Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-14-2018, 05:36 PM   #61
Recycles dryer sheets
 
Join Date: Nov 2017
Posts: 275
Quote:
Originally Posted by musher View Post
I missed it if someone already made this point, but I think Grayhare's statement that they likely only have 8 yrs left to live is the most critical piece of information in the problem. When your maximum remaining lifespan gets short, prediction of the lifespan becomes more certain (in years), so one of the variables that the 4% withdrawal rate is intended to cover becomes more known.
I think at older ages the longevity uncertainty is more, not less, if measured proportionately.

Looking at an Actuarial Life Table
https://www.ssa.gov/oact/STATS/table4c6.html
For males at birth, the middle 60% last 65 to 89 years.
For males at age 65, the middle 60% last 10 to 25 years.
For males at age 90, the middle 60% last 1 to 7 years.

It's true that the differences decrease with age
89-65=24
25-10=15
7-1=6

But the ratios increase with age
89/65~1.37
25/10=2.5
7/1=7

It is that increasing ratio that makes spending needs more uncertain as you get older.
43210 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-14-2018, 05:37 PM   #62
Recycles dryer sheets
 
Join Date: Nov 2017
Posts: 275
Quote:
Originally Posted by gcgang View Post
The 4% SWR seems like a test to see if you're able to retire.

Once retired, adjust as you feel comfortable.

I agree w OP that having more assets and less years to live several years into retirement allows for higher than original spending projections.
This. Just use 4% rule to make sure you have enough assets to retire in the first place. It would be very silly to literally use this rule once retired. It was never intended to be used that way.
43210 is offline   Reply With Quote
Old 01-14-2018, 05:54 PM   #63
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 1,826
Quote:
Originally Posted by 43210 View Post
Your "innumerate lawyer" is over-simplistic, but is doing the first basic step to the calculation.

1/30~3.33% (adjust longevity as needed).

I really think that people coming up with ultra-low SWRs have forgotten about this basic first step.
Yes, I see this all the time - people advocating 2% as a SWR. 2% will last 50 years in TIPS pretty much no matter what. If 2% meets your needs or makes you feel good then go for it, but don't call it a Safe Withdrawal Rate (which in the research and literature means maximum safe withdrawal rate).
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
USGrant1962 is online now   Reply With Quote
Old 01-14-2018, 05:59 PM   #64
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,145
And recognize that if you can live on a 2% WR on a TIPS portfolio that it is likely that you worked a lot longer than you reasonably needed to.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 01-14-2018, 06:10 PM   #65
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,382
Some people might have gotten to a 2% SWR WR by working long enough to qualify for a hefty pension. It's kind of a reverse cliff. Work 29 years, you don't have enough. 30 years, your pension might cover most everything, and whatever else you had saved is more of a bonus.

It's also true that others, myself included, worked a bit longer than needed. It's not all on the assets side though, one could overestimate expenses.
RunningBum is offline   Reply With Quote
Old 01-14-2018, 07:05 PM   #66
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 1,826
Quote:
Originally Posted by RunningBum View Post
Some people might have gotten to a 2% SWR by working long enough to qualify for a hefty pension. It's kind of a reverse cliff. Work 29 years, you don't have enough. 30 years, your pension might cover most everything, and whatever else you had saved is more of a bonus.

It's also true that others, myself included, worked a bit longer than needed. It's not all on the assets side though, one could overestimate expenses.
But 2% is not their SWR, it is their WR!
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
USGrant1962 is online now   Reply With Quote
Old 01-14-2018, 07:10 PM   #67
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,382
Quote:
Originally Posted by USGrant1962 View Post
But 2% is not their SWR, it is their WR!
Yes, sorry about that!
RunningBum is offline   Reply With Quote
Old 01-14-2018, 07:14 PM   #68
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 1,826
Quote:
Originally Posted by RunningBum View Post
Yes, sorry about that!
Sorry about the . I get aggravated by imprecise language - too many years an an engineer!
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
USGrant1962 is online now   Reply With Quote
Old 01-14-2018, 07:16 PM   #69
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,382
Quote:
Originally Posted by USGrant1962 View Post
Sorry about the . I get aggravated by imprecise language - too many years an an engineer!
No, I get it, the misused "S" bothers me sometimes too, and yet I still added it. And I think you had just said something about this.
RunningBum is offline   Reply With Quote
Old 01-14-2018, 07:40 PM   #70
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,721
Quote:
Originally Posted by Independent View Post
Note that Greaney starts with a payout rate that he considers 100% safe. In his case, he can ratchet to another 100% safe payout without generating new potential failures.*

The "4% SWR" that gets thrown around here usually means a 95% success rate.
If you don't ratchet up with good early performance, you move your 95% success to 100% success.
If you do ratchet up, you give up your 100% success and go back to 95% success.

