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Old 01-04-2013, 06:52 PM   #21
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of course, this is based on what we already "know". Maybe that 5-10 years straight of -10% annual returns is in the future. I wouldn't call it a 100% certainty. My point is, there is still risk even if FIREcalc says so. I'm sure someone will brush it aside as already being a disclaimer, but it deserves to be inserted into every conversation such as this. Carry on.

"A good model tells us something we didn't already know."
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Old 01-04-2013, 07:33 PM   #22
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Originally Posted by Midpack View Post

And you have to admit it's hard to be that conservative knowing that withdrawing 4% the first year and adjusting for inflation every year thereafter for 30 years is 95% successful based on past history. IOW, you could spend (much) more than that in 95% of past years...too bad we can't predict the future.

Absolutely ! Had I not retired in 2008 I may have gone with the 4% plus inflation . I checked out my initial withdrawal from 2008 and adding in 2%inflation I would be withdrawing 20% more than I am currently or 6% of my portfolio .
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Old 01-04-2013, 07:45 PM   #23
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Well, count me as a skeptic for FIREcalc results mirroring the past going forward. The data is based on the history of the USA becoming the premier industrial/financial nation in the world. Although not impossible to repeat the last 100 - 150 years I think it is unlikely. Nonetheless.
There is nothing worse on one of these boards than someone who keeps saying "maybe". But Ejman, I agree with you and will say maybe to the whole intellectual basis of withdrawal studies. I really don't even like to see the word "probability' used in this context. Probability relies ideally on classical probabilty math and independent events, and failing that it is deduced from applying the law of large numbers to some suitable database. But no large numbers are really involved here. We chose some data and decided that this is the relevant and sufficient database.

However, it is neither one of those things. The fact that some pseudoscientists have built careers claiming that it is is beside the point.

With a lot of luck, everything will be fine. Otherwise, I have my doubts.

Clearly the alternate strategy being advanced by Moe is more robust. This is typical of all these things- when something develops warts, change the interpretation of outputs, claim that you really did not mean that inflexible thing that you championed in many papers. After all, you have a career to protect.

Well, I would change it too, if I ever had been tempted to try it, which I was not and will never be.

But why adopt a withdrawal strategy in the first place, if you plan to abandon it when stresses appear. And I want to make it clear that this does not apply to Moe, she did the only sensible thing. Hell with the theory, the ship is shinking!

Ha
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Old 01-04-2013, 08:00 PM   #24
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All this discussion will go up in a puff of smoke when the asteroid hits...
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Old 01-04-2013, 08:05 PM   #25
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All this discussion will go up in a puff of smoke when the asteroid hits...
And what's the probability that this will happen before the next super volcano erupts?
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Old 01-04-2013, 08:08 PM   #26
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And what's the probability that this will happen before the next super volcano erupts?
Don't hijack this thread, start a new one.
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Old 01-04-2013, 08:17 PM   #27
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Don't hijack this thread, start a new one.
Good idea, we haven't had an end of the world thread for ages.
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Old 01-04-2013, 08:19 PM   #28
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Good idea, we haven't had an end of the world thread for ages.
Yep, a seriously FIRE-related topic.
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Old 01-04-2013, 09:32 PM   #29
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Eh, I dunno about the probability of an asteroid or a volcano, but these seem to be much less frequent than the changing of the guard in human history as to which nation is the economic power.

I am sticking to 3.5%WR, and if my portfolio goes up as I hope it will, then my patience will still be rewarded when my portfolio doubles, just as it might, in even less time than I get to draw SS.

A strange thing like the above already happened in the past, as my portfolio is currently 2.93X its nadir on Oct 9, 2002. But until that happens again, I am not going to count my chicken.

Wait a minute! This potential doubling of spending seems to be in direct conflict with the Bernicke's steep slope that I feel is happening personally.

What to do, what to do?
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Old 01-04-2013, 11:50 PM   #30
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Why am I not surprised?

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Old 01-05-2013, 12:59 PM   #31
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Well, count me as a skeptic for FIREcalc results mirroring the past going forward. The data is based on the history of the USA becoming the premier industrial/financial nation in the world. Although not impossible to repeat the last 100 - 150 years I think it is unlikely. Nonetheless. Although Britain did not regain its Empire after WWII, the Brits continued to enjoy a nice standard of living afterward and barring the arrival of Godzilla I think so will we.
Sounds good except FIRECALC and the 4% SWR rule are based on avoiding the worst 5% of outcomes, the other 95% 'based on the history of the USA becoming the premier industrial/financial nation in the world' are outside portfolio failure - which is all FIRECALC "success" represents. Maybe the highs won't be as high, but that doesn't matter anyway, what matters is will the worst of the worst lows be deeper and/or more frequent.

From the market data from 1871 to present that FIRECALC uses, at a 95% success rate, the worst 5% of 30 year periods (it's easy enough to work up other durations if you like) are all in the same era (1981-82 tight fiscal policy to kill inflation, 1980 Iranian Revolution and increase in oil prices, 1973-75 OPEC's increase in oil prices and massive spending in the escalation of war in Vietnam led to stagflation, 1969-70 massive spending in Vietnam War and OPEC's increase in price of oil) :
1965-1995
1966-1996
1967-1997
1968-1998
1969-1999
1973-2003

How spectacular the best years* were really doesn't matter to "success" - only residual estate.

