

05162017, 02:53 PM

#21

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 5,702

Quote:
Originally Posted by W2R
At some time in the past (back in the mid 90's?) all the internet wisdom I was reading said that 5% was perfectly safe in all cases, and probably 8% would be just fine. 4% was nuts and you were just throwing your money away and nobody sane would leave that much on the table.

I remember that time. I could retire in five years if the market just kept going up 20% per year.
Published opinions on things requiring some judgment call vary with the times. I've noticed that emergency funds are recommended to be 3 months of expenses when the economy is booming; when the economy is suffering then 912 months of expenses is the suggestion. Another thing that changes is the acceptable percentage (of what is never precisely specified) of company stock. In the gogo late 90's, up to 20% was fine; after the crash the recommendations shifted to 05%.
Quote:
I also prefer to have as many sources of income streams as possible, in case of market or bank failure, devaluation of the dollar, or SS cancellation, or whatever. We just have no way of knowing what will happen in the future. Look at Venezuela. That said, everything that has happened in my first 8 years of retirement has enhanced my net worth instead of lessening it as I had expected. Hopefully that will not reverse soon. It's similar to the situation of the working person, in that none of us really know what the future will bring.

I am also surprised that things are going better for me than I thought they would since I retired (not as long ago as you, but still). But really, if we make our plans based on things being as bad as the worst of the past, then average results, which by definition are better (and often quite better), shouldn't surprise us when they occur.
For example, I made some very conservative assumptions:
I wouldn't get any income in retirement. Wrong.
I wouldn't get any inheritance. Wrong (sadly).
Historical average returns in the stock market. Wrong.
A stock I owned would go bankrupt. Wrong.
I wouldn't find any cheap yet enjoyable hobbies. Wrong.
Hardly anyone talks about the 1921 retiree, or the S&P returns in 2003 or 2013.
I'm glad I bulletproofed my plans similarly to what most here do, but if things just bumble along averagelike, I and we will have overplanned. Yes, there is always the potential of Venezuela or Japan or asteroids. But more often than not...not.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.




Join the #1 Early Retirement and Financial Independence Forum Today  It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that EarlyRetirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

05162017, 02:57 PM

#22

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 5,466

every worst case scenario failed not on 30 year average returns or inflation .
every worst case , 1907,1929,1937 ,1965,1966 failed in the first 15 years .
they ended up having to blow through to much money early on . by the time things turned around they had to little left to act on .
if you can maintain at least a 2% real return average the first 15 years of a 30 year retirement the math will stand for a 4% inflation adjusted draw .
just monitor things , if you are 5 or 6 years in and don't see a 2% real return average a red flag should go up to watch spending .



05162017, 02:57 PM

#23

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2011
Posts: 6,472

Quote:
Originally Posted by mathjak107
4% inflation adjusted , 30 years .

Ok. Thanks! This is good to keep in mind.
__________________
Living well is the best revenge!
Retired @ 52 in 2005



05162017, 03:02 PM

#24

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 5,466

you can see here why all the worst case's failed in the first 15 years . 30 year returnas are actually quite normal , but to little to late .
even the great bull market from 1987 to 2003 with 14% cagr average returns could not save the 1965/1966 group .
want to know what the actual results were over the worst 30 year periods ever ?
suppose you were so unlucky to retire in one of those worst time framess ,what would your 30 year results look like :
1907 stocks returned 7.77%  bonds 4.250 rebalanced portfolio 7.02  inflation 1.64
1929 stocks 8.19%   bonds 1.74% rebalanced portfolio 6.28 inflation 1.69
1937 stocks 10.12   bonds 2.13  rebalanced portfolio  7.24 inflation 2.82
1966 stocks 10.23  bonds 7.85  rebalanced portfolio 9.56  inflation 5.38
for comparison the 140 year average's were:
stocks 8.39bonds 2.85%rebalanced portfolio 6.17% inflation 2.23%
so what made those time frames the worst ? what made them the worst is the fact in every single retirement time frame the outcome of that 30 year period was determined not by what happened over the 30 years but the entire outcome was decided in the first 15 years.
so lets look at the first 15 years in those time frames determined to be the worst we ever had.
1907 stocks minus 1.47% bonds minus .39% rebalanced minus .70% inflation 1.64%
1929stocks 1.07%bonds 1.79%rebalanced 2.29%inflation 1.69%
1937stocks  3.45%bonds minus 3.07% rebalanced 1.23%inflation 2.82%
1966stocks minus .13%bonds 1.08%rebalanced .64% inflation 5.38%



