Trinity Study update

[haha]

Have you read the report?

Yes, I never criticize something I am completely ignorant of. True he does return to advice more or less down the middle of what has come before; but why get into the 7% nominal at all? It is meaningless. To summarize, the world is real, it is unpredictable, and paying any attention at all to nominal values is just confusing at best, stupidifying and lethal to success at worst.

Just another endless permutation to entertain those who are still seeking some magic to tame uncertainty. It certainly will not help anything.

Ha

 

[walkinwood]

I was disappointed with the paper. Why waste our time on nominal withdrawals? Who in their right mind would do that over periods of 15 to 30 years?

Besides there was nothing new.

 

[chinaco]

I was disappointed with the paper. Why waste our time on nominal withdrawals? Who in their right mind would do that over periods of 15 to 30 years?

IMO - this information offers a lot of insight. But that might not be appropriate for many or even most.

Besides there was nothing new.

New data set with more recent years.


One needs to consider that the paper is not intended to be a consumer "do it yourself" guide... but a study done by financial academics which offers insight to other academics and financial professionals.

 

[nun]

One needs to consider that the paper is not intended to be a consumer "do it yourself" guide... but a study done by financial academics which offers insight to other academics and financial professionals.

This is one of those "pad your publication list" papers written my mid level academics who are more into teaching and review articles that real economic research. There's nothing new here apart from an extended data set. It has some usefulness to underline some pretty common sense ideas but it isn't really worthy of a peer reviewed publication. I have very little regard for financial professionals after seeing what passes for "high level mathematics" in CFA examinations.

 

[donheff]

New data set with more recent years.

+1
It is good that the Trinity folks updated their study to bring in the past few years. I hope they continue to update. As to the nominal withdrawal table. It is what it is. Whether anyone prudent would accept 75% success as an acceptable minimum is irrelevant. The table has data for larger withdrawals (which some folks take).

 

[DblDoc]

Boy oh boy. Tough crowd here. I will await (without holding my breath) for the nun/haha peer reviewed, academic journal article that better addresses for the masses what is a reasonable withdrawal rate from a portfolio should be. These are the same authors that published the original article in 1998. Here, and elsewhere the question has been raised as to what the impact of the great recession would be on the SWR as proposed by the Trinity study - the numbers are now updated. There has also been a lot of controversy about the 4% as an absolute rule, or as a guideline, they have now clarified that beyond the notation in their original publication that it was for planning purposes only. As for the nominal vs real withdrawals, in the real world people have non-cola'd pensions and annuities so it is not unreasonable to guesstimate what a reasonable rate of withdrawal would be based on the historical data.

DD

 

[haha]

Boy oh boy. Tough crowd here. I will await (without holding my breath) for the nun/haha peer reviewed, academic journal article that better addresses for the masses what is a reasonable withdrawal rate from a portfolio should be.

Don't bother, it is hopeless. Anyway, why would a doubledoc want a plan suitable for the masses?

Ha

 

[nun]

Boy oh boy. Tough crowd here. I will await (without holding my breath) for the nun/haha peer reviewed, academic journal article that better addresses for the masses what is a reasonable withdrawal rate from a portfolio should be.

DD

I wouldn't presume to write about finance in a peer reviewed journal, I keep my nonsense for this forum....however I have been published in Nature, Cell and Astrophysical Journal so I'm qualified to sniff out a rehash of an old paper to get another publication on the list.

My opinion about a SWR is anything less than the annual return of your portfolio, not to exceed a max of 5%. I'm all about preserving capital, and I suppose that puts me in the adaptive withdrawal camp.

 

[chinaco]

I wouldn't presume to write about finance in a peer reviewed journal, I keep my nonsense for this forum....however I have been published in Nature, Cell and Astrophysical Journal so I'm qualified to sniff out a rehash of an old paper to get another publication on the list.

My opinion about a SWR is anything less than the annual return of your portfolio, not to exceed a max of 5%. I'm all about preserving capital, and I suppose that puts me in the adaptive withdrawal camp.

When I am ready for a debate on astrophysics, I'll know who to contact.



But come on... Those guys are serious professionals. Are you really going to attack their findings, their data, or creds?? or even the general conclusions? Do you have any real reason to do that or are you just spewing? [no need to answer... I already know]

 

[nun]

When I am ready for a debate on astrophysics, I'll know who to contact.



