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Old 08-02-2021, 12:49 PM   #21
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Based on historical results, a 3% WR would most likely be survivable. At the higher WR's though, your portfolio stands a greater chance of falling to gut-wrenchingly low levels before recovering. Are you prepared for that? It is one thing to have a portfolio that survives, but quite another to be able to sleep at night through the worst periods in the market.

I mention this because I often see folk, when using FIRECalc, considering the chance that their portfolio will survive, but not seeming to take into account how low it might fall in that process, and whether they could handle that.
I think this is key. It's one thing to "trust" FIRECalc or the 4% rule or whatever - when things are going well. If suddenly, your stocks drop 60%, will you panic and, heaven forbid, go get a j*b?? Can you "weather" such a storm (which has happened in the past) and stick with your WDR? Even cutting back may still leave you panicked. Like Dirty Harry said "A man's gotta know his limitations!" (Well. DO ya, punk?) YMMV
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Old 08-02-2021, 01:57 PM   #22
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Here is Vanguard take on SWR for early retirees -

https://personal.vanguard.com/pdf/ISGFIRE.pdf

"Applying Vanguard’s research to improve upon the 4% rule

In the previous section, we examined five assumptions embedded in the 4% rule and how, using Vanguard’s research, we could provide more realistic assumptions when calculating sustainable withdrawal rates. Figure 9summarizes the differences.By following the simplifying assumptions about the 4% rule in Bengen (1994), F.I.R.E. investors can fall short of their goals. Using Vanguard’s Principles of Investing Success and related research, we evaluate how F.I.R.E. investors can improve their chances of success in the following ways:
Develop appropriate goals: Change the retirement horizon to 50 years.
Minimize costs: Assume some costs (despite their absence from the 4% rule), but keep them low.
Diversify globally: Broaden the portfolio from domestic assets to both domestic and international assets.
Adjust the spending rule: Shift from dollar plus inflation to dynamic spending"
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Old 08-02-2021, 02:26 PM   #23
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Here is Vanguard take on SWR for early retirees -

https://personal.vanguard.com/pdf/ISGFIRE.pdf
Thanks for sharing that Vanguard publication. IMHO it is a surprisingly and remarkably lousy document (which reflects poorly on Vanguard, not you).
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Old 08-02-2021, 02:56 PM   #24
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Thanks for sharing that Vanguard publication. IMHO it is a surprisingly and remarkably lousy document (which reflects poorly on Vanguard, not you).
Please expand. It did seem a bit long and wordy. Were there errors?

I (think I) can explain the 4% rule in 50 words or less (but don't hold me to it.) YMMV
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Old 08-02-2021, 03:37 PM   #25
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I’d start with 3% and I’d run all kinds of scenarios through FireCalc. The main thing is to understand the situation you’re putting yourself in and have some plans for when things go astray. My main worry would be inflation but make sure to think about all your expenses. Even if you own your house, you’re probably looking and major expenses in that time frame like two roofs, a new HVAC, a couple water heaters . . .
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Old 08-02-2021, 04:34 PM   #26
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Please expand. It did seem a bit long and wordy. Were there errors?

I (think I) can explain the 4% rule in 50 words or less (but don't hold me to it.) YMMV
Oh, OK. My criticisms:

1. Page 3 - "We're going to ignore Social Security because it's complex." Possibly fair. But then later they introduce complexity in a number of different ways (international investing, Monte Carlo-based proprietary analysis prediction of the future). They're not being consistent.

2. Page 3 - Giant strawman that is never stated is that FIRE people rely on and follow the 4% rule slavishly. Generally entirely untrue as a premise for the rest of their criticisms.

3. Page 3 - They exclusively choose a 50/50 portfolio and then later criticize longer periods. Either Bengen or Trinity looked at multiple portfolio AAs, and it's been well known and studied for decades that higher equity porfolios have better survivability over longer periods. So this is a combination of straw men and circular arguments, or simply ignorance.

4. Page 4 - "We don't want to rely on historical returns." Again, possibly fair, but I hardly think that introducing a proprietary Monte Carlo-based analysis with no visibility into how it works or the assumptions it makes is a better approach. This is a red herring fallacy (I think).

5. Page 4 - "The future may be different from the past." Because we're going to compare past history to our future proprietary guess. This is what's known as a circular argument.

6. Page 5 - Using their VCMM pessimistic guess to analyze longer historical periods. This simply ignores historical analyses like FIREcalc which analyze the historical survivability for 40- and 50-year periods. It is suspicious to me that the latter provide results that indicate better survivability than the VCMM analysis.

7. Page 5 - 50 years. Yes, FIREes in their 30s may need to look at a 50 year planning period. And I think most FIREes that I've seen do so. But the number of FIREes in their 30s are an extraordinarily small part of the FIRE population - most FIREes are in their 40s and 50s, where a 30- or 40-year plan is probably more likely.

8. Page 5 - Fees. FIREcalc accounts for fees, and I think most FIREes do as well. Just because Bengen ignored them for simplicity, it's not really a relevant argument, so it's another straw man. And I think many FIREes have portfolios that have a weighted cost much less than 20bps, much less 100bps. So a double straw man here.

