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Old 12-30-2016, 06:07 PM   #61
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And then, you realize that the eggs are infertile (you did not have a rooster with your hens)
Well, I suppose then that's the occasion when one finds that one bottle of Delamain de Voyage Cognac one has been saving for that very special occasion... and goes on that Bon Voyage

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Old 12-31-2016, 07:45 AM   #62
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Yes, It is true. The safe withdrawal rate studies are all based on total return of portfolios over history. That total return includes all income generated by the portfolio such as dividends and interest.


Not going to happen. A portfolio will diminish with a sustained market decline. Throwing off income has nothing to do with it. It's all about total return.

Even with no stocks, bonds can diminish as well during period of rising interest rates and/or financial credit crises (of you hold those lower quality, high income ones), and they definitely won't keep up with inflation if you are taking all the interest/dividends. So - over time your portfolio will decline if the markets behave poorly especially if you aren't reinvesting your dividends/interest.
I should have been more clear. When I said doesn't diminish, I meant you wouldn't need to sell anything and "withdraw" it. Unless you expect all dividends and interest payments to cease, the numbers work that way for me. Inflation, while important, really relates to the spending side of the equation.
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Old 12-31-2016, 08:09 AM   #63
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Well, I suppose then that's the occasion when one finds that one bottle of Delamain de Voyage Cognac one has been saving for that very special occasion... and goes on that Bon Voyage
Delamain Le Voyage... Looks like it's one of those bottles of Cognac that an owner might want to list it in Quicken for it to reflect in his net worth.

Ah, here we go. A Web site says only 500 bottles were produced, and one can be had for $8170.
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Old 12-31-2016, 08:15 AM   #64
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Yes, based on the theory of the withdrawal rate concept, that might be true. This concept being: the maximum rate at which the portfolio can be depleted over time without being fully depleted by a certain date, given a range of possible market movements.

But, if in practice the portfolio throws off enough income that, even with sustained market decline, the portfolio doesn't diminish, has a "withdrawal" really taken place?
History has shown that there were periods in the past when the dividends of stocks and interests paid by bonds barely matched the inflation rate. And these have been as long as 20 years. One had to reinvest all incomes just to keep up with inflation.

So, if one drew off the incomes to live on, his stash would diminish in real value. Because the principal dropped in real terms, the incomes would also diminish in purchasing power with time. When compounded over 20 years, the effect was pretty bad.

PS. If the returns were such that they only matched the inflation and there was no real growth, a constant WR in real terms starting at 3.33% would deplete the portfolio in 30 years. These periods were the ones that drove the Trinity study to the 4% SWR.
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Old 12-31-2016, 05:29 PM   #65
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So, if one drew off the incomes to live on, his stash would diminish in real value. Because the principal dropped in real terms, the incomes would also diminish in purchasing power with time. When compounded over 20 years, the effect was pretty bad..
That depends on how much of the income gets used for living expenses. If not much, then even with lower income, the portfolio could still be maintained without selling anything, and the excess income actually put back to work buying more.
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Old 01-02-2017, 09:38 AM   #66
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I've asked this before but looking for a bit of confirmation:
If your SWR is 4% and one year you only withdraw 3% are you allowed to withdraw 5% in a following year?

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Old 01-02-2017, 10:37 AM   #67
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That depends on how much of the income gets used for living expenses. If not much, then even with lower income, the portfolio could still be maintained without selling anything, and the excess income actually put back to work buying more.
One can see for himself just by running FIRECalc while specifying a WR of exactly 0. Set the duration to 20 years. The results show that there are quite a few sequences that have the portfolio ending up at the same initial value, and that is after 20 years.

Now, keep the WR at 0, and shorten the duration to 10 years to zoom in for the shorter term. One will see that there are several sequences that end the 10 years with the portfolio significantly shrunken to 80% or less of the initial value.

Next, one can then vary the stock portion from 0% to 100%, then see for himself that there is no place to hide.
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Old 01-02-2017, 01:13 PM   #68
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[QUOTE=marko;1819346]I've asked this before but looking for a bit of confirmation:
If your SWR is 4% and one year you only withdraw 3% are you allowed to withdraw 5% in a following year?/QUOTE]

You get to make up whatever rules you want. Seriously.

