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Old 12-31-2017, 07:52 AM   #21
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I originally was at 10 years cash/bonds but am now at 12, which seems too conservative even for me! In other words, I could go until 69 without selling a stock at our current spending level. We ended the year with a spend rate of 2.6% of liquid assets. Again, conservative and low but when we discussed it didnít really feel like making any big changes! Happy and healthy - and wishing the same to all of you for many more years
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Old 12-31-2017, 06:09 PM   #22
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I was just playing with this Vanguard retirement calculator,
https://retirementplans.vanguard.com...estEggCalc.jsf
which doesn't model the scenario I'm describing (it does fixed percentage based asset allocation, and fixed inflation-adjusted spending, and a fixed time horizon, and you choose all these as inputs) but the upshot is that the "4% rule" is very robust for a fixed 30 year horizon, over a wide range of allocations, including 100% stock. So modifying that with a minimum "floor" of safe assets should reduce the risk of portfolio failure to very little.

But the main big way to reduce the risk of portfolio failure is to be prepared to adjust spending according to portfolio levels, and especially avoid selling too much stocks low in a crash. (After all the "4% rule" is really about calculating a sufficient nest egg to support a certain level of spending. It was never intended as an actual strategy to be followed.) Some variation in spending may be due to circumstance, but some variation is discretionary, so there is plenty of chance to make course corrections as long as you don't let assets drop to a level where you can't recover. If you're prepared to vary spending, you can spend more on average.

In the situation I describe in the OP, "expenses" is not a fixed amount. If your baseline spending budget is $X per year you could have different spending levels, e.g.
0.67X spartan survival spending
X regular baseline spending
1.5X comfort spending
2X luxury spending

So if your floor/bucket of safe assets is 5 years worth of luxury spending, then it is 10 years worth of regular baseline spending, or 15 years worth of spartan survival spending. Some size of safe floor/bucket needs to be chosen, but the number of years spending that equates to depends on the type of spending level.

No matter what, the initial average spending level should be consistent with assets and time horizon, but a higher stock component gives a better chance of increasing assets which will support more spending. I don't want to work an extra bunch of years to pile on assets to be extra safe. I'm prepared to take the risk to try to grow assets after retirement, while minimizing chance of failure.
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Old 12-31-2017, 06:25 PM   #23
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Yes. A couple of thoughts:

1) When we get in the car and start driving we are constantly making adjustments based on events and conditions. Why would be not expect to do the same as we manage our retirement lives?

2) Much of the concern about sequence of returns seems to me to be unnecessary with this fantastic market we have. Anyone concerned should just sell a few years worth of equities right now and squirrel it away. Ergo, no more worries about being forced to sell into a down market.
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Old 12-31-2017, 06:33 PM   #24
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Also people should remember that for a 30 year horizon
1/30=3.33%
so plain old return of capital already gives you 3.33% you can withdraw. Just a little bit of (real) returns gets that to 4%.
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Old 12-31-2017, 06:34 PM   #25
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We have 16 years of expenses in cash and bonds, since I an already collecting SS, I have a little more buffer in my spending. Retired in January for 13 years now, I believe I have a pretty good handle on spending and expenses.
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Old 12-31-2017, 06:51 PM   #26
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After retiring 11 years ago I went from literally 100% stocks to around 95%. The cash allows me to not worry about cash flow - the timing of the dividends coming in that I live on or the occasional car replacement / bathroom remodel going out.
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Old 12-31-2017, 07:14 PM   #27
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^ Right. If your portfolio is large enough relative to spending, (say 40-50 times) then just the dividends from the stocks is enough to cover it, and you can safely hold mostly (or all) stocks, with the cash bucket acting as a buffer. But even with a lesser amount, you can let the dividends flow into the cash bucket, and may not need to actually sell stocks for a long time.
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Old 12-31-2017, 11:07 PM   #28
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Also people should remember that for a 30 year horizon
1/30=3.33%
so plain old return of capital already gives you 3.33% you can withdraw. Just a little bit of (real) returns gets that to 4%.
Huh? Is that cash? Inflation cuts into that - potentially quite seriously after 30 years.
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Old 12-31-2017, 11:24 PM   #29
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^
(Just do everything in inflation adjusted terms.)
0% real return supports 3.33% initial withdrawal inflation adjusted for 30 years.

For 4% SWR for 30 years, it is sufficient to get a steady 1.33% real return.
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Old 01-01-2018, 01:35 AM   #30
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We aim for about 7 years in cash + bonds, with cash being about 1-2 yrs. We range 55-60% stocks.

The overall AA is based on what appears optimal in our situation when simulated in Firecalc. Also, I like at least 7 years in cash & bonds in case of a slow recovery, as in the case of the last 2 recessions. So our AA as well as "years in bonds & cash" w*rk together to help us sleep better, especially since we've only been FIRE'd 3 years and feel vulnerable to an unfavorable early sequence of returns.
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Old 01-01-2018, 02:25 AM   #31
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It depends.
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Old 01-01-2018, 04:15 AM   #32
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It fluctuates but at present we have enough cash/deposits/short term bonds/FX to cover about three years cash outflows without cutting back at all.

On paper this is completely unnecessary as cash in from DW's salary/dividends/rents/interest exceeds cash out, a position that will improve dramatically between now and mid 2021 when our home mortgage is finally paid off.
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Old 01-01-2018, 07:13 AM   #33
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one years cash and a 40/60 overall mix down from 50/50 in december ..
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Old 01-01-2018, 08:24 AM   #34
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Cash+bonds covers 7 years
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Old 01-01-2018, 08:42 AM   #35
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^
(Just do everything in inflation adjusted terms.)
0% real return supports 3.33% initial withdrawal inflation adjusted for 30 years.

For 4% SWR for 30 years, it is sufficient to get a steady 1.33% real return.
If itís in cash I donít think you are going to achieve a 0% real return.
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Old 01-01-2018, 08:50 AM   #36
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35 years in Cash, CDs. That should cover it. No SS...... Yet, maybe next year. No Stocks as none are needed. No Heirs to worry about.

As mentioned that does not include any SS or Interest income from the CDs.
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Old 01-01-2018, 08:50 AM   #37
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If it’s in cash I don’t think you are going to achieve a 0% real return.
That comment didn't refer to cash. It simply points out that 1/30=3.33%
(in the general context of SWRs, not this specific thread).
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Old 01-01-2018, 08:55 AM   #38
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That comment didn't refer to cash. It simply points out that 1/30=3.33%
(in the general context of SWRs, not this specific thread).
Well it really does depend what you invest in. Capital can be cut in half or much worse when inflation is taken into account.
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Old 01-01-2018, 09:14 AM   #39
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^ Certainly. That's why I said "(Just do everything in inflation adjusted terms.)" (i.e. real not nominal).

This thread is about a specific kind of decumulation strategy, so all the considerations that apply to decumulation strategies in general, also apply to this specific case.
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Old 01-01-2018, 09:19 AM   #40
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Well it really does depend what you invest in. Capital can be cut in half or much worse when inflation is taken into account.
as moishe milevsky demonstrated , the difference between the best and worst outcome in how long the money lasts just based on the sequence of the same returns ,rates and inflation can vary as much as 15 years with a 30 year time frame . that is mind blowing .

especially because when you just use a simple reverse amortization calculator where you throw in some average return and rate of inflation the results are so skewed and off from what could be using those same numbers
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