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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%
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Poll:Are You "Probabilistic" School or "Safety First" School?
Old 12-25-2020, 04:04 PM   #1
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Poll:Are You "Probabilistic" School or "Safety First" School?

When it comes to FIRE withdrawal methods, it seems that most ER.org members belong to the “probabilistic” school versus the “safety first” school of thought. At least that’s what my cursory search/review of past threads indicates. I’d like to expand the discussion on this with a poll of what withdrawal method you use, along with a brief explanation of your choice. For this poll, we will consider a retiree “safety first” if s/he uses guaranteed income streams for at least essential expenses. Also, this is not meant to be a thread on the pros/cons of ‘annuities’, as there are several other ways to provide guaranteed income. [Note: If I’ve missed old threads and this info exists, pls point me to it in your reply but, kindly still take the poll if you will.]

I’ll start with some background on my situation and my current thinking. I FIREd in 2014 with a 60/35/5 (+/-5%) AA; buy and hold low cost MFs/ETFs. I have two small pensions which started @ age 60 (5 yrs ago) and am waiting until ~ age 68-70 to begin SS, at which time I will be 12 yrs +/- into FIRE, and my guaranteed income streams (mostly inflation adjusted) will cover my essential expenses. I started FIRE mostly in the “probabilistic” school but, maintained a ~4 yr CD/STBond ladder to help manage SORR and my psyche. However, as I get closer to the point where guaranteed income streams will cover essential expenses, I find myself becoming more “safety first” school. I know from past threads/polls on SIRE vs FIRE, that it’s easier, and more likely, for one to be in the “safety first” school with enough guaranteed income to be considered SIRE. So, I’m sure that has something to do with my evolution from “probabilistic” into “safety first”, even though <50% of my planned expenses will be met by guaranteed income streams.

I chose #4 in the poll (evolved from probabilistic to safety first) because I value a constant risk of ruin over constant annual spending.

Poll choices:
1. Completely Probabilistic School
2. Probabilistic School but, would be Safety First School if financially possible
3. Completely Safety First School
4. Evolved from one to the other
5. Use a completely different withdrawal method not in either school
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Old 12-25-2020, 04:21 PM   #2
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I voted for choice #2. If I could be SIRE, I would be. I do trust the calculators calculations based on history mixed in with monte carlo simulation concepts.
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Old 12-25-2020, 04:26 PM   #3
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We’re about 80% probabilistic but I’m not anxious about being safer or I’d buy annuities or other lower risk incomes sources. My sig line spells out our situation.
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Old 12-25-2020, 04:44 PM   #4
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I voted "Probabilistic School but, would be Safety First School if financially possible".

Currently, I have a COLA'd pension that covers about half of our essential expenses. When I expect to claim social security at age 70, our combination of pension and social security will cover all essential expenses.

Once we are collecting social security we expect to be living the proverbial three-legged stool of pension, social security and portfolio, with each covering about one third of our total expenses.
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Old 12-25-2020, 04:47 PM   #5
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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.
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Old 12-25-2020, 05:01 PM   #6
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100% probabilistic. If I had more money, I'd still be probabilistic, as that would give me an even bigger cushion to weather downturns.
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Old 12-25-2020, 05:12 PM   #7
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Since we live off of our investments, and our SS at age 70 will probably mostly go to cover Medicare premiums and taxes, that seems to put us in your probabilistic camp. We’ve just never had guaranteed income streams, and live off withdrawing a small % of our retirement portfolio each year. I guess we are used to it, comfortable with it by now,
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Old 12-25-2020, 06:25 PM   #8
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Quote:
Originally Posted by Midpack View Post
We’re about 80% probabilistic but I’m not anxious about being safer or I’d buy annuities or other lower risk incomes sources. My sig line spells out our situation.
Quote:
Originally Posted by audreyh1 View Post
Since we live off of our investments, and our SS at age 70 will probably mostly go to cover Medicare premiums and taxes, that seems to put us in your probabilistic camp. We’ve just never had guaranteed income streams, and live off withdrawing a small % of our retirement portfolio each year. I guess we are used to it, comfortable with it by now,
I've read a lot of posts from both of you, and respect your views and approach. So, I'd like to hear more about why each of you chooses to remain in the "probabilistic" school, even though your small WDRs seem to indicate you could "guarantee" essential expenses and still have a sizable remaining "risk" portfolio. Is it just the 'portfolio drag' that comes with the assets assigned to "guaranteed" essential expenses, the current low yield environment or, something else?
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Old 12-25-2020, 06:28 PM   #9
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Yup, no pensions for us. Still drawing my deceased wife's SS which covers about 10% of expenses.
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Old 12-25-2020, 06:46 PM   #10
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Old school here. While I have a 2/5/10/20 year plan on the Probabilistic side it is not the end all. The year end portfolio balance is the barometer which guides the plan. As an old boat captain when I see the heavy clouds and the air changing I head to port. It doesn't matter what the weather has done for the last 500 years I know what I know. Call it AA rebalance, market timing or SWR it really doesn't matter all that much. Some get it some never will. Most here have won the game and it's a moot point.
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Old 12-25-2020, 06:54 PM   #11
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Quote:
Originally Posted by Huston55 View Post
I've read a lot of posts from both of you, and respect your views and approach. So, I'd like to hear more about why each of you chooses to remain in the "probabilistic" school, even though your small WDRs seem to indicate you could "guarantee" essential expenses and still have a sizable remaining "risk" portfolio. Is it just the 'portfolio drag' that comes with the assets assigned to "guarantee" essential expenses, the current low yield environment or, something else?
For me I’d rather have the greater potential upside with little risk of failure than even less risk of failure and less upside potential. I look at my ‘annuitization hurdle’ quarterly and we’re multiples above the threshold. If I ever get anywhere close I can rethink my options. And annuity payouts are at a historic low, so no reason to go there now anyway if you don’t have to.

