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.
4.5% is the updated SWR according to Bill Bengen
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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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walkinwood
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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"
Later on the same page (173), he says - and now he's talking about 4% initial withdrawal.
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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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!
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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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.
Anyway interesting discussion.Pj. My present draw is 3.11% with my homebrew annuity as a volatility ballast and tax management strategy. It's an arbitrary number well below any failure boundary. My horizon is 50 years since my wife has longevity well into the 90's and she is under 60. I'll be long dead, so I get your analysis. I think 3.25 is perfect.
Best
Best
pb4uski
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I guess my point is that over the long run the risk of dying rich exceeds the risk of financial ruin and a 4% or even 4.5% SWR is essentially based on a "bad" case scenarios so in 95 of 100 cases the retiree is going to die rich.
By ratcheting up my withdrawals, I am trying to reduce the risk of dying rich, but at the same time prudently protect against financial ruin.
I'm a-ok with a occasionally recalibrating in a 5% or less chance of financial ruin if doing so significantly reduces my risk of dying rich. Besides, as others have pointed out the risk is still lower because the ratcheting up would typically mean that I could tighten my belt without much pain if it became necessary... which reduces the risk of financial ruin even more.
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pb4uski
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OK, I'll bite.....tell me Doc, when in the history of man did a 60% stock/40% bond portfolio decline 50%?
Not in the last 37 years and I'll bet not before then either. Even if you factor in 4% withdrawals it doesn't even come close.
pb4uski
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walkinwood
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I believe all my statements above are true. We were discussing Bengen's paper.
I haven't seen that definition of portfolio longevity before.
I'm old enough to know that "this time is different" is true in only the rarest of times.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
In any case, I don't think any FA or retiree would recommend sticking to a model like Bengen's without adjusting spending when times are rough (or good) And he addresses that too in the paper.
We have no choice. Our pensions start the month after retirement. And 70% of our savings is pretax. There is no way we can have a MAGI of under $64k, anyway. Thats fine, thanks for the info.
Why do you do quote this as boglehead promoted portfolio, thats just a list of funds to use if you want to use bernstein's Cowards Portfolio. Almost all bolgeheads portfolios are 2-4 funds and have never recommended all ST bond funds, and by the way the Cowards Portfolio did just fine from 2000-2017 even at 6% WD
https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults
audreyh1
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OK, I'll bite.....tell me Doc, when in the history of man did a 60% stock/40% bond portfolio decline 50%?
Not in the last 37 years and I'll bet not before then either. Even if you factor in 4% withdrawals it doesn't even come close.
Sure. Once you take into account inflation, which really matters. And you have to look at the real cumulative result over multiple years for each year. Not just 37 years.
Just run a 4%+ FIRECALC scenario starting in one of the failure years such as 1965 (I think). It usually takes a while, over a decade, but the drop below 50% happens, and a total run out of money before 30.
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pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Is it required that your pension start when you retire? Most pensions allow participants to defer starting benefits to a time of their chosing (like social security does).
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well, of course, given that you have some failures then your portfolio would have to have dropped more than 50%.... I was referring to a 50% decline in a short term which was what I think Doc was suggesting though I'll admit re-reading his post he was not specific.
I added a constraint that the portfolio was to always be at least 50% of its original amount and it failed that constraint in 41 of 117 cycles (35%).
My point is that I'm willing to deal with 35% the low trending lines by belt tightening after I ratchet in exchange for avoiding the much more prevalent higher lines.
Andre1969
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I just ran a 4.5% scenario based on my own rate of return, assuming I retired on 12/31/07 and took my first withdrawal on 1/1/08. If I use a constant 3% for inflation, then as of 12/31/16, I would be down about 5% in raw dollars. I started the theoretical portfolio with $1M, used an initial withdrawal of $45K, and ended up with $947,762 on 12/31/16.
My own personal return has been...
2008: -41%
2009: +40%
2010: +25%
2011: -1%
2012: +16%
2013: +22%
2014: +5%
2015: +1%
2016: +9%
If I use actual inflation numbers for each of those years, I come up with $972,846 as of 12/31/16.
