heretical ideas

[Delawaredave]

Anybody here try eating cat or dog food?  I've tasted a "milk-bone" -- no idea why the dogs like it so much.

Years ago I was warming up some macaroni crap. Then I open up a can of "Recipe" brand dog food (not sure it is still around) - it had meat, potatoes, peas and carrots - I remember thinking it looked more appetizing than the crap I was warming up for myself....

Regarding the SWR - it really comes down to "Confidence Level" - if you throw out those 1-in-30 odds situations of a major down market early in your retirement - it is easy to justify a higher than 4% SWR.

It comes down to:
- What confidence level one is comfortable with, and
- What kinds of "Plan B" are available - cost cutting, working, etc.

Have a great day regardless - working or not !!!!!!!!!!!!

 

[rmark]

So here are my heretical thoughts:

1). All SWR calculators rely on indexes to predict how a portfolio might perform. In fact I believe it is pretty easy to beat the indexes, and thus any SWR based on a prediction using indexes is likely to be way too conservative.

2). Fund, or index, performance is not the only criteria that is important to calculating a SWR. Volatility matters too.

3). The standard 4% SWR is too conservative. 5% is also too conservative. I will not go out on a limb and state what my opinion of a SWR ought to be but it is a lot more than 4%. I think this is confirmed by the observations that most calculators will show you that while 4% is “safe”, in the vast majority of scenarios you end up with way more money than you started with, even with allowance for inflation.


Few fund managers beat the market after costs (including hidden costs) and taxes, and those winners can't be picked in advance.

The calculators use U.S. data only, which makes them optimistic, not pessimistic (Belgian stocks had past 2% real returns, Zimbabwe has 700% inflation now).

Most detailed attempts to get around the 4% rule are just data mining. About all you can say is 3% if expected returns are below average and 5% if they're above.

I prefer Gravy Train. Um um good.

 

[obryanjf]

What I've noticed in my portfolio is that the organic growth is overwhelming the contribution of savings. That got me starting to ask why am I saving as much. The $10K I put away 15 years ago is laughing at the $10K I put away today.

Same here. I've already started a soft landing on the contributions beacuse the GROWTH/losses easily swamp my contributions. I reduce 1% per year. Also rebalancing tax deferred and taxable by contributing less to deferred and more to taxable.

On the 4% SWR. I harp a lot on it, but SWR is a misnomer. It is safe for 40 years. Look at the detail of some of the runs and extent to 42 or 43 years. A couple fail. So one risk is living too long while maintaining the 4%. Also some runs have a withdrawl % at over 10%. If that were to happen, I would not feel like it was a safe withdrawl rate.

job

 

[2B]

I've been debating whether to cut back on my 401k, pay the extra tax and increase aftertax savings. I go into tax uncertainty overload. Yes! Tax rates will probably go up but my salary will soon go away. Do I believe ESRBob that my ER tax rate will fall to single digits? I have enough aftertax money now to make an attempt at tax managing Roth conversions after retirement but I won't do a lot of damage to my 401k if I keep the transfers at the marginal 15% tax rate. I know now that I'd get hit for 28% on any reductions so I've decided to keep putting my savings into the 401k.

Once again I fall prey to "planning overload."

 

[sgeeeee]

. . .
Any other questions?

How do you know you won't like cat poop if you don't try it?

 

[setab]

How do you know you won't like cat poop if you don't try it?

The same way I know I don't want the plague without trying it!

setab

 

[unclemick]

Hmmm

Speaking of plague and cat poop - haven't talked to my real estate plus CD's/no stock buddies since Katrina. Slidell got whacked pretty good. The two I'm thinking of did have company pensions plus SS though.

We haven't had any - push the envelope posters in a while - REIT's, trusts, preferred, master limited partnerships, discounted closed end fixed, etc.

More than one way to skin a cat - but each brings it's own set of risks.

heh heh heh

 

[REWahoo]

Hmmm

Speaking of plague and cat poop...heh heh heh

I recall a post not too long ago where CFB was plagued by cat poop...

 

[brewer12345]

We haven't had any - push the envelope posters in a while - REIT's, trusts, preferred, master limited partnerships, discounted closed end fixed, etc.

More than one way to skin a cat - but each brings it's own set of risks.

heh heh heh

You had to waggle the red sheet in front of me, didn't you?

UM, if you inclined to live a little dangerously, STON is trading at a discount right now owning to what appear to be minor accounting issues (nothing that affects cash). If you can get comfy with it, we are talking 10% yield on assets that are pretty much recession proof.

CHC is also trading off lately. How does an 8.6% yield that is 80 to 90% tax free sound?

Both of these are for taxable accounts only. Do your own DD, yadda, yadda.

 

[cute fuzzy bunny]

I'm still pretty sure one could get a decent variety of protein as part of a balanced diet for less than the cost of cat food.

Yep, it was called the "college students diet", and is similar to what I ate in my late teens and early 20's when I was poor. Lots of pasta, eggs, corn, beans, rice. Oh yeah, and going to the supermarket salad bar and stuffing an egg or a chunk of ham into my mouth when nobody was looking.

