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Old 04-02-2024, 08:40 AM   #41
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My favorite resource for understanding the exact process of the 4% "rule" is a page on John Greaney's retireearlyhomepage.com website. I didn't really get the rule until I saw John's tables detailing how the inflation adjusted withdrawals impacted the various portfolio's balances. The website uses hilariously out-dated basic HTML tables, but he continues to post updates including one yesterday. As to sequence of returns risk, John added a table at the very bottom of the page detailing what the returns would be like for someone who retired just before the dot.com bubble burst in 2000. The key take aways for me are that a 60/40 portfolio, which can be as simple as a single fund, holds up really well through good times and bad, and also, it's really good to invest like Warren Buffet!


https://retireearlyhomepage.com/reallife24.html
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Old 04-02-2024, 08:43 AM   #42
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... But each year we seem to always have unplanned lumpy expenses, a new car, home improvement projects etc and we withdraw additional money from taxable accounts.
That is what I call "planned spontaneity that I expect to be surprised by."
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Old 04-02-2024, 09:49 AM   #43
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Itís pretty simple. In the big picture the annual withdrawal does drive our spending. Over many years it has been generally driving it up. I donít have a hard rule to spend all in one year either. If there are future opportunities or planned spending on the horizon some of it can be earmarked for that. In practice the income variations are quite small and my spending has ramped more gradually than my income anyway so it has tended to smooth out nicely.
Well, if you don't spend it, it's not really a 'withdrawal'. You are doing a form of leveling, just maybe not as much as a straight 4% plus inflation (which is really just the guide for what one could historically do). Most of us are using that as a guide I think, not a strict spending level.

It's just semantics, no big deal at all. I'm just trying to be clear about it, mostly for others reading along.

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Old 04-02-2024, 11:40 AM   #44
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What if one's SS & Pensions cover 2x one's monthly expenses, like DW and myself? We have not touched our stash (Except to borrow against a SS or pension payment when we need a little extra early).

As a result, we have had a Zero WR up until this year, as I feel we should be spending some as we have no heirs and will start to do so soon as I keep promising myself.
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Old 04-02-2024, 11:47 AM   #45
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What if one's SS & Pensions cover 2x one's monthly expenses, like DW and myself? We have not touched our stash (Except to borrow against a SS or pension payment when we need a little extra early).

As a result, we have had a Zero WR up until this year, as I feel we should be spending some as we have no heirs and will start to do so soon as I keep promising myself.
Yes. How many healthy years do you have left? Are there things important to you that you have put off? This is a think outside of the box kind of thing and often means pushing the comfort zone a bit.
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Old 04-02-2024, 11:56 AM   #46
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Well, if you don't spend it, it's not really a 'withdrawal'. You are doing a form of leveling, just maybe not as much as a straight 4% plus inflation (which is really just the guide for what one could historically do). Most of us are using that as a guide I think, not a strict spending level.

It's just semantics, no big deal at all. I'm just trying to be clear about it, mostly for others reading along.

-ERD50
Not by my book. Spending and withdrawal are two different things regardless of how often they are conflated.

I have short term funds and the retirement portfolio (long term investments) and manage them separately. The retirement portfolio is managed to a specific target AA including stocks and withdrawn from annually. The short-term funds are invested in short-term fixed income instruments. Each year the withdrawal is added to the short-term funds pile which I can spend whenever and however I want.

And I’m pointing out again that I don’t do the 4% plus inflation method which almost no one here actually does anyway. Regardless my % remaining portfolio method is also modeled by FIREcalc and I have studied it extensively for my AA and investment types and am satisfied with the long term and short term characteristics.
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Old 04-02-2024, 11:57 AM   #47
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What if one's SS & Pensions cover 2x one's monthly expenses, like DW and myself? We have not touched our stash (Except to borrow against a SS or pension payment when we need a little extra early).

As a result, we have had a Zero WR up until this year, as I feel we should be spending some as we have no heirs and will start to do so soon as I keep promising myself.
I'm in a similar situation but I call it a negative withdrawal rate, meaning I'm putting additional money into investments most months, on the order of $50K per year.

I spend what I want to spend, just bought a new car.
But I'm also trying to get my Investible Assets up to the next million, as per the other thread started by Street...
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Old 04-02-2024, 12:08 PM   #48
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Not by my book. Regardless this is an area of personal choice and by now my experience.

I have short term funds and the retirement portfolio (long term investments) and manage them separately. The retirement portfolio is managed to a specific target AA including stocks and withdrawn from annually. The short-term funds are invested in short-term fixed income instruments. Each year the withdrawal is added to the short-term funds pile which I can spend whenever and however I want.

