Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Old 05-20-2009, 06:17 AM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
Quote:
Originally Posted by Geoffrey View Post
Although we can debate the pros and cons of various withdrawl rates ad nauseum, nothing substitutes for a robust starting balance. I believe that many who wind up experiencing sleepless nights are those who didn't have an adequate cushion to begin with. Start out with a robust nestegg and you can adjust your WD to suit economic circumstance . . . start out with an anemic nestegg and you will likely have to push your luck.
True, but it is just another spin on the same words.

A large starting balance (always a good thing), just means a lower starting WR.

-ERD50
ERD50 is offline   Reply With Quote
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 Early-Retirement.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!

Old 05-20-2009, 06:17 AM   #22
Recycles dryer sheets
Robert the Red's Avatar
 
Join Date: Aug 2005
Posts: 335
(1) How could one think that one of the most important decisions of your life could be a "no brainer"? Thinking is required.

(2) See http://bobsfiles.home.att.net/PrepareForRetirement.html for various charts of SWR vs duration, and vs. financial conditions at the start.

(3) Re-engage brain.
Robert the Red is offline   Reply With Quote
Old 05-20-2009, 06:48 AM   #23
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
While I understand the theory behind the 4%, in actual retirement years it is not that simple a rule to enforce.

I retired at age 59. My wife was to retire the same age, but has yet felt comfortable enough to do so (even if financially, she's OK).

Currently, my withdrawal rate against our combined retirement portfolio is 2.7% (in the third year of retirement). Since my income was higher during working years, and continue to be during retirement it make sense (rather than a 2% & 2% = 4% rate). BTW, all calculations for our portfolio's are "merged" - that is our AA is based upon all holdings in our combined portfolios (I'm more agressive; my DW not so), along with witdrawl forecasts.

However, my wife is expected to retire and claim SS at age 62 (next year). I will not take SS till age 70; that's another subject, and I won't go into the reasons here.

My wife will have two small pension payments (single life) starting at age 65, in addition to her SS and portfolio withdrawals.

So what does this all mean? Simply, you can't follow the "4% rule" unless all your retirement income sources are available on day one of retirement. Additionally, if your plan is based upon a combined plan of both partners, both should retire within the same year (just to make it easier to measure that 4%).

I have/will have a total of four income sources. My wife will also have four. The important thing is that my income sources (starting at age 59) will not come "on-line" till age 70, when my SS starts. My wife? SS at age 62, two pension payments at 65. This leads to an 11 year span of increasing income, as our "sources" become available.

Projections show from the current 2.7% withdrawal, it will increase over the years till a bit over 10% at age 70. At age 71 (the first full year of my SS income) it drops to less than 4% and stays there till our late 80's, early 90's (with the plan going to age 100).

So should we spend less now, and for the next years to keep it at/under 4%? Of course not. If we did, our estate will certainly be large, but it will be at the "expense" of not having a good early retirement lifestyle, as we do now.

Again, the 4% is a good starting point, but it must be observed in your own personal life as to how rigidly you need to follow it.
rescueme is offline   Reply With Quote
Old 05-20-2009, 06:50 AM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ziggy29's Avatar
 
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
I think all we can say with reasonable certainty is that it's safer now, in hindsight, than it was if you started it 18 months ago.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
ziggy29 is offline   Reply With Quote
Old 05-20-2009, 10:42 AM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
Quote:
Originally Posted by ziggy29 View Post
I think all we can say with reasonable certainty is that it's safer now, in hindsight, than it was if you started it 18 months ago.
True. However I can imagine that many perceive may it the opposite. Since they have seen what can happen, they feel less sanguine about withdrawal rates going forward.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 05-20-2009, 11:07 AM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 13,151
Quote:
Originally Posted by Want2retire View Post
But I never planned to take 4%. If my memory is correct, 4% is only good for 25-30 years and then you run out of $$$, right?
You're joking of course?
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 05-20-2009, 11:17 AM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 13,151
Quote:
Originally Posted by Geoffrey View Post
Although we can debate the pros and cons of various withdrawl rates ad nauseum, nothing substitutes for a robust starting balance. I believe that many who wind up experiencing sleepless nights are those who didn't have an adequate cushion to begin with. Start out with a robust nestegg and you can adjust your WD to suit economic circumstance . . . start out with an anemic nestegg and you will likely have to push your luck.
Gosh..... what a concept! More money is better! I certainly agree with you even if your position is stating the obvious!
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 05-20-2009, 11:17 AM   #28
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 3,506
Quote:
Originally Posted by Rich_in_Tampa View Post
I'm a percent-of-total fan -- maybe 4.5% per annum, with Clyatt's 95% rule as a backstop. I don't see the economic fluctuations as a reason to back away from that. But it might test your ability to tighten the belt here and there, or maybe stash away a reserve in the good times (maybe a ceiling of 5% in any given year).

