Is it legit to re-run when market rises?

[ERD50]

... So, not only would I not ratchet up my SWR five plus years into this bull market but I might even go back a few years and use that portfolio value to calculate my SWR. Clearly, everyone here disagrees. ....

You are creating a straw-man argument. Stating that 'everybody disagrees' simply isn't true and it doesn't make you some sort of misunderstood martyr.

Many people choose to be more conservative than a straight historical run indicates. Because we can't predict the future.

But that is different than interpreting the historical results. You absolutely can ratchet up on the market peaks and maintain 100% success within that reported data. It is a fact. Whether you choose to do so is separate from that, and many won't increase their spending (I won't say 'all' or 'none').

... I do wish the discussion was more civil. ...

The only less than civil comment I see here was from you: You are so he'll bent on starting a fight...

-ERD50

 

[Midpack]

Congratulations, you win. My suggestion, however, to the OP remains the same. I gave him the same answer I would give my brother or sister. That valuations are high, interest rates are low and future returns are expected by some experts to be lower than historic returns. So, not only would I not ratchet up my SWR five plus years into this bull market but I might even go back a few years and use that portfolio value to calculate my SWR. Clearly, everyone here disagrees. That's ok with me. I do wish the discussion was more civil.

Sorry, it was an unfortunate exchange after all, I wasn't hoping to win anything.

In the end, like many here I agree with you WRT being more conservative with withdrawals than FIRECALC results, and maybe should have left it at that. I simply disagreed with attempts to mischaracterize FIRECALC and the underlying market history it's based on, out of concern for newer members. Cheers...

 

[Gatordoc50]

He came at me first with the colored pencils. Isn't that like drawing a sword?


Sent from my iPad using Early Retirement Forum

 

[2B]

That would be cool to see a 2001 to 2015 graph next to 1966 to 1980 in real terms. You think it's way off? The last 5 plus years have been amazing with low inflation but the first nine plus weren't too hot.

If anyone following this thread doesn't know already, the 1966 to 1996 is the worst 30 year period in the FireCalc database. If your run has one failure it's safe to say it is this one. We had a crushing market drop in the early 1970s as the Arab Oil Embargo kicked in. The stock market languished and inflation went wild. Only those of us in the oil and energy industries prospered. The stock market didn't really come back until the great oil bust of the 1980s. By then, it was too late to save many mythical and real retirement plans.

I'm also an inverse worrier. Which is why I don't reinvest funds I don't happen to spend in a given year. I'd rather find a way to spend them soon - in the next few years.

This year, being year 1, has me pondering this question. I really don't expect to have too much left over since I'll get an income tax bill almost twice what I am expecting going forward due to my large SERP lump sum. I'm debating whether I "deserve" an extra withdrawal to cover this or not. Going forward I expect to be challenged to get DW to travel as much as I would like. We've done a pretty good job of getting our basic living expenses down to where my small pensions and eventual SS will cover it. My biggest risk appears to be the insatiable appetite the State of Texas has for property tax. It is my single largest budget item.

 

[2B]

You are creating a straw-man argument. Stating that 'everybody disagrees' simply isn't true and it doesn't make you some sort of misunderstood martyr.

Many people choose to be more conservative than a straight historical run indicates. Because we can't predict the future.

Fight!

I'm all for lively exchanges. I think it's good we challenge the various "givens" some people have. I don't think there is a right answer to most of these discussions.

Personally, I'm targeting to be more aggressive than the historical data. It's not that I have some crystal ball that says the market will perform on the high side during my retirement. I'm aggressive now because I can comfortably live on much less than I believe I can safely spend following a 95% SWR and don't expect to have as much interest in spending weeks vacationing when I'm in my mid-80s.

 

[ERD50]

He came at me first with the colored pencils. Isn't that like drawing a sword?

It's just his way of handling embedded quotes - the forum software is pretty weak in that area. Chill.

-ERD50

 

[ERD50]

.. I don't think there is a right answer to most of these discussions.