Of course some rules work better than others, but in the end there are no guarantees with any rule set.

If you "underspend" one year and "overspend" the next, I doubt that will send you into the poor house.
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Old 01-02-2017, 01:22 PM   #69
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If you "underspend" one year and "overspend" the next, I doubt that will send you into the poor house.
Well, not any more than spending an even amount each year.
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Old 01-02-2017, 01:55 PM   #70
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I've asked this before but looking for a bit of confirmation:
If your SWR is 4% and one year you only withdraw 3% are you allowed to withdraw 5% in a following year?

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Personally I withdraw the same % every year, but money not spent one year is available for spending in the next.
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Old 01-02-2017, 02:51 PM   #71
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This month we will hopefully be closing on a house and I don't intend to count the withdrawal as an expense since it is really a re-allocation of funds and ongoing expenses will be significantly lower without rent to pay. (And income from lost dividends will also go down)

I have been and will count the lawyers fees, building inspector fees etc as annual expenses but not the actual purchase cost of the house.

I don't expect the WR (%) to change much even though the $ amounts of expenses and investable assets will change significantly.
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Old 01-02-2017, 04:36 PM   #72
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This month we will hopefully be closing on a house and I don't intend to count the withdrawal as an expense since it is really a re-allocation of funds and ongoing expenses will be significantly lower without rent to pay. (And income from lost dividends will also go down)

I have been and will count the lawyers fees, building inspector fees etc as annual expenses but not the actual purchase cost of the house.

I don't expect the WR (%) to change much even though the $ amounts of expenses and investable assets will change significantly.
Alan, this is quite a dilemma, isn't it! I knew I could afford the house that I bought in 2015, but thought and thought about the best way to handle it in my spreadsheet. My purpose was to end up with some sort of comparable yearly spending total so that I could see if my spending remained "on track" during and after the move.

What I did to accomplish this purpose was to add up the following:

1. the cost of the house minus the proceeds from selling the old house
2. closing costs
3. costs for repairs of the old house to sell it
4. moving costs
5. cost for the landscaping project that I felt was needed to make the house habitable

As you can tell, I tried to include everything I had to spend in order to make this move, and nothing that I would have spent had I not moved.

My decision was to consider this sum to be a permanent decrease in my portfolio size instead of counting it as part of my 2015 spending percentage, and then go ahead with my usual WR each year, but based on the smaller portfolio.

For me this worked out very well. Like most computations we discuss on the forum, the way we set up this computation needs to reflect what we want to learn from it. So, YMMV but I think it's all pretty interesting.
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Old 01-02-2017, 04:46 PM   #73
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Alan, this is quite a dilemma, isn't it! I knew I could afford the house that I bought in 2015, but thought and thought about the best way to handle it in my spreadsheet. My purpose was to end up with some sort of comparable yearly spending total so that I could see if I was staying "on track" after the move.

What I did to accomplish this purpose was to add up the following:

1. the cost of the house minus the proceeds from selling the old house
2. closing costs
3. costs for repairs of the old house to sell it
4. moving costs
5. cost for the landscaping project that I felt was needed to make the house habitable

As you can tell, I tried to include everything I had to spend in order to make this move, and nothing that I would have spent had I not moved.

My decision was to subtract this sum from my portfolio and then go ahead with my usual WR each year, but based on the smaller portfolio.

For me this worked out very well. Like most computations we discuss on the forum, the method of doing the computation needs to reflect what you want to learn from it. So, YMMV but I think it's all pretty interesting.
MMDV since we haven't owned a house in 12 years but I am taking the same approach as yourself.

For regular expenses I'm counting everything except the actual agreed purchase price, so moving costs, buying fees etc. Once in we already know some improvements we want to do so those will all be expenses as well. 2017 however will not see us traveling for 6 months of the year to other countries so I don't expect to over-spend too much.
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