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Old 04-07-2018, 09:15 PM   #61
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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.
So effectively you are checking your expenses every few days, or more so really monitoring the WR from the Market denominator? I actually check expenses every day, but don't think of it in WR terms. I monitor it on a YTD basis vs. budget for the year.
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Old 04-07-2018, 09:24 PM   #62
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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.
With FIRECalc, you can ask it for a SWR that will leave at least X dollar amount at all time. Usually, that lowest dollar amount happens at the end of the 30-year run.


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So effectively you are checking your expenses every few days, or more so really monitoring the WR from the Market denominator? I actually check expenses every day, but don't think of it in WR terms. I monitor it on a YTD basis vs. budget for the year.
Being an active investor, I check my portfolio every day, actually several times a day, but not for the purpose of seeing what I can spend on groceries.

Several times a year, I look at the 12-month trailing expenses to detect if I suffer from lifestyle creep. So far, the expenses have been going down while the stash grows. Yep, Bernicke was not wrong.
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Old 04-08-2018, 08:12 AM   #63
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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?
I’ve run the numbers on the % remaining portfolio withdrawal method with 50/50 AA to see how far income could drop over many years, and the amount of extra cash reserves needed outside the portfolio to supplement reduced income would be substantial, if you tried to maintain 100% real spending, but quite a bit less if you could drop to 80% and then to 70% real spending for a few years.

That is a different model and doesn’t cease withdrawals, but rather supplements lowered income from withdrawals due to the portfolio shrinking.

I modeled this to figure out how much of my short-term cash buffer should be set aside to supplement low portfolio income years if needed. Theoretically the rest can be splurged.

I don’t worry about cash drag. As long as my AA rebalanced portfolio is large enough, I know it should provide reasonable inflation-adjusted withdrawals in the long run, even if there is a nasty period in the interim.
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Old 04-08-2018, 08:25 AM   #64
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Originally Posted by SecondCor521 View Post
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.
Are you looking at some kind of annualized withdrawal rate here? Are you just checking your annual or YTD spending against your portfolio? As opposed to taking out the funds you need for a given year?

I just look at my portfolio Dec 31, pull out my target % then. Rebalance as needed on Jan 2, and then don’t worry about it until the next year.

The funds are already withdrawn, I can spend them as I like, I don’t have to worry about contingency spending strategies until the next year.

As it happens, we have been underspending our annual withdrawals anyway, so we have had extra available for the next year if needed. Contingency strategy number 1 without really trying.
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Old 04-08-2018, 09:06 AM   #65
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With FIRECalc, you can ask it for a SWR that will leave at least X dollar amount at all time. Usually, that lowest dollar amount happens at the end of the 30-year run.

....
I haven't run FIRECalc in some years now but did use that feature. I wonder if the people reporting high success percentages use it.

VPW uses a table format for reporting as well as charts. It's a pity FIRECalc never gets the update attention it needs. There was an effort started to update it some years back but that seems to have died.
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Old 04-08-2018, 09:30 AM   #66
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So effectively you are checking your expenses every few days, or more so really monitoring the WR from the Market denominator? I actually check expenses every day, but don't think of it in WR terms. I monitor it on a YTD basis vs. budget for the year.
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Are you looking at some kind of annualized withdrawal rate here? Are you just checking your annual or YTD spending against your portfolio? As opposed to taking out the funds you need for a given year?
Here's what I do. It works for me; I am not recommending it to anyone else.

I track my finances with Quicken. Every few days I semi-manually copy my account balances and my expenses over the last six months from Quicken to an Excel spreadsheet. I then use those numbers to calculate my WR - twice my last six months' expenses divided by my FIRE stash (which is my net worth adjusted for various things - I subtract my house value and my kids' college funds, and add in a NPV for SS, for example).

And yes, I do that every few days. Waaaaay overkill. Perhaps I'll relax about it in a few years.

As to your second question @audreyh1, I have a cash buffer that I intend to keep between 2 months and 5 months of expenses. Every quarter few days I look at it and make sure there's enough to get me through the next quarter. If there isn't, I would refill it from investments.
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Old 04-08-2018, 09:48 AM   #67
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Are you looking at some kind of annualized withdrawal rate here? Are you just checking your annual or YTD spending against your portfolio? As opposed to taking out the funds you need for a given year?

I just look at my portfolio Dec 31, pull out my target % then. Rebalance as needed on Jan 2, and then don’t worry about it until the next year.

The funds are already withdrawn, I can spend them as I like, I don’t have to worry about contingency spending strategies until the next year.

As it happens, we have been underspending our annual withdrawals anyway, so we have had extra available for the next year if needed. Contingency strategy number 1 without really trying.



