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Old 10-22-2020, 03:28 PM   #21
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Old 10-22-2020, 03:38 PM   #22
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Another interesting set of plots that show probabily of exhaustion by the age starting at 65, including life expectamcy
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Old 10-22-2020, 03:43 PM   #23
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Apparently, Bill Bengen, creator of the 4% safe withdrawal rule, now believes that it should be 5% based on low inflation expectations.
Thanks for posting this. I try to keep up with what Bengen is thinking and saying.

I had to chuckle when I read he is raising the SWR, when so many other "experts" are slashing it.
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Old 10-22-2020, 03:51 PM   #24
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This is the most worthwhile point in the whole article. I think most of us here were well aware of the lingering impact of inflation, especially early inflation, but it never hurts to be reminded.
I don't remember too much about the lingering effect of inflation in the 70's. I do remember 12-15% mortgages and car loans. It didn't stop us from having kids or buying our first new car and our first home.

What I do remember that really made a mark on me, was what one of the respected engineers did during that time. After seeing his profit sharing fall to pieces, he quit his job in order to "protect" his investment from falling any further. At that time, the only way to get the profit sharing was to quit. A year or two later, I heard he was stocking shelves in a grocery store. I learned not to take any drastic actions. That has been etched in my memory more than the inflation rates of the time.
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Old 10-22-2020, 03:52 PM   #25
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The market may have provided a false sense of security the last 5 years , but I somehow doubt the future. No way I'm going to raise my WR. I'll simply use my total investment portfolio as a barometer with lower boundaries established based on age. Inflation is and probably will be my only financial concern. If it's low I'll embrace it despite low growth propects. If it shoots up I'll deal with it somehow.
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Old 10-22-2020, 04:11 PM   #26
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Yes, I fear inflation more than anything, because it compounds and never corrects.

But this article also implies that my pension is suddenly worth less. One of the things I learned on this forum was to think of my non-COLA pension as if it were part of my portfolio.

Using some easy numbers as an example, the theory goes like this:

Say you have $1M in your portfolio. At 4% a year, that's $40K. So if you have a $40K pension, you have the equivalent of a $1M portfolio.

But if you change that number to 5%, your $40K pension is only equal to having an $800,000 portfolio.

So, that $40K pension is now worth $200,000 (20%) less than it was when the rate was 4%.

It's pretty funny what you can do with figures sometimes
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Old 10-22-2020, 04:39 PM   #27
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Geeze I could have....

Oh well. We've been living on 3% and planned on staying there till 65, maybe ramp up a little until SS at 70. Maybe we could spend a little more.
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Old 10-22-2020, 05:31 PM   #28
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4% or 5%?

My trailing 12-month expenses run 1.7% of portfolio. The WR is even lower, because my wife has drawn her SS.
So the goal is to leave money for the kids?
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Old 10-22-2020, 05:35 PM   #29
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I enjoyed reading the article as it was nice to see an article that projects a positive future rather than a doom and gloom scenario. I still wonder how sequence of returns risk plays in here if you are just getting ready to retire. The market has been going up for more than a decade. If we have a major downturn I would think that a 5% starting number would be aggressive. Then again, 4% was always the worst case scenario, with 7% being the average safe withdrawal rate over the entire period being analyzed.

We are currently spending well below 4%. Logically I know that we can easily afford to spend more, but emotionally I’m still stuck being frugal. It’s a very challenging habit to break.
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Old 10-22-2020, 05:35 PM   #30
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Could that be a problem?

I talked to my wife recently, and said when we will be able to travel again, we will fly business class. To my surprise, my frugal wife agreed.

Well, that may bring my expenses from 1.7% (1.67% to be exact) to something a bit higher. Still less than 2%. I guess that depends on how much international travel we will make, but I don't see doing more than one long trek a year.

And I will be claiming SS before I know it.

Where did the time go? One day, you were worrying about SORR, the next day you don't care to spend the money that has accumulated.
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Old 10-22-2020, 06:05 PM   #31
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I enjoyed reading the article as it was nice to see an article that projects a positive future rather than a doom and gloom scenario. I still wonder how sequence of returns risk plays in here if you are just getting ready to retire. The market has been going up for more than a decade. If we have a major downturn I would think that a 5% starting number would be aggressive. Then again, 4% was always the worst case scenario, with 7% being the average safe withdrawal rate over the entire period being analyzed.

We are currently spending well below 4%. Logically I know that we can easily afford to spend more, but emotionally I’m still stuck being frugal. It’s a very challenging habit to break.
The market has been going up fo a century. And the past decade has had it's share of corrections and near bear/bear markets. Lest our memories forget:

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Old 10-22-2020, 07:41 PM   #32
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Read that. I was thinking 3.5% when I retire .. but yeah, life may be short, so 4% works.
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Old 10-22-2020, 08:15 PM   #33
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Inflation is permanently etched into my brain. Some times I will never forget:

In 1980, I was a Plant Manager running one of ARCO's business units back East. That year, I handed out annual raises to my managers that were between 17% - 20% of their base salaries. That did not include performance bonuses.

