Anyone withdrawing more than 4%....?

[pdhenry]

A slightly more conservative method than max(last year's withdrawal + CPI, 4% of current balance) might be to use max(first year's withdrawal adjusted to current year CPI, 4% of current balance).

 

[Sam]

Sam, I'm one of those people who wouldn't reset. But I'll also make darn sure that I investigate the 4% research, data, calculations, etc. before I follow the plan.

Good for you. I know now I won't be that brave. I know my plan would change if I were to be hit by 1973 and 1974, consecutively.

BTW, what else is there to research/investigate as far as the 4% is concerned? Isn't it already black and white?

 

[Webzter]

BTW, what else is there to research/investigate as far as the 4% is concerned? Isn't it already black and white?

Depends on if you're h0cus or not.

 

[SecondCor521]

Good for you. I know now I won't be that brave. I know my plan would change if I were to be hit by 1973 and 1974, consecutively.

BTW, what else is there to research/investigate as far as the 4% is concerned? Isn't it already black and white?

I'm not brave. Far from it in fact. But I do respect my own intelligence and math abilities and have confidence in history "rhyming", even if it doesn't repeat itself. I can also be pig-headedly stubborn.

As far as research goes: I know that people make mistakes when they develop software, so mainly I would be checking out all the data to make sure that Dory correctly applied the inflation adjustments, did all the math right, copied the inflation numbers from the original Schiller data correctly, etc. I honestly think his work is extremely solid and most likely defect-free, but I am sort of a Missoura "show-me" kind of person.

2Cor521

 

[Kwirk]

At that point, you can simply pretend that you're just starting out your retirement, and begin taking 4% of your larger portfolio.

Increasing your withdrawal rate after 1 or more good years and assuming that your chance of success is unchanged may not be correct. To get a meaningful estimate of your probable success you might run a firecalc-type estimate but starting only with years that follow one (or more) good years. 4% withdrawal starting after good years may not be as safe (historically) as choosing any random year. I wouldn't be surprised if you find that the chance of success increases if you retire following one or more bad years.

Flipping a coin may have no memory of previous trials but I don't think that we can easily assume the same about markets.

 

[REWahoo]

Increasing your withdrawal rate after 1 or more good years and assuming that your chance of success is unchanged may not be correct.

If the logic behind FIRECalc and the 4% withdrawal rate works when starting your withdrawals in year X it should also work for year X+1.

Theoretically (and if you have the nerve), you should be able to reset your withdrawal amount after any and all "up" years (based on a larger portfolio amount) and have the same statistical result/chance of success that you had when you began withdrawing. FIRECalc doesn't know what year it is when you run the program, your first year of withdrawal, your second, third or your 15th...

And don't forget that each year you withdraw from your nest egg is one less year it will need to last...

 

[Kwirk]

If the logic behind FIRECalc and the 4% withdrawal rate works when starting your withdrawals in year X it should also work for year X+1.

This may be true only as long as you run it for all years X and all years X+1, I think. A FIRECalc type analysis may not give the same success frequency when including only years that follow notably good years (or notably bad years) rather than all years.

And don't forget that each year you withdraw from your nest egg is one less year it will need to last...

This is true but does it necessarily make up for the possible ill effect of choosing only certain years?


The test is to do a FIRECalc-type analysis by determining the success rate of 4% withdrawals for one less year beginning in only years that follow a year (or 2) with, say, a 20% increase in the S&P. My gut tells me that the success rate will be less than for all years. I don't have the energy to actually do this test but I'm hopeful that this forum does have somebody energetic enough, compulsive enough,....

 

[REWahoo]

Here is the point I'm trying to make. From the guy behind FIRECalc:

Here's another way of looking at it, boiled down to a simple case:

Say a buddy retired at the end of 2004 with $1.2 mil. We would all agree that the 4% rule says he can take $48k/year.

If you retired in 2000 with $1 mil and it grew to $1.2 mil in 2004 as of the same time that your buddy retired, then you are both starting 2005 with $1.2 mil, so your withdrawals can be the same. The fact that you had some prior history doesn't somehow taint your returns for the same investments that pay 4% of $1.2 mil for your buddy.

 

[Kwirk]

I certainly respect Dory's contributions to the ER community (far greater than I ever hope to make) but there may be other ways of looking at this.

I agree that both friends have the same chance going forward. However, this is no longer a random year. It's now a year following a very good year (20% gain the previous year) and the odds of success may be less (or, heaven forbid, more) than for all years. Additional information lets you make a more informed estimate. My argument here would not apply in a Monte Carlo simulation but I doubt that we can look at market results as completely random from year to following year.

A different way of understanding that this may be a bad approach is to think of Russian roulette (where the results from one trial to the next are presumably random). My chances on the second round may be the same as on the first round but that doesn't imply that it's a healthy idea to plan to take a second or third shot if I don't kill myself with the first.

 

[jdw_fire]

I certainly respect Dory's contributions to the ER community (far greater than I ever hope to make) but there may be other ways of looking at this.

I agree that both friends have the same chance going forward. However, this is no longer a random year. It's now a year following a very good year (20% gain the previous year) and the odds of success may be less (or, heaven forbid, more) than for all years. Additional information lets you make a more informed estimate. My argument here would not apply in a Monte Carlo simulation but I doubt that we can look at market results as completely random from year to following year.

