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Old 07-18-2020, 11:57 AM   #41
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Thatís exactly what The data suggests, a variable WR, and then fall back to pension during during bad times (2001 or 2008) then return to OWR. My mother does this instinctively.
If a person can survive on a pension or SS, then really their withdrawal rate can be nearly anything, example 20%, and when savings get too low, just live on pension until savings are back up.

Far different from someone without a pension and not on SS.
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Old 07-18-2020, 02:06 PM   #42
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Reading Kitces' original article makes me think that I should have retired yesterday.
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Old 07-18-2020, 02:13 PM   #43
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If a person can survive on a pension or SS, then really their withdrawal rate can be nearly anything, example 20%, and when savings get too low, just live on pension until savings are back up.

Far different from someone without a pension and not on SS.
Some readers don’t recognize the difference between FIRE and SIRE (and anywhere between) - very different circumstances...
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Old 07-19-2020, 08:26 AM   #44
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Also, dying with $1 left is a “success”. Is it though?
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Old 07-19-2020, 08:30 AM   #45
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Also, dying with $1 left is a “success”. Is it though?
It can be, but it depends on your goals.
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Old 07-19-2020, 09:20 AM   #46
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Does this say to you that no one below 5% SWR failed?
I can count 13 clear failures below the 5% line.

There are 0 failures below the 4% line
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Old 07-19-2020, 10:12 AM   #47
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What was the interest rate on your 40%? Most of the 70ís, the CD interest rate was 2X your SWR. Who in their right mind would not adjust holdings when guaranteed money is more than withdrawal rates.
The figures I use are real returns, so inflation is taken out of the picture.
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Old 07-19-2020, 10:45 AM   #48
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The figures I use are real returns, so inflation is taken out of the picture.
I do the same thing, but I was frustrated when I ran my data through Firecalc. I use real returns in my model (2%) and there is no input for inflation. My pension is COLA'd so this works great. But when I run Firecalc with my numbers, inflation has a huge impact because of the way Firecalc uses inflation. The returns on my portfolio don't change in Firecalc if I change inflation. This makes sense because Firecalc uses nominal return and simply subtracts inflation from the returns. This has the effect of reducing probability of success for me even though I have supposedly have no inflation risk.

This really got me thinking about my model and using real returns with no inflation input. So I did some research on returns vs. inflation. What I found was the market does not do well during inflationary periods. So the way Firecalc models it seems to reflect reality. But then I look at my model and it does not. The fix I put in was to add an inflation input and then drop my real returns as inflation goes up. Right now I drop the real returns 0.25% for every 1% of inflation. This is completely counterintuitive, but I felt I needed a way to account for inflation and the reality of what the market does during inflationary periods. Maybe not the best solution, but it works for planning.

Inflation does have a huge impact in my model if I carry a mortgage into retirement. My 2.75% mortgage is basically free money if inflation is 2.75%. That's one of the big reasons I am seriously considering keeping the mortgage for a full 30 years. If inflation goes above 2.75%, I am making money on my mortgage. And if I get 2% real return on my portfolio with 2.75% inflation, the NPV of my mortgage is less than the mortgage balance. We'll see how long I hold onto that, though. Best laid plans and all.
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Old 07-19-2020, 02:31 PM   #49
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Probably important to have this discussion every year or so. Still, I always come back to the "4% rule" (or its more rigorous treatment) as STRICTLY a planning tool. To me it is (was) a "goal" that said, "Okay, you can stop worrying and retire now." I never considered "living" the 4% or SWR life. Never did anything other than a backwards glance to say (for instance) Hey, I spent 3.8% last year.

Once you retire, you aren't going to slavishly spend according to the "plan" you made 5 or 10 years ago. You're going to spend according to your current situation. The 4% rule got you here, now you will adjust as needed to avoid the dreaded return to w*rk.

Not saying we shouldn't discuss this. Not saying that at all. Just sayin' the "rule" is for planning retirement, not for actually living retirement. As always, YMMV.
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Old 07-19-2020, 08:18 PM   #50
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Caveat that this ama is a few years old now, but I found it to be a valuable thread with lots of interesting questions and answers. I learned a lot that I did not know.

https://www.reddit.com/r/financialin...ed_the_4_safe/

The first reply is that Bengen states that he later found out that it should actually have been a SWR of 4.5% vs. the 4% he initially reported. For someone with longer retirement plans over the traditional 25-30 years he offers alternative SWR rates.

I was shocked that he felt one could live in perpetuity on a 4% w/d rate.