https://papers.ssrn.com/sol3/papers....ract_id=995055
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Old 12-25-2020, 07:39 PM   #12
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I'm not sure that the safety first method is a guarantee. I'm not 100% what constitutes a guaranteed flow of income. Is it SS+pension+CD interests+bond interest+dividend interests+annuities? We are edging closer and closer to SS being underfunded where it will have to either be cut and a change made to add funding. I'm not sure how completely PBCG protects your pension so I'll skip over that. CD interest is safe if FDIC or similarly guaranteed, but any that are ending now would have to be rolled into new CDs with minuscule rates if you want to stay with CDs. Bonds can be defaulted on (rarely, but still...), or called early. Dividends can be cut. Annuity insurers can fail.

Once I'm collecting SS and a small pension, I probably will have my needs and many wants covered by so-called guaranteed income, especially if you could interest and dividends within my IRAs. I may even get an SPIA to help with that, but I still have a probabilistic approach and mindset. When I retired nearly 10 years ago it was all based on "I have enough money to last the rest of my life" rather than "I'm generating enough income to cover my expenses for the rest of my life", and my mindset hasn't changed.
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Old 12-25-2020, 07:44 PM   #13
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There is no safety and there never was. Safety is an illusion, a mirage.

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Old 12-25-2020, 08:07 PM   #14
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Probalistic, with percentage withdrawal recalculated annually based on portfolio value as of 12/31. If we had sufficient funds to "guarantee" safety first at the present spending level, we'd just spend more.

E.T.A. no pensions and still counting socials as a zero.
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Old 12-25-2020, 08:49 PM   #15
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Probabilistic for me. I am a long way from SS/RMD and have a tiny pension. I use my savings and investment growth to cover living cost, lucky to have sufficient cushion to weather a down market.
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Old 12-25-2020, 10:23 PM   #16
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I look at my ‘annuitization hurdle’ quarterly and we’re multiples above the threshold. If I ever get anywhere close I can rethink my options.

https://papers.ssrn.com/sol3/papers....ract_id=995055
I also use Fullmer's annuitization hurdle concept; it's a good barometer. It's #4 of my backup plans. The first three are: (1) Use cash buffer, (2) Cut expenses, (3) Do consulting work.

ETA: I also use Otar's "Zone" concept but, check that less often than the annuitization hurdle.
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Old 12-25-2020, 10:34 PM   #17
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Old school here. The year end portfolio balance is the barometer which guides the plan.
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Probalistic, with percentage withdrawal recalculated annually based on portfolio value as of 12/31.
Although technically "probabilistic", the "Percentage of Remaining Portfolio" method manages risk better than a straight SWR based on beginning FIRE balance. The links below from Dirk Cotton @ The Retirement Cafe (definitely a Safety First guy) describe withdrawal methods that I find promising. I think the "Dynamic Spending" approach he describes can be applied to an entire portfolio or, to the "risk" portion after essential expenses have been addressed by guaranteed income sources.

The Retirement Café: Dominated Strategies

The Retirement Café: Dominated Strategies and Dynamic Spending)
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Old 12-26-2020, 12:31 AM   #18
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I cannot choose any of your choices.

I would say "Safety first" to cover essential spending, and then probabilistic for anything above that.
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Old 12-26-2020, 04:23 AM   #19
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Originally Posted by Huston55 View Post
I've read a lot of posts from both of you, and respect your views and approach. So, I'd like to hear more about why each of you chooses to remain in the "probabilistic" school, even though your small WDRs seem to indicate you could "guarantee" essential expenses and still have a sizable remaining "risk" portfolio. Is it just the 'portfolio drag' that comes with the assets assigned to "guaranteed" essential expenses, the current low yield environment or, something else?
Well, our only options for a guaranteed income stream would be to buy some annuities and I think we’re too young to get a decent payout especially for two people, current low interest rates further reduce payout, it would take additional purchases over time to mimic a COLA, we’d be dependent on one or a few insurers for decades, all of a sudden I’ve lost control of big chunks of principal and thus financial flexibility. It’s not appealing at all.

I feel we are well funded (knock on wood). Our portfolio survival probability is very high as we use the %remaining portfolio withdrawal method. We have a lot of flexibility with discretionary spending. We currently underspend our annual withdrawal so we have some short-term funds built up (buffer) that can help smooth income volatility. There may be future large lump sum expenses and we’d like to be able to tap into available principal if needed. BTW I’ve noted some papers recommend annuities as a good idea when someone is marginally funded and not set up to handle SORR. Oh, I see Midpack already mentioned the ‘annuitization hurdle’.

Why don’t I take a completely different approach? I don’t know if anyone can ever completely answer a question like that.
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Old 12-26-2020, 04:55 AM   #20
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Currently safety first. Taking SS and 10 years worth of annuity disbursements.

Have never taken money out of IRA. But annuity will run out and RMD's will start in 5-7 years, so I suppose I'll be half safety, half probabilistic at some point.
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