I don't know if I'd be comfortable, going for a 4.5% SWR. Using 3% inflation, that would put my 2017 withdrawal at $58,715, which is now up to ~6.2% ($58715/$947762). Using actual inflation, it's still a bit high... 5.3% ($52080/$972846).
My own personal return has been...
2008: -41%
2009: +40%
2010: +25%
2011: -1%
2012: +16%
2013: +22%
2014: +5%
2015: +1%
2016: +9%
If I use actual inflation numbers for each of those years, I come up with $972,846 as of 12/31/16.
I don't know if I'd be comfortable, going for a 4.5% SWR. Using 3% inflation, that would put my 2017 withdrawal at $58,715, which is now up to ~6.2% ($58715/$947762). Using actual inflation, it's still a bit high... 5.3% ($52080/$972846).
The 4/4.5% WD rate is based on 30 years, after 9 years you have about what you started with. You now have only 21 years left to spend about the same, I'm pretty sure the WD for 20 years is quite a bit higher. I would say you are just fine.
Running_Man
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COWARDS PORTFOLIO 2000-2017 6% WITHDRAWAL
| Annual withdrawal | Investable | Annual % Return | Closing Balance | Yearly Inflation | ||
| 2000 | 1,000,000.00 | (60,000.00) | 940,000.00 | 2.86% | 966,884.00 | 3.40% |
| 2001 | 966,884.00 | (62,040.00) | 904,844.00 | 0.47% | 909,096.77 | 2.80% |
| 2002 | 909,096.77 | (63,777.12) | 845,319.65 | -6.78% | 788,006.97 | 1.60% |
| 2003 | 788,006.97 | (64,797.55) | 723,209.42 | 23.80% | 895,333.26 | 2.30% |
| 2004 | 895,333.26 | (66,287.90) | 829,045.37 | 12.27% | 930,769.23 | 2.70% |
| 2005 | 930,769.23 | (68,077.67) | 862,691.56 | 6.89% | 922,131.01 | 3.40% |
| 2006 | 922,131.01 | (70,392.31) | 851,738.70 | 14.38% | 974,218.72 | 3.20% |
| 2007 | 974,218.72 | (72,644.87) | 901,573.86 | 5.12% | 947,734.44 | 2.80% |
| 2008 | 947,734.44 | (74,678.92) | 873,055.52 | -20.44% | 694,602.97 | 3.80% |
| 2009 | 694,602.97 | (77,516.72) | 617,086.25 | 20.75% | 745,131.64 | -0.40% |
| 2010 | 745,131.64 | (77,206.65) | 667,924.99 | 12.83% | 753,619.77 | 1.60% |
| 2011 | 753,619.77 | (78,441.96) | 675,177.81 | -9.20% | 613,061.45 | 3.20% |
| 2012 | 613,061.45 | (80,952.10) | 532,109.34 | 11.10% | 591,173.48 | 2.10% |
| 2013 | 591,173.48 | (82,652.10) | 508,521.38 | 15.80% | 588,867.76 | 1.50% |
| 2014 | 588,867.76 | (83,891.88) | 504,975.88 | 6.40% | 537,294.34 | 1.60% |
| 2015 | 537,294.34 | (85,234.15) | 452,060.19 | -0.82% | 448,353.30 | 0.10% |
| 2016 | 448,353.30 | (85,319.38) | 363,033.91 | 9.20% | 396,433.03 | 1.30% |
| 2017 | 396,433.03 | (86,428.54) | 310,004.50 | |||
At 22% withdrawal this portfolio will succumb within the next 5 years making a 6% withdrawal rate a failure for a 30 year retirement.