 

[ESRBob]

Do I believe ESRBob that my ER tax rate will fall to single digits? I have enough aftertax money now to make an attempt at tax managing Roth conversions after retirement but I won't do a lot of damage to my 401k if I keep the transfers at the marginal 15% tax rate.

2B,
Yeah, just finished filing my 5th year of ESR taxes paying 5% or less of spending for both state and federal income taxes combined. Some years it was zero.

btw, all bets are off on that tasty low percentage if you a) are getting a taxable pension or b) start taking RMDs from your IRA. or c) start collecting Social Security (this is a tax problem for 'regular retirees', not ERs so I think we tend to ignore it here). Probably should have made that clearer.

How did this thread end up on kitty litter!

 

[REWahoo]

How did this thread end up on kitty litter!

It's a skill you don't find just anywhere...

 

[old woman]

the 4% SWR means you NEVER have to eat dog-food.

Yes many (even most) time periods allow much greater withdrawal rates. How do you know which time period it is into which you are retiring ? Increasing your rate over 4% just increases your dog-food chance.

What is your tolerance for the dog-food/ possum livin outcome ?

I am thinking of withdrawing whatever I want within reason the first few years of retirement. I will probably be 62 and only need a few hundred a month to suppliment SS but might go ahead and take more like 7% and live pretty good until I see if I retired at a bad time. If I see times are bad I could cut back on spending or get a part time job and once I am over 80 if I run out of money I could get a reverse mortgage. Seems like most times the money would grow pretty fast. I have over 200K now and 4 more years to save so will have about 400K so if I took out even 25K I might be ok for many years and if not I could live on only taking out 5-10K if I cut back on excess spending.

 

[unclemick]

Yes Brewer

Another wad of canceled DRIP plans just posted to my VG Broker yesterday!

Keep posting.

Whoop - pee!

Male hormones here we come!

heh heh heh heh heh heh heh heh

 

[2B]

2B,
Yeah, just finished filing my 5th year of ESR taxes paying 5% or less of spending for both state and federal income taxes combined.  Some years it was zero.

btw, all bets are off on that tasty low percentage if you a) are getting a taxable pension or b) start taking RMDs from your IRA.  or c) start collecting Social Security (this is a tax problem for 'regular retirees', not ERs so I think we tend to ignore it here).   Probably should have made that clearer.

How did this thread end up on kitty litter!

ESRBob,

I've got about 80% of my assets in a taxable IRA. I won't last long without taking a substantial chunk of taxable money out. I can finesse a substantial conversion but I'll eventually be 100% in either Roth or taxable IRA's. I'll have at least 10 years to do conversions prior to SS. Staying in the 15% tax bracket may not keep up with portfolio growth. Eventually, I'll have to pull it out to live on. I'm just struggling with the expected tax consequences.

I liked your book. You had some new wrinkles for me to evaluate. I was most intrigued by the projected significant drop in expenses after ER. I can't see it happening to DW and me unless we go into survival mode which isn't my idea of how to start ER. I know the SS and medicare will go away but I'll be paying for health care on my own. I consider that about a wash. My job related expenses are next to nothing with my 15 minute commute not a big factor either. Taxes can be controlled somewhat but I will still need to live off my taxable IRA which will showup as regular income. My only hope at a significant savings would be to do something drastic (downsize house, only 1 car, dumpster diving, etc.). I don't see any of that happening quickly.

 

[unclemick]

Yep

You can't get around running your own set of numbers for your ER.

75% trad IRA here - 13th ER year - age 62 1/2 - deliberately tapping before RMD. Gonna try Zipper's(and others?) 5% of outstanding balance for a while.

Plenty of nuts and bolts lying around in past and present threads to help.

heh heh heh heh

 

[ESRBob]

2B,
Yeah-- the spending may or may not change much in ER, although things like downsizing or finishing paying off the house may make a big dent. I think the real takeaway from that section of the book is the top-line differences: People are used to thinking of their total annual salary before taxes, and forget that they actually spend far less than that each year, since so much goes off to taxes, savings, maybe mortgage. In ER, you only need your portfolio to produce what you actually need to spend, which is a lower bar. It is probably pretty obvious for anybody here, but a surprising number of people first approaching ER and hearing about SWRs try to replicate their current gross income with an SWR, get discouraged about the size of their nestegg and figure ER will never work for them.

 

[2B]

2B,
It is probably pretty obvious for anybody here, but a surprising number of people first approaching ER and hearing about SWRs try to replicate their current gross income with an SWR, get discouraged about the size of their nestegg and figure ER will never work for them.

It's hard enough to get a portfolio large enough for the net.

 

[ESRBob]

Hear Hear.
That's where the 'semi-retirement' part comes in. If I had to do this on SWR alone I would still be riding the train and sitting in cubicles and conference rooms. That or selling off the house amid howls of protest from the small fry.