Various WR strategies have been mentioned on this site, but I believe the bolded above strategy mentioned above is what I will strive to implement starting at the end of this year.
As mentioned in a past post, I will probably modify it to incorporate the Clyatt 95% rule.
It might take awhile though to build up the funds outside the investment portfolio to eventually supplement the down years if the 95% rule needs to be implemented on many consecutive years.
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Old 04-08-2018, 09:52 AM   #68
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Here's what I do. It works for me; I am not recommending it to anyone else.

I track my finances with Quicken. Every few days I semi-manually copy my account balances and my expenses over the last six months from Quicken to an Excel spreadsheet. I then use those numbers to calculate my WR - twice my last six months' expenses divided by my FIRE stash (which is my net worth adjusted for various things - I subtract my house value and my kids' college funds, and add in a NPV for SS, for example).

And yes, I do that every few days. Waaaaay overkill. Perhaps I'll relax about it in a few years.

As to your second question @audreyh1, I have a cash buffer that I intend to keep between 2 months and 5 months of expenses. Every quarter few days I look at it and make sure there's enough to get me through the next quarter. If there isn't, I would refill it from investments.
Hey, I keep track of expenses on a daily basis, so also is overkill and perhaps will also will relax about it in a few years. However, it was needed so I could reduce expenses by 60% over 3 years in order to FIRE.
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Old 04-08-2018, 10:07 AM   #69
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I am about to make the leap to retire at 59. I have been planning and thinking of this since the 2008 crash and trying to prepare. I know I am much better prepared than most of the people I know. I know if I thought it was a permanent move I would stay paralyzed and never take the retirement step. I am now moving my thinking to a stepped plan. I will retire at 59 and plan to review the plan again and make additional decisions when I reach 62 (do I start pension or delay to 65?) at 65 (do I collect SS or wait to 67 or 70?) at 70 decisions on aging housing plans.
I would like to delay pension until 65, and SS until 70 but that will in part depend on market conditions, my health prospects, and family obligations.
As a final back up plan I could find some work and cut some luxuries.
Thirty years ago, I had no idea how I would be living now, so I don't think it is realistic to think I will know absolutely how I will be living 30 years from now. I have always thought I needed to have an available plan B- plan C and plan D. Thanks to this forum for helping me put these thoughts and plans in order.
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Old 04-08-2018, 10:21 AM   #70
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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?
We've had several interesting discussions on this and there are articles by the pundits available via Google and most seem to say that the opportunity cost of carrying large amounts of cash is more detrimental than the risk of some amount of unfortuitous SOR risk.

I think it's a matter of "it depends." How bad and how long are the market dips? How is your portfolio constructed in terms of AA and pre and post tax funds? How flexible is your budget? Are you fairly skilled at manipulating your portfolio? Etc.

I had been FIRE'd for about 2 years when the Great Recession of 2008 and 2009 hit. I carry close to zero cash in my AA. My WR is low and by simply taking my divs, int and MF CG's in cash plus a bit of asset selling (not everything was down!), I was able to not sell a single share of an equity at less than pre-recession values. And we left our budget intact since most of the discretionary spending was on age-dependent activities we didn't want to postpone for fear of not wanting to do them when we were older.

OTOH, I understand that if someone is at a full 4% WR and has 100% of their retirement portfolio invested in an S and P 500 index fund, then they're going to have to sell about 2.7% (4% WR minus 1.7% divs) of their equity position each year, even if the shares are down. But really, how many of us are in that position? A few have mentioned being 100% equities, but not many.

Tools like FireCalc which use historical data and backtest already have SOR built in. To answer your question, do some FireCalc runs with no cash levels and some with high cash levels and see how your failure rate responds.

Personally I worry more about stagflation than relatively short (like 2008 - 2009) dips in the equity market.
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Old 04-08-2018, 10:30 AM   #71
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We've had several interesting discussions on this and there are articles by the pundits available via Google and most seem to say that the opportunity cost of carrying large amounts of cash is more detrimental than the risk of some amount of unfortuitous SOR risk.

I think it's a matter of "it depends." How bad and how long are the market dips? How is your portfolio constructed in terms of AA and pre and post tax funds? How flexible is your budget? Are you fairly skilled at manipulating your portfolio? Etc.

I was FIRE'd for about 2 years when the Great Recession of 2008 and 2009 hit. I carry close to zero cash in my AA. My WR is low and by simply taking my divs, int and MF CG's in cash plus a bit of asset selling (not everything was down!), I was able to not sell a single share of an equity at a loss due to the recession.

OTOH, I understand that if someone is at a full 4% WR and has 100% of their retirement portfolio invested in an S and P 500 index fund, then they're going to have to sell about 2.7% (4% WR minus 1.7% divs) of their equity position each year, even if the shares are down. But really, how many of us are in that position?

