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Old 05-11-2021, 04:54 PM   #81
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After a long bull market, people tend to think they have the stomach for market volatility.
That's a good one NW! I just printed that in large font and pinned it to the bulletin board in front of my desk. For a geezer deep into retirement, I've gotten pretty fast and loose with the AA here lately. I keep getting rewarded for it and just might be losing a bit of perspective. Things will eventually change!
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Old 05-12-2021, 06:58 AM   #82
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Originally Posted by pb4uski View Post
Sounds like you are unaware of the 0% tax rate for qualified dividends in long-term capital gains that a lot of us manage our income to be in
True.....but this doesn't work for those of us with huge pensions coupled with RMD's from huge inherited IRA's. Granted not a "bad" problem to have .....just limits staying in the lower tax brackets to qualify for a 0% tax rate.
And future RMD's on one's own IRA's and Future SS will only compound the issue.
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Old 05-12-2021, 08:09 AM   #83
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Originally Posted by ER Eddie View Post
Interesting. I'd never heard that distinction before -- PWR vs. SWR -- and had always been a bit confused about this.

So, 3.3 to 3.5% to maintain your principal. I'll have to remember that. All you ever hear about is SWR.
Keep in mind that most folks following even the 4% withdrawal rate STILL die with more than they stated with. I think the distinction of the PWR (which I'm not certain I'd ever heard of either) would be to "insure" keeping your principal. In fact, there's no such insurance available that I know of but I understand the idea of it based on historical data - so YMMV.
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Old 05-12-2021, 08:20 AM   #84
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Keep in mind that most folks following even the 4% withdrawal rate STILL die with more than they stated with. I think the distinction of the PWR (which I'm not certain I'd ever heard of either) would be to "insure" keeping your principal. In fact, there's no such insurance available that I know of but I understand the idea of it based on historical data - so YMMV.
Oh sure, I know there are no 100% guarantees in any of this. Just statistical modeling, based on the past.

Still, I found it a helpful distinction. I was never all that keen on setting "not running out of money" as the criterion. I don't want to just "not run out of money." I want to have some cushion, as well as some chunk left over to give to family and charity.

PWR doesn't address that directly, but it gives me a better sense than just using SWR alone.

An alternative approach is to adjust the parameters Firecalc uses. For example, you can set how much of a stash you want to have at the end, and then figure your percentages that way.
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Old 05-12-2021, 08:32 AM   #85
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Use portfoliovisualizer. It addresses all of this. Perpetual and "safe" withdrawal rates are calculated. If that doesn't satisfy, the portfolio balances are charted over time with 10pctile and 90pctile outcomes. Very clear, very easy to comprehend. The parameters are user-changeable and easy to use for what-if studies.

Use portfoliovisualizer.
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Old 05-14-2021, 03:31 PM   #86
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For retirees who plan to live off a combination of pension, social security and dividend payouts from retirement accounts, never touching the retirement account principal, does the 4% rule really matter?

I understand that retirees may end up touching principal on years of negative market returns or if the promised pension never materialises or abruptly stops, if Social security goes bankrupt, or they end needing intensive care but have no LTC insurance etc.

But if none of these things happen, does "withdrawing rate" still matter?

I understand that not reinvesting dividends might reduce growth.

Thanks for clarifying.
Have not read the comments yet

I would suggest to research the origin of the 4% rule and what the rule is based on. Dont follow a rule just because it is there! My understanding is that a 4% withdrawal from a nest egg will allow you to not run out of money over any given 30 year period in our history. This takes into account recessions and booms etc. The premise then, is that you should be comfortable going forward in time for 30 years following the same principal (adjusting your WR up for inflation each year).

So that would mean that if you spend more than 4% in the good years, the cushion may not there in the bad years to carry you. That would be worst case scenerio based on times analyzed in the past. Nobody knows how well the future will corelate with the past, or when the bad years will come vs the good years etc.

I would say that the 4% only applies to your nest egg, and would not include your pensions etc. I have also read that higher percentages are also succesful for a majority of cases. i.e a 5% WR may be successful over 98% of 30 year windows in the past, a 6% WR may be successful over 92% of windows in the past ( I am just making those numbers up)
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Old 05-14-2021, 03:38 PM   #87
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Originally Posted by Safire View Post
For retirees who plan to live off a combination of pension, social security and dividend payouts from retirement accounts, never touching the retirement account principal, does the 4% rule really matter?

I understand that retirees may end up touching principal on years of negative market returns or if the promised pension never materialises or abruptly stops, if Social security goes bankrupt, or they end needing intensive care but have no LTC insurance etc.

But if none of these things happen, does "withdrawing rate" still matter?

I understand that not reinvesting dividends might reduce growth.

Thanks for clarifying.
4% was the MAXIMUM safe withdrawal rate for a 30-year time horizon. You can, of course, safely with draw any lower percentage that you want and be even safer.
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Old 05-14-2021, 03:39 PM   #88
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Just wanted to comment that if you want to leave as much as possible, then you might consider a higher stock vs bond percentage. If your withdrawal rate is <<4% you should be able to weather market lows without selling.