05162017, 05:31 PM

#25

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 30,460

Quote:
Originally Posted by mathjak107
you can see here why all the worst case's failed in the first 15 years . 30 year returnas are actually quite normal , but to little to late .
even the great bull market from 1987 to 2003 with 14% cagr average returns could not save the 1965/1966 group .
want to know what the actual results were over the worst 30 year periods ever ?
suppose you were so unlucky to retire in one of those worst time framess ,what would your 30 year results look like :
1907 stocks returned 7.77%  bonds 4.250 rebalanced portfolio 7.02  inflation 1.64
1929 stocks 8.19%   bonds 1.74% rebalanced portfolio 6.28 inflation 1.69
1937 stocks 10.12   bonds 2.13  rebalanced portfolio  7.24 inflation 2.82
1966 stocks 10.23  bonds 7.85  rebalanced portfolio 9.56  inflation 5.38
for comparison the 140 year average's were:
stocks 8.39bonds 2.85%rebalanced portfolio 6.17% inflation 2.23%
so what made those time frames the worst ? what made them the worst is the fact in every single retirement time frame the outcome of that 30 year period was determined not by what happened over the 30 years but the entire outcome was decided in the first 15 years.
so lets look at the first 15 years in those time frames determined to be the worst we ever had.
1907 stocks minus 1.47% bonds minus .39% rebalanced minus .70% inflation 1.64%
1929stocks 1.07%bonds 1.79%rebalanced 2.29%inflation 1.69%
1937stocks  3.45%bonds minus 3.07% rebalanced 1.23%inflation 2.82%
1966stocks minus .13%bonds 1.08%rebalanced .64% inflation 5.38%

I'm wondering about this failed in the first 15 years statistic. What is the definition of failure? Because in FIRECALC for 4% from a 50/50 portfolio starting in 1966, the portfolio did not run out of money until around 1989 which was after 24 years.
Maybe the definition for failure was a different one  withdrawal exceeding some high percent of current portfolio?
Or are you running some Montecarlo simulations?
__________________
Retired since summer 1999.



05162017, 06:53 PM

#26

Recycles dryer sheets
Join Date: Oct 2015
Location: Fairfield
Posts: 201

The 4% rules still works in a 6.5% return and 2% inflation world. That's is the return on a 60/40 portfolio assuming Blackrock's and Vanguard's expected returns for the next decade. The key is to remain invested through business cylcles with appropriate exposure to the various asset classes, rebalancing etc, but mostly to stay invested.



05172017, 12:00 AM

#27

Recycles dryer sheets
Join Date: Mar 2009
Location: Newcastle, WA
Posts: 190

I'm planning on a 3% constant withdrawal rate; whaddya think? Too risky given what we're likely facing going forward?
__________________
Don't just do something; stand there!
 Jack Bogle



05172017, 02:55 AM

#28

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 5,466

Quote:
Originally Posted by audreyh1
I'm wondering about this failed in the first 15 years statistic. What is the definition of failure? Because in FIRECALC for 4% from a 50/50 portfolio starting in 1966, the portfolio did not run out of money until around 1989 which was after 24 years.
Maybe the definition for failure was a different one  withdrawal exceeding some high percent of current portfolio?
Or are you running some Montecarlo simulations?

failure means the money ran out by 30 years but the fate was sealed in the first 15 .to much had to be spent down the first 15 in every case so even the greatest bull markets later on could not save the group



05172017, 02:59 AM

#29

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 5,466

Quote:
Originally Posted by StuckinCT
The 4% rules still works in a 6.5% return and 2% inflation world. That's is the return on a 60/40 portfolio assuming Blackrock's and Vanguard's expected returns for the next decade. The key is to remain invested through business cylcles with appropriate exposure to the various asset classes, rebalancing etc, but mostly to stay invested.

sequence of those returns is what matters not the average of the returns .
the order that average comes in at determines if you survive or not .
there can be as much as a 15 year difference in how long the money lasts just taking the same average and playing with the sequence that average comes in .
moishe milevsky in his now famous article retirement ruin and the sequence of returns demonstrated how average returns mean nothing and showed how the money ran out 15 years sooner or later with the same draw and same average return .
these simple reverse amortization calculators many folks use to determine how much they can draw are awful .
amortization calculators never have you spending down in a down year. every year is subject to the same positive average return and negative real return years don't exist . .
the 17year period (19872003), the S&P 500's average return was 13.47%. It doesn't make any difference if we look at the returns from 1987 to 2003 or from 2003 to 1987.
But when taking withdrawals, the sequence of returns makes all the difference. The same initial capital, the same withdrawal amount, the same returns  but a different sequence produces dramatically different results.
if we leave the rate of inflation growth with the principal and spend everything else .
For a $100,000 portfolio adjusted for inflation over those 17 years, the difference is a remaining balance of $76,629 to a deficit of $187,606. depending on the order those gains and losses came in .
never ever use a calculator that simply asks you to fill in a projected average return and inflation rate .



