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Old 08-24-2017, 06:18 AM   #61
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I guess if you pick your own allocation you can make it look bad. Well here's my 60/40 total stock market and total bond market, which over on bolgehead's forums if pretty common. It does just fine thank you. Why would you pick ST treasuries?
https://www.portfoliovisualizer.com/...nalysisResults
I did not pick ST treasuries RADDR did, it was common wisdom in most of the financial articles at the time to pick short term treasuries because they had been performing better than bonds for quite a while. The reason is quite simple, at the time studies showing optimal performance using long term bonds would have terrible results from the late 70’s and 80’s while short term treasuries had constantly readjusting upward rates leading to improved performance, leading to their recommendation . However from 2000 to 2010 long term bonds actually outperformed stocks so now more long term bonds in hindsight make the portfolio work better so after the fact it is better to include more

This is not the first time I have seen this “from Y2K 4% holds up well” there was a similar thread here about a Wade Pfau post stating the same thing, but when I found the actual paper he was using for 2000 study to followup on it actually recommended short term treasuries rather than the 10 year treasuries he utilized in the look back ———and the result was 100% different, instead of being successful Wade showed by 2010 the portfolio was retiree was not actually doing well but had a 8.45 percent withdrawal rate. Wade Pfau surprisingly actually showed this in a post correcting his originally assumptions quoting the actual studies and my post on this forum and that the result was not “pretty”. Finding a proper portfolio after the fact is much easier than actually having a portfolio selected during the time period, yes changes in portfolios are common, that is why most individual investors in funds far underperform the funds.
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Old 08-24-2017, 07:29 AM   #62
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Originally Posted by daylatedollarshort View Post
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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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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Thanks to both of you. Looks to be worthwhile to maximize them - will allow me to further waste my new, higher WR

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Old 08-24-2017, 08:10 AM   #63
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I did not pick ST treasuries RADDR did, it was common wisdom in most of the financial articles at the time to pick short term treasuries because they had been performing better than bonds for quite a while. The reason is quite simple, at the time studies showing optimal performance using long term bonds would have terrible results from the late 70’s and 80’s while short term treasuries had constantly readjusting upward rates leading to improved performance, leading to their recommendation . However from 2000 to 2010 long term bonds actually outperformed stocks so now more long term bonds in hindsight make the portfolio work better so after the fact it is better to include more

This is not the first time I have seen this “from Y2K 4% holds up well” there was a similar thread here about a Wade Pfau post stating the same thing, but when I found the actual paper he was using for 2000 study to followup on it actually recommended short term treasuries rather than the 10 year treasuries he utilized in the look back ———and the result was 100% different, instead of being successful Wade showed by 2010 the portfolio was retiree was not actually doing well but had a 8.45 percent withdrawal rate. Wade Pfau surprisingly actually showed this in a post correcting his originally assumptions quoting the actual studies and my post on this forum and that the result was not “pretty”. Finding a proper portfolio after the fact is much easier than actually having a portfolio selected during the time period, yes changes in portfolios are common, that is why most individual investors in funds far underperform the funds.
Well Vanguard total bond fund has been around since 1986, picking nothing but short term treasuries is like picking all large cap value instead of total stock market. By the way the only 2 bond fund I have invested in since 2001 is 80% vanguard total bond fund and 20% vanguard corporate intermediate bond fund. Vanguard has recommended for a long time to invest in a mix of treasuries. Long term treasuries have done the best lately so would you go all LT now?
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Old 08-24-2017, 08:55 AM   #64
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Well Vanguard total bond fund has been around since 1986, picking nothing but short term treasuries is like picking all large cap value instead of total stock market. By the way the only 2 bond fund I have invested in since 2001 is 80% vanguard total bond fund and 20% vanguard corporate intermediate bond fund. Vanguard has recommended for a long time to invest in a mix of treasuries. Long term treasuries have done the best lately so would you go all LT now?
I would not but I predict if LT bonds enter a 20 year bear market and treasury rates steadily increase to 15 % over those 20 years that there will be many studies quoting the studies of 2000 that advocated all short term treasuries and how well you would have done with that advice.