I'm not saying that one is better for everyone than the other. I'm saying that the decision to ratchet up is not "free", it involves trading away something of value.


* This assumes, of course, that there is such a thing as a 100% safe withdrawal rate.
This nicely encapsulates a disagreement I was having on another forum and now I understand why.

I agree with Greaney and plan to reset my payout periodically if my portfolio increases and as my lifespan shortens, using a WR that I consider 100% historically safe for my AA and predicted lifespan.

I think the person I was disagreeing with was mentally using a 95% safety factor, which leads one down the Russian Roulette analogy. In my case, I think that I'm playing Russian roulette but there are no bullets in the gun.

Personally I think that rate is close to 4%, which is the original studies of a 95% safe rate plus some income flexibility if needed plus some expense flexibility if needed plus SS plus some other backups.

One still does give up something, though. Even if you don't have a portfolio failure, the remaining expected portfolio value is lower in cases where one resets. This can either be viewed as the good version of "you can't take it with you" (as Greaney does), or leaving less of a legacy to one's heirs.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 01-14-2018, 10:42 PM   #71
Dryer sheet wannabe
 
Join Date: Jun 2016
Posts: 10
Quote:
I think at older ages the longevity uncertainty is more, not less, if measured proportionately.
That's true, I specified (years) in my original comment.

Longevity tables give you distributions for the population. Once we start talking about an individual, the tables can become less useful for prediction than the details of that individual's health. The older you are, the more true this becomes.

If you take Grayhare's self assessment of likely longevity at face value, it doesn't seem excessively risky to take an approach similar to what I suggested.
musher is offline   Reply With Quote
Old 01-14-2018, 10:51 PM   #72
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 23,635
Quote:
Originally Posted by REWahoo View Post
... The reset doesn't change the odds. The odds are 95% because you are using historical market returns and those returns don't change simply because you made your first withdrawal from your retirement stash. Example:

I have $1M, run FIRECalc and it says I can withdraw $40,000. If, a year later my portfolio has grown, I have $1.1M and run FIRECalc, it says I can withdraw $44,000.

How is this any different from my friend Bill who retired a year later than I did with $1.1M? FIRECalc says he can withdraw $44,000 so why should I be limited to $40,000 plus inflation?
Agree with what you said and how you viewed it. But I think one can also view it from a different angle - if you look at the 5% failures, you can say that the people who retired in those years all had a 100% failure rate. And I'm pretty sure those failures would have been near (in hindsight) market peaks. So retiring near a market peak has a higher chance of failure than retiring near a trough. Though I think it's more useful to think of this in terms of "stress" on the portfolio, rather than binary pass-fail.

That's why I like to take a conservative 100% success rate, and say that even if my future is as bad as the worst of history, my portfolio will be stressed, but survive.

Quote:
Originally Posted by pb4uski View Post
I agree with you REWahoo. Let's say that I retire at 60 with a 30 year time horizon and use a 4% WR... my risk of failure is 5%. Then 3 years later... I reset/ratchet to 4% of my then higher portfolio.... at that point my risk of failure is less than 5% because my time horizon is only 27 years... so the failure rate might be something like 4.5% or something like that, but it would be less than 5%.

I'm guessing that one could probably "prove" this with Firecalc if one cared enough to bother to do so.
You don't need to 'prove' it with FireCalc, it's self evident if you think about it. Easier to think of in terms of a 100% historical success WR (let's say that is 3.3% WR for the time frame) - if that rate passed in all scenarios in it's history, then it has to pass in... all scenarios in it's history. No matter when you start, 3.3% passed. So you can also ratchet up to 3.3% at any time, because that was also someone else's 'start time' and it worked for them. FireCalc doesn't know you from them. It's a little like the coin toss being 50%, regardless of previous tosses.


Quote:
Originally Posted by Chuckanut View Post
...

Suppose Bill retires a year later than you and due to a market downturn he 'only' has a measly $900,000. Now he can only withdraw $36,000 while you withdraw $40,000 + inflation. What happens then?
Bill could take the same amount. But FireCalc is always showing worst case in it's history, so it won't be able to 'tell' Bill that. That's what all those rising lines are. If FC reported the nominal success for everyone, all those lines would head near zero at the end date. It is conservative and gives the worst numbers.

-ERD50
ERD50 is online now   Reply With Quote
Old 01-14-2018, 10:52 PM   #73
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,145
Quote:
Originally Posted by REWahoo View Post
Isn't this true only if you do not take into account you are now using a survival target of less than the original 30 years?

