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Old 08-23-2017, 10:36 AM   #41
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Originally Posted by mathjak107 View Post
again , constant inflation will give you totally different skewed results . it is like trying to use average returns when spending down .

milevsky demonstrated how there can be as much as a 15 year difference in how long the money lasts using averages vs actual sequences
I agree with you.

In the 2000-2015 time period, a 3% constant inflation could very well produce worse results than using actual values. I haven't done the calculations though. See CPI numbers below.

https://www.minneapolisfed.org/commu...ion-rates-1913
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Old 08-23-2017, 11:26 AM   #42
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The average safe withdrawal rate for all those 200+ retirees is, believe it or not, 7%! However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970's, and it takes you down to 4.5%.
So with no early bear market or *heavy* inflation, your SWR can be SEVEN percent

Wow.

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Old 08-23-2017, 12:21 PM   #43
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So with no early bear market or *heavy* inflation, your SWR can be SEVEN percent

Wow.

Your safe withdrawal rate would have been seven percent, and given those rosy provisos. And that's in the best performing economy in the world (of over 200 countries), over its most productive span.

Nobody knows the SWR going forward, and folks who think this is a science or who need this 1/2% additional WR to avoid disaster are maybe cutting things a little thin.

Yes, all we've got is history and best guesses, but remaining flexible and being able to cut spending if required might be pretty important. Is anybody really going to pick a WR and blindly adjust for inflation every year without looking at what is happening to the balance? It seems highly unlikely (and ill advised). For those agree, I think they'll be much happier with some variant of a "percent of year-end portfolio balance" withdrawal method (and use Bob Clyatt's "95% rule," VPW, or another smoothing technique if the volatility seems too much).
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Old 08-23-2017, 12:24 PM   #44
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So does all of this imlpy that FireCalc--and others--are overly conservative? Seems that most of us end up with about a 4% (or less) SWR.
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Old 08-23-2017, 12:44 PM   #45
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not really , since this is based on it being in some form of retirement account only .
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Old 08-23-2017, 12:56 PM   #46
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That's the mystery to me.... why would there be a difference in SWR if the money was in a tax-deferred account vs a taxable or tax-free account?.... IOW, it shouldn't matter whether you use the withdrawals to pay taxes or buy martinis.... money is fungible.
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Old 08-23-2017, 01:02 PM   #47
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I've been keeping my SWR closer to 3 percent. I should revise the budget for next year and let loose (just a bit). Any other Colorado folks want to help me expand my withdrawal rate, if even just for coffee?
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Old 08-23-2017, 01:34 PM   #48
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not really , since this is based on it being in some form of retirement account only .
But most calculators don't make the distinction. Someone unaware of the differences might underspend.. With 80% of my portfolio in pretax, I THOUGHT I was overspending but now I might not be.
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Old 08-23-2017, 01:44 PM   #49
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exactly the problem , calculators do not make the distinction .

but then again statistically the calculators do not consider most of us will not last 30 years either life expectancy wise .

when you combine that statistic with the success rate stats you actually are higher on a statistical basis .
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Old 08-23-2017, 02:36 PM   #50
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I'm too cheap to increase my WR to a higher percentage.... I worry about the ACA cliff - which could be very painful... $1 too much and we have a huge tax bill.
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Old 08-23-2017, 03:19 PM   #51
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That's the mystery to me.... why would there be a difference in SWR if the money was in a tax-deferred account vs a taxable or tax-free account?.... IOW, it shouldn't matter whether you use the withdrawals to pay taxes or buy martinis.... money is fungible.
+1
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Old 08-23-2017, 03:35 PM   #52
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That is why I favor some prudent ratcheting up of withdrawals/spending as one avoids the burly bear.

If someone retired 5 years ago with $1 million and a 4% WR and they now have $1.5 million then I see no reason why they cannot prudently ratchet up to 4% of $1.5 million.... it is just as prudent as someone with $1.5 million who is just now retiring starting with a 4% WR...
But he is not as prudent as a guy who retired in late 2008/early 2009 at the same time as his stash got decimated by the Great Recession. If he has upped his WR only to match inflation, he is now spending only 15% more than what he did when starting out.