But come on... Those guys are serious professionals. Are you really going to attack their findings, their data, or creds?? or even the general conclusions? Do you have any real reason to do that or are you just spewing? [no need to answer... I already know]

Sure there's some spewing going on along with some probably misplaced arrogance, but running simulations using historical data isn't really that original. Isn't that why we have FIRECalc. None of the conclusions add anything new to planning, so that's why I see it as a rather lazy article.

 

[donheff]

however I have been published in Nature, Cell and Astrophysical Journal so I'm qualified to sniff out a rehash of an old paper to get another publication on the list.

OK Nun, you peaked my interest. How does the Astrophysical Journal fit in? Alien anatomy? Did you work for the Air Force down in New Mexico?

 

[nun]

Started as an astronomer, now working in molecular biology.

 

[Independent]

I think it's good for the authors to update the original study with more years of data.

This is what I see - for a 30 year time horizon, a 4% CPI-adjusted withdrawal rate gives the following success rates:

100/0 portfolio, 98%
75/25 portfolio, 100%
50/50 portfolio, 96%

So we know that adding a few more years didn't dramatically change success rates.

I wish they would have tested some specific "adaptive" strategies. I believe that everyone who has posted here on that topic has said that they would not blindly follow a 4% rule through a severe market downturn, so adaptive strategies are very important in the real world. I would have liked to see these authors do a comparison of a few different strategies.

 

[DblDoc]

Don't bother, it is hopeless. Anyway, why would a doubledoc want a plan suitable for the masses?

Ha

Do you have any idea what the investment track record of doctors in the USA is? I made the classic mistakes of too much home and an annuity investment product fresh out of residency. Fortunately my DW checked out a copy of Malkiel's "A Random Walk" and we found this site as well as bogleheads and the old Motley Fool board. If I had followed my physician colleagues footsteps I would not be retiring early...

DD

 

[DblDoc]

Sure there's some spewing going on along with some probably misplaced arrogance, but running simulations using historical data isn't really that original. Isn't that why we have FIRECalc. None of the conclusions add anything new to planning, so that's why I see it as a rather lazy article.

Historical data is all they have to work with, unless you are aware of a prescient alternative?

Started life as a molecular biologist, now a doctor, also published so I can see your point but as I noted above there are some compelling reasons why they updated the study. Of course the more interesting results will be in 10, 20 and 30 years when we will see what happened for those who retired into the Great Recession.

DD

 

[nun]

Historical data is all they have to work with, unless you are aware of a prescient alternative?

Started life as a molecular biologist, now a doctor, also published so I can see your point but as I noted above there are some compelling reasons why they updated the study. Of course the more interesting results will be in 10, 20 and 30 years when we will see what happened for those who retired into the Great Recession.

DD

I would bet that in 10, 20 or 30 years the results are very similar. But whatever they are we'll be left with the issue of using them to govern our present investing strategy for future income. It's sort of like arguing how many angels can fit on the head of a pin. My solution is to just go with 50/50 AA and generally trend towards more bonds and cash as I age, LBYM, and always withdraw less than the return of your portfolio. Maybe withdraw 1% less than your annual return up to a max of 4% or 5%. In negative return years live off cash and buy into the market to keep your principal stable.

 

[rescueme]

My solution is to just go with 50/50 AA and generally trend towards more bonds and cash as I age, LBYM, and always withdraw less than the return of your portfolio. Maybe withdraw 1% less than your annual return up to a max of 4% or 5%. In negative return yeMars live off cash and buy into the market to keep your principal stable.

I assume you will retire at (whatever) SS age, and not before your retirement income sources come "on-line"? IOW, not ER at all?

Just wondering...

 

[nun]

I assume you will retire at (whatever) SS age?

Nope, 50 is as early as I'd want to do it as the mortgage will be paid off by then, but I may wait until 55 as I'll get healthcare benefits from work. I get income from a rental property that already covers 50% of my expenses, excluding the mortgage, so I don't need to withdraw much from my portfolio to cover the rest.

I'm undecided whether to spend down my after tax money or do a small 72t to cover the gap between ER and 59.5. When SS and UK state pension come along those along with rental income should cover my expenses and I'll go into another accumulation phase.

 

[rescueme]

...I don't need to withdraw much from my portfolio to cover the rest.

