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View Poll Results: What's the highest SWR you're comfortable with?
2% or lower 7 4.32%
2.5% 7 4.32%
3% 31 19.14%
3.5% 34 20.99%
4% 51 31.48%
4.5% 16 9.88%
5% or higher 16 9.88%
Voters: 162. You may not vote on this poll

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Old 02-09-2010, 09:49 PM   #41
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I did not know the term SWR until I came to this forum less than 2 years ago. Up to that point, my part-time work was enough for us to live on, even after my wife stopped working. During the bull market of 2003-2007, my portfolio was going great gun, and I made good money. We spent nearly all the earned income, as what we would add to savings would be nothing compared to what the market god already gave. Heh heh heh... It was great!

After being to this forum and seeing how people really keep track of their expenses, while I have always been more cavalier towards budgeting, I started to wonder what our minimal expenses would be. Now, knowing that we can really cut our expenses if we need to, by simply not traveling and delaying discretionary spending, I feel better. We have no other major expenses.

I will also continue to work as long as I feel like it. More money for toys and travel later. I cannot be a perpetual traveler anyway. Buying an RV would be the easy part. Maintaining it is something I need to really investigate. And I would need a break from travel by, er, going to work. Yes, work as a break from a long vacation.

This year 2010 is looking to be a good year, both w*rk wise and market wise. Life will be good, provided our health is holding up.
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Old 02-09-2010, 09:55 PM   #42
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I think SWR as a % of a portfolio is a flawed concept. What really counts is the income and the flow through income that the portfolio can throw off. And at least some of that must be current income, else you can get erased with a portfolio full of great values in a very bad bear market.

The only way that this is not true is if markets go into a boom that lasts as long as you do. Of course really small rakes will almost always work, no matter what at what valuations the process starts out.

Face it- does it make any sense that you could retire one day with a 4% SWR, and a short while later retire with the very same porfolio, but now valued 160% higher, and also take a 4% SWR? Using a $1mm base, in March 09 you could retire on a "safe" $40,000, but by November that very same portfolio would allow you to safely withdraw $64,000?

It doesn't make any sense to me.

Ha
Ha - you're showing your age - er or something. I too tend to focus on income - hence my pssst Wellesley, SEC yield, Norwegian widow postings.

Plus my checkered 16 years of ER - some temp work, rental property later sold and proceeds consumed in ER, non cola pension and SS taken at various points in the stretch.

I sorta benchmark 4% - but I try to keep 3% SEC yield as my hard times floor and 5% variable as the good times guidepost to stay between.

Of course first year post Katrina - 6.9% SWR (2006) First year in Missouri, new house and remodeling.

heh heh heh - last year I may have even ran a little below my 3% guidepost.
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Old 02-09-2010, 09:55 PM   #43
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How about the opposite ? A lot of us retired in 2007 with a million or so and by the mid 2009 's we were down 33% or more . If we had gone with the original amount and just kept on increasing it every year for inflation how would that turn out ? I would probably be renting out dock space .
I agree with this analysis. I think the missing link is valuation. That $1mm in 2007 really could not support a 4% WR, unless is were to be sunny skies ever after. Contrariwise, $1mm in March 2009 was a more powerful $1mm.

Ha
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Old 02-09-2010, 10:00 PM   #44
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I too tend to focus on income - hence my pssst Wellesley, SEC yield, Norwegian widow postings.
After the financial stocks melt down, what yield?

By the way, how are your squirrels? You are going to let them live, yes?
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Old 02-09-2010, 10:01 PM   #45
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I have a COLA'd pension and expect to be able to live on it fairly comfortably. Not eligible for SS unless I go back to work and then there would be an offset.
My TSP will keep and hopefully grow for the next 5-10 years and then I will decide at what rate I want/need to withdraw from it. So I guess my answer is to defer the issue into the future. There are also readily available funds outside my retirement accounts for unexpected expenses or desires (new car, etc). There might even be an inheritance some time in the future, but not counting on it.
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Old 02-09-2010, 10:32 PM   #46
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I agree with this analysis. I think the missing link is valuation. That $1mm in 2007 really could not support a 4% WR, unless is were to be sunny skies ever after. Contrariwise, $1mm in March 2009 was a more powerful $1mm.

