Withdrawals from Passive Port in Retirement

[eytonxav]

Article from Rick Ferri. IMO, Rick is a straight shooter.

Withdrawing from a Passive Portfolio

 

[nun]

Good illustration, I wish he'd said something about variable withdrawals though

 

[W2R]

What an encouraging article! I loved reading this:

These pseudo-scientific assumptions about going broke in retirement are grossly overstated, in my view. Let’s be realistic. If you’ve been retired in the past several years during one of the most brutal stock markets in history and haven’t gone broke yet, you’re probably not going to.

The past 12 years have delivered some of the most gut-wrenching, volatile financial markets in decades. A severe bear market in equities started in 2000, accentuated by terrorist attacks on 9/11, finally hitting bottom in the fall of 2002. The market recovered by October 2007, only to take another downturn more severe than the first. Stock prices are not still back to their 1999 levels.

It was interesting to read about how different asset allocations (and different withdrawal amounts for each) were affected by the 2008-2009 collapse and what these portfolios are worth today.

 

[DblDoc]

Good illustration, I wish he'd said something about variable withdrawals though

That would only strengthen the point - if someone was cutting back a little during those down turns, as most rational folks would, then you would have an even larger portfolio now.

DD

 

[golfnut]

Note these withdrawls are not inflation adjusted.

 

[IBWino]

Note these withdrawls are not inflation adjusted.

True. At 3% annual inflation over 12 years, $30K adjusted for inflation increases to $42.8K, and 40K increases to $57K. This adjustment probably would have yielded final portfolio balances that were less than the starting value across the board.

Still, I think it's a good arcticle. As W2R stated, it's encouraging.

 

[plex]

Wow, after looking at the data, we still have a huge way for the upward correction to go in the current 30-year period of 2000-2030. 80/20 historically returns more than 20/80, though it is much more volatile, and we aren't anywhere close yet. Right now 20/80 is still beating the pants off of 80/20 at all SWRs, even with the fairly quick correction we've had so far.

 

[unclemick]

Rick posts often over at the Bogleheads.

Pretty straightforward common sense stuff.

heh heh heh - not that as a Boglehead, I'm prejudiced or anything. .

Agile, mobile and hostile. God Looks After Drunkards, Fools and The United States of America, pssst - wellesley.

Don't you just love all that high tech stuff?

Vary those withdrawals baby!

 

[JmfromTx]

Note these withdrawls are not inflation adjusted.

I wonder if one of the folks here that also post on Boglehead's could ask him to do an inflation adjusted spread sheet? I would be very interested in seeing it.

 

[Running_Man]

I am looking at the data Rick provided and if one just looks at the calculation 50/50 stocks and bonds with $50,000 annual withdrawl and just adjusting the $50,000 to the inflation adjustment for the past years from 1999 you would now be withdrawing $65,181 on a portfolio stated of $950,928 which would be a 6.8 percent withdrawl even after the last couple of years of bull market. And that portfolio does not include the $77,210 additional withdrawls that would have been required to stay even with inflation. Just adjusting the portfolio down for the $77,210 means the withdrawl rate would be 7.2 percent as a current draw-down rate.

Which to me looks like a pretty good risk of failure if one expected that spending and portfolio to last another 18 years or so.

Inflation from 1999 results in a 1999 dollar being worth 76 cents so most of these portfolios excepting the most conservative ones are in serious trouble. The 5% with an 80/20 stock/equity portfolio would be at 9% with-drawls adjusting the current with-drawls for inflation and subtracting the extra with-drawls from the final portfolio.

 

[JmfromTx]

I wonder if one of the folks here that also post on Boglehead's could ask him to do an inflation adjusted spread sheet? I would be very interested in seeing it.

Please ignore this. I read the whole post and it pretty much answered my question.

 

[chinaco]

10 years.. From the top of the tech bubble through the meltdown... the S&P 500 has reached its old high once and is not quite back to that level yet.

Anyone notice how the portfolios with more bonds turned out better in the illustration?

I wonder if Rick included stock dividends in his illustration?

Nevertheless. If the stock market is not going to march to higher levels... More bonds look better (assuming a decent yield).

For the last 10 years, a tactical allocation for stocks would have probably turned out better.... assuming one followed a decent method and did not get consumed with fear (entry plan) or too greedy (exit plan).

 

[eytonxav]

Rick posts often over at the Bogleheads.

Pretty straightforward common sense stuff.

heh heh heh - not that as a Boglehead, I'm prejudiced or anything. .

Agile, mobile and hostile. God Looks After Drunkards, Fools and The United States of America, pssst - wellesley.

Don't you just love all that high tech stuff?

Vary those withdrawals baby!

Ricks article generated quite a bit of controversy over at Bogleheads, but everything there seems to be subject to excessive armchair financial criticism.

I believe that Rick tries to keep things fairly simple as Unclemick eluded, and at least for me, I have appreciated his viewpoints. On the subject of why the withdrawals are not indexed for CPI, Rick is not an advocate a fixed % SWR and suggests that a retirees annual budget may or may not be increasing every year and even in the later years may decrease. At least thats his logic.

psst unclemick, I say 10-4 to Wellesley, but what ever happened to your Norweign Widows comments. Haven't noticed those lately?

 

[Moemg]

10 years.. From the top of the tech bubble through the meltdown... the S&P 500 has reached its old high once and is not quite back to that level yet.

Anyone notice how the portfolios with more bonds turned out better in the illustration?

That may be because bonds held up well during the tech bubble .

 

[DblDoc]

For the last 10 years, a tactical allocation for stocks would have probably turned out better.... assuming one followed a decent method and did not get consumed with fear (entry plan) or too greedy (exit plan).

And there's the rub. You have to be right twice and be ready to rinse and repeat...

DD