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Old 03-30-2018, 04:52 AM   #41
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You could try running Firecalc with 90% of your assets, 80%, etc, and see where it gets into trouble.
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Old 03-30-2018, 04:53 AM   #42
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Originally Posted by pb4uski View Post
I would look at it as the current retirement portfolio balance as a percent of the beginning (when you retired) retirement portfolio balance... if that ratio ever gets to 80%... reassess and be careful.

80% is judgemental.. could be 90% or 85% depending on how conservative one is... also might vary with WR... 90% if a higher WR like 4% or 80% if a lower WR like 3%.

Ours is 125% after 6 years.... so far, so good.
This makes a lot of sense and looks at the overall picture. Thank you pb4uski.
Also thank you to those that mentioned VWR. Will have to study that more.

Appreciate the exchange of ideas and opinions. I am always learning something new.
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Old 03-30-2018, 05:47 AM   #43
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I have devised my own withdrawal strategy that works on a sliding scale based on market performance. In good years, I withdraw a higher percentage and in down years, a lower percentage. I put the excess funds in up years into my short term bond fund or draw from it in down years. This fund will range from one to three years of living expenses and grow or shrink based on market conditions. My theory is that this will give the account more time to recover losses in down years and harvest gains during the better years thus buffering the dreaded “sequence of returns” demon. As to the original question of when does one know the problem is taking place? I think the answer is similar to the question of the definition of pornography. You’ll know it when you see it.
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Old 03-30-2018, 06:31 AM   #44
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One needs to think of financial formulas and the resultant conclusions as a reasonably confident guess. 95% success for the 4% rule, 90% success in FIDO, FIRECalc etc they can easily produce wrong results for us BECAUSE we put in numbers that are best guesses about our future. There are so many unknowns about life in future years. Health, car or other accidents, divorce, remarriage, children coming back home ... There are lots of other bad situations that one can think of as reasonably possible, all of which can affect what will happen to one financially. We are fooling ourselves if we think 100% in the financial tool we ran guarantees anything.
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Old 03-30-2018, 06:49 AM   #45
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I think most people will adjust instinctively and unconsciously unless they never check their portfolio balance.
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Old 03-30-2018, 07:17 AM   #46
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There are so many unknowns about life in future years. Health, car or other accidents, divorce, remarriage, children coming back home ... There are lots of other bad situations that one can think of as reasonably possible, all of which can affect what will happen to one financially. We are fooling ourselves if we think 100% in the financial tool we ran guarantees anything.
Y'know....sometimes you have to make your best plan and then....just jump and figure out the rest along the way.
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Old 03-30-2018, 08:48 AM   #47
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So if we’re 18 years into a 30yr retirement, then our stash only needs to last 12 more years. $1.1MM divided by 12 is nearly $100k per year. Which makes Withdrawing $58,829 sound darned conservative to me. Which isn’t bad; I’d sleep very well at night. I don’t think anyone has claimed they’re 100% sure of anything in the future.
OK, looks like you're probably right, the 4% rule is pretty certain to have survived the 2000 start. If you want to put blind faith in it and say "stay the course, no matter what", go ahead. There's no guarantee the future will follow the track of any historical track. Many others here are indicating that they'd make adjustments or at least reassess after a bad start, which makes sense to me.

There's also factors like, you might hit unexpected large expenses later or you might live longer than 30 years that would make me very uncomfortable to stick rigidly to a plan that may be cutting it close.
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Old 03-30-2018, 08:59 AM   #48
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... and the retiree is withdrawing 4% annually
When does the light bulb go off and the retiree says" Hey I need to reduce my withdrawal rate....take more from bonds/cash......reduce expenses , etc."
Let's suppose, instead, that the retiree is withdrawing 3.5% annually.

In that case, if the future is no worse than the worst case in the last 100 years, the light bulb never needs to go off. This retiree has been conservative enough with the initial withdrawal plan that no SOR pattern can create a failure.