Personally, I'm targeting to be more aggressive than the historical data. It's not that I have some crystal ball that says the market will perform on the high side during my retirement. I'm aggressive now because I can comfortably live on much less than I believe I can safely spend following a 95% SWR and don't expect to have as much interest in spending weeks vacationing when I'm in my mid-80s.

Absolutely, different people will choose different paths. The key for me is, you communicated that you understand the pros/cons of your approach, and have a plan. And you don't resort to twisting other facts to support your choice.

And I think the odds are with you. I suspect the future will be 'muted' compared to the past, but I think it is unlikely to be worse than the worst of the past. I just don't feel comfortable enough with my expectations to spend more aggressively at this point, and fortunately, I'm pretty happy where I am.

I suspect we will both do fine

-ERD50

 

[Bestwifeever]

He came at me first with the colored pencils. Isn't that like drawing a sword?

This made me laugh, really.

 

[bingybear]

Interesting thread. To me, 100% means that under the worst case scenario available based on the past, my plan succeeds... which in turn means that there are lots of scenarios that are quite likely where I could have spent much more and still been solvent.

The principal worry most of us have is spending too much and running out of money sufficient to provide for our target lifestyle. However, I am almost equally worried about the inverse... that I will be too conservative now while I am younger and have the energy to travel and enjoy our wealth and will ultimately end up with too much money late in life where I don't have the energy to enjoy it so it goes to charity or the kids. Not that money going to charity or our kids is tragic, but I will wonder or lament that perhaps I should have replaced that older but still good vehicle earlier with one that I would have enjoyed more, or traveled more, or taken DW and our kids on that trip we all cherish in our memories, or whatever.

My thinking is that any of these projection tools is only forward looking... they don't really know whether I worked for the last 3 years or was retired for the last 3 years. So in theory, if at any given point in time I adjust my spending upward but limit the increase so I still have a 100% success rate for my given time horizon, then there probably isn't a lot bad that can happen, especially since I have the flexibility to tighten my belt if needed.

So my plan is to revisit my spending level every few years as if I am retiring anew, and if the tools suggest that I can spend more, then I'll increase my spending and splurge/enjoy a bit more

bold item 1. Well stated and qualified. One also never knows when they may have to increase expenses due to medical or other events or taxes increase and eat into expected spending stream. I don't use SWR typically, but WR. With you're qualification of what SWR, then it makes sense. I see the calculators in general as providing some confidence, but no guarantee.

Bold item 2. I'm vary much in the same boat... die with too much... or play now? About a year ago I sat down with my MIL's FA... his advise - spend much more than I planned for the next 15 years or so... why... because typically ones spending goes down often when the hit about 80... travel is reduced, etc. I admit this is not true for everyone, but for my MIL... she started reducing early. I told him I did not want to leave anything for the kids (not that I don't expect to). If I put that as a goal, I would focus on it. My bigger problem is more likely to be spending. DW RE end of 2014 and me beginning of March 2015... even after paying our own health insurance, our spending is lower than when we were working (hopefully a transition problem). I think the real trick is knowing how much to increase your life style (increased consistent spending) or transient spending... doing a few really kewl trips. I'm thinking more the latter. I have a 10 year old sentra that runs just fine... normally would not replace it. But I think we have a subau forester in our future. Either that or shed the motor cycle and sentra and get an outback (...need both to go for it to fit in the garage).
Bold item 3... I see no reason not to make some WR changes if the data indicates it... with cation. I would think caution should be considered when markets are high. But even if you use firecalc (or others numbers).. the so called SWR in theory is the maximum in the worst case tested. The typical would be much higher. I think from my comments above it should be obvious that I will likely typically use a WR notably below my firecalc's SWR... so buying a forster that is over twice what I've paid before for a new car will likely not break the bank. I do have some concern that some will get the short end of the stick if they are always looking at how to increase their WR.

 

[NW-Bound]

Didn't someone once say that the pen is more powerful than the sword?

Three years ago, I started out my retirement planning to spend a lot less than I did the last 12 months. I justified that as "one-time" expenses that would not be recurrent, and I hope that will be true. However, the bull market is the ultimate enabler, and bull markets do not run forever.