I like never running out of money even it it means a little pinching here and there. Heck, we've done that most of our lives.
We decided to use the 4/95 rule to ER in May 08 since it was the only one I knew would support a 40+ year ER with purchasing power intact at the end. However, I didn't fully comprehend the implications of a 27% decline in my portfolio in the very first year!

See table below. 1st year decline in portfolio is 27%, then a steady 7.5% return each year. Withdrawal is 4% of portfolio or 95% of previous year withdrawal - whichever is higher.

I don't know what Bob's model portfolio returned last year, but mine doesn't mirror his exactly - the -27% is the hit my portfolio took in 2008.

YearInitial ValueWithdrawalAfter Withd.ReturnFinal Value
1$1,000,000.00$40,000.00$960,000.00-27.00%$700,800.00
2$700,800.00$38,000.00$662,800.007.50%$712,510.00
3$712,510.00$36,100.00$676,410.007.50%$727,140.75
4$727,140.75$34,295.00$692,845.757.50%$744,809.18
5$744,809.18$32,580.25$712,228.937.50%$765,646.10
6$765,646.10$30,951.24$734,694.867.50%$789,796.98
7$789,796.98$31,591.88$758,205.107.50%$815,070.48
8$815,070.48$32,602.82$782,467.667.50%$841,152.74
9$841,152.74$33,646.11$807,506.637.50%$868,069.62
10$868,069.62$34,722.78$833,346.847.50%$895,847.85
11$895,847.85$35,833.91$860,013.947.50%$924,514.98
12$924,514.98$36,980.60$887,534.387.50%$954,099.46
13$954,099.46$38,163.98$915,935.487.50%$984,630.65
14$984,630.65$39,385.23$945,245.427.50%$1,016,138.83
15$1,016,138.83$40,645.55$975,493.277.50%$1,048,655.27

It takes 15 years to return to the original withdrawal amount - in NOMINAL dollars! And, you would have to survive on 75% of your initial withdrawal (nominal $s) in year 6.

Interestingly, if you take just the 4% (and not limit lowering withdrawals to 95% of previous year), it still takes 14 years to return to the original nominal withdrawal amount. You live with a steep 30% lowering of your spend in the first year, and then slowly get back.

We had decided that we would go back to work if the returns were bad in the initial years, which we are in the process of doing, so we're not in a bind.
walkinwood is offline   Reply With Quote
Old 05-20-2009, 11:29 AM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
Nice chart, Walkinwood. Puts a little reality under all the glib assertions that "If things get tough, we'll just cut back for a while". A long while it appears.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 05-20-2009, 11:34 AM   #30
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 3,506
Thanks Ha!

It wasn't like I was eager to start looking for work
walkinwood is offline   Reply With Quote
Old 05-20-2009, 11:50 AM   #31
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 47,474
Quote:
Originally Posted by walkinwood View Post
However, I didn't fully comprehend the implications of a 27% decline in my portfolio in the very first year!
I just tried it with a withdrawal rate of 0.0% (no withdrawals). It still takes 7 years to get back to where you started, in nominal dollars again!

We sure took a hit, didn't we.

I think that probably we can take comfort in the fact that usually the market rebounds sharply after a big fall such as we have had, so instead of 7.5% we might be getting several times that return for a few years. Of course, there are no guarantees.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.

Happily retired since 2009, at age 61. Best years of my life by far!
W2R is offline   Reply With Quote
Old 05-20-2009, 11:55 AM   #32
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Quote:
Originally Posted by walkinwood View Post
We decided to use the 4/95 rule to ER in May 08 since it was the only one I knew would support a 40+ year ER with purchasing power intact at the end. However, I didn't fully comprehend the implications of a 27% decline in my portfolio in the very first year!
There isn't a SWR strategy in existence that would have protected you from the unfortunate timing you ran into, and it sounds like you handled the worst-case-scenario like a champ.

Still, if you hadn't gone back to work and used the traditional withdrawal strategy, you would still be withdrawing your inflation-corrected initial withdrawal amount to this day (and beyond), despite a 27% drop in portfolio value. Very few intrepid souls would have stayed with that strategy for long given what we are going through currently.