9. Page 7 - Logical flaw: "For example, if the market falls substantially in a given period, the 4% rule would advise boosting spending each year to account for inflation. This can substantially increase the risk of portfolio depletion in retirement." Well, the risk is already baked into the 4% historical analysis; repeating it this way makes it seem like an additional or extra risk when it is not.

10. Page 7 - Logical flaw: "On the other hand, if the market goes up substantially, annual spending will not increase after accounting for inflation under the 4% rule, even if investors would like to enjoy a higher standard of living given the good market performance." Again, only if you're a slavish follower of the 4% rule, which nobody is. Also, this ignores the payout period reset or retire again and again approach, which has been an idea known about for two decades and rediscovered by many new FIREes on a regular basis.

11. Page 9 and 10 - Again, their footnotes show that their analyses are all predicated on their VCMM pessimistic and proprietary guess. (The larger point about variable spending being a good thing is nearly a given to anyone with half a brain.)

12. Page 11 - Figure 10 footnote, 85% success - Does anyone else think that 85% is a smart standard for FIREes facing a 50 year planning period? I do not.

13. Overall, they seem to be assuming that FIREes are blindly following 27 year old research without any additional thought or analysis, and ignoring all the additional information, research, options, and strategies that have been identified, thought of, and/or written about since then. So again, one gigantic straw man.
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Old 08-02-2021, 04:48 PM   #27
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Thanks for that writeup! I am glad I only had to read a post instead of a paper!
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Old 08-02-2021, 04:56 PM   #28
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7. Page 5 - 50 years. Yes, FIREes in their 30s may need to look at a 50 year planning period. And I think most FIREes that I've seen do so. But the number of FIREes in their 30s are an extraordinarily small part of the FIRE population - most FIREes are in their 40s and 50s, where a 30- or 40-year plan is probably more likely.
No issues with your other points, but I have a comment here. I FIREd at 49. While 30 years or less could certainly happen, it seems foolish to plan for the likely or average life span. I don't want to be 87 (my father's current age) and hoping I only live another two years because all I'll have left is social security. Plan for an extreme but reasonable case, whatever that means to you. My dad's brother is 8 years older than him, btw, so I don't think planning in case of a 50 year lifespan after my ER is unreasonable.
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Old 08-02-2021, 04:58 PM   #29
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13. Overall, they seem to be assuming that FIREes are blindly following 27 year old research without any additional thought or analysis, and ignoring all the additional information, research, options, and strategies that have been identified, thought of, and/or written about since then. So again, one gigantic straw man.
They probably were directing their comments more to the Mr. Money Mustache crowd - "Adeney believes in the 4% rule, which states that, with a balanced investment portfolio, a retiree can withdraw 4% of their portfolio's initial value each year, adjusted upward for inflation each year thereafter, with a low probability of ever running out of money." - https://en.wikipedia.org/wiki/Mr._Money_Mustache
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Old 08-02-2021, 05:06 PM   #30
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OP, I plan for 3% to 3.5% but also have 3 years of spending in CD or cash, if worst happens I can spend that and not have to liquidate at firesale prices. Probably not up to 100% but the extra in cash adds a comfort level.
Just remember your entire life you have adjusted to changes. Keep an eye on your pile and withdraws and minor adjustments can correct course if or when needed.
Posters have debated such questions for some time. 3.5-4% is a starting point but make yourself comfortable so you can sleep nights.
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Old 08-02-2021, 05:26 PM   #31
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They probably were directing their comments more to the Mr. Money Mustache crowd - "Adeney believes in the 4% rule, which states that, with a balanced investment portfolio, a retiree can withdraw 4% of their portfolio's initial value each year, adjusted upward for inflation each year thereafter, with a low probability of ever running out of money." - https://en.wikipedia.org/wiki/Mr._Money_Mustache
Yeah but how many folks do we all know collectively who truly follow the 4% rule as an actual withdrawal strategy?
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Old 08-02-2021, 05:28 PM   #32
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No issues with your other points, but I have a comment here. I FIREd at 49. While 30 years or less could certainly happen, it seems foolish to plan for the likely or average life span. I don't want to be 87 (my father's current age) and hoping I only live another two years because all I'll have left is social security. Plan for an extreme but reasonable case, whatever that means to you. My dad's brother is 8 years older than him, btw, so I don't think planning in case of a 50 year lifespan after my ER is unreasonable.
Agree with you completely. My point was not really about life expectancy per se; it's that the majority of the paper focuses on 50 year time frames when those time frames are applicable only to a small proportion of FIREes. In general my impression on this and other points is Vanguard is trying to scare FIREes into relying on Vanguard for advice rather than figuring it out on their own. Which is a time-tested marketing technique but one I don't agree with in this case and am sad to see Vanguard stooping to, especially when their material is full of logical holes and bad assumptions throughout.