He does also point out what his research indicated is the sweet spot of an AA to maximize the SWR. This which was 45-55% equities and the remainder in bonds/cash ("According to my research, I would have a well-diversified portfolio with probably 50% equities, 40% fixed-income, and 10% cash")
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Old 07-20-2020, 06:22 AM   #51
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Caveat that this ama is a few years old now, but I found it to be a valuable thread with lots of interesting questions and answers. I learned a lot that I did not know.

https://www.reddit.com/r/financialin...ed_the_4_safe/

The first reply is that Bengen states that he later found out that it should actually have been a SWR of 4.5% vs. the 4% he initially reported. For someone with longer retirement plans over the traditional 25-30 years he offers alternative SWR rates.

I was shocked that he felt one could live in perpetuity on a 4% w/d rate.

He does also point out what his research indicated is the sweet spot of an AA to maximize the SWR. This which was 45-55% equities and the remainder in bonds/cash ("According to my research, I would have a well-diversified portfolio with probably 50% equities, 40% fixed-income, and 10% cash")

Thx for this. Read through that thread; interesting he says 55% stock is optimal equity exposure. I have never and could never hold such a low equity holding.
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Old 07-20-2020, 07:12 AM   #52
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Inflation does have a huge impact in my model if I carry a mortgage into retirement. My 2.75% mortgage is basically free money if inflation is 2.75%. That's one of the big reasons I am seriously considering keeping the mortgage for a full 30 years. If inflation goes above 2.75%, I am making money on my mortgage. And if I get 2% real return on my portfolio with 2.75% inflation, the NPV of my mortgage is less than the mortgage balance.
Just refinanced our mortgage to 2.75% with the intent to carry it into retirement. The payments are just over 10% of our budget at the start of retirement and we also have pensions that have a COLA feature. Our WR from our taxable accounts includes an 'extra' 1% for the mortgage. I have treated the mortgage expense in Firecalc as a non-inflation adjusted expense and still get to 100% success.

Back to WR's. Our current FIRE model is 4.5% WR for the first 5 years; 5% for the next 5 years; and then 3.5% after we both claim SS (67). Reading some threads makes me nervous when people are advocating a 3% perpetual WR but our numbers seem to work and we have flexibility in our budget if needed. Biggest worry at this point for us seems to be SORR, right?
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Old 07-20-2020, 07:18 AM   #53
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Just refinanced our mortgage to 2.75% with the intent to carry it into retirement. The payments are just over 10% of our budget at the start of retirement and we also have pensions that have a COLA feature. Our WR from our taxable accounts includes an 'extra' 1% for the mortgage. I have treated the mortgage expense in Firecalc as a non-inflation adjusted expense and still get to 100% success.

Back to WR's. Our current FIRE model is 4.5% WR for the first 5 years; 5% for the next 5 years; and then 3.5% after we both claim SS (67). Reading some threads makes me nervous when people are advocating a 3% perpetual WR but our numbers seem to work and we have flexibility in our budget if needed. Biggest worry at this point for us seems to be SORR, right?
I am having trouble to understand this argument. How about if your portfolio return, especially the fixed income part, is below 2.75% annually?
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Old 07-20-2020, 07:27 AM   #54
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...

Back to WR's. Our current FIRE model is 4.5% WR for the first 5 years; 5% for the next 5 years; and then 3.5% after we both claim SS (67). Reading some threads makes me nervous when people are advocating a 3% perpetual WR but our numbers seem to work and we have flexibility in our budget if needed. Biggest worry at this point for us seems to be SORR, right?
You have discovered what I call the "two step withdrawal rate". Trinity, Bengen, SWR, etc. all assume you are spending just your portfolio for the rest of your life. This results in a single, very conservative SWR. Yet most of us at least have SS (or 75% of SS if you prefer).

FIRECalc nicely illustrates this if you input SS or a small pension, often resulting in something like a 4.5-5.0% followed by 3.0-3.5% WR.

Managing SORR is best done with your AA, in my opinion. See for example Kitces' discussions of bond tents: https://www.kitces.com/blog/managing...ment-red-zone/
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Old 07-20-2020, 07:52 AM   #55
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I am having trouble to understand this argument. How about if your portfolio return, especially the fixed income part, is below 2.75% annually?
Maybe I'm not stating things properly (new to this whole world of talking about finance TBH). Our portfolio is a smaller part of our overall retirement income. Around 65% of our expenses are covered by a pension and SS. Around 20% of our entire budget is flexible (travel, extra things like dining out more, hobbies) so we can reduce out WR easily if needed. If DH gets his VA disability claim approved our portfolio is now reduced to fun money and nothing else.

