Withdrawal rate even in bad years?

[Looking4Ward]

I have my "market is doing really good" withdrawal rate which would provide much more than I need and my "market is doing really bad" withdrawal rate which would help me survive several years of negative performance.

My problem is that when the "market is doing really good" and I could utilize my higher withdrawal rate I'm just not comfortable taking that much out of play. Especially since I don't need that much. So what actually happens during good times is my WR stays the same or even goes down percentage wise.

[Independent]

Quote:

Originally Posted by ETFs_Rule 1969 onward featured rising interest rates. The 4% rule held up just fine. http://lakeridgevarealestatenews.com...1670986379.PNG http://yourinvestmentadvise.com/imag...erformance.jpg

That surprised me, ******** and FireCalc both show 1969 as a really tough year.

So I looked at the worksheet. I noticed that the withdrawal column started at $4,000 in 1969, and grew to $9,023 in 1989.

When I go to BLS.com, I get a CPI in 1969 of 36.7, growing to 124.0 in 1989. (Both are annual averages)

If I apply the CPI growth to the $4,000 initial withdrawal, I get $13,515 by 1989.

I don't see any assumptions listed for the worksheet. Were withdrawals supposed to go up with the CPI, or by some other factor?

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edit: I now see that there is an "inflation" column on the worksheet.
It has ......... 0.7%, 1.7%, 1.0%, and 1.0% for the first few years.
The BLS has 5.7%, 4.4%, 3.2%, and 6.2% for those years.

[nun]

Quote:

Originally Posted by Looking4Ward I have my "market is doing really good" withdrawal rate which would provide much more than I need and my "market is doing really bad" withdrawal rate which would help me survive several years of negative performance. My problem is that when the "market is doing really good" and I could utilize my higher withdrawal rate I'm just not comfortable taking that much out of play. Especially since I don't need that much. So what actually happens during good times is my WR stays the same or even goes down percentage wise.

My WR is 0% as I have a liability matching portfolio from assets other than stocks and bonds....I don't even bother to rebalance anymore. So good year or bad, it doesn't really matter.

[mathjak107]

Quote:

Originally Posted by ETFs_Rule 1969 onward featured rising interest rates. The 4% rule held up just fine. http://lakeridgevarealestatenews.com...1670986379.PNG http://yourinvestmentadvise.com/imag...erformance.jpg

that was really just a spike in what ended up being a downward path for 40 years .

.

[nun]

Quote:

Originally Posted by mathjak107 that was really just a spike in what ended up being a downward path for 40 years . .

What would happen if someone retired today with a 50/50 AA and we had the mirror image of this ie rising rates for the next 30 years.......where would the withdrawals, fall in bond prices and increase in rates balance out? Does starting from a low of 2% make a difference?

[mathjak107]

it sure does matter anytime the lower returns are up front vs the higher returns .

low rates and high valuations are a pretty crappy way to kick off your first year in retirement .

well that's me , i retired in august .

[Danmar]

Been retired 9 years and basically have just spent divs. If these were to be cut (hasn't happened yet) I have a pretty good cash balance for a buffer.

[mathjak107]

why not reinvest the dividends and spend the low return cash ?

[Lawrence of Suburbia]

How many here can just live off dividends in retirement?

[W2R]

Quote:

Originally Posted by Lawrence of Suburbia How many here can just live off dividends in retirement?

Quite a few? I guess it depends on how much your dividends are, and how little you really need/want to spend in retirement.

[nun]

Quote:

Originally Posted by Lawrence of Suburbia How many here can just live off dividends in retirement?

Depends on the portfolio and the income requirements....I reinvest all dividends and plan for a negative glide path.

[Danmar]

Quote:

Originally Posted by W2R Quite a few? I guess it depends on how much your dividends are, and how little you really need/want to spend in retirement.

Current yield around 3.9% on 100% equity portfolio. This would seem to approximate a SWR?