As a point in 1996 Bernstein recommended the "Cowards Portfolio"
here is the bogleheads link to it as you can see it recommended 40%
ST treasurieshttps://www.bogleheads.org/blog/will...rds-portfolio/
And the Bogleheads even promoted which bond funds to use - VBISX.
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Old 08-24-2017, 10:16 AM   #65
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You can estimate your subsidies with the linked calculator. Also, there are several historical threads on ways to manage MAGI and maximize the subsidies.
There are historical threads on ways to save money as well as freebies and discounts, too, that are somewhat related. For us the money we save on actions like grocery shopping at outlet and warehouse stores, making the house energy efficient, earnings from credit card and travel hacks (nontaxable income / rewards), and savings by using seat filler subscriptions help to lower our expenses and give us some breathing room on the ACA MAGI cap.
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Old 08-24-2017, 10:23 AM   #66
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What does the MAGI have to be under to be eligible for subsidies? Just curious as we will never use ACA, and have pensions that likely will bump us too high anyway.
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Old 08-24-2017, 01:49 PM   #67
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What does the MAGI have to be under to be eligible for subsidies? Just curious as we will never use ACA, and have pensions that likely will bump us too high anyway.
Less than four time the federal poverty level.
https://www.healthcare.gov/glossary/...rty-level-FPL/
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Old 08-24-2017, 02:08 PM   #68
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What does the MAGI have to be under to be eligible for subsidies? Just curious as we will never use ACA, and have pensions that likely will bump us too high anyway.
The Kaiser Family Foundation has this calculator. You can enter your income and family size. As Jimbee stated, the max Magi is 4 times the Federal poverty level. That varies by family size. The calculator includes this adjustment. Pensions would also put us over the Magi limit. We are both 57 so we are letting the pensions increase in value and will take them later while maximizing subsidies now.
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Old 08-24-2017, 03:39 PM   #69
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Begen's paper

http://www.retailinvestor.org/pdf/Bengen1.pdf

The 4.5% figure is based on a number of caveats like 30 years longevity, asset mix, 5-7 year periodic re-balancing etc. 4% is a regression to a longer time horizon like making your portfolio last 50 years. According to the paper if you just start making your own assumptions like "My assets grew to 1.5 M therefore I'm resetting to a new SWR" without doing the in depth analysis, you likely will run out of money. I think non taxed accounts are chosen because taxed accounts returns are dependent on the dividends being taxed. My way around this was to invest in tax efficient post tax equities like BRK.B and to accumulate a few hundred K of LT cap loss over decades and consider that a separate asset class. I lived through 2000 and 2008 so it wasn't hard to sell losers and reinvest thereby accumulating LT cap loss and resetting my basis. So now that I'm retired, if I sell a asset with a long term cap gain, say to buy a car, I just apply LT cap loss against it and pay no tax. I haven't started RMD from my IRA accounts but I'm going to spend the next 4 years taking out as much as I can to the 15% tax limit and putting that into a Roth before RMD hits me at 70 1/2

Another thing I did was to withdraw 5 years of living expense as cash and put it into short term muni's using some of my LT cap loss. This made a kind of homebrew annuity on which I will live, while I am moving IRA money into Roths. It completely divorces me from the portfolio market volatility for living expense during this 5 year period, and completely controls my taxes. It also gets me 5 years into retirement, which seems to be the period one needs to allow your retirement to stabilize. The annuity plus my portfolio gives me a asset mix of 55:45 stocks:FI as of today, which will bias my ratios to 66:33 when my annuity is spent in 5 years, which is about where I want to be. I will then re-evaluate and re-balance as needed. My % SWR remains slightly below 4%. My time horizon is about 45-50 years as my wife is younger and the portfolio includes her longevity.