Ha
DH retired at the end of Feb, 2009. We figured since our numbers still looked good during that awful time, we were good to go. Hopefully there will be at least partly sunny skies ahead....
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Old 02-09-2010, 10:35 PM   #47
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I have a feeling that lots of tightwads are going to loosen their spigots in the months ahead. Business will pick up. They don't call it an economic cycle for nothin'.
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Old 02-09-2010, 10:36 PM   #48
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After the financial stocks melt down, what yield?

By the way, how are your squirrels? You are going to let them live, yes?
The Norwegian widow section of my portfolio took a -17% or so drop in dividends thanks to my friends BAC, JPM, C and UBS.

I have to let those squirrels live - I can't seem to hit them or the broad side of a barn with my trusty $11.95 plastic BB shooting pistol.

heh heh heh - oh well the 'squirrel proof' bird feeder I bought seems to be working so far.
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Old 02-09-2010, 10:42 PM   #49
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$11.95! No wonder.

My son is really into it, and has spent $200-$300 for a good rifle that shoots these plastic BBs. He spends a lot of time tweaking it in order to hit inside a target the size of a dinner plate at a mere 60-ft distance. And it is also automatic (battery driven) so he can spray a stream of plastic BBs. Younger guys are into this now for fake combat games instead of paint-ball guns.
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Old 02-10-2010, 01:24 AM   #50
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I am planning on 4.5% but only because I am using the "percent of total portfolio per year" method, rather than the "4% to start, forever after adjusted for inflation" strategy. If I were using the latter I'd choose 4%.
I also intend to use the "percent of total" method, but I voted for 3.5% rather than 4% because as I understand it the 4% WR assumes a higher stock allocation than I have, and a 30 year time horizon, whereas I am planning on 40 or more years of retirement.
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Old 02-10-2010, 07:40 AM   #51
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My first 2 years I averaged 2.1%. Year 3 will be more due to heating/cooling upgrades and house repairs, but still less than 3%. Not planning on being a COB forever, but can't travel much now as I need to stay pretty close by for mom. But someday I do plan to travel and see the country, but don't see myself ever having to go above 3%(my vote) particularly with SS kicking in one day. Plus I will be free loading visiting and staying with all my internet friends which will keep expenses down.
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Old 02-10-2010, 08:33 AM   #52
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Face it- does it make any sense that you could retire one day with a 4% SWR, and a short while later retire with the very same porfolio, but now valued 160% higher, and also take a 4% SWR? Using a $1mm base, in March 09 you could retire on a "safe" $40,000, but by November that very same portfolio would allow you to safely withdraw $64,000?

It doesn't make any sense to me.

Ha

It makes perfect sense to me because it isn't supposed to be a withdrawal that leaves you with the same terminal value in all cases. At the median and better you do quite well whereas if you retire into one of the bad periods you're going to have plenty of sleepless nights. Those two retirees you mention will not have the same margin of error, but that doesn't mean that both won't be successful.

But the idea of valuation is actually imbedded into the rule of thumb because you're basing your "SWR" off of the periods in history where valuations were the worst on record. And we know those valuations were bad not because of some metric like PE or Q but because the returns over the following period were lousy. And for those poor folks who retired during periods of inflated asset prices and low subsequent returns, 4% worked.

Where I believe caution and back up plans are in order, is that the future will be different from the past. FIRECalc is no different than the models that investment bankers used to build and price residential mortgage backed securities. Those models were based on a world where housing prices never declined significantly on a nationwide basis. Because it never happened before, people were too confident that it couldn't happen. They were wrong. FIRECalc suffers from the same weakness.

But it sounds to me like most people here are building in some cushion over and above what the model says is warranted. If only the investment bankers did that.
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Old 02-10-2010, 08:48 AM   #53
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But it sounds to me like most people here are building in some cushion over and above what the model says is warranted. If only the investment bankers did that.
That's because the investment bankers were taking those outsized risks with other people's money. They didn't have to live with the consequences. They got their bonuses and tucked them away for their own personal future - they didn't care if the company went down in flames.

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Old 02-10-2010, 09:08 AM   #54
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That's because the investment bankers were taking those outsized risks with other people's money. They didn't have to live with the consequences. They got their bonuses and tucked them away for their own personal future - they didn't care if the company went down in flames.