(This was the original goal of the 4% guideline. It was intended to tell people that if they wanted simple, level incomes they would need to start their retirements with conservative withdrawals.)

Using FireCalc, 4% fails about 5% of the time. Again, if we trust backtesting, FireCalc allows you to download the year-by-year results for every one of its historic possibilities. Look at the failure cases, find their common characteristic (probably ratio of current to beginning assets < some trigger), and rerun FireCalc, testing step-downs. (FireCalc won't let you imput a trigger, so you just do the step-down for all years and see if you get 100% success.)

Eventually, you'll come up with some step-down trigger and amount that gets you through every year. Next, then see how many years you would have stepped down, based on that trigger, when you didn't need to.

This allows you to back into an example (better yet, two or three examples) of decisions that could have worked. However, most people here would say it gives too much weight to historic quirks to call it a "rule". I'd agree with that, it's just some samples to get a feel for the sensitivity.

And, as others have said, there are many other complications in planning beyond SOR risk.
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Old 03-30-2018, 09:21 AM   #49
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Several people have mentioned the failure rate in FireCalc as a good measure of success. FireCalc will say that if you have $1000 left in your account after 10 years that is a success. This is way too simplistic a view.

I think that FireCalc should show some of those worst case declines in a better way. But it's a tool that has not been improved on.

VPW is a far better tool to use. It can also be converted to display the worst case scenarios for a different withdrawal strategy (such as the 4% with inflation rule). One does have to know a bit about spreadsheets though.
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Old 03-30-2018, 02:21 PM   #50
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Originally Posted by pb4uski View Post
I would look at it as the current retirement portfolio balance as a percent of the beginning (when you retired) retirement portfolio balance... if that ratio ever gets to 80%... reassess and be careful.

80% is judgemental.. could be 90% or 85% depending on how conservative one is... also might vary with WR... 90% if a higher WR like 4% or 80% if a lower WR like 3%.

Ours is 125% after 6 years.... so far, so good.
Really, shouldn’t your life expectancy come into play, if I get to 90 and have 80% still available, if I adjust my WR at all, it would go up.
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Old 03-30-2018, 02:42 PM   #51
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Y'know....sometimes you have to make your best plan and then....just jump and figure out the rest along the way.
Yep. Since we only have a finite amount of time to work with, sometimes ya just gotta join the fray and have at it. A flexible attitude and a good dose of street smarts and common sense might turn out to be more important than a "plan" worked out to the fourteenth decimal point! There are way too many assumptions to be made concerning far distant events to ever think you'll never have to make significant changes along the way.
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Old 03-30-2018, 03:47 PM   #52
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I think the timeframe that started with 2000 might be one of those few that's destined for failure. At least, for me. I put a bunch of data into a spreadsheet awhile back, using my actual gains and losses for each year, and also the actual rate of inflation for each year. If I had started off with $1M on 12/31/1999, a 4% withdrawal rate would have me at $287,553 at the end of 2017. While I wouldn't be out of money, at that rate what's left wouldn't last much longer.

A 3% withdrawal rate would have me at $817,293. I think even that would have me a little leery. Although, for a 30 year retirement, at this point there would only be 12 years left, so that might work out. But for, say, a 40 year or more timespan, I might be a bit apprehensive.

As for that 2000-2002 timeframe, If I was retired, I probably would have started scaling back on my spending over the summer of 2001. As I recall, 2000 actually wasn't all that bad for the most part, and I only ended up down about 5.4%. The early part of 2001 actually seemed optimistic, and I hit a new all-time peak in May of that year...of course, I was (and am) still adding investments, and not having to draw anything out yet. But, as things cooled down over the summer, I would've begun to worry. And then, the 9/11 tragedy hit. I ended up down about 30.4% that year. And I went on to lose another 23.1% in 2002.
It hasn’t been for me. I retired in 1999, but my effective withdrawal rate was far lower than 4% and I had the planned “luck” to average in over two years the large amount from diversifying away from company stock. I picked two years because the late 1999 stock market scared the heck out of me. I was lucky Plus I still had a pretty good chunk of company stock, and it didn’t get hammered that hard - probably because it hadn’t run up like the dot coms. So I was able to divest more over the next many years and finance our living expenses.

