SWR another 6.5+ million calculations

My uber-ultimate study hereby declares that as an early retiree a .05% SWR or less is your best bet.
 
Totoro said:
Not really. Specifically, MMM does claim it's ok but not because 4% covers a worst case scenario. He claims this because there are other factors for a very early retiree, and 4% is close enough as a first approximation.

The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”

Snippet (but really, I recommend you read the whole thing):

I'm not a MMM fan, but that piece is very well-written.
Click to expand...

For the record: I am a huge fan of MMM on frugal living advice. The post you reference is an example of MMM when he's not at his best. The 4% fail-safe quoted there means you run out of money after 30 years. I need money for 50-60 years.
Another snippet from MMM: In the same article he later recommends 5% SWR with a 50% equity/50% bond portfolio. Best of luck with that. Of course, he doesn't have to worry about running out of money with such scary imprudent advice. But not all retirees are running a blog with annual six-figure income on the side.
Hence, I wrote my study. And apparently, I am the first one to point out these inconvenient truths in the Pfau and Kitces and Trinity Study that are spread in the personal finance echo chamber.

Totoro said:
Another popular guy with a solid view:
Stocks — Part XIII: The 4% rule, withdrawal rates and how much can I spend anyway?

Again, it's about wisdom in life once you get the ballpark right.
Click to expand...

Again: this time without any simulations. All just pure speculation and the reference to the Trinity Study, which should not be extrapolated to beyond 30 years. Great!


Totoro said:
You are not. Hard to claim you are a researcher if you don't do your research first. Not to mention your definition of being comprehensive is not mine.
Click to expand...

I did my research and published it. You apparently forgot to read it before criticizing it. Well, you decide what you want to do. Hang on to your Trinity Study. I wish you best of luck with that. If you start your own blog and do your own research you can criticize others. Until then you don't have a lot of credibility in my book.
 
I think it is unwise to assume a constant inflation adjusted budget for someone who has 50-60 years to live.

Research has shown that expenses peak in your 50s to 60s and start ratcheting down later in life. Personally (as someone ER'd for 8+ years) I am more interested in studies that are more atune to the way most of us live our lives.

I use a percentage (4%) of portfolio (60/40) at Jan 1st of the year as a guide. (I am well aware of the advantages & pitfalls)

I think some of the methodologies that use both life expectancy and market returns are better than the inflation adjusted SWR methods. Same goes for RMD based SWR methodologies & ones that calculate an SWR each year taking life expectancy into account.

A method that uses market returns, life expectancy (single & couple) as well as a spending curve (ala David Blanchett and Bernicke's studies) would be way way better than anything we have today.

I hope you research these areas and come up with a study that is truly useful to the "practicing" early retiree.
 
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In the interest of keeping me sleeping well I read post #1 and the link - I'm at 3% with a 50/40/10 portfolio. Looks like I'm good to go for 50 or 60 years. Not reading anymore as it might make me face a new (and unpleasant) reality.
 
Some posters here are unduly harsh to the author of this new study. He extended the Trinity work to take it from 30 years to 60 years. Is that not a valid question to ask, and to seek an answer for?

The longer duration of an early retiree living off his investment creates a new problem. In another thread, I saw that some posters mistook the 4% WR as the rate that guarantees perpetuity of the portfolio; they did not know that the Trinity study authors expected to deplete the portfolio in 30 years.

So, the SWR has to be less than 4% for retirement periods of longer than 30 years. How low does it have to be? And that's what JohnDoe123 tried to find out. His answer: 3.5%WR.

I will have to go back to his Web pages for more details. A problem remains with any SWR study: we have to depend on the future looking like the past. This is true whether we play historical data back through a simulation, or coming up with a stochastic model which is of course also based on the past. Sixty years is a long time, considering that the history of the USA is only 240 years, and we did not have a stock market like the current one.

Things are happening faster now too, and who knows how the US economy is 50 or 60 years from now, so who can model it? I will not be alive to find out, that's for sure.
 
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FWIW, here an article from Michael Kitces in 2012 which points to older research by Bengen in 1996 who concluded 3.5% at 45 years as well as a paper from David Blanchett who in 1997 concluded 3.5% for 40 years, along with Wade Pfau who concluded 3.3% for 40 years in 2012.

https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-to-the-retirees-time-horizon/

And another older website from the early 2000's that takes it out to 60 years showing 3.54% at 40 years, 3.35% at 50 years, and 3.24% at 60 years.

