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View Poll Results: Are you "Probabilistic" School or "Safety First" School?
Completely Probabilistic School 41 46.07%
Probabilistic School but, would be Safety First School if financially possible 15 16.85%
Completely Safety First School 13 14.61%
Evolved from one to the other 9 10.11%
Use a completely different withdrawal method not in either school 11 12.36%
Voters: 89. You may not vote on this poll

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Old 12-26-2020, 05:12 AM   #21
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Wife and I both retired about 10 and 9 years ago and have been living on SS and small pensions. I guess that makes us "Safety First". This is only because our modest house is mortgage free, the cars are new and paid for, health insurance is taken care of with Medicare and Tricare, and we are still struggling with trying to emerge from LBYM mentality. The investments have only been used for a few trips, annual max. gifting to grown children, new cars, and donations to select charities. Even so the portfolio is greater now than when we retired.

We are just at a point in life that our interests are simple and inexpensive. My wife likes to play tennis at the public courts and I ride my recumbent trike for our typical daily activities. The investments and cash are there if needed but mostly are there to give us peace of mind and to be financially worry free. If "safety first" was no longer available the investments would take over and we would be fine until well past the "sell by..." date.


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Old 12-26-2020, 05:30 AM   #22
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Quote:
Originally Posted by geeky_grrl View Post
I guess I'm 100% probabilistic in your model.

I'm a long ways off from social security and don't have any pensions so I don't have any guaranteed income streams. With inflation risks I don't think most of the guaranteed income streams (annuities, CDs) are necessarily any safer than a balanced portfolio - I'm just trading market risk for inflation risk.

If SS isn't decreased by the time I am 70 I could most manage on it, but it is far enough off I don't trust it.
What gg said -

ms gamboolgal and I voted 100% Probabilistic in your Poll.

My effective Retirement Date is 1-Feb-21, but I went on Vacation 23-Dec-20 - so I am effectively retired now..... Finally !

I am 61.5 year old and we have about 3 years Expenses in Cash to help us sleep better at night for SORR and riding out the normal Market Gyrations.

Our Portfolio at Vanguard is 50/50 not including the Cash we have sat aside in the Bank and Gun Safe.

Planning to take SS at age 67, but will evaluate as we go along.

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Old 12-26-2020, 06:05 AM   #23
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I've been retired 12 years, living off my savings so I guess that's probabilistic. On Jan 1 I start collecting a pension which will cover 100% of my expenses so I guess that moves into the safety first camp. I could have taken the pension as a pretty nice lump sum, but I preferred the annuity option with a monthly payment - the illusion of safety.
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Old 12-26-2020, 06:12 AM   #24
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Originally Posted by DayDreaming View Post
I've been retired 12 years, living off my savings so I guess that's probabilistic. On Jan 1 I start collecting a pension which will cover 100% of my expenses so I guess that moves into the safety first camp. I could have taken the pension as a pretty nice lump sum, but I preferred the annuity option with a monthly payment - the illusion of safety.
Often people report pension payments offerings that are quite a bit more valuable than what can be bought on the individual annuity market, so it often makes sense to take them with good survivor options.
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Old 12-26-2020, 07:06 AM   #25
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Voted 100% Probabilistic: took my pension in a lump sum and never bought, nor plan to buy, an annuity product.

Kitces has an article on this: https://tinyurl.com/okcdqkj

A quote: "Yet the reality is that portfolio-based strategies built around a “conservative enough” safe withdrawal rate effectively are a safety-first approach, while safety-based strategies using annuitization or pensions can still have at least some risk (as evidenced by the history of insurance/annuity company failures, and the growing shortfall of the PBGC in backing failed pensions)."
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Old 12-26-2020, 07:37 AM   #26
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Anyone who has Soc Sec or the like (most here?) isn’t completely probabilistic?
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Old 12-26-2020, 07:39 AM   #27
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I didn't see an answer that fit so I chose #5. We have our essentials fully covered by pensions and SS so that would put us in safety first by OP's reckoning, but I see that as a circumstance, not a school. Our portfolio is 75% equities on the theory that will insure a larger estate. That thinking puts us in the probabilistic school but that is easy to choose when your essentials are covered. If I allocating our thinking I would put us around 60/40 - P/S. Maybe 50/50.
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Old 12-26-2020, 09:06 AM   #28
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Hope I'm understanding the poll correctly... I picked "Probabilistic School but, would be Safety First School if financially possible", because the only guaranteed income stream we have today is DW's small pension which covers
< 20% of our yearly expenses. That said, we're a few years off from taking Social Security which, together with the pension, would cover 75% of yearly expenses as they exist today. Considering inflation, I would expect that we'd be relying about equally on the Pension/Social Security income streams and using the funds from our portfolio. If we didn't have to deplete the portfolio, that would be preferable - so I think we can say we'd prefer to be in the Safety School if it were possible.
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Old 12-26-2020, 09:37 AM   #29
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For this poll, we will consider a retiree “safety first” if s/he uses guaranteed income streams for at least essential expenses.
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Originally Posted by Out-to-Lunch View Post
I cannot choose any of your choices.