^ After thinking about it, I disagree with myself. The reset doesn't change the odds. The odds are 95% because you are using historical market returns and those returns don't change simply because you made your first withdrawal from your retirement stash. Example:

I have $1M, run FIRECalc and it says I can withdraw $40,000. If, a year later my portfolio has grown, I have $1.1M and run FIRECalc, it says I can withdraw $44,000.

How is this any different from my friend Bill who retired a year later than I did with $1.1M? FIRECalc says he can withdraw $44,000 so why should I be limited to $40,000 plus inflation?
Au contraire... it does change the odds because the number of years is different but to your favor.

For example, in FIRECalc, input $40k spending, $1 million portfolio and 30 years and all rest defaults.... you get 94.9% success rate. Let's say that after 3 years despite withdrawals plus inflation, due to good market performance that the portfolio is now $1.2 million so you decide to ratchet and reset your withdrawals to $48k a year (still 4%). With a 30 year time horizon your success rate is still 94.9%... but you are 3 years older so the remaining time horizon is now only 27 years... and that change in time horizon increases your success rate to 96.7%.

Or if you want to reset to a 95% success rate but 27 years you can use the investigate tab to solve for the spending level commensurate with 95%... it is $50,824 or a 4.2% WR.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 01-14-2018, 11:04 PM   #74
Thinks s/he gets paid by the post
Huston55's Avatar
 
Join Date: Jul 2011
Location: The Bay Area
Posts: 2,643
Quote:
Originally Posted by GrayHare View Post
As I understand it, the standard 4% SWR rule allows withdrawal of 4% of asset value during the first year, then permits annual adjustments in withdrawal amount to keep pace with inflation. This limitation of withdrawal increases to inflation provides protection against future downward moves in asset values.

Is there a point at which it is reasonable to reset the original basis of the 4%? With inflation low this decade at the same time stock prices have doubled and tripled, continuing to strictly limit annual withdrawal increases to inflation makes for tiny withdrawals relative to new asset values. If I started at 4% SWR in 2010, by 2018 my withdrawal, even with inflation adjustment, has become less than 2% of the assets. It seems some reset of my SWR basis is in order (no?), especially given that presumably I have 8 fewer years of life remaining.
GrayHare-

If you reset your WD, then you’re really using a VWR (Variable) instead of a SWR (which usually infers a set WD rate). No problem doing that but, we need to call it what it is. If that’s your preference, that also means you should be studying VWR methods to see which works best for you. There are many to choose from but, the two which are discussed most around here (and BH it seems) are: VPW & Guyton-Klinger (see Mr. Nut’s link @ post #31). My personal preference is G-K, which is what we use.

Looking forward to reading which method you choose & your rationale for the choice.
__________________
You may be whatever you resolve to be.
100% x 10% > 10% x 100%
Small pensions & SS cover essentials
Huston55 is offline   Reply With Quote
Old 01-15-2018, 08:41 AM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,382
I guess we are in basic disagreement about the success rates after a strong bull market. I make a case for a possible bear market to follow, so reduced success rates. Some simply ignore that possibility and assume the odds are the same no matter when you start, because, you know, Firecalc. I'm willing to learn new things, but it's hard to learn when your point isn't being acknowledged. I'll take the hint and bow out. I have my plan that I'll stick with. I've seen nothing here to convince me to change anything.


btw, that 30 years starting point, then 3 years later means 27 left, doesn't really work out. If you make it 29 years, does that mean you will die the next year and that's all you should plan for?
RunningBum is offline   Reply With Quote
Old 01-15-2018, 09:40 AM   #76
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 4,628
Quote:
Originally Posted by dallas27 View Post
I disagree with this bit, you are not resetting to 95% chance, you are resetting to something less than 95%.


Why? because you are resetting in a only a certain direction, upward, which is not leaving you with random behavior. If you reset infinitely with this method, you will be guaranteed to reach the failing 5% level over time.

This is somewhat like drawing an ace from a deck of cards. 4 in 52. If you don’t put the card back in the deck, your chances have changed and you have changed them.
I'm trying to say that people shouldn't think that ratcheting up is a freebe. You give up something for the extra income, and that is the additional safety that the good returns can provide.

I think you're saying I could have made a stronger argument. I see the point.

Here's my analogy -- you lose if you draw an ace. On the first draw you get a 4. If you put the 4 back in and draw again, maybe you get a 7. If you put that back in and draw again .... eventually you'll hit an ace.

You're saying that it's more like not returning the 4 to the deck, then not returning the 7 to the deck, and .... eventually you'll hit an ace.