The Retire Early study on safe withdrawal rates - Millenniam Edition.
 
NW-Bound said:
A problem remains with any SWR study: we have to depend on the future looking like the past. This is true whether we play historical data back through a simulation, or coming up with a stochastic model which is of course also based on the past. Sixty years is a long time, considering that the history of the USA is only 240 years, and we did not have a stock market like the current one.
Click to expand...

I agree with your points and I'm just curious what probability would you assign to the future looking at least as good as past results? I don't think for me I would ever give this end result of any study predicting 50 years into the future analyzing past data of 200 years or so of a single country's history 100% probability accurately predicting future investing returns.
 
Nobody thinks any extrapolation of the past into the future is going to be 100%. Sadly, we do not have anything else.

I think one can only do his best, and then pray every night. I am not religious, so I do not pray. I can drink though.
 
big-papa said:
FWIW, here an article from Michael Kitces in 2012 which points to older research by Bengen in 1996 who concluded 3.5% at 45 years as well as a paper from David Blanchett who in 1997 concluded 3.5% for 40 years, along with Wade Pfau who concluded 3.3% for 40 years in 2012.

https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-to-the-retirees-time-horizon/

And another older website from the early 2000's that takes it out to 60 years showing 3.54% at 40 years, 3.35% at 50 years, and 3.24% at 60 years.

The Retire Early study on safe withdrawal rates - Millenniam Edition.
Click to expand...
Thanks for pointing this out. Obviously, the younger one retires, the tighter he has to pull the purse string.

I am not that young, I am not going to live that long, I have plenty of reserve, and I even think moving into my 25' motorhome for full-time living is not the worst thing that can happen. So all this is really academic for me. Young retirees would better be more careful.
 
My mom passed in 2015. She had dementia. All she thought about was I was stealing money from her. Very sad. She had put me in charge of all hers and my dads finances in 2008 because I think she knew she was declining mentally.

Finally got DH to fill out all the papers in 2012. Have a living revocable trust, durable POA's, medical POA's and wills. Our DD is in charge of it all if we become mentally or physically disable. She is on our primary account. We have a password protected list with all accounts, passwords etc. She has a copy.

She is totally trustworthy and capable. I thank the Lord for that because DS is not.
 
walkinwood said:
I think it is unwise to assume a constant inflation adjusted budget for someone who has 50-60 years to live.

Research has shown that expenses peak in your 50s to 60s and start ratcheting down later in life. Personally (as someone ER'd for 8+ years) I am more interested in studies that are more atune to the way most of us live our lives.

I use a percentage (4%) of portfolio (60/40) at Jan 1st of the year as a guide. (I am well aware of the advantages & pitfalls)

I think some of the methodologies that use both life expectancy and market returns are better than the inflation adjusted SWR methods. Same goes for RMD based SWR methodologies & ones that calculate an SWR each year taking life expectancy into account.

A method that uses market returns, life expectancy (single & couple) as well as a spending curve (ala David Blanchett and Bernicke's studies) would be way way better than anything we have today.

I hope you research these areas and come up with a study that is truly useful to the "practicing" early retiree.
Click to expand...

Thanks for your extremely thoughtful comments. I agree: there are studies that show that consumption expenditures go down with age. Is that because people want to consume less or because they have to consume less? Lots of research out there also shows that many retireess are woefully underprepared for retirement.
Personally, I can see myself wanting to consume more the older I get. On healthcare, because that's just the fact of life. In my family, we're just dealing with long-term care expenses of an elderly relative.
But even on travel: In my 40s and even 50s I'm OK roughing it and going backpacking. When I'm in my 60s and 70s I probably want to go on a cruise and sit in business class on Transpacific/Transatlantic flights. Today I'm still fine with uncomfortable coach class seats.
But you're right, there are reasons to shrink consumption and I will talk about that in part 5 (upcoming). So far I have only done the relatively simple rules (CPI minus x%), but I can look into more elaborate things later on as well. I will make a note of your comment! :)
Thanks, and have a great weekend!
 
JohnDoe123 said:
Hence, I wrote my study. And apparently, I am the first one to point out these inconvenient truths in the Pfau and Kitces and Trinity Study that are spread in the personal finance echo chamber.
Click to expand...

That's the thing: You are not.

Maybe inside purely (published) academic circles. Maybe I'm reading the message differently than you with regards to what they are trying to convey: 4% is a good first approximation given the uncertainties involved, but there are many more factors (good and bad) to consider. Stay vigilant, stay flexible.