I decided to wait to 70 to take SS since that is like paying myself 5% compounded on that annuity. When it finally fails and the congress is forced to cut payments 25% I will basically be back to square one: the amount I would have gotten if I took it at 66. The 25% cut should stabilize it for my expected lifetime, as I should be dead before the Millennials begin retirement.

I strongly suggest you read and understand Begen's paper before you make any moves.

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Old 08-24-2017, 04:04 PM   #70
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the 5 year period is not really what is critical . what is critical is that you have a good up market before getting hit with an extended down market .

having five years of money and having the downturn 6 years in accomplished nothing unless you had a good up cycle first . .

in fact according to kitces cash buckets hurt us more than help most of the time .
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Old 08-24-2017, 04:44 PM   #71
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....According to the paper if you just start making your own assumptions like "My assets grew to 1.5 M therefore I'm resetting to a new SWR" without doing the in depth analysis, you likely will run out of money. ....
Ok Doc, perhaps then you can explain something to me.

You say above that if my assets grew to $1.5 million and I reset my WR (I increase it from whatever it was to 4% or 4.5% of $1.5 million) that I "will likely run out of money".

If what you say is true wouldn't someone that is retiring for the first time with $1.5 million and a 4% or 4.5% WR also be equally likely to run out of money?

Assuming that they have the same AA then their risk of ruin is identical.... how can it be anything but identical since they are taking the same WR from the same AA portfolio starting at the same date?
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Old 08-24-2017, 05:27 PM   #72
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Ok Doc, perhaps then you can explain something to me.

You say above that if my assets grew to $1.5 million and I reset my WR (I increase it from whatever it was to 4% or 4.5% of $1.5 million) that I "will likely run out of money".

If what you say is true wouldn't someone that is retiring for the first time with $1.5 million and a 4% or 4.5% WR also be equally likely to run out of money?

Assuming that they have the same AA then their risk of ruin is identical.... how can it be anything but identical since they are taking the same WR from the same AA portfolio starting at the same date?
I'm a fan of looking at both situations as (nearly) the same. I think both are at a greater risk of sequence of returns, because in this scenario the market has had a nice run-up, and may be due a correction, perhaps a big one.

I think the person who has been retired and reset their WR is probably safer than the newly retired, because presumably they were getting along fine on the smaller withdrawal, and could easily cut back to it if the correction does come.

IMO, if you're going to reset your WR or basis for the WR, you might as well use VPW, which resets the basis of your slightly increasing WR every year. With a good start, you'll slowly increase your withdrawals, and in bad times you'll slowly decrease, rather than making a sudden jump. But with a good start in your retirement, just about every strategy is going to work.
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Old 08-24-2017, 05:41 PM   #73
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You can increase your wr in the good times as long as you proportionally can stand decrease in the bad times, but that level of decrease may take you under substistance, If you buy into a higher lifestyle or debt. What happens in your scenario when your 1.5M portfolio drops to 750K, or when inflation ticks up to 10 or 15%?

Did you read Begen's paper? He looks at some failure scenarios.

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Old 08-24-2017, 06:15 PM   #74
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BIL is committed to 5% without offering any rationale other than "someone told him". I have insisted that 4% is the norm to no avail. I fear he is heavily invested in his employer s stock and maybe using a dividend capture (market timing) scheme. If 4% is really 4.5%, I might have to buy him a case of beer.
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Old 08-24-2017, 06:53 PM   #75
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Ok Doc, perhaps then you can explain something to me.

You say above that if my assets grew to $1.5 million and I reset my WR (I increase it from whatever it was to 4% or 4.5% of $1.5 million) that I "will likely run out of money".

If what you say is true wouldn't someone that is retiring for the first time with $1.5 million and a 4% or 4.5% WR also be equally likely to run out of money?

Assuming that they have the same AA then their risk of ruin is identical.... how can it be anything but identical since they are taking the same WR from the same AA portfolio starting at the same date?


