Reminding myself: this is why we use an SWR

[walkinwood]

Reading, watching and listening to the dismal news these days, I have to keep reminding myself that THIS is why we chose to go with an SWR that has been tested and worked even during the great depression.

As long as we rebalance ANNUALLY (as in the papers that came up with the SWR) and stay 50-70% in equities, we should have a good probability of surviving 30-40 years (depending on the study and portfolio rules followed)

I'm concerned but not yet losing any sleep. I've started rebalancing slowly because I just can't get myself to re-balance in one step in this market.

 

[bongo2]

Reading, watching and listening to the dismal news these days, I have to keep reminding myself that THIS is why we chose to go with an SWR that has been tested and worked even during the great depression.

Using today's S&P 500 of ~950 the 4% WR (FIRECalc defaults) from 2000 to Oct2008 has left the ER with 40% less inflation-adjusted money than 1929 to 1937.

We're still beating 1973 though (about tied with 1966) - and plenty of time to recover by the end of the year!

 

[Canadian Grunt]

Reading, watching and listening to the dismal news these days, I have to keep reminding myself that THIS is why we chose to go with an SWR that has been tested and worked even during the great depression.

As long as we rebalance ANNUALLY (as in the papers that came up with the SWR) and stay 50-70% in equities, we should have a good probability of surviving 30-40 years (depending on the study and portfolio rules followed)

I'm concerned but not yet losing any sleep. I've started rebalancing slowly because I just can't get myself to re-balance in one step in this market.

I don't want to scare you but the statement should read tested in theory not in real world conditions.

 

[Nords]

I don't want to scare you but the statement should read tested in theory not in real world conditions.

I'm confused about the difference between the terms "history" and "real-world conditions".

 

[Canadian Grunt]

I'm confused about the difference between the terms "history" and "real-world conditions".

In "theory" was what I said Nords.

Theory uses average historical returns.

Real world conditions take into account the variances between each individual portfolio. Let's face it, everyone on this board has a different average cost for each stock, ETF, bond; and different returns for each regardless of the average historical return based on the timeline they bought and how long they were in each specific stock, ETF, bond.

Secondary to this, the average portfolio depletion of a retiree is calculated differently based on how close the individual retired to a bear market. Those who retired 5 years ago are better off than those who retired 6 months ago because the later retiree is taking a direct hit on the portfolio right after retirement, whereas the individual that retired 5 years ago rode the bull and now has a higher margin of error built into the portfolio.

When you use mathematics as opposed to words to explain the variances it is quite a difference.

 

[Nords]

That seems to be a very pessimistic, even existentialist, view of retirement planning. While there may be differences among all portfolios, I'm not sure how one would conclude that the differences are significant enough to make... well... a difference.

I think the poster's comment that "it worked during the Depression" is intended to offer comfort & support that their SWR is a good-enough plan for the current situation. It's a feel-good post whose sentiments are rooted in a financial analysis that, while admittedly imperfect, doesn't appear to have a better method. Because otherwise they might feel obligated to grow their own food and load their own shotgun shells.

Instead of nitpicking, I wish you luck in finding a better suggestion-- let alone sharing it with the board. I'm glad that you didn't allow your retirement to suffer from paralysis by analysis.

 

[Canadian Grunt]

That seems to be a very pessimistic, even existentialist, view of retirement planning. While there may be differences among all portfolios, I'm not sure how one would conclude that the differences are significant enough to make... well... a difference.

I think the poster's comment that "it worked during the Depression" is intended to offer comfort & support that their SWR is a good-enough plan for the current situation. It's a feel-good post whose sentiments are rooted in a financial analysis that, while admittedly imperfect, doesn't appear to have a better method. Because otherwise they might feel obligated to grow their own food and load their own shotgun shells.

Instead of nitpicking, I wish you luck in finding a better suggestion-- let alone sharing it with the board. I'm glad that you didn't allow your retirement to suffer from paralysis by analysis.

I am not nit picking Nords. The facts are well documented. Isn't it better to know the facts so you can plan?

I have provided solutions to this topic on other threads, which include shifting to income producing investments and lowering the withdrawal rate to reduce capital reduction if required during a bear market.

There are a ton of other options that can be employed, however, blindly allowing capital (selling of stocks) to be drawn down without thoroughly examining new positions doesn't seem logical.

As I stated before on other threads the key is capital preservation during a bear market when you are retired. I use capital preservation a bit loosely here as what I really mean is the amount of shares that can cover the recovery. Capital is always in a flux based on the share price.



I explain it better elsewhere.