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Old 11-15-2016, 07:48 PM   #41
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The shorter duration indeed should be accounted for, as REWahoo pointed out. If one has been retired for 10 years, yes, it makes a difference. But the market swing can still dominate over that effect.

Let's take a retiree who ran FIRECalc for a 30-year duration in 2007, but decided to do OMY. In 2009, when he wanted to retire, what do you think FIRECalc would tell him when he ran his incredible shrinking portfolio with a 28-year duration?
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Old 11-15-2016, 07:55 PM   #42
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I forgot to add that I do not see a problem with ratcheting. I plan to do that myself.

If one's portfolio has doubled, so that his initial WR of 4% becomes 2% of current portfolio, there's no reason not to withdraw more. But if he doubles up his WR to match his portfolio exactly, then he is working himself down from a grade A to a lower grade.

On the other hand, if he's 1/2 way towards the end of his years, doubling his WR means going up from the current 2% WR to 4% WR but with 1/2 the years left. And that is certainly very safe (FIRECalc run of 15 years vs. the standard 30 years). FIRECalc will tell him to do WR of even higher than 4% with a 15-year duration.
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Old 11-15-2016, 07:59 PM   #43
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I sure am glad I'm not the only one looking at it that way.

Yeah Baby, Blow that Dough -
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Old 11-15-2016, 08:03 PM   #44
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It's way too early for me to tell, being only 4 years into retirement. But can I see myself looking at a 6-figure portfolio instead of 7 figures?

Worse, do I want to see the leading digit decrementing? Not even that!

I have called myself a Scrooge, and now you know why.
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Old 11-15-2016, 08:07 PM   #45
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But you have 2 houses and an RV.

Maybe one less house?
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Old 11-15-2016, 08:35 PM   #46
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With healthcare costs going up, I have been prepared to let go of both houses and just keep the 25' motorhome in the worst case.
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Old 11-15-2016, 09:33 PM   #47
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You get rid of those rats yet?
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Old 11-15-2016, 09:43 PM   #48
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Thought would sell house with roof rats included.

One camera inside garage attic. One camera in upstairs attic. Both with motion detect and auto recording. No movement detected for the last 2 weeks, ever since the last rat caught in trap.

Fingers crossed.
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Old 11-16-2016, 07:45 AM   #49
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.....So if I'm 10 years into a 40 year retirement and things have gone well and I have much more money than I started with and have 30 years left, then it would be foolish of me to stick to a 10 year old estimate of what a SWR would be and not adjust....
That's an interesting take and something that I've thought about as well. Into my third year of ER and while I've been living off my investments for almost 30 months now the value of my portfolio continues to be higher at year-end than when I started.

So it's hard not to do a mental "reset" and run the higher portfolio value with Firecalc but with less years - in other words, I've been calculating (for fun) a withdrawal rate based on 27 years rather than 30 using a portfolio value higher than what I started with three years ago.

The results are obviously much more than they were when I ran the same calculations three or four years ago with a lower portfolio and 30 year time span.
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Old 11-16-2016, 07:52 AM   #50
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So if I'm 10 years into a 40 year retirement and things have gone well and I have much more money than I started with and have 30 years left, then it would be foolish of me to stick to a 10 year old estimate of what a SWR would be and not adjust.
However, one could argue that your original 90+% success-rate predictions took into account those really good years (into the future) with the SWR staying the same.
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Old 11-16-2016, 08:33 AM   #51
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I guess one way to reset would be to simply run a new Firecalc analysis as if I was retiring anew with my then current portfolio and time horizon and use that to calculate a new sustainable withdrawal. I think it is the same thing.

I'm willing to accept a slightly higher chance of failure in exchange for a significantly lower chance of underspending.... especially since I'm targeting a 98% success rate which implicitly include some built-in conservatism.
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Old 11-16-2016, 09:31 AM   #52
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Here is the problem with ratcheting, which I apologize if my explanation is not clear enough. When the FireCalc examples show 95% success rate, that is taking a random starting point anywhere in the historic sequence of returns. You can think of this as 95 of the starting points are green and 5 are red. We don't actually know which years are green or red going forward, because we don't yet know the future sequence of returns, but for calculation purposes FireCalc just uses all of them, combines the results as a percentage success.

Now in a usual 30 year retirement, as you go though the red years in the sequence (years someone who started their retirement then would have a problem) as an existing retiree, you probably are fine because previous years have been good to you or your remaining retirement is short enough that the bad sequence starting on that red year won't be long enough before your retirement ends and you heirs get whats left. FireCalc still counts that as success as long as you end with more than zero.

By ratcheting, you are eliminating the case above where previous years have been good to you and your pile is more than big enough to power through the red year starting point, because you effectively re-started on the new ratchet higher amount. Also if you are an early retiree (depending on how early) you may not escape zero because you are not the case where remaining retirement is short enough that the bad sequence won't be long enough to hurt you (your retirement is still 30+ years to go). In effect you start on a green year, possibly a very green year, and by ratcheting you move to a new starting point each year in the sequence that is higher, until finally you ratchet up to start on a red year. At that point if your remaining retirement is short enough, you make it (maybe barely). But if your retirement is long enough, the ratchet has pushed you to select a red (bad) year by constantly switching your starting point to any year that was more red-ish than your previous starting year. If you eventually hit a red one given your length of retirement remaining, you have adversely selected yourself into a failing sequence of returns.