The Clyatt plan seems to heartlessly make you adapt as conditions change -- to me a good thing. I like the idea of paying my dues in the year they are incurred, thereby reducing the drastic peaks and valleys in income over the longer term.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Old 05-20-2009, 11:58 AM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
Quote:
Originally Posted by Want2retire View Post
I just tried it with a withdrawal rate of 0.0% (no withdrawals). It still takes 7 years to get back to where you started, in nominal dollars again!

We sure took a hit, didn't we.

I think that probably we can take comfort in the fact that usually the market rebounds sharply after a big fall such as we have had, so instead of 7.5% we might be getting several times that return for a few years. Of course, there are no guarantees.
The trouble with supposing that is that it would right away put most equity valuations back into meaningfully over valued. In the past when equities have fallen this much they have been very undervalued at the bottom. (Other than 2003)

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 05-20-2009, 12:09 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
Hmmm - in 16th yr of ER - I really, really really do not to repeat 1965 to 1982.

I ain't gonna work on more (fingers crossed).

.

heh heh heh -
unclemick is offline   Reply With Quote
Old 05-20-2009, 03:14 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
bbbamI's Avatar
 
Join Date: Dec 2006
Location: Collin County, TX
Posts: 9,294
Quote:
Originally Posted by Rambler View Post
I'm 47, planning to be able to live to 100, although I don't expect to. R
I'm 51....my plan goes to 92 years old. Egads...I can't imagine living another 41 years....
__________________
There's no need to complicate, our time is short..
bbbamI is offline   Reply With Quote
Old 05-20-2009, 03:59 PM   #36
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
Quote:
Originally Posted by bbbamI View Post
I'm 51....my plan goes to 92 years old. Egads...I can't imagine living another 41 years....
Hey, you might end up looking like my aunt - she turned 92 last week:
Attached Images
File Type: jpg 05-19-09_1652.jpg (17.4 KB, 3 views)
__________________
Numbers is hard
REWahoo is offline   Reply With Quote
Old 05-20-2009, 04:07 PM   #37
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
bbbamI's Avatar
 
Join Date: Dec 2006
Location: Collin County, TX
Posts: 9,294
Quote:
Originally Posted by REWahoo View Post
Hey, you might end up looking like my aunt - she turned 92 last week:
Ahhhh....such a lovely lady...

My great grandmother was a beautiful woman, even in her late years. I don't think I'm going to take after her....
__________________
There's no need to complicate, our time is short..
bbbamI is offline   Reply With Quote
Old 05-20-2009, 04:54 PM   #38
Gone but not forgotten
 
Join Date: Jan 2007
Location: Sarasota,fl.
Posts: 11,447
Your Aunt looks good and here is my Mom who is 93 and keeps us hopping . She still does the New York Times crossword in record time .
Attached Images
File Type: jpg nyc 026.jpg (541.3 KB, 5 views)
Moemg is offline   Reply With Quote
Old 05-20-2009, 05:12 PM   #39
Recycles dryer sheets
Medit8's Avatar
 
Join Date: Jul 2007
Posts: 119
Quote:
Originally Posted by haha View Post
The trouble with supposing that is that it would right away put most equity valuations back into meaningfully over valued. In the past when equities have fallen this much they have been very undervalued at the bottom. (Other than 2003)

Ha
You are of course referring to the US stock market. There are other markets in the world where this is not necessarily so.
__________________
Ty Webb to Carl Spackler: "Got a pond...got a pool and a pond. Pond would be good for you."
Medit8 is offline   Reply With Quote
Old 05-20-2009, 05:26 PM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
Quote:
Originally Posted by Medit8 View Post
You are of course referring to the US stock market. There are other markets in the world where this is not necessarily so.
I'm all ears. What are your favorites?

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Reply


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

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Adjust SWR due to financial "sea change" ? cardude FIRE and Money 87 02-23-2009 04:25 PM
tiny button fix: "Save" edited comment sometimes = "Vote Now" ladelfina Forum Admin 0 09-24-2008 01:22 AM
The "Father" of 4% SWR doesn't recommend it... Midpack FIRE and Money 56 08-24-2008 12:13 PM
Book reports: "Blink" & "Tipping Point" Nords Other topics 2 12-04-2005 04:15 PM
"reasonable worst case" SWR: 2.55% amt FIRE and Money 38 11-12-2004 04:52 PM

» Quick Links

 
All times are GMT -6. The time now is 03:37 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.