I have got to be careful not to turn these "discretionary" spendings into lifestyle creeps. When the market turns, and it always does, it's going to be painful for many. I remember someone once said that women keep giving birth because they soon forget how painful it is. Investors/spenders are the same.

 

[braumeister]

Just a very small comment on some of the comments I've noticed in this thread.

I get the impression that when some of us speak of whatever withdrawal from our portfolio we take in a given year, we assume that amount gets SPENT.

My way of looking at is that I have a spending budget to cover what I want to do during the year, and my plans are based on that. I really have no interest in spending more just because I could.

For example, last year my spending was about 89% of my programmed budget because I had included generous margins in discretionary spending categories. I'm certainly not disappointed in not spending the extra 11% -- it just went back in the kitty. Conversely, I wouldn't consider increasing my withdrawal for this year just because the kitty is bigger.

Surely people don't insist on spending their whole planned withdrawal just because they can, do they?

 

[Midpack]

He came at me first with the colored pencils. Isn't that like drawing a sword?

Who are you talking about?

 

[RetireAge50]

It is legit to adjust from a math perspective (in firecalc). Can recalc at anytime as the tool uses the same historical sequences applied to your inputs.

I have not started withdrawing yet but when I do I will have several criteria:
1. Spend it all
2. Decent income spent evenly over lifetime.
3. Do not go broke (before age 95).

A strictly 100% safe spending level will achieve criteria 3.

Blindly taking out a constant amount based on average returns would achieve only criteria 1.

I am leaning toward the % of portfolio, VPW, or RMD methods as they continually adjust based on the market. Criteria 1 and 3 are met but criteria 2 will be variable.

 

[bingybear]

Surely people don't insist on spending their whole planned withdrawal just because they can, do they?

This is really a good question. If we were talking people in general in the US... I would think there would be a large number that would... or would be close to all of it. Some would likely spend ahead if someone would give them credit. People on this board, maybe not.
For me... my plan was a WR of a little less than 1.5%. I based this off 2013 spending that had a 2.5 week trip to europe, a week long Caribbean cruise and a bunch of furniture purchased... then added $20k for an HSA compatible health plan and budgeted for hitting max out of pocket...not that I expect to do that typically. I expect my firecalc SWR is a tad higher than my expected spending. On the 1.5%... I expected unspent money most years.

almost need a poll on who expects to spend their SWR most/all years

 

[2B]

almost need a poll on who expects to spend their SWR most/all years

The problem with that is there isn't a consistent definition of what a SWR really means. Some have a very small initial percentage that is to rise with inflation. Some go with what FireCalc says they have 95% or 100% chance of success. Some go with various variable "remaining portfolio" withdrawal strategies. SWR can be defined any way you want but that isn't how most people are proceeding.

 

[bingybear]

The problem with that is there isn't a consistent definition of what a SWR really means. Some have a very small initial percentage that is to rise with inflation. Some go with what FireCalc says they have 95% or 100% chance of success. Some go with various variable "remaining portfolio" withdrawal strategies. SWR can be defined any way you want but that isn't how most people are proceeding.

you have a good point. But I still think it would be interesting to understand % that expect to spend the who firecalc SWR @ 95 or 100%, % that plan variable and maybe how close to firecalc 95%/100% they are running. I would expect just by nature I will be well below firecalc and will run variable. I think we will instinctively cut back in bad market times. But when people are focusing on recalculating SWR... one could assume they want to increase their spending... not that this is all bad. Most people should have to because everyone can not be on a bad line... unless we all started at a bad time in the market

 

[Midpack]

The problem with that is there isn't a consistent definition of what a SWR really means. Some have a very small initial percentage that is to rise with inflation. Some go with what FireCalc says they have 95% or 100% chance of success. Some go with various variable "remaining portfolio" withdrawal strategies. SWR can be defined any way you want but that isn't how most people are proceeding.

There was a definition of SWR when it was originated in 1994 (see below), and some members still mean the original definition when they use the term SWR in posts. SWR is but one withdrawal methodology as are the others you mention.

But you're probably correct that unfortunately SWR is commonly used here and elsewhere to mean any or all of the above, often without any qualifying description.