I would say "Safety first" to cover essential spending, and then probabilistic for anything above that.
For this poll, you'd be considered "safety first" if you cover essential expenses with guaranteed income streams.
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Old 12-26-2020, 10:19 AM   #30
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I found the link racy provided above to help with the terminology used here:
https://www.kitces.com/blog/even-saf...isk-retention/

Another great food-for-thought Kitces article.

And this one has a long argument with Pfau in the comments!
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Old 12-26-2020, 11:10 AM   #31
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Originally Posted by audreyh1 View Post
I found the link racy provided above to help with the terminology used here:
https://www.kitces.com/blog/even-saf...isk-retention/

Another great food-for-thought Kitces article.

And this one has a long argument with Pfau in the comments!

Worth reading - From the article: The bottom line, though, is simply this – the real distinction in retirement income philosophies and strategies is not really about which is “safe” and which is not, as any of the strategies can be managed in a manner that is safe or in a manner that is more risky (and at least has “a probability of failure”). The real distinction is whether (market and longevity) risk is transferred or retained, and if retained how those risks are managed or avoided. For which, given a world of uncertainty, there are no absolute “correct” answers about what the future may hold… which is what makes them a matter of retirement income philosophy in the first place!

I believe that Robbie B said something of the sort.

P.S. Did listen to a podcast of Wade Phau (throught the Booglehead website, where he dicussed this.)
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Old 12-26-2020, 11:19 AM   #32
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I guess #3, safety first, as we have pensions and SS. But it doesn't completely match as
also have investments available to draw from, if needed.
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Old 12-26-2020, 11:32 AM   #33
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Quote:
Originally Posted by audreyh1 View Post
I found the link racy provided above to help with the terminology used here:
https://www.kitces.com/blog/even-saf...isk-retention/

Another great food-for-thought Kitces article.

And this one has a long argument with Pfau in the comments!
Exactly. The most illuminating part of this blog post is in the debate between Pfau & Kitces in the comments. I follow them both but, in this instance, I believe Pfau makes the stronger argument. Two comments capture that well:

Pfau states that Kitces is "reaching for a counter-example to demonstrate that probabilty vs. safety is artificial", and I agree with that point, given the somewhat ridiculous example that Kitces uses.

But, more precisely, when it comes to comparing potential "failure" rates of the Probabilistic versus Safety First approaches, Pfau quantifies potential "failure" of the Probability Based approach in the current (2015) environment as follows:

"Michael,

Yes, if the withdrawal rate from a volatile portfolio is low enough, then it can certainly become very safe. Your 0.000001% withdrawal rate example should work out fine.

But what about a 4% withdrawal rate? That's about what you could get now with contractual guarantees using a 20-year TIPS ladder and a DIA. You lose upside potential though. Of course this is not 100% safe, as nothing is. But it's close.

With a 4% withdrawal rate from a volatile portfolio, you might maximize the probability for success at about 70-80% with today's low interest rates. With fees (as it is important to remember that the original 4% rule assumes no AUM fee or fund expense ratios), this might be down to more like 60-70%."


Although there is certainly variability in forecasts like Pfau's in this example, even with the current status of pension funding shortfalls, I still cannot envision an environment where the "failure" rate of pensions and SS comes anywhere close to 20%-40%.
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Old 12-26-2020, 11:38 AM   #34
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Probabilistic at this point. I would have like to have gotten a government job with a pension, but was not hired for those for which I applied, and the private sector where I worked (small businesses) did not even provide a 401(k) match.