To pay off our mortgage before retirement (this year) we would have to pull from our taxable investments and that would push us into a higher tax bracket. If we wait until we retire we will still be in a higher tax bracket due to the pensions. I can't find a scenario where holding a mortgage at 2.75% hurts us but, I do understand it's more than likely that the fixed income portion of our portfolio will return less than 2.75% for a long time.

Does that make more sense than my original statement? Am I missing any other financial consideration (cost) to hold the mortgage? It isn't keeping me up at night so the only consideration is financial.
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Old 07-20-2020, 08:01 AM   #56
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FIRECalc nicely illustrates this if you input SS or a small pension, often resulting in something like a 4.5-5.0% followed by 3.0-3.5% WR.
That is exactly how I ran FIRECalc and came up with the WR's. Since we will be federal retirees we have multiple income streams on top of the amount we can withdraw from our portfolios. FERS pension + FERS supplement + TSP from 56-62; FERS pension + 1 SS +TSP (DH draws first) from 62-67; FERS pension + 2 SS +TSP from 67 onwards.

Will need to do some more reading on SORR and AA's. Thanks for the link.
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Old 07-20-2020, 08:13 AM   #57
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Just refinanced our mortgage to 2.75% with the intent to carry it into retirement. The payments are just over 10% of our budget at the start of retirement and we also have pensions that have a COLA feature. Our WR from our taxable accounts includes an 'extra' 1% for the mortgage. I have treated the mortgage expense in Firecalc as a non-inflation adjusted expense and still get to 100% success.
Having mortgage when retired makes it much harder to qualify for ACA. You need income to make mortgage payment. That extra income may put you over subsidy cliff and cause couple to pay 20k+ for Health Insurance instead of 4k-6k.

I would rather consider having reverse mortgage when retired. (Income that is not part of MAGI) Which I would repay as soon as we get Medicare.
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Old 07-20-2020, 08:34 AM   #58
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... Managing SORR is best done with your AA, in my opinion. See for example Kitces' discussions of bond tents: https://www.kitces.com/blog/managing...ment-red-zone/
Thank you for the link. I have always felt that SORR was over rated and fairly easily handled by an appropriate AA. I have also made a fuzzy sort of argument that equity percentage could increase as we have fewer and fewer years of SORR risk. But the Kitces article wraps those up nicely.

My only criticism of his concept is that we don't spend percentages; we spend dollars. So while his percentages may make sense for some "average" portfolio, a smaller portfolio may need more bonds in the tent and a larger one definitely does not need as large a percentage as he suggests.
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Old 07-20-2020, 08:40 AM   #59
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I do the same thing, but I was frustrated when I ran my data through Firecalc. I use real returns in my model (2%) and there is no input for inflation. My pension is COLA'd so this works great. But when I run Firecalc with my numbers, inflation has a huge impact because of the way Firecalc uses inflation. The returns on my portfolio don't change in Firecalc if I change inflation. This makes sense because Firecalc uses nominal return and simply subtracts inflation from the returns. This has the effect of reducing probability of success for me even though I have supposedly have no inflation risk.

This really got me thinking about my model and using real returns with no inflation input. So I did some research on returns vs. inflation. What I found was the market does not do well during inflationary periods. So the way Firecalc models it seems to reflect reality. But then I look at my model and it does not. The fix I put in was to add an inflation input and then drop my real returns as inflation goes up. Right now I drop the real returns 0.25% for every 1% of inflation. This is completely counterintuitive, but I felt I needed a way to account for inflation and the reality of what the market does during inflationary periods. Maybe not the best solution, but it works for planning.

Inflation does have a huge impact in my model if I carry a mortgage into retirement. My 2.75% mortgage is basically free money if inflation is 2.75%. That's one of the big reasons I am seriously considering keeping the mortgage for a full 30 years. If inflation goes above 2.75%, I am making money on my mortgage. And if I get 2% real return on my portfolio with 2.75% inflation, the NPV of my mortgage is less than the mortgage balance. We'll see how long I hold onto that, though. Best laid plans and all.
We went through a similar analysis regarding the mortgage. Itís a decent chunk of our spend and it was striking the impact it had on success rates. Iím normally a no debt ever kind of person, but over 30 yrs at these rates, it was a hard argument to make.
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Old 07-20-2020, 08:53 AM   #60
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Having mortgage when retired makes it much harder to qualify for ACA. You need income to make mortgage payment. That extra income may put you over subsidy cliff and cause couple to pay 20k+ for Health Insurance instead of 4k-6k.

I would rather consider having reverse mortgage when retired. (Income that is not part of MAGI) Which I would repay as soon as we get Medicare.
The OP appears to be funding the mortgage from taxable. If you do that it may have little impact on MAGI.
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