A safe withdrawal rate is defined as the quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure; failure being defined as a 95% probability of depletion to zero at any time within the specified period.

 

[CardsFan]

Having read this forum for many years before joining, I thought the use of Firecalc and SWR was a known science!
There is an old adage that a carpenter shouldn’t measure with a micrometer and cut with a chainsaw.
I think, when using Firecalc, the inverse is true: Don’t measure with an odometer and cut with a laser.
Firecalc is an odometer. If you are measuring a mile (your portfolio), it gets you close, but don’t fool yourself into thinking that you are so exact that you can use a laser (to select your SWR) and you are exactly 5280.000 feet (perfectly safe for 30 years).
There are probably hundreds of viable, generic, strategies for withdrawal, and thousands of permutations of these when you get down in to the details. No two people are likely to pick the exact same strategy. And the probability of anyone picking a strategy on retirement day, and sticking to it exactly, without fail, come H*ll or high water, until they die, is very remote.
Your PERSONAL Safe Withdrawal Rate (or withdrawal strategy) is one that makes YOU feel safe, and lets YOU sleep at night.
Just my 2 cents.

 

[audreyh1]

Just a very small comment on some of the comments I've noticed in this thread.

I get the impression that when some of us speak of whatever withdrawal from our portfolio we take in a given year, we assume that amount gets SPENT.

My way of looking at is that I have a spending budget to cover what I want to do during the year, and my plans are based on that. I really have no interest in spending more just because I could.

For example, last year my spending was about 89% of my programmed budget because I had included generous margins in discretionary spending categories. I'm certainly not disappointed in not spending the extra 11% -- it just went back in the kitty. Conversely, I wouldn't consider increasing my withdrawal for this year just because the kitty is bigger.

Surely people don't insist on spending their whole planned withdrawal just because they can, do they?

I do insist on withdrawing it all from the retirement portfolio. Whether it gets spent in the same year as withdrawn is another matter. But I can spend it if I wish, so it gets moved into the "available for spending whenever I want" kitty.

Note that I don't necessarily spend it all on myself.

I would rather have less left over when I pass. So I will do my duty and try to make the most of spending it while I am living.

If that means we are forced to start flying first class in addition to increased family and charitable gifting - so be it!

 

[Options]

...

There are probably hundreds of viable, generic, strategies for withdrawal, and thousands of permutations of these when you get down in to the details. No two people are likely to pick the exact same strategy. And the probability of anyone picking a strategy on retirement day, and sticking to it exactly, without fail, come H*ll or high water, until they die, is very remote.

Your PERSONAL Safe Withdrawal Rate (or withdrawal strategy) is one that makes YOU feel safe, and lets YOU sleep at night.
Just my 2 cents.

+1
Thanks to all for this great discussion.

 

[braumeister]

I do insist on withdrawing it all from the retirement portfolio. Whether it gets spent in the same year as withdrawn is another matter. But I can spend it if I wish, so it gets moved into the "available for spending whenever I want" kitty.

I understand your point, but "moving it to the spendable kitty" is not the same as spending. The actual effect of your approach is more like mine.

 

[2B]

There was a definition of SWR when it was originated in 1994 (see below), and some members still mean the original definition when they use the term SWR in posts. SWR is but one withdrawal methodology as are the others you mention.

But you're probably correct that unfortunately SWR is commonly used here and elsewhere to mean any or all of the above, often without any qualifying description.

Based on the 95% SWR, I am well above it. Based on Bernacke 95% SWR, I'm about on track with it.

Having read this forum for many years before joining, I thought the use of Firecalc and SWR was a known science!
There is an old adage that a carpenter shouldn’t measure with a micrometer and cut with a chainsaw.
I think, when using Firecalc, the inverse is true: Don’t measure with an odometer and cut with a laser.
Firecalc is an odometer. If you are measuring a mile (your portfolio), it gets you close, but don’t fool yourself into thinking that you are so exact that you can use a laser (to select your SWR) and you are exactly 5280.000 feet (perfectly safe for 30 years).
There are probably hundreds of viable, generic, strategies for withdrawal, and thousands of permutations of these when you get down in to the details. No two people are likely to pick the exact same strategy. And the probability of anyone picking a strategy on retirement day, and sticking to it exactly, without fail, come H*ll or high water, until they die, is very remote.
Your PERSONAL Safe Withdrawal Rate (or withdrawal strategy) is one that makes YOU feel safe, and lets YOU sleep at night.
Just my 2 cents.

