New SWR paper by Guyton & Klinger

[LOL!]

http://www.fpanet.org/journal/articles/2006_Issues/jfp0306-art6.cfm

is the latest SWR study by these guys.  Initial SWR is 5% with some new rules and 7% if some "guardrail" rules are applied as well.

Have fun reading it before the popular press gets a hold of it. 

And start living it up with your new allowed increase in withdrawal rate.

 

[yakers]

Oh, oh,

The fellow who thinks the SWR needs to be south of 4% willn't like that.

 

[cute fuzzy bunny]

Maybe if we put them in the same room together, they'll bonds like matter and antimatter and destroy each other on contact.

 

[unclemick]

Hmmm

The paper is interesting - but not helpful - at least for me

At 85% or so trad IRA at age 62, sitting less than 8 yrs from mandatory RMD rules, I'm struggling to come up with 'DA PLAN'. I don't see a way around reducing equity as I age to damp SD as I march toward IRS allowable demise at 84.6. The exact opposite of the paper - showing the long term power of equities.

Dinking around with mini Roth conversions and putting excess into dividend stocks - just in case I don't croak when the IRS says I should.

Still - I guess one could say - the paper reaffirms my prejudices on equities and diversification - and using a little common sense on withdrawals.

Sigh!

 

[Nords]

I don't see a way around reducing equity as I age to damp SD as I march toward IRS allowable demise at 84.6. The exact opposite of the paper - showing the long term power of equities.

UM, is there some reason you'd want to reduce SD as you age? I think SD is the price we pay for beating inflation, and it's only a bad SD if you don't use common sense on withdrawals in bear markets.

 

[unclemick]

Nords - I'm willing to recieve enlightenment.

If I give up my love affair with lifecycle type funds - I suppose I could split into 'buckets' to help manage withdrawals - but 6.25% at 70 and 10.52% at age 80 RMD puts me off.

But I haven't really sat down and played with a mixture of possible funds.

TSM, TBM and Total International ?

I don't think a slice and dicer would encounter my heartburn toward keeping it simple.

heh heh heh - yep - it could be done - but could I pull it off and gain an advantage over a lifecycle fund enough to make it worthwhile.

Hmmmm?

 

[Nords]

I don't think a slice and dicer would encounter my heartburn toward keeping it simple.

Agreed-- I think I'm much less likely to be as active an investor in my '80s, but only if I can stay active in surfing.

But then I think of my father and my wife's grandfather. Dad, a widower in his early 70s, is still scouring the Internet for bargains and he doesn't hesitate to put a few percentage points of his portfolio toward an individual stock. However he also hedges that by paying the premium for a John Hancock LTC insurance policy.

Spouse's grandfather used to spend his 80s & 90s hanging out in the office of the local brokerage. It was their equivalent of the senior activity center-- socializing with the other seniors and the free coffee. The brokerage encouraged their daily gatherings for the commissions they generated (far in excess of the cost of the coffee & doughnuts) and the oldster's spouses probably "encouraged" them to go there too. His/spouse's expenses were less than his SS check and they had a sizable portfolio of E & EE bonds so he didn't worry about running a portfolio in the lower five figures. He was making about 15%/year in the '80s & '90s before he gave it up.

 

[Gone4Good]

Good article. I'd like to see the conclusions using a 60 year withdrawal period, though.

 

[Martha]

Spouse's grandfather used to spend his 80s & 90s hanging out in the office of the local brokerage. It was their equivalent of the senior activity center-- socializing with the other seniors and the free coffee. The brokerage encouraged their daily gatherings for the commissions they generated (far in excess of the cost of the coffee & doughnuts) and the oldster's spouses probably "encouraged" them to go there too. His/spouse's expenses were less than his SS check and they had a sizable portfolio of E & EE bonds so he didn't worry about running a portfolio in the lower five figures. He was making about 15%/year in the '80s & '90s before he gave it up.

We used to have a brokerage firm on the ground floor of our office building. Back when I first worked at the firm I would see all the old men hanging out having coffee and rolls, talking stocks, sometimes snoozing in their chairs.

A social loss.

 

[Jarhead*]

We used to have a brokerage firm on the ground floor of our office building.  Back when I first worked at the firm I would see all the old men hanging out having coffee and rolls, talking stocks, sometimes snoozing in their chairs. 

A social loss. 

I prefer playing golf and fly-fishing.

 

[cute fuzzy bunny]

Ever catch your hook on a desk or whack a ball through one of the brokerages windows?

 

[LOL!]

We used to have a brokerage firm on the ground floor of our office building.  Back when I first worked at the firm I would see all the old men hanging out having coffee and rolls, talking stocks, sometimes snoozing in their chairs. 

A social loss. 

Now they sit at home in their boxers and T-shirts with a laptop and hang out on message boards.

Oh, they still have coffee and rolls; and they still snooze.

 

[cute fuzzy bunny]

Hey I'm wearing pants. No boxers though.

 

[Cut-Throat]

I had figured a similar approach a couple years ago. I called it my flexible withdrawal plan.

My formula is: (( Bare Bones annual spending * 2) - Annual Pension Amt) * 25 = NEST EGG

Bare Bones is really Bare - (No cleaning lady, No travel, No hobby spending, No Eating out etc. etc.)

Annual Pension Amt includes Social Security, Company Pensions etc.

During the periods of a Market Decline, the following year you could cut your withdrawals almost in half. Which probably would not be too hard. Spending money after losing a bunch in the market (albiet on paper) is not near as much fun as spending after an up year.

You can't time the Market, but you can time your Spending!

I have asked Dory to build a spending reduction percentage in FireCalc after down market years, but Dory is way too busy now that he is retired!

I think this would be an Eye opening exercise. I think decreasing your withdawal rate by 25% would give pretty incredible results in FireCalc. Showing that we have more control of our portfolios than we believe!

 

[Nords]

This is attracting some attention over at the Vanguard Diehards board too. Here's Larry Swedroe's verbatim comment; he must have a really good copy editor for his books:

"7. try this
larry swedroe| 03-03-06 | 07:12 PM
those who have options, like can cut spending or sell other assets to live off of (e.g.second home) or continue working, etc. can take the risk of a higher withdrawal. Those that do not should not because, as in this example, if inflation rises and you cannot cut back on real expenditures your screwed. And too late to do anything about it at that point.

And if you have options you must be prepared to exercise them if the risks in fact do show up"

 

[cute fuzzy bunny]

Jeez louise, my crappy grammar is better than that.