This is how ratcheting will push you into a failing sequence for any withdrawal rate that is historically less than 100% success. Of course a future sequence of returns could be worse than the worst recorded in FireCalc, so even a 100% success rate starting withdrawal rate could still push you to find that failure case, but the hope is that the actual chance of that is rare.

Note that all of this is NOT a problem if you have a sufficiently effective means of REDUCING your spending when a bad sequence of returns is occurring. All the failures shown are because the spending rate cannot be supported by future returns - in large part because the spending is assumed to be inflexible.
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Old 11-16-2016, 09:32 AM   #53
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I guess one way to reset would be to simply run a new Firecalc analysis as if I was retiring anew with my then current portfolio and time horizon and use that to calculate a new sustainable withdrawal. I think it is the same thing.

I'm willing to accept a slightly higher chance of failure in exchange for a significantly lower chance of underspending.... especially since I'm targeting a 98% success rate which implicitly include some built-in conservatism.
Yes, I think you can find some postings on a 'retire again and again' strategy. Essentially reset/ratchet on each new high. Once you get your head around it, you see it has to work (with the data provided). It also resolves the apparent paradox of the two retirees who retire a few years apart after a large market shift.

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Old 11-16-2016, 09:37 AM   #54
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...
Now in a usual 30 year retirement, as you go though the red years in the sequence (years someone who started their retirement then would have a problem) as an existing retiree, you probably are fine because previous years have been good to you or your remaining retirement is short enough that the bad sequence starting on that red year won't be long enough before your retirement ends and you heirs get whats left. FireCalc still counts that as success as long as you end with more than zero. ...
I didn't read the rest, because this is just incorrect. It's not going to help clarify anything.

The red years are the failures. period.

All the years assume the same starting portfolio, there is no adjustment for 'previous years that have been good to you' - those are included as successes in other runs, they make up the 95%.

Please try again.

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Old 11-16-2016, 10:01 AM   #55
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+1 If a new retiree has a 95% success rate then a ratcheting retiree with the same WR also has a 95% success rate if their portfolio balance, AA, time horizon, etc. are the same.... to claim differently is poppycock.
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Old 11-16-2016, 10:02 AM   #56
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I guess one way to reset would be to simply run a new Firecalc analysis as if I was retiring anew with my then current portfolio and time horizon and use that to calculate a new sustainable withdrawal. I think it is the same thing.
At what point do we just call it what it is: "I'm now using a 'percent of portfolio year end value rather than a starting amount adjusted annually for inflation" ?
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Old 11-16-2016, 10:08 AM   #57
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At what point do we just call it what it is: "I'm now using a 'percent of portfolio year end value rather than a starting amount adjusted annually for inflation" ?
Because it's different?

A 'percent of portfolio year end value' would have you adjusting down as well. This is ratcheting, a 'peak-hold' function if you will. And it works, within the historical data.

If you use this approach on the bad sequences, you never increase (or decrease) your initial withdraw amount, other than for inflation (same as default). It only applies when the inflation adjusted portfolio rises.

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Old 11-16-2016, 10:09 AM   #58
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At what point do we just call it what it is: "I'm now using a 'percent of portfolio year end value rather than a starting amount adjusted annually for inflation" ?
Absolutely not... because it is a blend of the two.

In good years there will be a reset, in sideways or bad years the withdrawal will increase with inflation based the 4% rule and the last reset. And the measurement is based on performance since the last reset date (be it a year ago or many years ago) and today.

I like the recalculate version slightly better than just 4% of new balance version because it takes into account both growth in the portfolio value and the reducing time horizon but I'm not sure there is a huge difference between them.

To me the big problem with use portfolio year end value is that you will likely die rich since the average annual return exceeds the WR. I guess that you could mitigate that by shifting to a RMD approach at a target age.
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Old 11-16-2016, 10:11 AM   #59
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A 'percent of portfolio year end value' would have you adjusting down as well. This is ratcheting, a 'peak-hold' function if you will. And it works, within the historical data.
I hear the data being tortured. "Help"
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Old 11-16-2016, 10:19 AM   #60
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I guess one way to reset would be to simply run a new Firecalc analysis as if I was retiring anew with my then current portfolio and time horizon and use that to calculate a new sustainable withdrawal. I think it is the same thing.

I'm willing to accept a slightly higher chance of failure in exchange for a significantly lower chance of underspending.... especially since I'm targeting a 98% success rate which implicitly include some built-in conservatism.
Personally, I thought the easiest way was to just do away with inflation adjustments altogether and just stick with a fixed % of remaining portfolio. My spending doesn't immediately jump up to match an increase in income after a good year, so unspent funds are accumulated to help with future lower income after lean years.
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To me the big problem with use portfolio year end value is that you will likely die rich since the average annual return exceeds the WR. I guess that you could mitigate that by shifting to a RMD approach at a target age.
I plan to address this in the future by reviewing my % withdrawal and increasing it if I decide it is warranted.

True - it perhaps means I spend less today than I could, but since my withdrawals have been way outpacing my actual spending anyway, the point is moot for me. (knock on wood!!!)

All I need is for a big permanent market selloff to make my withdrawals match my actual spending.

I hope this is not a jinx!!
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