The 4% article that started it all?

[Jarhead*]

John Galt:
Thanks for not sharing

 

[John Galt]

You're welcome.

John Galt

 

[trumpeting_angel]

The Mother Earth News

Well, I see I've arrived too late in the thread for this, but I'll confess: I am a published author in The Mother Earth News. (recipes)

I went to a progressive college in rural Vermont during the back-to-the-land movement of the early 70's. We were frugal by necessity, though, graduating during a severe recession and wanting to stay in rural Vermont. Good thing we were into the back-to-nature thing because I bought a freezer for $15 and froze a whole lot of stuff from the garden, became an expert at cooking with beans (thus, a recipe article was born), and chopped a lot of wood.

I couldn't take the worrying, though, about whether or not we could manage the mortgage (get this - $150.00!!!) and, especially, the heating bill each month. Ended up moving to higher-paying jobs.

Good practice, though, for keeping the expenses down and not wasting money. When there's none to waste, it starts to come naturally!

Anne
Flying to San Francisco in the morning!

 

[cute fuzzy bunny]

The bedroom is another story, but I am saving that stuff
for my memoirs

Good, your wife was wondering what you're saving it for. I'll pass that along

Hey Anne, wave as you fly overhead. In fact I think you're going to fly over or by at least a half dozen of us!

We'll expect a full trip report when you get back, along with a timely expense report.

 

[FRED ORMONDROYD]

RE: YOUR MONEY OR YOUR LIFE, ect. A combination of I bonds, TIPS and Canadian inflation-indexed bonds gives a SWR of 5% over 30 years with little investment expense to speak of. 5% certain or 4-4.5% maybe... Hope I'm around long enough to spend it all- guess there's always something to meditate on!

 

[cute fuzzy bunny]

That works pretty good if you dont live longer than 30 years.

What you really have there is an inflation adjusted ~2% return plus portfolio consumption.

At 42 with a healthy 70 year old father and two grandfathers that lived past 90, I think I'll stick with good asset allocation and a survivable portfolio.

If theres anything left when I buy the farm, my kid can ER on it. Or if I hang in there, he can supplement his regular retirement.

 

[Zipper]

I'm curious TH? Is your SS the same as our CPP? I left employment at 54, and at 60 I'm receiving full benefits, minus the 30% reduction for accessing before 65. (-6%/year). All Canadians receive Old Age Security at 65, in addition to CPP. At 42 I would think your U.S. Social Security would be compromised?

 

[gayl]

If by 'compromised,' you mean that someone who retires early gets less SSA in the end (as he has less employment years), then you are correct. But TH stated that he has a working wife and may be able to draw a higher benefit as her spouse.

 

[fred ormondroyd]

If I could find an asset allocation that gave a better pay-out than 5% with any degree of probability I'd take it. I
have yet to find same. I don't feel a 20% probabilty of going broke to gain an extra .25% is worth the risk myself. Equities enthusiasts like to ignore 1901-1936, 1929-1954 qnd 1966-1982. I speak of inflation-adjusted total returns of course. Anyone read IRRATIONAL EXUBERANCE all the way through?

 

[cute fuzzy bunny]

Fred - I need to put you and SillyGirl next to each other so you can talk about future returns.

My social security wont be too bad. I contributed the max for most of my working years and started work early.

If I worked for 25 more years at the same contribution level, I would see roughly $1500 a month in todays dollars at 62. Having quit at 39, that will decline to about $1000. The extra $500 a month (if it even pays out) isnt worth working another 25 years!

But i'm not counting on social security at all in my planning. If it happens, its a cherry on top.

Wife WANTS to work until she's at least in her late 60's, which is good. We're maxing her pretax retirement options, her pension plan and contributing to an aftertax Roth IRA and a taxable investment account. Because I have very little taxable income, and she's having so much taken out pre-tax, our tax profile as 'married filing jointly' is low and almost everything will be taxed @15% max. In essence, she's working just to pile up a secondary portfolio and to pay for health care through her group plan. I pay all the bills.

My plan is standalone good enough for us to make it to 90 on just my taxable portfolio. If you add in her pension and 403b plans, our combined annual 'income' when we turn 60 will be over $80k. If social security comes through, add roughly another $20k for both of us. Tapping our Roth IRA and her after tax plan would allow us another $15-20k per year on top of that. All these figures are in todays dollars.

