SWR another 6.5+ million calculations

[audreyh1]

Quote:

Originally Posted by NW-Bound In the worst case, 4% WR will deplete your portfolio in 30 years, at which time you are supposed to die. Hence, 100% success for a 30-year or shorter retirement. That's the conclusion of the Trinity study.

More like 27 years. There are five failures (<30 years to 0) in the FIRECALC data set I think.

Did Trinity say 100%?

[NW-Bound]

A 50/50 portfolio was best for a 30-year horizon and a 4% WR, using data from 1926 to 1995 (the original paper was written in 1998). A 75/25 portfolio came close.

For a rehash, see: http://www.dornco.com/choosing-a-sus...rawal-ratepdf/.

PS. No portfolio survived for 40 years at 4% WR. One needs to go down to 3% for 40 years.

PPS. Many researchers have updated the Trinity using more recent data. The Web is full of these articles.

[Huston55]

Quote:

Originally Posted by Huston55 I read Part 1. Seeing 50 & 60 yr WD projections is interesting but, I don't really see anything new here.

Quote:

Originally Posted by NW-Bound A 50/50 portfolio was best for a 30-year horizon and a 4% WR, using data from 1926 to 1995 (the original paper was written in 1998). A 75/25 portfolio came close. For a rehash, see: http://www.dornco.com/choosing-a-sus...rawal-ratepdf/. PS. No portfolio survived for 40 years at 4% WR. One needs to go down to 3% for 40 years. PPS. Many researchers have updated the Trinity using more recent data. The Web is full of these articles.

+1

[photoguy]

Quote:

Originally Posted by Huston55 BTW, you'll also find a large contingent here @ E-R.org which believes 4% is too high. Stick around for more than one post, and you'll likely find some kindred souls...and develop an understanding of 'dryer sheets.'

I recall reading quite a few posts from actually FIREd members in their 30/40s here and none were spending/budgeting 4%. From memory, it seemed like 2% or less was the norm. Probably as bestwifeever suggested a poll would be pretty interesting.

In regards to the blog post, while 2% may seem excessively low when compared with a FIREcalc simulation, one needs to keep in mind that there is huge uncertainty around expense levels especially over a time frame as long as 60 years. (Firecalc really only looks at the sequence of returns problem)

While we all have backup plans, there's simply nothing as good as having more money (= lower WR).

[DawgMan]

You guys are killing my coffee buzz!

Not RE yet, but was planning on a SWR of 4% at 55 and applying common sense (maybe spend less in bad market yrs). I'm sure there is a thread or 2 on this, but it might be interesting to hear from younger retirees who have used a 4% SWR for at least 10 yrs and where there portfolio balance is today? How did the bob & weave thru the bad years? If you have a pension, a side job, or working spouse producing income as a backstop, then that's cheating. If you got a part time job during the crappy years to fill the void, then I get that. Im more interested to hear from those who truly planned on relying on a 4% SWR to ride into the sunset.

[Bigdawg]

Quote:

Originally Posted by LOL! https://earlyretirementnow.com/2016/...-part-1-intro/ I didn't see the above early December 2016 study (Part 1) on the EarlyRetirementNow web blog discussed yet on this forum. How could it not already be posted? Maybe my Google Fu could not find the thread? Anyways, it is being discussed at bogleheads now, so some of you have already seen it. It is for the early-retired folks with 60 years to go, so the SWR is 3.5% and one needs more stocks than ever before.

I will most likely read the article but doubt I'll live to 111 so not getting too excited (worried).

[Dd852]

The only numbers that really matter are your spending numbers - the essentials and the discretionary. If you can make the essentials plus most or all of the discretionaries work at 4% when you retire, you should be fine as long as you have the discipline to haul back on the discretionary spending in bad years plus the super discipline not to increase the discretionary much in good times! I haven't been tested yet - FIRED in 2012 - but I feel confident I have cash in the bank and plenty of levers to pull and buttons to push if I had to ... and still have a great life and lifestyle..