*
1932-1962
1933-1963
1942-1972
1943-1973
1975-2005
1978-2008
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Old 01-06-2013, 12:27 AM   #32
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Sounds good except FIRECALC and the 4% SWR rule are based on avoiding the worst 5% of outcomes, the other 95% 'based on the history of the USA becoming the premier industrial/financial nation in the world' are outside portfolio failure - which is all FIRECALC "success" represents. Maybe the highs won't be as high, but that doesn't matter anyway, what matters is will the worst of the worst lows be deeper and/or more frequent.

From the market data from 1871 to present that FIRECALC uses, at a 95% success rate, the worst 5% of 30 year periods (it's easy enough to work up other durations if you like) are all in the same era (1981-82 tight fiscal policy to kill inflation, 1980 Iranian Revolution and increase in oil prices, 1973-75 OPEC's increase in oil prices and massive spending in the escalation of war in Vietnam led to stagflation, 1969-70 massive spending in Vietnam War and OPEC's increase in price of oil) :

1965-1995
1966-1996
1967-1997
1968-1998
1969-1999
1973-2003

How spectacular the best years* were really doesn't matter to "success" - only residual estate.

*
1932-1962
1933-1963
1942-1972
1943-1973
1975-2005
1978-2008
True enough and a very valid observation. But the unanswered question in my mind: is the 5% of worst outcomes we had in the past as bad as it can get? Well of course not. The part that is bothering to me is that the bad periods you mentioned were all followed by times when the USA REGAINED ITS GROWTH TRAJECTORY. I beileve that a period of long stagnation (decades) after a major decline in economic performance would be a first for the US if it were to happen no?
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Old 01-06-2013, 12:39 AM   #33
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Thanks for the post, Midpack.

When I joined this website a couple of years ago I was planning on 4% SWR. Now at age 47, I am planning on about 3.5%. In fact, when FIRE starts hopefully this year, it is likely my SWR will be even lower because I am frugal by nature and very risk averse. I guess I will adapt and re-adjust accordingly annually.

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I see some people here and elsewhere using 4% as if it applies at any age (even in their 40's) and/or assuming it provides a 100% success rate. Not true.

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Old 01-06-2013, 09:12 AM   #34
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Thanks for the post, Midpack.

When I joined this website a couple of years ago I was planning on 4% SWR. Now at age 47, I am planning on about 3.5%. In fact, when FIRE starts hopefully this year, it is likely my SWR will be even lower because I am frugal by nature and very risk averse. I guess I will adapt and re-adjust accordingly annually.
Great, that was one of the reasons I did the table. But just run your own numbers and draw your own conclusions & plans, I suspect you already have...
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Old 01-06-2013, 09:27 AM   #35
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Thanks for the post, Midpack.

.... adapt and re-adjust accordingly annually.
+1
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Old 01-06-2013, 04:21 PM   #36
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I wonder how many use the option at the bottom of the "Investigate" tab to more fully define "SUCCESS rate"? Here is what it looks like:



For me, if the portfolio drops below a certain amount I'd be extremely worried. I don't want to do that trip. Got a modest preview of it in 2008 and hated the feeling. It never went to my minimum that I now define in the option shown above but it was bad enough.

So when I get 100% success in FIRECalc, it might be different from other's FIRECalc "success" rates.
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Old 01-06-2013, 04:37 PM   #37
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Wait a minute! This potential doubling of spending seems to be in direct conflict with the Bernicke's steep slope that I feel is happening personally.

What to do, what to do?
Sounds like a slippery slope.
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Old 01-06-2013, 04:49 PM   #38
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I graduated and entered the workforce in 1976, in England. This was the economics at the time. I don't believe the USA will get into such a bad state anytime soon, and even if they do, I have faith they can get through it, just as the UK did.

BBC NEWS | UK | UK Politics | 1975 economic fears are laid bare

Quote:
'Incalculable problems'

Britain asked the IMF for a 2.3bn bail out in 1976 saying unemployment and inflation were at exceptional levels.

Inflation peaked in 1975 and by 1976 Healey was telling the IMF that "the social contract" with the trade unions had reduced the average increase in earnings from 27.6% in 1975 to 13.9% in 1976.
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Old 01-06-2013, 06:38 PM   #39
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The data is based on the history of the USA becoming the premier industrial/financial nation in the world. Although not impossible to repeat the last 100 - 150 years I think it is unlikely....
One reason to consider non-US equities. I am still 50/50 (roughly).

Still, having seen a little bit of the outside world, it is amazing how screwed up everywhere else is. China, you say?

Over the years, I have enjoyed all the predictions from hecklers with inferiority complexes from all over the world about the impending fall of the US. I see it every day on the cable TV over here in Baku, even from CNN. CNN over here displays almost Canadian self-loathing. Bon chance, mon ami.
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Old 01-07-2013, 05:53 AM   #40
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First post, so hope I am doing this correctly. I have done all of the FIDO, FireCalc, T. Rowe, and Vanguard projections, but still have a question on WR % calculations.

When you are calculating the WR %, simply on beginning portfolio value, do you use your estimated inflation adjusted spending as the numerator or do you use your non-inflation adjusted spending as the numerator? This is for the purposes of my Excel spreadsheet double check all the external calculators number

Thank you very much!
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