The point I'm trying to make, and I certainly didn't invent this: it's not about the Trinity study and similar approaches. It's about the view that a young retiree has other factors to deal with that have a lot bigger impact than 0.5% returns more or less. I'm one of them btw, it's my own financial future on the line here as well.

JohnDoe123 said:
I did my research and published it. You apparently forgot to read it before criticizing it. Well, you decide what you want to do. Hang on to your Trinity Study. I wish you best of luck with that. If you start your own blog and do your own research you can criticize others. Until then you don't have a lot of credibility in my book.
Click to expand...

At least I'm in your book ;)

I'm not the one claiming an ultimate guide here in what is a very multi-faceted problem beyond statistical analysis. I'm also not claiming that the Trinity Study is the final answer, where did you get that notion :confused:

I also fail to see how writing a blog and publishing research makes you more right than anyone else. For that matter, even winning a Nobel prize in economics doesn't warrant that .. remember LTCM?

Let's try and stay with merit driven discussions? I'll do my best as well :angel: Maybe we'll get to that ultimate guide after all.
 
NW-Bound said:
Nobody thinks any extrapolation of the past into the future is going to be 100%. Sadly, we do not have anything else.
Click to expand...

Mostly agree here on not having anything else, so don't be too sad ;)

Population growth can be roughly modeled forward for example, some aspects in technology as well. What you can also can do is sketch a few scenarios, think through the outcomes and how it would affect our actions today.

Automation so human work is obsolete as an extreme conceivably scenario means we probably will be taken care of regardless of assets. At the other extreme (huge meteor strike, deadly pandemic) we're all dead anyway.

A more mild one is total revolution in China, hampering world growth. Or a large shift in taxation rules. A rich auntie dies.

Or your fantastic blog gains traction :angel:

Assign likelihoods, what you can do to mitigate and that's it. Risk management 101.
 
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kimcdougc said:
My mom passed in 2015. She had dementia. All she thought about was I was stealing money from her. Very sad. She had put me in charge of all hers and my dads finances in 2008 because I think she knew she was declining mentally.

Finally got DH to fill out all the papers in 2012. Have a living revocable trust, durable POA's, medical POA's and wills. Our DD is in charge of it all if we become mentally or physically disable. She is on our primary account. We have a password protected list with all accounts, passwords etc. She has a copy.

She is totally trustworthy and capable. I thank the Lord for that because DS is not.
Click to expand...
How is she "on your primary account"? Making them joint can be problematic if she were to get sued as your primary account could be attached. Even the most trustworthy can be in a car accident. A POA written correctly can give them access without transferring ownership.
I have no issue with giving a trustworthy relative or friend the ability to act. But if you put them as part owners could open up risk or have tax implications.
 
Totoro said:
Mostly agree here on not having anything else, so don't be too sad ;)

Population growth can be roughly modeled forward for example, some aspects in technology as well. What you can also can do is sketch a few scenarios, think through the outcomes and how it would affect our actions today.

Automation so human work is obsolete as an extreme conceivably scenario means we probably will be taken care of regardless of assets. At the other extreme (huge meteor strike, deadly pandemic) we're all dead anyway.

A more mild one is total revolution in China, hampering world growth. Or a large shift in taxation rules...
Click to expand...
These are all prospects for a better or a worse scenario than we can see today. However, no one knows how to assign a numerical value to any of these possibilities. We do not know when another earthquake, a tsunami will happen, nor the appearance of another Attila the Hun or Hitler, to borrow from Bernstein.

So, back on WR, one can use 4% as a guide, and go lower from there. The lower it is the safer it gets. Geezers can go a lot higher as they are more likely to run out of time than out of money. I am still not going to eat caviar though, no matter what. I dislike the taste.
 
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NW-Bound said:
These are all prospects for a better or a worse scenario than we can see today. However, no one knows how to assign a numerical value to any of these possibilities. We do not know when another earthquake, a tsunami will happen, nor the appearance of another Attila the Hun or Hitler, to borrow from Bernstein.

So, back on WR, one can use 4% as a guide, and go lower from there. The lower it is the safe it gets. Geezers can do a lot higher as they are more likely to run out of time than out of money. I am still not going to eat caviar though, no matter what. I dislike the taste.
Click to expand...

Pls send your leftover caviar to me...beluga only. :D
 
I would, but I would have to buy it first. Costco usually has some high-grade beluga around Christmas time. I missed it, so is next year OK?
 
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