And I’m pointing out again that I don’t do the 4% plus inflation method which almost no one here actually does anyway. Regardless my % remaining portfolio method is also modeled by FIREcalc and I have studied it extensively for my AA and investment types and am satisfied with the long term and short term characteristics.
We do exactly the same. We pay zero attention to the so called 4 percent rule. Inflation or not inflation adjusted. From a personal financial managment perspective it is meaningless to us.

Our focus is on understanding our spending, managing our resources. We do not need a X% rule to figure it out.
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Old 04-05-2024, 03:52 PM   #49
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The 4% rule says if you have $1m. Your first-year draw is 40k. Then you adjust the 40k for inflation. Not the percent. The amount. I guess the rule figures as you out earn the 40K plus inflation the resulting % draw goes down. WHAT IF, you're greeted with sour markets at the get-go? As one contributor mentioned, this could be a hell of a strain on a portfolio in a bad market. I back tested Vanguard Wellington since 1929 (it's been around that long - get returns on Yahoo finance) with a variety of draw scenarios. THE ONLY ONE that did not end up with portfolio exhaustion was a 3-3.2% draw from the prior year balance or less. This assumes a 60/40 portfolio and market conditions like we experienced 1929 to present. I ran a series of 30 year runs starting in 1929, 1930, 1931, etc. ITS NOT A GOOD ENOUGH SAMPLE. The "lost decade" of 1965-1981 was particularly vexing. This low percentage draw generates variable income. Suggestion would be to save some each year in good years to help on the lean years and flatten out the variability. Stave off the vacation and optional expenses in a bad year if you can.
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Old 04-05-2024, 06:55 PM   #50
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The 4% rule says if you have $1m. Your first-year draw is 40k. Then you adjust the 40k for inflation. Not the percent. The amount. I guess the rule figures as you out earn the 40K plus inflation the resulting % draw goes down. WHAT IF, you're greeted with sour markets at the get-go? As one contributor mentioned, this could be a hell of a strain on a portfolio in a bad market. I back tested Vanguard Wellington since 1929 (it's been around that long - get returns on Yahoo finance) with a variety of draw scenarios. THE ONLY ONE that did not end up with portfolio exhaustion was a 3-3.2% draw from the prior year balance or less. This assumes a 60/40 portfolio and market conditions like we experienced 1929 to present. I ran a series of 30 year runs starting in 1929, 1930, 1931, etc. ITS NOT A GOOD ENOUGH SAMPLE. The "lost decade" of 1965-1981 was particularly vexing. This low percentage draw generates variable income. Suggestion would be to save some each year in good years to help on the lean years and flatten out the variability. Stave off the vacation and optional expenses in a bad year if you can.
Are you sure you included dividends in the returns (total returns is price change + divs)?

Wellington is already 60/40. If you are implying that you used VWELX as the 60%, and added another 40% of fixed, that is way under-weighting stocks from the typical '4% rule' approach (~75/25). You'd be ~ 35/65, a long way from 75/25.

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Old 04-06-2024, 05:30 AM   #51
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Are you sure you included dividends in the returns (total returns is price change + divs)?

Wellington is already 60/40. If you are implying that you used VWELX as the 60%, and added another 40% of fixed, that is way under-weighting stocks from the typical '4% rule' approach (~75/25). You'd be ~ 35/65, a long way from 75/25.

-ERD50

Wellington is more or less a 60/40. I used the annual total returns on it as the basis for the analysis. Also - the 3 - 3 1/2% withdrawal rate seems to be in synch with the Fidelity retirement simulator in a bad market to age 100.
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Another layer
Old 04-06-2024, 05:45 AM   #52
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Another layer

Ditto for my answer: You add last year's CPI or other chosen number. (And I understand you're not necessarily using the rule, just curious). And given that, I'd like to add a perspective to the inflation adjustment rule.

I've noticed that in general, I don't necessarily spend 3% more the following year, just because we had 3% inflation. I almost think many of us take a long time to realize "things have gotten more expensive". So year 1, we take our 4%, year two, we might get 3% inflation, but maybe we don't really notice. (maybe our 4% is a little more than we need, so the inflation just eats up some of the slack), maybe year 3-4 we start noticing that our checkbook balance is getting uncomfortably low toward the end of our chosen pay period, and we bring it up to our spouse, who says, well...let's keep an eye out the next couple months and see if it's just an anomaly...another few months goes by, rinse and repeat, and us "slow to wake" retirees are only adjusting for inflation once every 3-4 years. Obviously this is a gross overgeneralization but even as a thirty-something business owner, I've always noticed this "lag" to realize that we need more money.
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