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Kitces & Guyton on SWR, Buckets & Essential/discretionary methods of withdrawals
06-19-2014, 05:34 PM
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#1
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Join Date: Jul 2006
Location: Denver
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Kitces & Guyton on SWR, Buckets & Essential/discretionary methods of withdrawals
A lot of you follow Wade Pfau's blog and have probably already seen this. If not, here's a link
Wade Pfau's Retirement Researcher Blog: Kitces and Guyton on the Three Approaches for Retirement Income Planning
Kitces (who also writes a wonderful blog) and Guyton (who wrote a couple of wonderful papers on variable withdrawal strategies) talk about the three main ways planners recommend their customers sustainably withdraw money from their portfolios.
- A total approach (like Bengen's SWR)
- A bucket approach (based on age segmentation)
- An essential/discretionary method.
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06-20-2014, 08:09 AM
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#2
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Full time employment: Posting here.
Join Date: Feb 2014
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Thank you for that link.
Very interesting discussion.
I find myself in agreement with the defense of the systematic (and holistic) approach via an overall portfolio.
As well as the overall plan should account for the desired lifestyle vs 'essential' and 'discretionary'...some of my planned retirement activities ARE essential to me!
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06-30-2014, 01:48 PM
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#3
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10-23-2014, 10:40 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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FWIW, I have been playing with a spread sheet using Guyton's rules just to see what happens in various scenarios: 40% drop in the first few years , 40% increase in the first few years , and a few 10 year periods of an up market, down market and sideways market. All my numbers are made up from my head, but reasonable I think.
Interestingly, with the exception of the big 40% down movement at the start of retirement, most of the the other scenarios are within about a 10% range in total withdrawal amount over a 10 year period. The killer is the 40% initial drop scenario which cuts the total dollars withdrawn by about 25% compared to the others. But, we already knew that.
Any thoughts on using Guyton's rules in real life?
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The worst decisions are usually made in times of anger and impatience.
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10-23-2014, 02:54 PM
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#5
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I use a spreadsheet with Guyton's rules as a sanity check even though I don't use his method (I use 4% of portfolio value at the beginning of the year). Imho, rules like Guyton's are the way to go & I may move to them as I get older & more confident of being successful in this ER endeavor.
Prior to ER, when I did some simulations using Guyton's rules, the rough times were when the stock market declined for many years at a stretch or inflation exceeded his cut-off for an extended period. Keeping a small bucket of money aside (not used in SWR calculations) could ease this issue, but obviously, will lead to a lower withdrawals.
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10-23-2014, 03:32 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by Chuckanut
Any thoughts on using Guyton's rules in real life?
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I didn't dislike my job enough to want to RE into a situation where a dramatic reduction in spending might be required. (We weren't spending that much to begin with!) But certainly if one is extremely anxious to stop pulling the plow and can maintain a high level of flexibility in spending (no dependents, few fixed expenses, etc.), why not?
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10-23-2014, 04:34 PM
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#7
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Full time employment: Posting here.
Join Date: Jul 2013
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I track it but haven't been free long enough to have to have experienced real stress. I've modeled a 25% drop across my portfolios and I'm still ok with the spending levels that result - 40%+ would cause pain unless the bounce back was swift and sharp a la 1987.
Sent from my iPhone using Early Retirement Forum
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10-24-2014, 09:20 AM
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#8
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I used to play with the Guyton approach and still think it's a good way to go. I have tentatively decided to use what Paul Merriman advocates which is a 5% withdrawal rate. It assumes you have more than you "need" which I do. I also have several small pensions and a plan to defer SS until 70. That gives me and DW more than enough for basic living expenses.
I have a sinking fund to cover medical expenses pre-medicare and SS deferral. My plan is to subtract the sinking fund from my total portfolio and make 5% of my portfolio available for spending. I would also have my combined pension amounts and the phantom SS and medical insurance payment from my sinking fund. My paid-for house is not included in my assets when making this calculation.
Based on my current assets, this is significantly more than I have ever spent unless you include when I paid cash for a house. Any excess would be swept back into the total assets for the next calculation. I'm one these people here that has worked far longer than necessary. I don't hate my job but it's time to move on.
Only 24 in-office days left until resignation/retirement day.
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The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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10-24-2014, 10:37 AM
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#9
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Join Date: Jul 2006
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Quote:
Originally Posted by 2B
.... I would also have my combined pension amounts and the phantom SS and medical insurance payment from my sinking fund.
....
Only 24 in-office days left until resignation/retirement day.
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2B - would you please elaborate on the sentence above?
Congratulations! Cherish these last days at your job.
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10-24-2014, 03:25 PM
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#10
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Full time employment: Posting here.
Join Date: Feb 2008
Posts: 920
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I'm curious about what that means to. Was most of career income from playing phantom of the opera on broadway or something?
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10-24-2014, 08:51 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Jul 2005
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Quote:
Originally Posted by 2B
I used to play with the Guyton approach and still think it's a good way to go. I have tentatively decided to use what Paul Merriman advocates which is a 5% withdrawal rate. It assumes you have more than you "need" which I do. I also have several small pensions and a plan to defer SS until 70. That gives me and DW more than enough for basic living expenses.
I have a sinking fund to cover medical expenses pre-medicare and SS deferral. My plan is to subtract the sinking fund from my total portfolio and make 5% of my portfolio available for spending. I would also have my combined pension amounts and the phantom SS and medical insurance payment from my sinking fund. My paid-for house is not included in my assets when making this calculation.
Based on my current assets, this is significantly more than I have ever spent unless you include when I paid cash for a house. Any excess would be swept back into the total assets for the next calculation. I'm one these people here that has worked far longer than necessary. I don't hate my job but it's time to move on.
Only 24 in-office days left until resignation/retirement day.
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I thought Merriman favored 4%? He had an article, back when I was researching, showing 4% let the portfolio grow so that, on average, the withdrawals started exceeding the 5% plan after about 6 years IIRC. And kept growing of course. That was somewhat appealing, though I wanted to front-load it rather than back load the spending.
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