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Old 12-02-2013, 12:37 PM   #41
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Yes, I think there is a contingent here that does mild OCD well (I claim membership )
+2 I like running FIRECalc even though I have been retired for 4+ years.

I run it to age 95. Before retirement I was running it for a 34 year retirement, and now I run it for a 30 year retirement because I am older.
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Old 12-02-2013, 12:45 PM   #42
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When I run FIRECalc or another historical simulation program, it is to learn about and to understand past histories, to see what one could do in case one of the bad scenarios would repeat. It's not to see if I should change my WR, which was already decided.

Some of the past scenarios look very tough to navigate back in those days. Hopefully, the world is now a different place, and an investor has more ways to diversify.
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Old 12-02-2013, 02:37 PM   #43
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When I run FIRECalc or another historical simulation program, it is to learn about and to understand past histories, to see what one could do in case one of the bad scenarios would repeat. It's not to see if I should change my WR, which was already decided.

Some of the past scenarios look very tough to navigate back in those days. Hopefully, the world is now a different place, and an investor has more ways to diversify.
And these ways ordinarily diversify less well than they may have in the past. See Wm. Bernstein, "Skating Where the Puck Was".

Ha
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Old 12-02-2013, 04:41 PM   #44
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Then, I guess it's back to 50/50 indexing portfolio, with a 2.5% WR.

Even this low WR would reduce a portfolio to 50% of its initial value, if the era of 1960-1980 were to repeat.
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Old 12-02-2013, 04:54 PM   #45
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I decided how much money I wanted to retire with, then used FC to help decide if my WR was doable. I run it every couple of months with updated figures, just for reassurance lol. We could take out a lot more, but there's no real reason to do that. 2% provides for our needs and wants.
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Old 12-02-2013, 04:59 PM   #46
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Then, I guess it's back to 50/50 indexing portfolio, with a 2.5% WR.

Even this low WR would reduce a portfolio to 50% of its initial value, if the era of 1960-1980 were to repeat.
The only good thing (perhaps) is that 50% of initial value is inflation adjusted.
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Old 12-02-2013, 05:58 PM   #47
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Yes.

The case I described was for a 50/50 portfolio starting at $1M in 1966, and drawn down by a 2.5% WR to $500K in 1981. However, inflation from Jan 66 to Jan 81 was 174%. So, that $500K became $500K x (1 + 1.74) = $1.37M.

Our hapless retiree would still think he was a millionaire, until he went grocery shopping and found out how things were priced nearly 3X higher than when he just retired.
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Old 12-02-2013, 06:18 PM   #48
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Then, I guess it's back to 50/50 indexing portfolio, with a 2.5% WR.

Even this low WR would reduce a portfolio to 50% of its initial value, if the era of 1960-1980 were to repeat.
Can you point me toward a handy source for the 1960-1980 data set (total returns) you are using? I'd like to see how a "x% of year-end portfolio value" withdrawal method would have behaved.
Figures of merit:
Maximum drawdown percent (portfolio minima, inflation adjusted)
Year-to-year variability in withdrawals
Total inflation adjusted withdrawals over the period.
Comparison of spending power of withdrawals to a "X% of inflation" approach.

My entering hypothesis is that linking withdrawals to portfolio performance rather than the inflation rate allows higher average withdrawals (actual value) with the same or higher portfolio minimas. I'd start with a 3% of YEV and compare it to a "2.5% adjusted for inflation" method.
Since some variant of this withdrawal method (e.g. Bob Clyatt's 95% rule etc) are used by a lot of people here, I think this might be useful to see. I think very few people will blindly keep taking inflation-adjusted withdrawals in the face of a plummeting portfolio, so it makes sense to model behavior that is more in keeping with what people will actually do.
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Old 12-02-2013, 07:03 PM   #49
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Can you point me toward a handy source for the 1960-1980 data set (total returns) you are using?
You can run FIRECalc or an equivalent historical simulator to get the data. FIRECalc allows you to download the portfolio history starting from a particular year. By setting the portfolio to 100% equities, then to 100% bonds, with 0% WR in both cases, you can get the total growth of the two individual components.

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I'd like to see how a "x% of year-end portfolio value" withdrawal method would have behaved.
Figures of merit:
Maximum drawdown percent (portfolio minima, inflation adjusted)
Year-to-year variability in withdrawals
Total inflation adjusted withdrawals over the period.
Comparison of spending power of withdrawals to a "X% of inflation" approach.

My entering hypothesis is that linking withdrawals to portfolio performance rather than the inflation rate allows higher average withdrawals (actual value) with the same or higher portfolio minimas. I'd start with a 3% of YEV and compare it to a "2.5% adjusted for inflation" method.
Since some variant of this withdrawal method (e.g. Bob Clyatt's 95% rule etc) are used by a lot of people here, I think this might be useful to see. I think very few people will blindly keep taking inflation-adjusted withdrawals in the face of a plummeting portfolio, so it makes sense to model behavior that is more in keeping with what people will actually do.
It is possible to test out your own strategy on the above worst-case inflationary period with the data loaded onto a spreadsheet. I have not done so, however.

With the constant 2.5% WR adjusted for inflation, a retiree already saw his portfolio shrink to 1/2 (with inflation adjustment). If he started out with a higher WR than 2.5%, he would have to cut back below that 2.5% later on to make up. Such austerity is not easy to stomach, though it might be possible if one has no choice.
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Old 12-02-2013, 11:42 PM   #50
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Out of curiosity, I searched the Web and found that there are indeed Web sites with various data bases of historical stock prices, dividends, stock splits, etc... For a brief review, see Historical Stock Data. I also ran across globalfinancialdata-dot-com, which claims a very extensive data set.

However, many of these sites require a paid subscription, and are not meant for the armchair ER financier. If one wants just two simple stock and bond indices going back to 1928 which should be the same as the 2 components of FIRECalc simple portfolio, I found a free one that is already in a nice XLS format. Search the Web for "historical stock market returns spreadsheet download" and you should be able to find it.
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