[big-papa]

Quote:

Originally Posted by audreyh1 Close enough.

It is close enough if your plan can withstand 12.5% reduced withdrawals. That's the % difference between 3.5% and 4.0%. For example, if your plan was to withdraw $100K, inflation adjusted, at 4.0% then it's $87.5K at 3.5%. That might be a big haircut for some.

I tend to like variable withdrawal methods, such as VPW, described over a bogleheads. The year-to-year withdrawals are not steady, but you can't run out of money before your plan. The tradeoff to that is that there are times in history where the annual withdrawals might drop below the minimum one needs to live. Depends on how much is saved, what ones minimum expenses are, SS/Pension and of course asset allocation.

[Symbiotic]

I ERed at 35, 3.5%wr, 98% equities.

I suspect that most very ERs have plenty of ways to "cheat." The big one is latent human capital -- something that isn't there for traditional-age retirees. This and other hedges make it pretty easy to sleep at night at slightly under historical 30y SWRs.

[Bigdawg]

so basically the only person I follow who may live 60 years in re is FUEGO. If he shut down his side consulting and his blog income and blindly followed the 4% SWR then maybe he would fail?? I WILL assume that anyone who is lucky/gifted/anal enough to RE at 30 or so (60 yrs in RE) would also be lucky/gifted/anal enough to actually look at how they were doing (at least yearly) and adjust as needed. Some hypotheticals are sort of ridiculous.

[DawgMan]

I suppose the take away from all the responses is...

- Do your homework before you RE to understand your "needs" & "wants" budget.
- Run your calculators to find your level of comfort/risk profile for planned AA & SWR
- Anticipate financial/other bumps in the road and life surprises
- ideally have multiple contingency plans (i.e. Spending reduction plans, part time job/income producing options)
- Just be prudent and apply common sense

While I love all these calculators and I do believe they are important to be used in the overall RE analysis, there are always going to be elements of risk you cannot predict. I just don't want to be that guy who delays my RE because I freak out over the 1% chance of Firecalc not working!

[NW-Bound]

+1

Where's Uncle Mick with his advice to be "agile and hostile" ?

One should not think the market owes him a 4% WR that also maintains his principal. Sometimes it does, sometimes it doesn't.

[UnrealizedPotential]

I have never liked the 4% rule. Why would I want to take out 4% of my portfolio every year? To me it always made a lot more sense to have bond funds and receive the distributions and have any tax deferred funds in stocks. That is what I do. I get a lot more monthly income this way and I live fine and any extra income goes back in my bond funds to have even greater income in the future and let my stock allocation grow. But I am not trying to change any ones mind on the issue, just pointing out there are other ways of doing this.

[tmm99]

I get it that studies show 4% SWR with 30 years, and less for 40 years, and all that, but those numbers do not include social security benefits, so the SWR for most people can withstand something higher, no?

[NW-Bound]

Quote:

Originally Posted by tmm99 I get it that studies show 4% SWR with 30 years, and less for 40 years, and all that, but those numbers do not include social security benefits, so the SWR for most people can withstand something higher, no?

With SS or pension coming online later, you can draw higher than 4% initially. Then, when these incomes start, your WR will drop, but you will maintain the same expenses.

FIRECalc is good stuff. It can figure this out for your situation. I still knock off quite a bit from its suggestion to maintain a safety margin.

PS. The above works for "geezers", meaning those having SS within reach. Youngsters who have 30 years to go till SS FRA still have to cut down on WR if they want to be safe. Early retirees will not have much SS anyway, as they worked so few years.

[donheff]

Quote:

Originally Posted by NW-Bound PS. No portfolio survived for 40 years at 4% WR. One needs to go down to 3% for 40 years.