And yes Bernstein does have a 4 fund portfolio called the "NO BRAINER PORTFOLIO" it does use VANGUARD TOTAL BOND MARKET but has underperformed the Coward's Portfolio by about 1.5% per year over the last 15 year period
Running_Man
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at 5% the Coward's Portfolio is hanging on but likely to not make it at a present 9.6% withdrawal rate.
| Annual withdrawal | Investable | Annual % Return | Closing Balance | Yearly Inflation | ||
| 2000 | 1,000,000.00 | (50,000.00) | 950,000.00 | 2.86% | 977,170.00 | 3.40% |
| 2001 | 977,170.00 | (51,700.00) | 925,470.00 | 0.47% | 929,819.71 | 2.80% |
| 2002 | 929,819.71 | (53,147.60) | 876,672.11 | -6.78% | 817,233.74 | 1.60% |
| 2003 | 817,233.74 | (53,997.96) | 763,235.78 | 23.80% | 944,885.89 | 2.30% |
| 2004 | 944,885.89 | (55,239.91) | 889,645.98 | 12.27% | 998,805.54 | 2.70% |
| 2005 | 998,805.54 | (56,731.39) | 942,074.15 | 6.89% | 1,006,983.06 | 3.40% |
| 2006 | 1,006,983.06 | (58,660.26) | 948,322.80 | 14.38% | 1,084,691.62 | 3.20% |
| 2007 | 1,084,691.62 | (60,537.39) | 1,024,154.23 | 5.12% | 1,076,590.92 | 2.80% |
| 2008 | 1,076,590.92 | (62,232.43) | 1,014,358.49 | -20.44% | 807,023.61 | 3.80% |
| 2009 | 807,023.61 | (64,597.27) | 742,426.35 | 20.75% | 896,479.81 | -0.40% |
| 2010 | 896,479.81 | (64,338.88) | 832,140.93 | 12.83% | 938,904.62 | 1.60% |
| 2011 | 938,904.62 | (65,368.30) | 873,536.32 | -9.20% | 793,170.98 | 3.20% |
| 2012 | 793,170.98 | (67,460.09) | 725,710.89 | 11.10% | 806,264.80 | 2.10% |
| 2013 | 806,264.80 | (68,876.75) | 737,388.05 | 15.80% | 853,895.36 | 1.50% |
| 2014 | 853,895.36 | (69,909.90) | 783,985.46 | 6.40% | 834,160.53 | 1.60% |
| 2015 | 834,160.53 | (71,028.46) | 763,132.07 | -0.82% | 756,874.39 | 0.10% |
| 2016 | 756,874.39 | (71,099.49) | 685,774.91 | 9.20% | 748,866.20 | 1.30% |
| 2017 | 748,866.20 | (72,023.78) | 676,842.42 | |||
| -9.6% | ||||||
Running_Man
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at 4.5% it has a fair chance of success about 50/50 I would think to make 30 years
| Year | Start of Year | Annual withdrawal | Investable | Annual % Return | Closing Balance | Yearly Inflation |
| 2000 | 1,000,000.00 | (45,000.00) | 955,000.00 | 2.86% | 982,313.00 | 3.40% |
| 2001 | 982,313.00 | (46,530.00) | 935,783.00 | 0.47% | 940,181.18 | 2.80% |
| 2002 | 940,181.18 | (47,832.84) | 892,348.34 | -6.78% | 831,847.12 | 1.60% |
| 2003 | 831,847.12 | (48,598.17) | 783,248.96 | 23.80% | 969,662.21 | 2.30% |
| 2004 | 969,662.21 | (49,715.92) | 919,946.29 | 12.27% | 1,032,823.70 | 2.70% |
| 2005 | 1,032,823.70 | (51,058.25) | 981,765.44 | 6.89% | 1,049,409.08 | 3.40% |
| 2006 | 1,049,409.08 | (52,794.23) | 996,614.85 | 14.38% | 1,139,928.06 | 3.20% |
| 2007 | 1,139,928.06 | (54,483.65) | 1,085,444.41 | 5.12% | 1,141,019.17 | 2.80% |
| 2008 | 1,141,019.17 | (56,009.19) | 1,085,009.98 | -20.44% | 863,233.94 | 3.80% |
| 2009 | 863,233.94 | (58,137.54) | 805,096.40 | 20.75% | 972,153.90 | -0.40% |
| 2010 | 972,153.90 | (57,904.99) | 914,248.91 | 12.83% | 1,031,547.04 | 1.60% |
| 2011 | 1,031,547.04 | (58,831.47) | 972,715.57 | -9.20% | 883,225.74 | 3.20% |