In other words, sitting pretty

 

[Hyperborea]

If I could find an asset allocation that gave a better pay-out than 5% with any degree of probability I'd take it. I
have yet to find same. I don't feel a 20% probabilty of going broke to gain an extra .25% is worth the risk myself. Equities enthusiasts like to ignore 1901-1936, 1929-1954 qnd 1966-1982.  I speak of inflation-adjusted total returns of course. Anyone read IRRATIONAL EXUBERANCE all the way through?

Fred, I think you are missing Th's point. With the portfolio allocation that you are running you are essentially guaranteed to run out of money after 30 years. Taking 5% and inflation adjustment from a fixed income portfolio that is making 2% will leave you with ZERO dollars after 30 years. What happens when you retire at 40 and you live to be 85?

The 4% withdrawals from 50-80% stock portfolio with the remainder in fixed income will historically survive a 30 year time period and leave zero dollars only in the worst case. In most other cases you end up with a much larger portfolio at the end. You may still have zero dollars at the end of 30 years but the probability is low - that sounds a lot better than being 100% guaranteed of having zero dollars after 30 years.

Your allocation might be ok if both you and your wife are 75 or older. If you're any younger than that what do you plan to do if you're still around when you're guaranteed to have no more money?

 

[Zipper]

TH, can I trade my CPP for SS?

 

[cute fuzzy bunny]

That depends...is your system expected to actually BE there in 20 years?

I'll gladly pay you all the money SS ever pays out to me in exchange for $75,000 today.

Great, now I sound like Wimpy from the Popeye cartoon.

And yes Hyperborea, you got my point. A little problem with principal eating processes or people who invest in fixed income alone. Excluding John Galt.

 

[fred ormondroyd]

HYPERBOREA, et al Yeah, I know- there's Paul Samuelson and me on one side of this question. What I want to know is what all the folks with equities are going to do when they run dry in twenty years or so... Unlikely right? www.fpanet.org and take a look at May 2003 issue, R.L. Terry. It is painful to hear the conventional wisdom trumpeted so loudly. A 2% I bond would sustain a withdrawal of 4.4% for thirty years and those 3% ones 5.0%. I don't know of a law that mandates I spend it all within the thirty years. I don't know of many who consider inflation indexed securities fixed income in the traditional sense.

 

[unclemick]

Arbitrage. Adam Smith's invisible hand et al. Hold balanced index appropriate for  your age/ER sit. - take the SEC yield and go fishing.

All else is games with numbers and spreadsheets - perhaps providing historical insight and 'feel' for what could happen.

I do own trash from the past - timberland, LLC land dev., 5% of a patented gold claim, and good doses of  Norwegian widow utes, banks, oils, drugs, etc. with a Vanguard REIT kicker in my IRA. But the big dog centerpiece - 75% is balanced index.

 

[ormondroyd]

Sorry, didn't mean to confuse anyone with the facts. Still the withdrawal percentage Vanguard projects is way off the mark- historically or by Monte Carlo simulation if one likes , as far as their balanced fund goes. It was a sad day when I lost faith in Saint Jack.  Time to go sailing!

 

[intercst]

HYPERBOREA, et al                        Yeah,  I know- there's Paul Samuelson and me on one side of this question. What I want to know is what all the folks with equities are going to do when they run dry in twenty years or so...   Unlikely right? www.fpanet.org  and  take  a look at   May 2003 issue,  R.L.  Terry.  It is painful to hear the conventional wisdom trumpeted so loudly.  A 2% I bond would sustain a withdrawal of 4.4% for thirty years and those 3% ones 5.0%. I don't know of a law that mandates I spend it all within the thirty years. I don't know of many who consider inflation indexed securities fixed income in the traditional sense.                  

I looked at the Jahnke article in the May 2003 issue of the Journal of Financial Planning. I don't see much difference in it from the articles I read in 1980 telling me to dump equities and buy gold because Japan was going to own the world.