This doesn't sound right to me. I thought the failure rate just increased to unacceptable levels over longer years (or higher SWRs). As I recall the study (and the Monte Carlo scenarios) many starting years resulted in large portfolio growth at 4% with a few failing, more coming close to failure, and others ending up somewhere in the middle but still pretty solid. I find it hard to fathom why the scenarios showing positive growth at 30 years would all wind down to zero in ten more years.

[bingybear]

Quote:

Originally Posted by UnrealizedPotential I have never liked the 4% rule. Why would I want to take out 4% of my portfolio every year? To me it always made a lot more sense to have bond funds and receive the distributions and have any tax deferred funds in stocks. That is what I do. I get a lot more monthly income this way and I live fine and any extra income goes back in my bond funds to have even greater income in the future and let my stock allocation grow. But I am not trying to change any ones mind on the issue, just pointing out there are other ways of doing this.

taking the interest off bonds is taking $ out of the portfolio... that is withdrawing!
I tend to put bonds in that IRAs, not my taxable account (sans muni/tax exempt). I put stocks, especially (qualified) dividend payers in the taxable account since these have better tax implications. Now, I do not use MF in taxable accounts because they can really bit you in taxes (possible exception is a broad based index fund) MLPs might be good too, but I have not got my head around them yet.
The point is taking interest, dividends, capital gains etc ... is withdrawing from your portfolio. Don't fool yourself with semantics. And it is fine to withdraw as you need to get the $ somewhere. Taking interest or dividends or other distributions is a fine way to get spending $ without having to actually sell positions.
Think of your portfolio as an entity. Interest and divys should be reinvested if they are to remain in the portfolio. If they are spent, they are removed from the portfolio.

[NW-Bound]

Quote:

Originally Posted by NW-Bound PS. No portfolio survived for 40 years at 4% WR. One needs to go down to 3% for 40 years.

Quote:

Originally Posted by donheff This doesn't sound right to me. I thought the failure rate just increased to unacceptable levels over longer years (or higher SWRs). As I recall the study (and the Monte Carlo scenarios) many starting years resulted in large portfolio growth at 4% with a few failing, more coming close to failure, and others ending up somewhere in the middle but still pretty solid. I find it hard to fathom why the scenarios showing positive growth at 30 years would all wind down to zero in ten more years.

Sorry for the bad wording. You are 100% correct.

What I should have said was that "No portfolio allocation gave 100% success rate for 40 years at 4% WR. At 3% WR, one got 100% success rate again for 40 years".

The results are reproduced in the referenced article in my post above. I was not able to locate the original Trinity article in an open Web site.

[Lagniappe]

Quote:

Originally Posted by donheff This doesn't sound right to me. I thought the failure rate just increased to unacceptable levels over longer years (or higher SWRs). As I recall the study (and the Monte Carlo scenarios) many starting years resulted in large portfolio growth at 4% with a few failing, more coming close to failure, and others ending up somewhere in the middle but still pretty solid. I find it hard to fathom why the scenarios showing positive growth at 30 years would all wind down to zero in ten more years.

I just ran firecalc with a 4% withdrawal rate over 40 years, with default assumptions. The success rate was 84.9%.

[bingybear]

Quote:

Originally Posted by donheff This doesn't sound right to me. I thought the failure rate just increased to unacceptable levels over longer years (or higher SWRs). As I recall the study (and the Monte Carlo scenarios) many starting years resulted in large portfolio growth at 4% with a few failing, more coming close to failure, and others ending up somewhere in the middle but still pretty solid. I find it hard to fathom why the scenarios showing positive growth at 30 years would all wind down to zero in ten more years.

+1
In statistics there really is no 100%. The old RIP calculation use to give 95% (if I recall) when it did not have a failure. Or maybe it was a little higher. If using firecalc using historical data, it can give you 100% for those cases, but not for your plan's performance in the future. Back the the RIP calculator of old, the first performance they show you is "in a down market" and this is what is usually used for planning. If you switch to "normal or typical market, 50% likelihood", you find there is lots of $ on the table. You plan for the worst and hopefully (likely) get something much better. This begs for a variable withdraw scheme.