Let's say you run firecalc when you retire and you have 90% chance of success. 6 years out stocks have gone up considerably. That likely drops the 10% failure off the table.

Now you reset your basis. You're back at 90% but with more income. Now the market busts dropping 50% of the success cases off the table. You now have 5/35 or 15% risk of failure.

Just a ballpark example but every year you walk down the path of retirement, the amount of different future paths decrease. If you start retirement climbing mountain, your probability of sinking in the ocean decreases with every step.
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Old 08-24-2017, 07:28 PM   #76
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Firecalc is monte carlo isnt it? I believe so It runs about 100 scenarios, with a standard set of assumptions. I like the program but I don't think it's infallible by any means, especially when your courting scenarios of 10% failure. 9 times you win, but being 85 sick with a failed portfolio would really suck. We have been traveling with very low inflation for a very long time. Regression to the mean would suggest traveling with higher inflation for a long time. Plug 4-5% inflation into firecalc and see how often you fail.
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Old 08-24-2017, 07:58 PM   #77
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Firecalc is monte carlo isnt it? I believe so.
No, it is not (one of the things I like best about it). It is real historical data, and it is kept in sequence and also all the asset class performance and inflation data for each year is kept together.
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Old 08-24-2017, 08:04 PM   #78
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You can increase your wr in the good times as long as you proportionally can stand decrease in the bad times, but that level of decrease may take you under substistance, If you buy into a higher lifestyle or debt. What happens in your scenario when your 1.5M portfolio drops to 750K, or when inflation ticks up to 10 or 15%?

Did you read Begen's paper? He looks at some failure scenarios.

Best
I was interested in your understanding of Bengen's paper, which I have read many times before, so I read it again.

He does indeed say, when talking about a 5% initial withdrawal & the effect the "Big Bang"
Quote:
This is a powerful warning (particularly appropriate for recent retirees) not to increase their rate of withdrawal just because of a few good years early in retirement. Their "excess returns" early may be needed to balance off weaker returns later
Later on the same page (173), he says - and now he's talking about 4% initial withdrawal.
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In no past case has it caused a portfolio to be exhausted before 33 year and in most cases it will lead to portfolio lives of 50 years or longer
So, a reset after a market run-up will not cause your retirement to fail before 30 years as long as you reset your initial withdrawal to 4% of the new (greater) portfolio value. (assuming you stick to his other conditions - assets and allocations)

He does talk of "star" clients who can become "black hole" clients after an increase in SWR, but if the black hole client kept to the plan, the portfolio would last the 30 years from the time the change was made.

Actually, a person who resets their initial withdrawal to 4% of their portfolio value after a market run up will have a better chance of outliving their portfolio because the portfolio has to last fewer years - 30 minus whatever years have passed before the reset.
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4.5% is the updated SWR according to Bill Bengen
Old 08-24-2017, 08:15 PM   #79
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4.5% is the updated SWR according to Bill Bengen

Maybe I need to look into shorter term projections. In excel I model growth at 5.5% after inflation for fire pre-planning. I run firecalc for target number going forward.

Maybe because of my long time horizon or rebalance/other factors firecalc has a few % to fail? I use 30x savings and ~70% stocks.

If 4% is certain not to fail then great if you fall in the 33 year window and you have faith in it. Continued research might cause me to use 3.75-4% during good times and drop back to 2% during bear markets. Current target is 3.25%

I get maybe 2% failure over 50 years so I have felt like if I retire and have a good year or two I should be set!
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Old 08-24-2017, 08:27 PM   #80
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Your last statement is true. Portfolio longevity is the product of your longevity times the number of portfolio failures. The older you get the more likely you will fail before your portfolio, so you likey wont outlive your mistakes. Recent inflation has been 1.5% which yields a distorted rate of return. What we have been fighting is near deflation. That wont last forever. Long term average inflation is 3.22% so we can go a lot of years at 4.5% to get back to 3.22. Buy gold Anyway interesting discussion.
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