But, "not returning" will, on average, get the ace sooner.

Regarding 95% SWR success rate, the first rule above is like assuming the market has no memory. The odds of decreases don't change based on recent returns.

The second is more like saying that a big drop seems more likely after a positive run.

I think you are closer to history. Either way, people should recognize that they are giving up something when they ratchet up.
Independent is offline   Reply With Quote
Old 01-15-2018, 10:08 AM   #77
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 4,628
Quote:
Originally Posted by pb4uski View Post
I agree with you REWahoo. Let's say that I retire at 60 with a 30 year time horizon and use a 4% WR... my risk of failure is 5%. Then 3 years later... I reset/ratchet to 4% of my then higher portfolio.... at that point my risk of failure is less than 5% because my time horizon is only 27 years... so the failure rate might be something like 4.5% or something like that, but it would be less than 5%.

I'm guessing that one could probably "prove" this with Firecalc if one cared enough to bother to do so.
You are correct. At this point you can ratchet up and have approximately a 5% chance of failure (note that your fewer remaining years should be offset against the observation that bad drops often follow earlier increases).

But, this is a decision. Not ratcheting may give you a 99% chance of success. Since you were happy retiring with your original withdrawals, maybe you should use the good early year to provide more security.

I'm sure that if we backtested a ratchet strategy, we'd find that it results in both higher withdrawals and higher rates of failure. Somebody who retired in 1964, ratcheted up at the end of the year, ratcheted up again at the end of 1965, ran into 1966 and a dropping market. IIRC, 1964 is a success year, 1966 is a failure year. I'm guessing that would be on case where ratcheting turned success into failure.
Independent is offline   Reply With Quote
Old 01-15-2018, 10:42 AM   #78
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 23,635
Quote:
Originally Posted by Independent View Post
....

I'm sure that if we backtested a ratchet strategy, we'd find that it results in both higher withdrawals and higher rates of failure. Somebody who retired in 1964, ratcheted up at the end of the year, ratcheted up again at the end of 1965, ran into 1966 and a dropping market. IIRC, 1964 is a success year, 1966 is a failure year. I'm guessing that would be on case where ratcheting turned success into failure.
And I'm sure (but open to being shown I'm wrong), that is not the case.

Just think about it. If 64-65 was positive (it might have been flat or down, but we can assume positive for the discussion), then yes, the retiree could ratchet up using the same % success factor. And that success factor includes 1966, right? Then 1966 hits - so what? It's already included in their scenario.

I really think that by definition, ratcheting up must work, as it is the same as retiring in that year. If your portfolio is $X in a given year, it is $X in a given year, period (just restating the fact). FireCalc doesn't "know" and cannot "care" if your portfolio was a different value in the earlier years. Your portfolio may have gone up or down earlier, due to income, spending, market performance, draw down from retirement - makes no difference - $X is $X.

Am I wrong? How? I just can't see it.

edit/add: Isn't "back testing" it the same as just entering the figures normally? Testing and "back testing" seem the same to me.

-ERD50
ERD50 is online now   Reply With Quote
Old 01-15-2018, 10:59 AM   #79
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 1,826
Quote:
Originally Posted by Independent View Post
I'm sure that if we backtested a ratchet strategy, we'd find that it results in both higher withdrawals and higher rates of failure. Somebody who retired in 1964, ratcheted up at the end of the year, ratcheted up again at the end of 1965, ran into 1966 and a dropping market. IIRC, 1964 is a success year, 1966 is a failure year. I'm guessing that would be on case where ratcheting turned success into failure.
Kitces and Guyton are not suggesting ratcheting up every year. Their rules are something like "if your portfolio has increased by 50%, you can ratchet withdrawals by 10%, no more than once every three years" and that is what they have tested.

It does result in higher withdrawals (unless the market goes nowhere in your retirement) without any measurable increase in failure rates. These rules are simply harvesting some of the excess portfolio that occurs 90% of the time when following the 4% rule.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
USGrant1962 is online now   Reply With Quote
Old 01-15-2018, 11:08 AM   #80
Full time employment: Posting here.
 
Join Date: Mar 2008
Posts: 894
Quote:
Originally Posted by Independent View Post
Would VPW be more appropriate for your financial situation and preferences than a flat SWR?
+1 We consider this and it allows increases but keeps them in check, along with leveling in a down market
bizlady is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
The Great Reset Charlie_Boy FIRE and Money 3 09-12-2010 02:46 PM
Will the "great reset" cause the masses to embrace FI(RE)? Gerbil Wheel Young Dreamers 78 09-12-2010 11:55 AM

» Quick Links

 
All times are GMT -6. The time now is 06:47 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.