Meanwhile, if he had $1M in 2009, that money would have grown to $2.3M if invested in Wellesley (with no withdrawal).
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Old 08-23-2017, 03:40 PM   #53
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I just thought of checking my own situation. Compared to my personal low point on March 9, 2009, I now have 1.997x in nominal terms.

That's amazing, considering that from 2009 to 2012 I was still working part-time but made only enough to cover expenses, and did not add to the stash.

And I have been retired since 2012 and spending money like a drunken sailor. Not at all prudent here!

PS. I may have to pay for my sin soon. Watch out for the next recession!
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Old 08-23-2017, 03:50 PM   #54
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That's the mystery to me.... why would there be a difference in SWR if the money was in a tax-deferred account vs a taxable or tax-free account?.... IOW, it shouldn't matter whether you use the withdrawals to pay taxes or buy martinis.... money is fungible.
I haven't seen any references to it but I think it has to do with rebalancing. If you rebalance, with an abundance of stocks especially, in a tax-protected account, that is a free transaction. If the money is in a taxable account you could get hit with a big tax bill not for any actual withdrawals or spending but just to balance your asset allocation thus leaving you with less to rebalance. They can't reconcile that in their models. Or to do so would require a lot more calculatin' and lines of code.
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Old 08-23-2017, 05:48 PM   #55
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I'm too cheap to increase my WR to a higher percentage.... I worry about the ACA cliff - which could be very painful... $1 too much and we have a huge tax bill.
+1. We've kept our budget lower than we would have without the ACA maximum income rules. It has been kind of a math game for us to try to live well without going over the MAGI cap each year. We decided life like this is actually pretty good so we probably won't spend much more even when we are off ACA, so in a way the ACA did us a favor over and above subsidies. Plus the college financial aid limits were very similar so when the kids were younger we got both ACA subsidies and free college tuition.
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Old 08-23-2017, 06:19 PM   #56
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I read the entire reddit thread where Bengel was a guest blogger and what was fascinating to me was how many times he said he recommends no more than 50% equities, and is holding a lot of cash right now. I couldn't tell whether he was doing some market timing because of the long bull run, or whether that advice is just based on all of his historical research. But it definitely has me thinking about whether to ratchet down from 60% to somewhere in the 50-55% range.
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Old 08-23-2017, 08:09 PM   #57
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Originally Posted by rodi View Post
I'm too cheap to increase my WR to a higher percentage.... I worry about the ACA cliff - which could be very painful... $1 too much and we have a huge tax bill.

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+1. We've kept our budget lower than we would have without the ACA maximum income rules. It has been kind of a math game for us to try to live well without going over the MAGI cap each year. We decided life like this is actually pretty good so we probably won't spend much more even when we are off ACA, so in a way the ACA did us a favor over and above subsidies. Plus the college financial aid limits were very similar so when the kids were younger we got both ACA subsidies and free college tuition.
I expect to be eligible for subsidies for the first time next year. Without getting personal, can you share some info as to what they could be worth?
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Old 08-23-2017, 09:33 PM   #58
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This thread is the model for my absolutely favorite threads of all time.

Keep at it ladies and gentlemen, I enjoy every line!

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Old 08-23-2017, 10:48 PM   #59
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I expect to be eligible for subsidies for the first time next year. Without getting personal, can you share some info as to what they could be worth?
Our subsidies this year will be around $15K for the two of us. To make the equivalent from a part-time job instead, we would have to make more than the $15K to cover taxes, commute costs, job costs and of course at least one of us would have to actually work for X dollars per hour. For the subsidies we just have to keep a close watch on our annual MAGI.
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Old 08-24-2017, 04:07 AM   #60
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I expect to be eligible for subsidies for the first time next year. Without getting personal, can you share some info as to what they could be worth?
For two of us the subsidies are about $8k. We have a fair amount of money in taxable accounts and this can make it easier to manage MAGI. We are delaying pension income to help keep MAGI down also. Contributions to your HSA also reduce MAGI. You can estimate your subsidies with the linked calculator. Also, there are several historical threads on ways to manage MAGI and maximize the subsidies.

To put us back on topic, we don't need subsidies. Bengen just gave us an extra .5% WR.

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