joylesshusband
Recycles dryer sheets
- Joined
- Oct 15, 2015
- Messages
- 138
A few recent threads in this forum stimulated me enough to share this story:
Moe, Larry and Curly are buddies and bachelors, all approaching 60, and with similarly sized nest eggs invested 60/40 in equities/bonds. Their tax status and rates are the same as well. All live within their means, plan to retire soon, and have calculated modest but comfortable retirement budgets. They have chosen to ignore any possible SS benefits (which, while small, are also equal for the 3). They have similar family histories of longevity and believe they would not make it past 85, but just in case decide to target 30 years of retirement.
Due to circumstances, Moe manages to retire just around Christmas, while Larry and Curly postpone their exit from the workforce by one year. At the start of his retirement Moe has $1m, and having read the Trinity study and run the numbers in Firecalc, he withdraws $40,000 to cover for his first year of expenses.
The next Christmas Larry and Curly, having added a bit to their savings, are hanging up the gloves. They are excited to enter their retirement on New Year's Day.
Unfortunately, the markets crash the last week of the year and our 3 buddies incur a severe blow to their nest eggs. Each of the 3 is left with a $700k pot. On Jan 1st they reassess their annual withdrawals.
Moe believes that no matter what the market does, he would be safe to withdraw the same amount as the previous year, adjusted for inflation. Luckily, the inflation is Zero, so Moe decides to pull another $40k out.
Larry is also familiar with the studies regarding a SWR, and being the ever cautious and conservative fellow he is, decides to start with 4% of his pot, for a $28k withdrawal.
Curly, whom I might have told this story previously, has spent lots of time pondering the possible scenarios and their outcomes in his usual unorthodox manner. Thus, he thinks like this:
“Moe is a smart chap, and he has valid reasons to believe that his strategy is sound. The Trinity study confirms it and Firecalc is in agreement. He and I have equally sized pots, equal time horizons of 30 years, equal AA, and if it is safe for him to withdraw $40k for his second year, it should be safe for me to do exactly the same and start with the same withdrawal. All else being equal, I am not going to incur a risk any higher than his in outliving my money as long as in the future I do the same annual adjustments for inflation as Moe does.”
So Curly pulls $40k out of his pot, amounting to a 5.7% starting WR.
---------------------------------
Two questions:
1. Is Curly's probability of success any different from Moe's?
2. Why not?
Moe, Larry and Curly are buddies and bachelors, all approaching 60, and with similarly sized nest eggs invested 60/40 in equities/bonds. Their tax status and rates are the same as well. All live within their means, plan to retire soon, and have calculated modest but comfortable retirement budgets. They have chosen to ignore any possible SS benefits (which, while small, are also equal for the 3). They have similar family histories of longevity and believe they would not make it past 85, but just in case decide to target 30 years of retirement.
Due to circumstances, Moe manages to retire just around Christmas, while Larry and Curly postpone their exit from the workforce by one year. At the start of his retirement Moe has $1m, and having read the Trinity study and run the numbers in Firecalc, he withdraws $40,000 to cover for his first year of expenses.
The next Christmas Larry and Curly, having added a bit to their savings, are hanging up the gloves. They are excited to enter their retirement on New Year's Day.
Unfortunately, the markets crash the last week of the year and our 3 buddies incur a severe blow to their nest eggs. Each of the 3 is left with a $700k pot. On Jan 1st they reassess their annual withdrawals.
Moe believes that no matter what the market does, he would be safe to withdraw the same amount as the previous year, adjusted for inflation. Luckily, the inflation is Zero, so Moe decides to pull another $40k out.
Larry is also familiar with the studies regarding a SWR, and being the ever cautious and conservative fellow he is, decides to start with 4% of his pot, for a $28k withdrawal.
Curly, whom I might have told this story previously, has spent lots of time pondering the possible scenarios and their outcomes in his usual unorthodox manner. Thus, he thinks like this:
“Moe is a smart chap, and he has valid reasons to believe that his strategy is sound. The Trinity study confirms it and Firecalc is in agreement. He and I have equally sized pots, equal time horizons of 30 years, equal AA, and if it is safe for him to withdraw $40k for his second year, it should be safe for me to do exactly the same and start with the same withdrawal. All else being equal, I am not going to incur a risk any higher than his in outliving my money as long as in the future I do the same annual adjustments for inflation as Moe does.”
So Curly pulls $40k out of his pot, amounting to a 5.7% starting WR.
---------------------------------
Two questions:
1. Is Curly's probability of success any different from Moe's?
2. Why not?