I plan on zero bonds (not necessarily recommending to others) as I plan to live within my rental income and build reserves from that.
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Selling Mutual fund holdings
Old 05-14-2021, 03:53 PM   #89
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Selling Mutual fund holdings

With the way the stock market is goinf down these days, how do I decide when to sell mutual fund holdings and take out the cash and keep it in bank savings?
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Old 05-14-2021, 04:40 PM   #90
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Hi jdev,

I don't understand your comment. My general funds are up 12-25% YTD Total stock market flat YTD. Just guessing you are v. tech heavy or looking at a shorter time period.

Do you need to use savings now or timing the market?
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Old 05-14-2021, 04:45 PM   #91
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Originally Posted by audreyh1 View Post
No, if you don’t need to withdraw from your investments to fund any of your retirement there is no applicable X% rule.
+1. Plan your annual expenses properly, allowing for the occasional surprise big ticket. Dip in as needed. Don't let it be your 'idol'.
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Old 05-14-2021, 05:22 PM   #92
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What if the 4% rule went up at the same rate as inflation?
In this hypothetical case, where would the 4% rule be today?
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Old 05-14-2021, 06:08 PM   #93
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Don't understand fully OP. The 4% rule assumptions include dividends.

If you're only taking out stock dividends - that's your WR - probably 1.5%.
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Old 05-14-2021, 09:14 PM   #94
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Originally Posted by FIREarly View Post
What if the 4% rule went up at the same rate as inflation?
In this hypothetical case, where would the 4% rule be today?
Not sure what you are asking. The 4% rule says your spending goes "up at the same rate as inflation".
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Old 05-14-2021, 09:19 PM   #95
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With the way the stock market is goinf down these days, how do I decide when to sell mutual fund holdings and take out the cash and keep it in bank savings?
@jdev Are you aware the all time high for the SP500 was seven days ago? I am not pulling money out of the market at this time.
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Old 05-15-2021, 06:03 AM   #96
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Not sure what you are asking. The 4% rule says your spending goes "up at the same rate as inflation".
Disregard, was creating a quick joke but when it needs to be explained it's not funny. I'll continue to save/invest!
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Old 05-15-2021, 11:30 AM   #97
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Spending only the dividend forces me to conserve the principle. Am I getting this right?
No, you are not getting it right.

A bond has principle. The company eventually gives you back that money.

A stock does not have principle. The company does not ever give you the money back.

If you really want to pretend it does, then the "principle" would be what you paid for the stock. Not the current value (whatever that is). Your original purchase price.

If you really want to understand it, Larry Swedroe has written a number of articles. Also Michael Kittes. Those are a couple of authoritative voices. Or you could just accept it when dozens and dozens of people here tell you that your thinking is wrong.

"Any withdrawal is depletion. Money isn't smart enough to know which one of its siblings (dividends, principal) took the hit."

The need for money is satisfied by the creation of wealth, not by the means through which the cash is distributed to you.

For those who say, "My main goal is income; capital appreciation is secondary." - Income and capital appreciation are interchangeable since they can be converted into each other.

Dividends and growth are fungible. If the corporate sector lowers its dividend payout ratio to fund increased internal reinvestment (capex, M&A, buybacks), real EPS growth will rise. If it lowers its internal reinvestment (capex, M&A, buybacks) to fund an increase in dividends, real EPS growth will fall. Assuming that the market is priced at fair value, and that the return on equity stays constant over time, the effects of the change will cancel, so that shareholders end up with the same return.
-- Why is the Shiller CAPE So High? | PHILOSOPHICAL ECONOMICS

Buffett discusses how & why sell-off ("DIY dividend") is superior to paid-out dividends. BRK 2012 Annual Report, p.20-21

That dividends really should not matter is not an over-elaborated financial theory, but rather something closer to a mathematical identity. If a company pays out cash, that cash is no longer on its balance sheet. The book value of the company (its assets minus its liabilities) reduces by the amount it has paid out. Cash belongs to shareholders whether it is on the balance sheet or paid out in a cheque.
If shareholders want to raise cash, they can withdraw as much cash as they need – when they need it – by selling shares.
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Old 05-15-2021, 11:49 AM   #98
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It’s principal.
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Old 05-15-2021, 12:50 PM   #99
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we're currently shopping for LTC insurance,
Why not just save your money and fund this possibility yourself. Many of us would never waste our stash-cash on this insurance industry hype.

Just an idea.
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Old 05-15-2021, 01:08 PM   #100
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Why not just save your money and fund this possibility yourself. Many of us would never waste our stash-cash on this insurance industry hype.

Just an idea.
I realize this is not the place to debate the merits (or lack thereof) of LTC insurance. BUT I would quibble with the word "waste" when applied to someone else's use of their money - assuming they had used a rational approach to come to the spending decision. I KNOW that LTC insurance is fraught with "issues" and it is absolutely NOT for everyone.

I have LTC insurance and I hope (no, make that PRAY) that I waste every single dollar of my premiums paid. Both parents died in "facilities" and LTC insurance kept them in "nice" facilities, structured around their very specific needs (Alz). So THEY didn't waste their money - but I wish they had.

So, even with all the issues around LTC insurance, I believe the old adage remains relevant. INSURE only for what you can't "replace" through self-insurance.

So sorry if I'm making a mountain out of a mole hill. Now retuning you to our discussion of the 4% rule.
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