Still - when I look at our total net worth, it is ahead of inflation in spite of us living off it for almost 18 years, so 1999 was not the horror for us that it may have been for others.
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Old 03-30-2018, 04:14 PM   #53
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Really, shouldn’t your life expectancy come into play, if I get to 90 and have 80% still available, if I adjust my WR at all, it would go up.
Yup... judgemental... considering relevant facts and circumstances... my reponse was thinking more towards the first 10 years which are the most critical in terms of risk of ruin in most circumstances.
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Old 03-30-2018, 05:59 PM   #54
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When do you actually "know"...? Like,biblically "know"? I'd say when you look up from your 4% inflation adjusted spending path, and you see you've only got about 10 years of assets left. You're "knowed".
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Old 03-30-2018, 10:43 PM   #55
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Excellent question with equally excellent conversation.

I've gone with the "hindsight is 20/20" method and did not ER until I had 100% success in Firecalc and was at a 3% WR based on my budget.

The downside is that the 3% WR "only" included $30k / year in medical expense and based on current conditions I may need more like $50k / year (for 2 - includes hitting OOP max for both). The upside is that the 3% WR made no provision for HC expenses eventually going down (at least for awhile) or for taking SSI.

My theory is that I may not know if it looks like SOR risk has bitten me, but I will certainly be able to tell if I can "blow that dough" in another 10 or 15 years while I will still be fairly young enough to enjoy it.
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Old 04-07-2018, 10:15 AM   #56
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I think the point of 4% SWR is to weather SOR risk. That said, for me it’s more about percentage drops. If we drop 20% or so from peaks, my internal regulator sort of goes off and says, “eat at home tonight and skip the restaurant.”
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Old 04-07-2018, 07:44 PM   #57
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As a mitigating factor; has anyone ever run the numbers assuming a multi-year cash cushion.

Having sufficient cash to forgo any withdrawals for 3 years. Would that effectively protect a portfolio?
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Old 04-07-2018, 08:38 PM   #58
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As a mitigating factor; has anyone ever run the numbers assuming a multi-year cash cushion.

Having sufficient cash to forgo any withdrawals for 3 years. Would that effectively protect a portfolio?
It's a commonly considered strategy. Short term cash piles obviously insulate you from market downturns if you draw them down in a bad market. Long term cash is a drag on returns and likely will lag inflation.

The trick to me has always been creating a good set of rules for deciding when to draw down the cash buffer vs withdrawing from the portfolio, and when and how to replenish the cash buffer once you've used it.

You can run your own simulations using online tools like FIREcalc to see if you think it would protect a portfolio, but they will generally just be able to simulate a 3 year cash buffer that just sits there. It won't be able to reflect any rules that you might come up with for draw down and replenishment.
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Old 04-07-2018, 08:43 PM   #59
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Even though it's kind of arbitrary, I'd probably just reassess on a yearly basis at the end of the year to see what my numbers are projecting.
I would then consider making adjustments to spend and but also asset allocation. Realistically, I'd rather work towards being in a situation where we can be flexible with our spend and hopefully build up a cash buffer to smooth spending.
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Old 04-07-2018, 08:46 PM   #60
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I've been retired about 2 years. My answer to the original question:

My written policy is to monitor my withdrawal rate twice per year. If I exceed what I consider to be a safe withdrawal rate (4%), then my policy says I should start implementing contingency plans (either reducing expenses or increasing income or both). I have a written list of about 5 expense reduction plans and about 21 income increasing plans.

In reality, I check my withdrawal rate every few days, and I get nervous if it gets up above about 3.5%. I also get nervous when the market gyrates like it has the past few weeks. However, I don't actually take any action except to rebalance or make banana bread.
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