[Danmar]

Quote:

Originally Posted by mathjak107 why not reinvest the dividends and spend the low return cash ?

Because then I wouldn't have the cushion I want in case things are going poorly in the market, ie div cuts. Also, divs are fairly lumpy as is spending so a cash cushion smooths things out from month to month. Agree the cash balance brings total returns down but only represents about 2-3% of portfolio. Divs are about 50% of our income with pension the other half.

[mathjak107]

actually study after study shows that cash cushions are a mental issue and not a financial one .

while on the surface it looks like keeping the cash for the downturns is the better deal the drag and weight of a cash buffer in the up years actually cuts the cushion of gains in the more volatile stuff .

the end result is there is little difference spending equally from the pie vs spending down cash buffers .

there is a slight edge though to reinvesting dividends to grow while utilizing the lower return cash .

in effect by spending dividends you have less and less in equity's compounding for you at the start of each quarter then had the dividends been reinvested .

[Danmar]

Quote:

Originally Posted by mathjak107 actually study after study shows that cash cushions are a mental issue and not a financial one . while on the surface it looks like keeping the cash for the downturns is the better deal the drag and weight of a cash buffer in the up years actually cuts the cushion of gains in the more volatile stuff . the end result is there is little difference spending equally from the pie vs spending down cash buffers . there is a slight edge though to reinvesting dividends to grow while utilizing the lower return cash . in effect by spending dividends you have less and less in equity's compounding for you at the start of each quarter then had the dividends been reinvested .

Interesting. Probably right but I only invest in well established div payers and like to spend the divs because it is easy and I don't need to liquidate anything as I spend my way through retirement. Sequence of return risk might be lower doing this? Optimal? Doubt it but less risky maybe?

[rodi]

Quote:

Originally Posted by Lawrence of Suburbia How many here can just live off dividends in retirement?

I agree that it's a quite a few - but many also have other income sources so they need less income from their portfolio. Rental income, pensions, SS, etc.

I expect to live off just dividends once I start collecting SS.

[audreyh1]

Quote:

Originally Posted by mathjak107 actually study after study shows that cash cushions are a mental issue and not a financial one . while on the surface it looks like keeping the cash for the downturns is the better deal the drag and weight of a cash buffer in the up years actually cuts the cushion of gains in the more volatile stuff . the end result is there is little difference spending equally from the pie vs spending down cash buffers . there is a slight edge though to reinvesting dividends to grow while utilizing the lower return cash . in effect by spending dividends you have less and less in equity's compounding for you at the start of each quarter then had the dividends been reinvested .

Personally I don't worry about cash buffers and the feared "drag" on long-term performance. My cash buffer is separate from my retirement portfolio and I use the retirement portfolio alone to determine my withdrawal rate.

I don't care about what's "mental" either - it's about managing your cash flow. And if someone is comfortable with their cash flow, they are far more likely to leave their long term investments alone when things get scary.

Psychology is a critical component of investing.

[BBQ-Nut]

Quote:

Originally Posted by rodi I agree that it's a quite a few - but many also have other income sources so they need less income from their portfolio. Rental income, pensions, SS, etc. I expect to live off just dividends once I start collecting SS.

I could also, but RMDs will kick in so, not much of choice there as DW and I don't expect to have completely converted to Roths.

[marko]

Quote:

Originally Posted by Lawrence of Suburbia How many here can just live off dividends in retirement?

My guess is if you figure in SS as a supplement, a high percentage of this forum get by nicely on just those two.

[W2R]

Quote:

Originally Posted by marko My guess is if you figure in SS as a supplement, a high percentage of this forum get by nicely on just those two.

Not to mention pensions. I have both, so I generally* don't spend more than my dividends.

In three years I will start getting RMD's. But, if I want to, I suppose I could figure out what my dividends were and just spend less than that. Then I could re-invest any surplus in my taxable accounts, for example.


*(during years when I am not buying my Dream House as I did this year)