05172017, 04:28 AM

#30

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 30,460

Quote:
Originally Posted by mathjak107
failure means the money ran out by 30 years but the fate was sealed in the first 15 .to much had to be spent down the first 15 in every case so even the greatest bull markets later on could not save the group

But what was the criteria that showed a "point of no return" had been reached? How does the retiree know by 15 years?
__________________
Retired since summer 1999.



05172017, 05:28 AM

#31

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 5,466

less than a 2% real return as an average the first `15 years is dangerous . all the failures were less than 2% the first 15 years .
if you see 510 years in you are running below that a red flag should go up that you may have to cut the draw



05172017, 05:51 AM

#32

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 30,460

I thought 1% real return was still enough to make it 30 years.
__________________
Retired since summer 1999.



05172017, 06:05 AM

#33

Recycles dryer sheets
Join Date: Oct 2015
Location: Fairfield
Posts: 201

Quote:
Originally Posted by mathjak107
sequence of those returns is what matters not the average of the returns .
the order that average comes in at determines if you survive or not .
there can be as much as a 15 year difference in how long the money lasts just taking the same average and playing with the sequence that average comes in .
moishe milevsky in his now famous article retirement ruin and the sequence of returns demonstrated how average returns mean nothing and showed how the money ran out 15 years sooner or later with the same draw and same average return .
these simple reverse amortization calculators many folks use to determine how much they can draw are awful .
amortization calculators never have you spending down in a down year. every year is subject to the same positive average return and negative real return years don't exist . .
the 17year period (19872003), the S&P 500's average return was 13.47%. It doesn't make any difference if we look at the returns from 1987 to 2003 or from 2003 to 1987.
But when taking withdrawals, the sequence of returns makes all the difference. The same initial capital, the same withdrawal amount, the same returns  but a different sequence produces dramatically different results.
if we leave the rate of inflation growth with the principal and spend everything else .
For a $100,000 portfolio adjusted for inflation over those 17 years, the difference is a remaining balance of $76,629 to a deficit of $187,606. depending on the order those gains and losses came in .
never ever use a calculator that simply asks you to fill in a projected average return and inflation rate .

The sequence of returns matters only when you are withdrawing principal rather than income from a portfolio. I actually disagree on calculators with return/inflation expectations. Today we should be modeling a lower than average return, say 6.5% versus 7.5% and 2% inflation versus 3% inflation. Equity risk premiums and other measures of future return expectations matter and modeling what happened in boom and bust cycles a 100 years ago though valid, may be less applicable.



05172017, 06:37 AM

#34

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 5,466

average returns mean little when spending down . there are times you will always be drawing principal because of negative real returns .
high valuations can mean lower returns going forwrard for a while but at the end of the day if spending down it is the sequence of those returns that rule .
don't forget sequence of returns even holds for bonds and cash too. as inflation can make even what appears decent returns in to negative real returns which do the same damage.
your sequence of returns depends on markets ,rates and inflation outcomes combined .
even cd's have had sequence risk since almost 40% of the time they had negative real returns after inflation and taxes so spending at a loss is always a possibility .
in fact 1965/1966 failed because inflation set the failure up for the group. in the first 15 years . .



05172017, 06:41 AM

#35

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 5,466

Quote:
Originally Posted by audreyh1
I thought 1% real return was still enough to make it 30 years.

kitces said it can but you may have a buck left in year 31 . so to provide a real world safety net you really should strive for 2% real returns. 1% is only verified to 30 years and no longer nor does it provide for some excessive over budget emergency and unexpected spending in a year .
cutting things to close may not be the best planning even though the math would hold for a 30 year time frame .
life expectancy statistics play a part too .
the fact that statistically many of us will not last 30 years takes even a 90% success rate and boosts it way up , and that is what blanchett left off the equation .
if you are playing with statistical probability you have to combine in the statistical probability for life expectancy's role .
that makes 4% draws even more conservative and improves success rate even more than the results from something like firecalc or fidelity since statistically less years will be needed to be supported .
the problem is we just don't know who of us will live and die . but if you are looking at statistical success rates who does not matter .