In 1981, I was promoted to a corporate job in California and signed on to a 18% mortgage on a house that was smaller than the one on our 3 acre parcel back east and cost twice (plus) as much! But fortunately ARCO had a generous relocation policy and we made out OK.

Big numbers!
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Old 10-22-2020, 08:27 PM   #34
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So the goal is to leave money for the kids?
No, the kids are self-sufficient at this point. They do not need my money. If they get it, they can go straight into ER.

No goal. We just have not found anything worthwhile to spend money on.
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Old 10-22-2020, 08:56 PM   #35
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No, the kids are self-sufficient at this point. They do not need my money. If they get it, they can go straight into ER.

No goal. We just have not found anything worthwhile to spend money on.


I would say we are in the same boat. 4% is a lot of money to spend when there really isn't any needs. A person never knows what unexpected events can come about thou. Money could go fast and be little left for heirs.

If I was to start spending 4 to 5% I would spend it on land for the heirs.
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Old 10-22-2020, 09:08 PM   #36
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To be exact, Bergen is suggesting "no more than 5%."
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Old 10-22-2020, 09:13 PM   #37
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I was pretty young in the 70's, but the main thing I remember is that everybody was nuts about antiques and collectibles. Everyone was trying to convince me to "invest" in fancy Avon bottles.

I'm sure that was a function of inflation. They were hard assets.
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Old 10-22-2020, 10:01 PM   #38
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We're withdrawing 5% (gasp!) for the next 3 years until I hit Social Security full withdrawal age. Then it goes to 3.5%. Then four years later when DW hits SS full withdrawal it goes to.... less than 2.5%.
So I'm fine with withdrawing 5% for a short period, which is set by the 12% tax rate.

I assume the portfolio can go down in the next 3 years and the withdrawal rate will then go up, but barring a 40-50 percent collapse in the market (given our allocation), it shouldn't change much. The more likely "problem" is how to spend the money, including SS, at a 4% rate.

Our actual spending will be about 4% or less (not 5.5% we spent this year only after installing solar and trading in the Forester to buy a Chevy Bolt); barring significant health costs of course. The excess/unspent goes into a brokerage account where I will do some tax loss gathering as I place unspent funds into a variety of ETFs or closed end funds and stocks. It has doubled the last 3 years and could get quite large. I could do the Roth from IRA, but it seems more trouble than what it is worth; I might change my mind next year about that, though. I'm not interesting in withdrawing past the 12% tax area, even if it could make sense if the portfolios hold up the next 5 years.







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[/B]

I would say we are in the same boat. 4% is a lot of money to spend when there really isn't any needs. A person never knows what unexpected events can come about thou. Money could go fast and be little left for heirs.

If I was to start spending 4 to 5% I would spend it on land for the heirs.
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Old 10-22-2020, 10:45 PM   #39
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[/B]

I would say we are in the same boat. 4% is a lot of money to spend when there really isn't any needs. A person never knows what unexpected events can come about thou. Money could go fast and be little left for heirs.

If I was to start spending 4 to 5% I would spend it on land for the heirs.

I no longer worry about running out of money, mainly due to access to SS if I want it, and also seeing how our spending goes down while the market lifts up our stash. Even if the market drops by 1/2, we would still be below 4% WR. And I am not worrying about not having enough left for the kids. They can fend for themselves.

It's really that we have no desire for anything more. I already have 2 homes, and even one home would be enough to keep busy maintaining. People like to blow money on cars, but I have been indifferent to cars since my late 30s. No boats or planes either. They just bring more work. And I don't want more work.

The only leisure thing left is travel, which has been curtailed due to Covid. And I cannot be a perpetual traveler either; it would be tiring.

I still enjoy making money off the market though. It's now much more a pastime than a necessity. It's like playing chess with a faceless opponent.
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Old 10-22-2020, 10:49 PM   #40
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Yes, I fear inflation more than anything, because it compounds and never corrects.

But this article also implies that my pension is suddenly worth less. One of the things I learned on this forum was to think of my non-COLA pension as if it were part of my portfolio.

Using some easy numbers as an example, the theory goes like this:

Say you have $1M in your portfolio. At 4% a year, that's $40K. So if you have a $40K pension, you have the equivalent of a $1M portfolio.

But if you change that number to 5%, your $40K pension is only equal to having an $800,000 portfolio.

So, that $40K pension is now worth $200,000 (20%) less than it was when the rate was 4%.

It's pretty funny what you can do with figures sometimes
The larger point that you are making that the imputed value of your pension depends on the WR is taken and acknowledged.

However, you should perhaps realize that NO ONE values your non-COLA pension at 25x the annual payout. Because of inflation. A pension with COLA would be valued the way you are thinking, but not a non-COLA.
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