You are correct or, at least, I agree with you. I have a percent of portfolio WR because I feel comfortable with my ability to reduce expenses if necessary. As long as SS survives, I believe I can survive on that. Of course, there is always the trailer down by the trout stream which actually sounds pretty darn nice at the moment.

I do insist on withdrawing it all from the retirement portfolio. Whether it gets spent in the same year as withdrawn is another matter. But I can spend it if I wish, so it gets moved into the "available for spending whenever I want" kitty.

Note that I don't necessarily spend it all on myself.

I would rather have less left over when I pass. So I will do my duty and try to make the most of spending it while I am living.

If that means we are forced to start flying first class in addition to increased family and charitable gifting - so be it!

I pretty much agree with you here as I seem to generally do. As for the part about flying first class, please keep away from my DW for the foreseeable future.

 

[CardsFan]

Audreyh and 2B,
Your general strategy is what I intend to use later this year when I FIRE. Pick a % of portfolio(probably more than I need right now, but less than Firecalc says I could) , spend according to our needs/wants, and keep the rest in the cash account for future splurges (or unplanned expenses) or market downturns. The plan would be to repeat the same % each year, but I expect it will take a few years to get the number right.
Above all, stay flexible!
Oh, about those first class seats, I would never pay money for domestic first class (at least not in the foreseeable future) but have enough miles and upgrades to travel comfortably for several years.

Sent from my Nexus 7 using Early Retirement Forum mobile app

 

[ERD50]

Having read this forum for many years before joining, I thought the use of Firecalc and SWR was a known science! ...

Here's how I'd put it - Firecalc and SWR is a 'known science'. The historical reporting software runs calculations on a data set with specific inputs and returns specific results. It can be replicated - X number of people with the same inputs, will get the same results. That's a 'known science'.


What you do with those results, in the face of the unknown future is a totally different thing. Predicting the future is not any kind of science. So that's where things diverge.

And the probability of anyone picking a strategy on retirement day, and sticking to it exactly, without fail, come H*ll or high water, until they die, is very remote.

How do you know this?

If someone retired ~ 30 years ago, in 1984, and took the less than conservative 4% (it does result in ~ 5% failures historically), they would have never seen their portfolio dip below the starting level, even when adjusting for inflation. At the end of 30 years, they would have ~ 3.35 times their starting nest egg, much more if you take out inflation. In fact, it looks like they could have taken > 7%.

So why would they ever feel they would need to cut back the spending? And if they hoped to leave money to heirs/charity, and were comfortable on their 4%, maybe they would never increase it either? I guess I just don't see why doing so would necessarily be considered so 'remote'?

Your PERSONAL Safe Withdrawal Rate (or withdrawal strategy) is one that makes YOU feel safe, and lets YOU sleep at night.
Just my 2 cents.

I would re-state this as well - Your PERSONAL [-]Safe[/-] Comfortable Withdrawal Rate (or withdrawal strategy) is one that makes YOU feel safe, and lets YOU sleep at night.​

We can't know if it is safe or not, until it's all over. So it's a Withdrawal Strategy, not necessarily a safe one. And some may even choose one they aren't really comfortable with, but will take their chances, or dislike the alternatives so much that they choose to accept an uncomfortable amount of risk. I only use the term SWR when looking back at historical data.

-ERD50

 

[Bestwifeever]

I used FIREcalc and every other calculator that I could find several times before we RE'd almost eight years ago. Since then? I reran FIREcalcfor the first time yesterday. Because of this thread. We still seem to be on track and like ha ha, to be able to not touch the principal. Maybe we could withdraw more from the Vanguard funds where our nest egg resides, but so far so good, and we aren't going to spend more anyway. Why make a "withdrawal" if it then just gets parked in a different place?