| 2012 | 883,225.74 | (60,714.08) | 822,511.66 | 11.10% | 913,810.46 | 2.10% |
| 2013 | 913,810.46 | (61,989.07) | 851,821.38 | 15.80% | 986,409.16 | 1.50% |
| 2014 | 986,409.16 | (62,918.91) | 923,490.25 | 6.40% | 982,593.63 | 1.60% |
| 2015 | 982,593.63 | (63,925.61) | 918,668.02 | -0.82% | 911,134.94 | 0.10% |
| 2016 | 911,134.94 | (63,989.54) | 847,145.40 | 9.20% | 925,082.78 | 1.30% |
| 2017 | 925,082.78 | (64,821.40) | 860,261.38 | |||
| -7.0% | ||||||
Running_Man
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At 4% I think you are 90% + likely to make it 30 years, basically at 4% over the last 17 years the Cowards portfolio has sustained the nominal value of the portfolio. If one was looking to go 45 years from 2000 with the Coward's portfolio it would have to have been at a lower withdrawal rate I think
| Year | Start of Year | Annual withdrawal | Investable | Annual % Return | Closing Balance | Yearly Inflation |
| 2000 | 1,000,000.00 | (40,000.00) | 960,000.00 | 2.86% | 987,456.00 | 3.40% |
| 2001 | 987,456.00 | (41,360.00) | 946,096.00 | 0.47% | 950,542.65 | 2.80% |
| 2002 | 950,542.65 | (42,518.08) | 908,024.57 | -6.78% | 846,460.51 | 1.60% |
| 2003 | 846,460.51 | (43,198.37) | 803,262.14 | 23.80% | 994,438.52 | 2.30% |
| 2004 | 994,438.52 | (44,191.93) | 950,246.59 | 12.27% | 1,066,841.85 | 2.70% |
| 2005 | 1,066,841.85 | (45,385.11) | 1,021,456.74 | 6.89% | 1,091,835.10 | 3.40% |
| 2006 | 1,091,835.10 | (46,928.21) | 1,044,906.90 | 14.38% | 1,195,164.51 | 3.20% |
| 2007 | 1,195,164.51 | (48,429.91) | 1,146,734.60 | 5.12% | 1,205,447.41 | 2.80% |
| 2008 | 1,205,447.41 | (49,785.95) | 1,155,661.46 | -20.44% | 919,444.26 | 3.80% |
| 2009 | 919,444.26 | (51,677.81) | 867,766.44 | 20.75% | 1,047,827.98 | -0.40% |
| 2010 | 1,047,827.98 | (51,471.10) | 996,356.88 | 12.83% | 1,124,189.47 | 1.60% |
| 2011 | 1,124,189.47 | (52,294.64) | 1,071,894.83 | -9.20% | 973,280.50 | 3.20% |
| 2012 | 973,280.50 | (53,968.07) | 919,312.43 | 11.10% | 1,021,356.11 | 2.10% |
| 2013 | 1,021,356.11 | (55,101.40) | 966,254.72 | 15.80% | 1,118,922.96 | 1.50% |
| 2014 | 1,118,922.96 | (55,927.92) | 1,062,995.04 | 6.40% | 1,131,026.72 | 1.60% |
| 2015 | 1,131,026.72 | (56,822.77) | 1,074,203.96 | -0.82% | 1,065,395.49 | 0.10% |
| 2016 | 1,065,395.49 | (56,879.59) | 1,008,515.90 | 9.20% | 1,101,299.36 | 1.30% |
| 2017 | 1,101,299.36 | (57,619.02) | 1,043,680.34 | |||
Andre1969
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Thanks, I had forgotten about it only being 30 years. Another thing I forgot to take into account was social security. So yeah, I guess this particular sequence would work out, after all. At some point I'm going to run the numbers pretending I had retired on 12/31/99, and see how the portfolio would have stacked up.
mathjak107
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2000 to 2016 just owning long term bonds beat stocks so it was really a bizarre time frame .
dixonge
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what 'rosy provisos'? He was analyzing 30-year retirement portfolio returns starting at 1926 and came up with 7% average SWR.
ER Eddie
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Good lord, this thread.