I have thought about an annuity, but the payouts are awful. I will look again after I am 65. I do have some $ sitting in a Vanguard variable annunity (recently transferred as Vanguard got out of the Annunity business) I purchased a while back - after maxing out tax deferred. Anything I would purchase would be 100% joint & survivor.

As we age, with Social Security, it will probably skew more towards safety. I am aware that there is a risk of people's ability to handle finances as they age.

DH's second (company) 401k as something called a lifetime income fund; it is basically a very cheap variable annuity, and it can be turned into a lifetime income stream with a minimum guaranteed income; so if I am still around - I will look at converting this when he hits RMD age. (He does not like fussing with the investments and tends to panic and wants to sell everything - so I want as much headache free income for him as possible.) So DH would have his base pension and SS (which we are targeting for 70); and most likely a least one (possibly two) annunity streams. He also has something which is called an annuity through his Union which is not really an Annuity, just really a pot of funds which they manage for the Union members and send out monthly stipends although it is possible to roll out this money. I (we) thought about rolling it out, but they have access to income funds, etc. that we can't get, and also at least attempt to factor in some risk management. We'll see.
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Old 12-26-2020, 11:49 AM   #35
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Just as a reminder, for this poll, one is considered "Safety First" if "essential" expenses are covered (or will be covered) by guaranteed income streams. I know that some would define it as "all" expenses but, that's now how I structured the poll.
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Old 12-26-2020, 11:56 AM   #36
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DH's second (company) 401k as something called a lifetime income fund; it is basically a very cheap variable annuity, and it can be turned into a lifetime income stream with a minimum guaranteed income; so if I am still around - I will look at converting this when he hits RMD age.
This sounds similar to the product "nun" purchased, and which he frequently discusses.

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The value of an annuity depends on the numbers and your circumstances. They have been very poor value for a long time because pf low interest rates.

Just before I retired I got the chance to use DC pension money to buy into my employer's DB pension plan. I looked at the numbers and I found I could get a $20k index linked annual pension starting at age 55 by transferring $280k from my DC plan to the DB plan at age 52. So the payout rate was 7% and I estimated that if I lived to 83 I'd have to get an 7% annual return on the money to match the pension. As I had plenty of other DC and investment money I bought into the pension. I'm now 57 and collecting the pension each month and can be pretty sanguine about the stock market.
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Old 12-26-2020, 12:01 PM   #37
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There is no safety and there never was. Safety is an illusion, a mirage.

The rock is ground to sand by the action of waves and wind.
+1
The future is always unknown. Some of the risk factors - like unfavorable government policies, interest rate shocks, overdone market movement could apply to bonds, stocks and the solvency of pensions. So be prepared to be flexible and have a cushion.
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Old 12-26-2020, 12:14 PM   #38
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Most people don't fall clearly into one camp or the other. I suspect that most like myself evolve from one to the other as we age and pick up pension and/or SS.

I started out my ER with an WR closer to the 4% WR, but then my children got through college and became independent, and my stash grew due to the recent boom market. With my wife drawing SS now, my WR has been way below 4%.

When I decide to draw my SS, our WR will be even lower. Several posters here live on 0% WR. We most likely will have a non-zero WR while we still can travel.
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Old 12-26-2020, 01:49 PM   #39
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...We have our essentials fully covered by pensions and SS so that would put us in safety first by OP's reckoning, but I see that as a circumstance, not a school...
That was my reaction to this thread as well. I guess they are opposing "schools of thought." But I didn't pick a side and then arrange my affairs accordingly. We both just happened to stay at employers that offered pensions as part of the total compensation package.

Mine had a lump sum option. So I suppose when I elected the annuity option instead, that was a chosen step toward "safety-first". But I wasn't trying to cover some base level of expenses. I just thought it was the better option, financially. And of course, there is no lump sum option for SS. So most early retirees eventually evolve into "safety-first" to some degree.

Anyway, our two small pensions currently cover 75% of non-discretionary and 50% of total spend. Pensions + SS (several years away) will easily cover all non-discretionary and close to 100% of total spend. So I guess that makes us "safety-first." But I would have been just as happy in the probabilistic camp. I'm just going with the cards I was dealt. I marked #5.
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Old 12-26-2020, 02:06 PM   #40
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Good article.
The comments though... Glad I never heard of Pfau before I retired , 60-80% shot a 4% WR will succeed. I would have waited till I was 70 to retired.
Does anyone think we're in the most dire straights since 1920?
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