I agree with uncleremick. A balanced portfolio with equities and fixed income is likely to outperform the contrarians over the long term.

intercst

 

[John Galt]

I don't care (if equities outperform). The key word here
is "likely". Likely doesn't buy the groceries. If it
was "likely" with a 95% certainty, I still would own no
stocks. Don't need 'em! Don't want 'em!

John Galt

 

[cute fuzzy bunny]

Hey fred.

You werent confusing me with any facts. Probably because what I read wasnt fact, but opinion. And you're certainly entitled to yours.

But unless you have a time machine or can fortell the future, guessing at what might happen after today isnt particularly factual.

I *am* very intrigued by your facts on ibonds though. I sincerely want to buy some of these 2 and 3% ibonds. Where do I get them? The fed is currently selling 1% ibonds, and they arent available to buy on the secondary market.

Do tell!

Also, who is saint jack? Do you mean saint john?

Not to mention, are you really counting on the feds inflation calculation?

They've been telling us for several years now that inflation was under 3%.

Hmm...a good steak used to be $3.99 a lb here. Now its $7.99. Gas was $1.60, now its $2.10. Milk was $1.50 a gallon, now its $1.95. Eggs were $1.25 a gallon, now they're $1.75. A lot of change for just a couple of years.

The MSRP on the truck I bought four years ago was $28k and change. The new model is $38k and change. My old house was worth $300k eight years ago, and $400k four years ago. I sold it last year for a half million.

So I dont know what the fed is smokin', but counting on their indexes for inflation protection doesnt look like a bright idea to me...

 

[unclemick]

Pontification - I predict all the passionate poster's will have a successful ER. Only if we all end up in the same rest home in thirty years will we be able to look back and see who did - more better.

For now I'll stick with the horse I rode in on. And I'll keep an eye on Vanguard Target Retirement Income(for my old age) - 25% inflation protected securities: clearly an overweight position. Due diligence and mastering what you are comfortable with is the key - IMHO - hence I avoid real estate and individual fixed income securities - areas where others have done well.

 

[John Galt]

Hell, all I have is real estate and fixed income securities, but like you said...........

My wife works in a nursing home. She is afraid that when she is finished there they will just take her to her
room

John Galt

 

[ormondroyd]

[moderator edit]

Well, here it is five years later. Hope all you floggers of stocks and admirers of balanced funds are happy. Who could have known? To parphrase Schopenhauer: the average man prepares for what has happened in the past and the superior one tries to imagine what COULD happen. The current mess being a fine example. It is rude to gloat, but schadenfreude is seductive. Fred

 

[REWahoo]

Fred, looks like you've returned to the forum after a five year hiatus to do a little axe grinding. You're are a little too late - CFB and Hyper have moved on and no longer post here.

 

[unclemick]

Sorry, didn't mean to confuse anyone with the facts. Still the withdrawal percentage Vanguard projects is way off the mark- historically or by Monte Carlo simulation if one likes , as far as their balanced fund goes. It was a sad day when I lost faith in Saint Jack. *Time to go sailing!

Fred, looks like you've returned to the forum after a five year hiatus to do a little axe grinding. You're are a little too late - CFB and Hyper have moved on and no longer post here.

Stayed the course with Saint Jack. 16th yr of ER. Plus they split off(Bogleheads) to a forum the doesn't charge 5 bucks.

Twenty pounds heavier and a new State post Katrina - and can't be a cheap bastard anymore cause the clock ticks on and 'I have yet to see a U-Haul behind a hearse.'

All praise to Mr B - and of course to this forum.

heh heh heh - We can hand this forum atta boys cause there are plenty of ah - s*^t nay sayers nowadays.

 

[Gone4Good]

Over the past 5 years a 60/40 portfolio rebalanced annually is down a whopping 12%.

From this point in the Great Depression (judged by PE-10) stocks returned 250bp more than current treasury yields over the succeeding 10 years. Many other periods in history did much, much better. In the earlier-referenced 1901-1916 period once stocks reached current valuations they returned 10% annually over the next 10 years. And during the 1966-1982 period, by the time stocks got this cheap they returned nearly 12% annually over the next 10 years.

Meanwhile 10-yr treasuries will return 2.89%

This isn't a sprint but a marathon. I like my chances of making up lost ground from here.

And I certainly like the idea of rebalancing out of treasuries and into the higher yielding SPX.