IOW, you have no need to adhere to any study "suggested" results?

Why give opinions on a subject if what you are/planning on doing dosen't actually pertain to your life? Just wondering...

 

[nun]

IOW, you have no need to adhere to any study "suggested" results?

Why give opinions on a subject if what you are/planning on doing dosen't actually pertain to your life? Just wondering...

Not sure I understand the question. I'll be withdrawing enough to cover my expenses and my 50/50 AA is to balance risk and return. I'm interested in the probability of a portfolio's success, but as any engineer does I design for something with at least 100% extra in specification. So if a study says 4% is a SWR I'll shoot for 2%. I bought my rental property with this in mind. It's like an annuity in that it pays regular income, but I still own the principal, it goes up with inflation, and the return is better. The rental income plus 1.5% WR form my portfolio will cover my expenses. With SS I won't need any withdrawals. I've planned this with great regard to the way I live and plan to live in ER.

 

[DblDoc]

Not sure I understand the question. I'll be withdrawing enough to cover my expenses and my 50/50 AA is to balance risk and return. I'm interested in the probability of a portfolio's success, but as any engineer does I design for something with at least 100% extra in specification. So if a study says 4% is a SWR I'll shoot for 2%. I bought my rental property with this in mind. It's like an annuity in that it pays regular income, but I still own the principal, it goes up with inflation, and the return is better. The rental income plus 1.5% WR form my portfolio will cover my expenses. With SS I won't need any withdrawals. I've planned this with great regard to the way I live and plan to live in ER.

So the 4% is of value to you in your planning. Your plan is robust but many will not want/be able to work and save enough to live off 2% - for them the 4% number takes on more significance.

DD

 

[nun]

So the 4% is of value to you in your planning. Your plan is robust but many will not want/be able to work and save enough to live off 2% - for them the 4% number takes on more significance.

DD

Without my rental income I'd have to take out 3%. My strategy is based on that regular rental income along with LBYM, small required withdrawals and then state pensions. My current expenses excluding mortgage are $30k a year and I'll pull the plug once the mortgage is paid off and I reach the $1M portfolio. That isn't a rare scenario here, the thing that is a bit different about me is the rental income that isn't linked to the performance of my investments. I feel that it's important to have a diversity of income streams that cover basic expenses so you're not completely dependant on the variable stock and bond markets. For some that might be a SPIA for me it is a rental.

 

[Nords]

Boy oh boy. Tough crowd here. I will await (without holding my breath) for the nun/haha peer reviewed, academic journal article that better addresses for the masses what is a reasonable withdrawal rate from a portfolio should be. These are the same authors that published the original article in 1998. Here, and elsewhere the question has been raised as to what the impact of the great recession would be on the SWR as proposed by the Trinity study - the numbers are now updated. There has also been a lot of controversy about the 4% as an absolute rule, or as a guideline, they have now clarified that beyond the notation in their original publication that it was for planning purposes only.

Back on topic for a minute, I started a response that just grew too long for this thread. I turned it into a blog post: Back to the Trinity Study | Military Retirement & Financial Independence

I appreciate the Trinity guys refreshing their topic once in a while. I think the biggest advantage of 4% is that it gives us all a starting point to come up with thousands of options, just as asset allocation gives us all a way to tailor our ERs to our preferences.

 

[DblDoc]

Back on topic for a minute, I started a response that just grew too long for this thread. I turned it into a blog post: Back to the Trinity Study | Military Retirement & Financial Independence

I appreciate the Trinity guys refreshing their topic once in a while. I think the biggest advantage of 4% is that it gives us all a starting point to come up with thousands of options, just as asset allocation gives us all a way to tailor our ERs to our preferences.

First trip to your blog. Looks like a [-]lot of work[/-] labour of love.
Nice summary of the issues and will be a great resource when this [-]rant[/-] debate resurfaces.

DD

 

[MasterBlaster]

I took a look at the blog. It's a pretty good overview of some common SWR methods...

My one comment is that your method doesn't have to be an all-in approach. One could use a very conservative approach to provide for a living baseline. Then with whatever "extra" stash is available beyond the living baseline, one could use a more aggressive approach. That's probably the best option to spend the stash while you are young enough to enjoy it, yet with this hybrid approach you will almost certainly avoid eating dog-food in your senior years.