A different way of understanding that this may be a bad approach is to think of Russian roulette (where the results from one trial to the next are presumably random). My chances on the second round may be the same as on the first round but that doesn't imply that it's a healthy idea to plan to take a second or third shot if I don't kill myself with the first.

Kwirk, you need to recognize that FIRECalc isn't looking a random events, it is looking at worst case scenerios. So if we are looking a 100% success FIRECalc scenerios and we are assuming that the future will be no worse than the past you can restart every year if you wish and have complete success. The key is the 100% success scenerios.

 

[SecondCor521]

I think what ReWahoo and Dory have said in #31 and #33 on this thread is correct as long as one is considering a 100% safe withdrawal rate. I haven't thought it through for cases for a <100% safe rate.

2Cor521

 

[Kwirk]

If 4% inflation-adjusted withdrawals represents a 100% success rate using the historical data then the model allows you to increase your withdrawals to a new 4% level ANY year that your inflation adjusted base increases. I would really like that. I don't recall that the success rate is quite 100%. I'm too lazy to look it up (which probably makes me a perfect candidate for ER).

It isn't really Russian roulette if there aren't any bullets.

 

[unclemick]

Norwegian widow in hard times - previous year's current yield of portfolio and peanut butter sandwiches/el cheap'o travel/trips.

5% variable in good times and party til you puke.

Skip the fancy math.

Heck in my 14 th year of ER - still experimenting(varying spending) - maybe someday I'll get the hang of it. The 4% neatly spreadsheeted didn't work - because of all my messy things - temp work, pension and early SS kicking in a various times, selling and eating some real estate, DRIP plans with mergers, spin off's, cash buyouts, etc. Probably under 4% smeared out/averaged over the years but I never attempted a SWAG and spending had spikes totally independant from inflation.

In theory - having a plan is good. Being a cheap bastard is even better IMHO.

heh heh heh

 

[Sam]

5% variable in good times and party til you puke.

Skip the fancy math.

Sounds like an excellent plan to me.

 

[laurence]

I'm going to be dealing with a tainted scenario, as I'll have a pretty substantial pension that should cover minimum expenses starting at age 55. So I plan on taking 5% (perhaps a little more!) of the total portfolio each year and resetting each year. If it was a good year, vacation to Hawaii, bad year, camping across the west....

 

[Moemg]

So if I just take 4% and adjust it up or down according to the year I'll be fine .Right ?

 

[FIRE'd@51]

So if I just take 4% and adjust it up or down according to the year I'll be fine .Right ?

Probably, but just remember, according to Firecalc, a 4% WR for a 30-year retirement path failed approximately 5% of the time. The example I gave in an earlier post on this thread was for the case where one was continuously resetting for an additional 30 years. Some have argued that when you reset, it is no different from a person just retiring in that year, and I agree. However, that person still has a 5% chance of failure (as do you if you reset). If you don't reset and your portfolio has grown, your withdrawal rate will be less than 4%, so your Firecalc success rate will have increased, perhaps even to 100%.

Saying it another way - imagine 20 people, one of whom will retire each year for the next 20 years using a 4% WR. According to Firecalc (and assuming the future will be no worse than the past), one of those 20 would be expected to fail. The math I used above would apply to this situation. When you reset, you are essentially starting your retirement over (assuming you still keep the 30-year horizon). It's like having an urn with 19 red balls and 1 white ball. The red balls are successes, and the white ball is failure. Each drawing from the urn (with replacement) represents a 30-year retirement path. Although on each drawing, the probability of drawing a white ball is only 5%, if at the outset you plan to make 13 drawings, there will be nearly a 50% chance of drawing a white ball (a failed retirement path).

Granted, as you age, your retirement path will shorten. An 80 year-old may choose to run Firecalc with a 15-year horizon. In this case, Firecalc gives a 100% success ratio with a 5.3% WR.

IMO, a safer plan would be: after a significant portfolio increase, reset to a WR which Firecalc says is 100% safe using the then (possibly shorter) retirement horizon.

 

[audreyh1]

If you only take 4% out of your portfolio every year (up and down), you will never run out of money, therefore, by definition you will have 100% success.

Your portfolio may shrink considerably, but it can never go to 0.

Audrey

 

[REWahoo]

IMO, a safer plan would be: after a significant portfolio increase, reset to a WR which Firecalc says is 100% safe using the then (possibly shorter) retirement horizon.

That's a three-dinger!

 

[laurence]

This sounds like some might benefit by reviewing statistics and the idea of independent events. Fired@51's red ball analogy is spot on. The old saw about past results are not predictors of future returns cuts both ways, in this case, it's good news for y'all retirees.

 

[Kwirk]

The results of successive trials of flipping a coin, choosing from a mix of red and white balls, and playing Russian roulette are presumably independent.

I don't know that anybody has yet shown (somebody may have, but I don't know about it) that market results are independent from year to year.

 

[teejayevans]

The results of successive trials of flipping a coin, choosing from a mix of red and white balls, and playing Russian roulette are presumably independent.

I don't know that anybody has yet shown (somebody may have, but I don't know about it) that market results are independent from year to year.

But the economy is not a random sequence of events, sure occasionally an
terrorist attack, oil crisis, etc affect it, but overall it ebbs and flows like the
tide. Not up one year, down the next as you would expect with random
results. 95-99 were up, 00-02 were down, 03-06 were up, 07?
TJ