Audrey
Yup. Incentives matter a lot.
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Old 02-10-2010, 09:34 AM   #55
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Our answers really come down to what we believe the long-term return of our assets is. Many here have expressed some doubts that the long-term return of equities of nearly 10%/yr before inflation may not continue into the future. An often-cited reason is that the US dominance in the world economy has peaked, and is not likely to dwarf the rest of the world in this 21st century. I tend to agree with that, hence invest more in foreign stocks, or at least US multinational companies.

Many investment gurus, Warren Buffet included, have made comments aimed to tame down our expectations. It so happens that I ran across this article by Jazon Zweig, who posed the question of "What returns net of inflation, net of investment costs, net of taxes should one expect?". The answers from some well-known people are in the excerpt below.
I asked several investing experts what guaranteed net-net-net return they would accept to swap out their own assets. William Bernstein of Efficient Frontier Advisors would take 4%. Laurence Siegel, a consultant and former head of investment research at the Ford Foundation: 3%. John C. Bogle, founder of the Vanguard Group of mutual funds: 2.5%. Elroy Dimson of London Business School, an expert on the history of market returns: 0.5%
Details are here. Why Some Investors May Be Fooling Themselves - WSJ.com

PS. If you will excuse me, I will log off to go to some w*rk. Just tryin' to keep the withdrawal rate down, you know.
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Old 02-10-2010, 10:07 AM   #56
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I asked several investing experts what guaranteed net-net-net return they would accept to swap out their own assets. William Bernstein of Efficient Frontier Advisors would take 4%. Laurence Siegel, a consultant and former head of investment research at the Ford Foundation: 3%. John C. Bogle, founder of the Vanguard Group of mutual funds: 2.5%. Elroy Dimson of London Business School, an expert on the history of market returns: 0.5%
I saw this in the print edition. All of the responses are reasonable except Elroy Dimson's. He'd swap his portfolio for a real return that is 75% lower than what can be earned on 20-yr TIPS? Sounds like a very bad trade.
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Old 02-10-2010, 10:39 AM   #57
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Moving back on topic . . . I plan to set an initial withdrawal rate as a spending ceiling and adjust that ceiling annually for inflation. That number looks to be about 2.7% right now. I expect to spend less than that but how much less is unclear considering that I'm going to be changing my living situation pretty dramatically in about one month.

Beyond the ceiling "SWR" I'll probably use an auxiliary spending cap based on a fixed percentage of assets, maybe 4.5% or 5%. If the initial SWR + Inflation moves above ~5% of assets I won't just continue spending merrily as FIRECalc assumes, but I'll either cut spending or find some additional income to move the WR back to a more comfortable level.
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Old 02-10-2010, 01:29 PM   #58
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I plan to take what dividends and interest I need on a month to month basis. I won't annuitize anything. I did a complex personal spreadsheet that showed my money lasting well into my 90s (and probably beyond).

I did do an analysis of the crossover point on SS - and if I waited until I am 65 (as opposed to taking it at 62) it broke even at age 79 or so. Ha. Nice parlor trick they are pulling making us think we do better waiting. I think anyone who is considering waiting needs to look at this very closely. Who knows if I'll live to 79? I'll take the money up front.

So - I can't answer the poll. I don't have a set amount. I just know that my money should last. I live comfortably but not lavishly now, and dont expect to change lifestyle at retirement - in 5 months or so!
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Old 02-10-2010, 02:38 PM   #59
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Only 37, but hoping to opt out at 50. I'll probably start out with a 60/30/10 (equity/fixed/cash) ratio and work it down over time. Assuming 8%/5%/2% over time in each category, I'll end up with a 6.5% return. 4% per year withdrawal along with 3.5% inflation adjustment. I'm not factoring in SS or an employer pension (cash balance) and if I did, would count that as part of the 4%.

Mike
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Old 02-10-2010, 02:52 PM   #60
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I didn't respond because it will 11 years before I'm minimally eligibile for SS, and yours truly doesn't have a warm fuzzy about any good correlation between what my current annual SS statements say my benefits will be and reality in 11 years.
My glass is half empty on this one.
The good news is I have 2 income streams and a smaller size portfolio as backup.
I saw a post somewhere in this thread about the "3 legged stool" but can't find it again. I recall reading about this approach about 1 year before I FIREd. It made perfect sense.
My three legs include pensions (CSRS survivor now + my own tiny FERS in 5 years), a fixed annuity (formerly TSP), and a portfolio which I am still building using half my annuity income.
If my own SS benefits are still viable in 11 years, I'll have a 4 legged bar stool. Maybe...
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