05172017, 07:02 AM

#36

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2011
Posts: 6,472

Quote:
Originally Posted by mathjak107
90% of every rolling 30 year period since 1926 left you with more than you started with 30 years earlier . it left you with more than 2x what you started with 67% of the time and 1/2 the time tripled kitces

Ok. Good data.
But I suspect a 5% W/D might prove disastrous. Any data on that scenario?
__________________
Living well is the best revenge!
Retired @ 52 in 2005



05172017, 07:34 AM

#37

Thinks s/he gets paid by the post
Join Date: Sep 2016
Location: Acworth
Posts: 1,197

Quote:
Originally Posted by marko
Ok. Good data.
But I suspect a 5% W/D might prove disastrous. Any data on that scenario?

If I put in a 50K spend rate, a $1M portfolio (5%), no SS or other income, an age of 56 using Bernicke's Reality Retirement Plan, and a 40 year retirement, Firecals shows a 100% chance of success.
Quote:
Here is how your portfolio would have fared in each of the 106 cycles. The lowest and highest portfolio balance at the end of your retirement was $189,066 to $13,550,680, with an average at the end of $3,331,093. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

If I drop the age to 50 (to increase overall spending under Bernicke's plan), Firecalc still gives it a 90.6% chance of success.



05172017, 07:57 AM

#38

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2011
Posts: 6,472

Quote:
Originally Posted by exnavynuke
If I put in a 50K spend rate, a $1M portfolio (5%), no SS or other income, an age of 56 using Bernicke's Reality Retirement Plan, and a 40 year retirement, Firecals shows a 100% chance of success.
If I drop the age to 50 (to increase overall spending under Bernicke's plan), Firecalc still gives it a 90.6% chance of success.

This is all good stuff but now I'm conflicted with the 'experts' saying that we all need to drop our W/D to 3% and 2.5% is even better.
Doesn't matter to me personally, but as an academic exercise it gives me more questions than answers.
OTOH I ran $1M with a 5% spend rate, no other income for 30 years, Bernicke Plan and got this:
FIRECalc looked at the 116 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 116 cycles. The lowest and highest portfolio balance at the end of your retirement was $715,635 to $5,382,755, with an average at the end of $1,643,383. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 8 cycles failed, for a success rate of 93.1%.
__________________
Living well is the best revenge!
Retired @ 52 in 2005



05172017, 09:17 AM

#39

Thinks s/he gets paid by the post
Join Date: Sep 2016
Location: Acworth
Posts: 1,197

Quote:
Originally Posted by marko
This is all good stuff but now I'm conflicted with the 'experts' saying that we all need to drop our W/D to 3% and 2.5% is even better.
Doesn't matter to me personally, but as an academic exercise it gives me more questions than answers.
OTOH I ran $1M with a 5% spend rate, no other income for 30 years, Bernicke Plan and got this:
FIRECalc looked at the 116 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 116 cycles. The lowest and highest portfolio balance at the end of your retirement was $715,635 to $5,382,755, with an average at the end of $1,643,383. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 8 cycles failed, for a success rate of 93.1%.

Looks like the results for a 48 year old on a 30 year retirement. At 54 the FIRECalc results go to 100% for a 5% withdrawal of a $1M portfolio under Bernicke's plan (99% at 53) for a 30 year plan. The older you start, the better the chance of success generally.
If you use the "constant spending" then the numbers are a lot worse than they are under the Bernicke plan. For constant spending on a 30 year retirement, you need to get under 3.6% withdrawal rate before FIRECalc gives you a 100% success rate. So changing spending assumption, years in retirement, future return assumptions (i.e. FIRECalc doesn't calculate for any scenario worse than history has shown) etc can all lead to more conservative recommendations for withdrawal rates.



05172017, 10:31 AM

#40

Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Syracuse
Posts: 3,039

90% of every rolling 30 year period since 1926 left you with more than you started with 30 years earlier . it left you with more than 2x what you started with 67% of the time and 1/2 the time tripled kitces
Thanks Mathjack.
Ive been looking for this in a text form.
I'll assume this is a terrible period and that in 30 years the nut will only be 150% of it's starting value.😀
__________________
“No, not rich. I am a poor man with money, which is not the same thing"





Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)


Thread Tools 
Search this Thread 


Display Modes 
Linear Mode

Posting Rules

You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off




» Recent Threads













» Quick Links


