2% swr

[youbet]

The Vanguard LT Investment Grade Corporate bond fund (VWESX) is yielding more than 7%. So, in a 3% inflation world, you could withdraw 4%, and reinvest 3%, and pretty much keep the inflation-adjusted value of your bonds constant over time, which would allow you to grow your withdrawal rate with inflation. Of course, if inflation exceeds 3%, all bets would be off.

I'm surprised you would advocate the the fixed portion of a portfilio would be 100% long term corporate........

And even if you did take that undiversified approach, and I'd hardly recommend it, your scenario has no real growth.

 

[youbet]

A 25% annual drop on a 50/50 portfolio like I envision would stress me quite a bit.

We've had a few interesting threads on this subject. You should look them over. Even portfolios destined to survive may take scary dips and dives along the way. A portfolio with a sensible allocation of equities aimed at surviving for 30 - 40 yrs or so historically has had enough risk exposure to take a dive such as you fear. Yet, it's likely to survive anyway. It's just one of things to come to grips with.

I am going to save at least a 25% extra cushion before I retire. I'd also think I'd be insane to retire with "just enough". Gotta leave some margin for error, right?

If you're risk adverse, I sure recommend that. This means working longer, saving more and retiring later. But, you must feel comfortable and if that's what it takes, I'd sure recommend it. Smaller withdrawals rates, more "cushion," or padded budgets all boil down to the same thing: retiring with more money. I said in another thread that the one thing I've found true in all aspects of retirement planning, other things being equal, is that MORE MONEY IS BETTER!

[/quote]

 

[FIRE'd@51]

I'm surprised you would advocate the the fixed portion of a portfilio would be 100% long term corporate........

And even if you did take that undiversified approach, and I'd hardly recommend it, your scenario has no real growth.

VWESX is a diversified fund of investment grade corporates. The real growth over the long term comes from equities.

As you know, I have other lower grade stuff mixed in (ISM/OSM and VWEHX), as well as some cash. I was just pointing out that with the S&P yielding 3.4% and VWESX yielding 7.2%, it is possible to have very close to a 4% SWR entirely from dividends and interest with a 60/40 mix of the S&P 500 and VWESX in a 3% inflation world.

 

[youbet]

VWESX is a diversified fund of investment grade corporates. The real growth over the long term comes from equities.

As you know, I have other lower grade stuff mixed in (ISM/OSM and VWEHX), as well as some cash. I was just pointing out that with the S&P yielding 3.4% and VWESX yielding 7.2%, it is possible to have very close to a 4% SWR entirely from dividends and interest with a 60/40 mix of the S&P 500 and VWESX in a 3% inflation world.

My comments were directed at how your inputs related to Fuego's post. Don't know how this is related to Fuego's scenario.... but whatever....

Also, not to be picky (well not real picky!), it would be possible to have very close to a 4% WR, but not necessarily an inflation adjusted 4% SWR over 30 - 40 yrs. But I know what ya mean!

 

[FUEGO]

You may want to consider more of a "wait and see" approach. If you get lucky and during your first few yrs of ER equities take off fabulously and the equity percentage of your portfolio is skyrocketing through the roof while your fixed portion is shrinking because of higher interest rates, I'd hate to see you selling fixed and holding equities.

It's good to hypoethesize withdrawal strategies, dream about fictional "bucket" scenarios and all that. But when push comes to shove, you may want to enter ER with a sensible AA and make decisions based on what is actually happening at the time.......

I agree 100% that we will all have to make the best decisions we can as the facts come along. And in the example you gave, I would probably rebalance the skyrocketing equities into fixed income to maintain whatever target percentages I have. So whether I am implicitly selling equities (and call it "rebalancing") or whether I am explicitly selling equities (and call it "market timing" or equity harvesting or whatever), the end result is the same. Consume some portion of fixed income except when the equities get out of proportion, sell to get back to balance.

 

[youbet]

So whether I am implicitly selling equities (and call it "rebalancing") or whether I am explicitly selling equities (and call it "market timing" or equity harvesting or whatever), the end result is the same. .

There ya go.....

Now.... 29 months into RE, my portfolio down roughly 30% , I wish I could rebalance, sell, buy or hold my way back into the nice, cozy financial position I was on the day I walked out of MegaCorp for the last time!

 

[FUEGO]

There ya go.....

Now.... 29 months into RE, my portfolio down roughly 30% , I wish I could rebalance, sell, buy or hold my way back into the nice, cozy financial position I was on the day I walked out of MegaCorp for the last time!

Yep. That's one reason I plan on having some sort of "sleep at nite" protection in the form of a cash cushion that I can spend down and not worry about (for a while at least). No guarantee that things will get better, but at least comfort to know you are provided for at least for a while.

 

[youbet]

Yep. That's one reason I plan on having some sort of "sleep at nite" protection in the form of a cash cushion that I can spend down and not worry about (for a while at least). No guarantee that things will get better, but at least comfort to know you are provided for at least for a while.

Having a few years of cash/near-cash is somewhat comforting, but not much. Thanks to interest, dividends and some cash on hand, I haven't actually needed to sell anything that's fallen in value during this time. Still, looking at the bottom line and seeing that my overall net worth is down by close to a third opens the acid valve into my stomach big time......

In a 60/40 or 50/50 diversified portfolio, holding cash as part of your fixed allocation is very handy. But it's vastly overrated as comfort food at times like these!

Even if I hadn't had cash on hand, after applying divs + interest to my WR, the amount of slightly depressed bond funds I would have had to sell to supplement would not have materially worsened my losses. If this goes on for a number of years, of course that could exaccerbate things.

 

[FUEGO]

In a 60/40 or 50/50 diversified portfolio, holding cash as part of your fixed allocation is very handy. But it's vastly overrated as comfort food at times like these!

What you need is a working spouse or a big COLA pension.

 

[lucija]

Great idea! Now, where can I get one of those? (just kidding)

At any rate, here's what I have learned about myself from the last 6 months... whatever allocation and SWR I end up with a FIRE time, I will also have 2-4 yrs worth of expenses in cash which will not be a part of the overall portfolio. I guess, this is the same as having a bigger stash/lower SWR/different allocation, but for some psychological reason I find this approach more comforting.

 

[haha]

If we use Mark To Market accounting, the number we need to use for NW is the current one.

I use a 2% WR, but first I multiply my net invested assets by 2.

Sleep well, and eat well.

What you need is a working spouse or a big COLA pension.

Like JG used to say, right before his wife had to quit work, "A working wife is like a pumping oil well."

'Ol John was good with a phrase.

Ha