PM   #158
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Anyone know how much cutting spending during down markets increases your % of success? Could a 10% decrease in spending during a bear bump you from 70% to 100%?
The three posts starting here: https://earlyretirementnow.com/2017/...uyton-klinger/ cover it (post 9-11 of the series). Basically, no. If you are going to rely on cutting withdrawals in down markets to make the plan work you run the risk of extended periods of significantly reduced withdrawals.
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Old 11-01-2018, 01:55 PM   #159
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100%, but my preferred mode is using FIRECalc to find the spending level at which I'll never (historically) run out of money. When I see that that "safe" number is 1½ - 2X what my annual spending projections are, then I feel pretty confident. So I'd guess that translates roughly into 150 - 200% success?
This is also how I look at SWR. And, our success percentages are similar.
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Old 11-01-2018, 03:10 PM   #160
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But I still feel that the principles and the behaviors should be kept separate. A principle is a principle. If behaviors mean you have trouble following that principle, the principle isn't wrong, but you may need to make adjustment to the implementation to account for behaviors.

It's like the analogy I've used with fear of flying. If flying really disturbs you, avoid it. But don't try to tell me that flying is more dangerous than driving. They are two separate things, and it only confuses things by blending them.

-ERD50
Staying the course with investments is ultimately all about personal psychology.

An investor must know themselves well enough to choose an investment strategy that will keep them invested during very stressful times. I suppose for many, they can’t determine that ahead of time.
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