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They probably were directing their comments more to the Mr. Money Mustache crowd - "Adeney believes in the 4% rule, which states that, with a balanced investment portfolio, a retiree can withdraw 4% of their portfolio's initial value each year, adjusted upward for inflation each year thereafter, with a low probability of ever running out of money." - https://en.wikipedia.org/wiki/Mr._Money_Mustache
Possibly so. I'm a member of the MMM forums as well. They're probably younger and less affluent on average than here, and some are woefully ignorant or misconstruing fact and logic - sometimes including Pete himself. But many (some?) are intelligent, well-prepared, well-researched, and carefully assessing well-understood tradeoffs about how to live their lives.

I'd still argue that the lack of preparedness and understanding on the part of some MMM cult members is no excuse for shoddy, illogical, just-trust-our-proprietary-research scare tactics on Vanguard's part.
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Old 08-02-2021, 05:49 PM   #33
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Thanks for the cogent analysis. I did instinctively note that Vanguard was subtly trying to steer folks to its own "grand plan" by poking small sticks at the so-called 4% rule. I would say that most of your points are well taken. Thanks again.
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Old 08-02-2021, 05:53 PM   #34
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I'd still argue that the lack of preparedness and understanding on the part of some MMM cult members is no excuse for shoddy, illogical, just-trust-our-proprietary-research scare tactics on Vanguard's part.

I always keep in mind that even the no-load the 401K folks make more money from their admin and expense fees the longer we all work and the more we save. It is in their own best interest. When we had our 401K guy go over the plan it was pretty clear he had his retirement more in mind than ours. He acted like we need to keep working longer, save more and invest in stocks, even though his own retirement planner showed we'd be more than fine retiring when we did even just investing in short term bonds.
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Old 08-03-2021, 04:35 AM   #35
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When I retired at 51, my views on SWR were as follows:

4%: Not comfortable
3.5%: Maximum
3%: Mostly comfortable
2.5%: Very comfortable
2%: Absolutely golden

These were just feelings and not Firecalc results.
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Old 08-13-2021, 05:15 PM   #36
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Plan to adapt and improvise as you go. Pick a date for your official retirement 59.5 to 70 and then make a plan to get there first. Decide how splashy a retirement you want to have, say till 78. The rest is a hopefully genteel decline. Evaluate your longevity along the way to adjust your midpoint transition dates and expectations.

You have more than enough time/assets to consider part time employment at something you enjoy instead of for the money. Just set some approximate date/wealth setpoints for your transitions.

If you are too frugal for your own good, consider just buying a simple annuity to give youself a license to spend. https://www.thinkadvisor.com/2021/06...in-retirement/

Likewise, if you are a reckless spender, you might want to consider avoiding temptation with an annuity. Of course, FI/RE is the antithesis of reckless spending and I don't expect to find those folks in these parts.
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Old 08-13-2021, 08:18 PM   #37
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If you are too frugal for your own good, consider just buying a simple annuity to give youself a license to spend. https://www.thinkadvisor.com/2021/06...in-retirement/
I read the article. What it does not address is inflation. As the annuity payments buy fewer and fewer loaves of bread each year, the buyer will be forced to spend more of it, not on 'goodies', but on the bread.

I would think a variable withdrawal plan might be better. I would provide for increased spending if things go well, and in the case things go downhill and stay here, it will reduce spending so as to reduce the chances of running out of money.

I do like the idea of taking SS at 70. If one wishes to spend the most money and is not concerned with leaving an estate, taking SS at 70 give one more money to spend every year.
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Old 08-13-2021, 08:59 PM   #38
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The key is to be really confident in that spending, including taxes and healthcare. .
We used to be low HC users, but cancer in mid 50s opened my eyes to max out of pocket costs for the first time. Used to only think about the premiums but it could be a combined out of pocket costing $25k/year if we both had issues.

Unlike my $10 out of pocket surgery when I was 8. Back when insurance was insurance not bankruptcy insurance!
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Old 08-13-2021, 09:08 PM   #39
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I read the article. What it does not address is inflation. As the annuity payments buy fewer and fewer loaves of bread each year, the buyer will be forced to spend more of it, not on 'goodies', but on the basics.

I would think a variable withdrawal plan might be better. I would provide for increased spending if things go well, and in the case things go downhill and stay here, it will reduce spending so as to reduce the chances of running out of money.

I do like the idea of taking SS at 70. If one wishes to spend the most money and is not concerned with leaving an estate, taking SS at 70 give one more money to spend every year.
You can either buy annuities with inflation rider, but based on the numbers which I have run, it is not worth it. Instead you can ladder deferred fixed income annuities, where you start another one 5 or 10 years later.
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Old 08-13-2021, 09:32 PM   #40
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You can either buy annuities with inflation rider, but based on the numbers which I have run, it is not worth it. Instead you can ladder deferred fixed income annuities, where you start another one 5 or 10 years later.
I agree that laddered is probably better than inflation adjusted annuities.
But, would a ladder spread over 5-10 years fix the 'not spending enough problem' the annuity is supposed to address? I don't know.
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