Tools like FireCalc which use historical data and backtest already have SOR built in. To answer your question, do some FireCalc runs with no cash levels and some with high cash levels and see how your failure rate responds.
Although not using nor intend to use a 4% WR, I do keep a decent % in cash in my investment portfolio for ACA criteria, plus I would have to otherwise sell from a mainly TIRA portfolio.
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Old 04-08-2018, 11:56 AM   #72
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Hey, I keep track of expenses on a daily basis, so also is overkill and perhaps will also will relax about it in a few years. However, it was needed so I could reduce expenses by 60% over 3 years in order to FIRE.
We did the same with our expenses. I wish we would have done that a lot sooner and retired earlier. I think we have an improved lifestyle now with a much lower run rate.

I still keep track of expenses pretty close to stay under the ACA income limits.
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Old 04-08-2018, 02:11 PM   #73
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I haven't run FIRECalc in some years now but did use that feature. I wonder if the people reporting high success percentages use it.

VPW uses a table format for reporting as well as charts. It's a pity FIRECalc never gets the update attention it needs. There was an effort started to update it some years back but that seems to have died.
I don’t think so, because in that case failure is reported as going below that value, I think.
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Old 04-08-2018, 02:13 PM   #74
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And yes, I do that every few days. Waaaaay overkill. Perhaps I'll relax about it in a few years.

As to your second question @audreyh1, I have a cash buffer that I intend to keep between 2 months and 5 months of expenses. Every quarter few days I look at it and make sure there's enough to get me through the next quarter. If there isn't, I would refill it from investments.
Well, I suspect your constant checking may be related to having little buffer for short term needs.
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Old 04-08-2018, 02:21 PM   #75
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We've had several interesting discussions on this and there are articles by the pundits available via Google and most seem to say that the opportunity cost of carrying large amounts of cash is more detrimental than the risk of some amount of unfortuitous SOR risk.
More detrimental how? That you might not have a bigger pile at the end? I never get this point as my goal is not to die with the most money.

You could also mention the “opportunity cost” of not being 80% stocks. People will have a larger stash at the end that way too. But most folks prefer not to live with that much volatility.

IMO you only need to make sure you have enough invested in long-term funds with a reasonable AA to meet your long term goals and income needs. What you do with the rest of your money doesn’t matter one tiny bit.
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Old 04-08-2018, 05:07 PM   #76
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Well, I suspect your constant checking may be related to having little buffer for short term needs.
It could be. My guess is that I just enjoy it. Other people wouldn't, and that's OK with me.
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Old 04-08-2018, 05:42 PM   #77
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Similarly, can one tell if we're in the midst of a secular bull market or a secular bear market or can you only tell after the fact? I think things are a moving target where one needs to constantly course correct. I guess the question is how often should one course correct.

My plan is to review, I suppose arbitrarily, on a yearly basis and make adjustments as needed (spend, asset allocation, etc) unless there is some significant reason (eg life event like a divorce, critical illness, etc) to adjust midyear.
But I'm also looking to start off with a large enough of a nest egg to provide leeway. Tactically, I want to save enough to cover what I would consider our core spend but also our extended goal of additional travel via a combo of yield and CG's. If the markets don't cooperate, I can cut my spend, but I also have the option of less expensive destinations for travel (eg SE Asia vs a cruise). But I'd also like to build up a cash buffer to supplement yield to potentially smooth out cash flow when needed.
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Old 04-08-2018, 06:53 PM   #78
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More detrimental how? That you might not have a bigger pile at the end? I never get this point as my goal is not to die with the most money.



You could also mention the “opportunity cost” of not being 80% stocks. People will have a larger stash at the end that way too. But most folks prefer not to live with that much volatility.



IMO you only need to make sure you have enough invested in long-term funds with a reasonable AA to meet your long term goals and income needs. What you do with the rest of your money doesn’t matter one tiny bit.


Yep, yep and yep.
Here’s one thing I’ve wondered about but have never seen someone comment on. Say one takes a 4% SWR: Wouldn’t there be an advantage over the long term to taking 1%/quarter vs. 4% once/year? More would remain invested that way.
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Old 04-08-2018, 07:07 PM   #79
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Yep, yep and yep.
Here’s one thing I’ve wondered about but have never seen someone comment on. Say one takes a 4% SWR: Wouldn’t there be an advantage over the long term to taking 1%/quarter vs. 4% once/year? More would remain invested that way.
Interesting thought. Was thinking about moving over portfolio spending on a monthly basis next year. I think this concept was addressed either in Boglehead's or Big ERN blog. Not 100% sure.
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Old 04-08-2018, 08:23 PM   #80
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Yep, yep and yep.
Here’s one thing I’ve wondered about but have never seen someone comment on. Say one takes a 4% SWR: Wouldn’t there be an advantage over the long term to taking 1%/quarter vs. 4% once/year? More would remain invested that way.
Yup. That's effectively what I do and partly why I do it. Although the effect is probably small it might add up to something over a number of years. See the last paragraph in post #66 in this thread where I allude to it.
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