4.5% is the updated SWR according to Bill Bengen

[alaska55]

By the way a 75/25 stock fund and short term treasury fund would have $795,000 left and that inflation adjusted.

 

[audreyh1]

I finally had some time to sit down and read both Bengen's paper and Raddr's thread on his 75/25 Portfolio. Bengen's was for 30 years and Raddr was for 40-50 years of retirement. We are talking about Bengen 1994 paper called "Determining Withdrawal Rates Using Historical Data" not Raddr portfolio Y2K.

1. Bengen looked at 50 to 75% stock and he actually said someone in middle would be best, which is @ 60%. Raddr only used 75%.
2.Bengen said Intermediate treasury fund which is 10 year treasuries. Buy 10y treasuries and sell when at the 5 year mark, rinse and repeat. Now comes the big reason why Raddr's portfolio is way down. He buys 6 month CD's and short term commercial paper for the 17 years and so far hasn't changed.
3. Runningman you take Raddr's number $491k right off his website.
Here are the inflation adjusted numbers off the Portfoliovisualizer.com website using Vanguard total stock market fund and Vanguard intermediate treasury fund. 55/45 1,181,323 60/40 1,137,996 65/35 1,088,995 and of course the 75/25 974,091. They aren't setting the world on fire but they are a far cry from your 491,000 and they only have 13 years to go. This is for a 4% withdrawal rate.

Bottom line is you can't compare apples to oranges and you need to read before you comment on something.

Intermediate treasuries would be more like 5 year, not 10. Most folks refer to 10 year treasuries as long bonds.

Here is how Morningstar sorts duration which I think is pretty standard in the industry:

Interest-Rate Sensitivity
The bond style box's horizontal axis shows a fund's interest-rate sensitivity as measured by duration (see definition below). Here's how Morningstar determines which bond funds it considers short-, intermediate-, or long-term.

Bond Type	Short	Intermediate	Long
Taxable bond funds	0-3.5 years	3.5-6 years	6+ years
Tax-exempt bond funds	0-4.5 years	4.5-7 years	7+ years

 

[alaska55]

Intermediate treasuries would be more like 5 year, not 10. Most folks refer to 10 year treasuries as long bonds.

Here is how Morningstar sorts duration which I think is pretty standard in the industry:

I guess vanguard isn't most folks, Read the Product summary.

https://personal.vanguard.com/us/funds/snapshot?FundId=0925&FundIntExt=INT

Plus https://www.thebalance.com/choosing-bond-fund-term-416948

Bottom line 6 month CD's and 6 month paper is not a intermediate bond.

 

[audreyh1]

I guess vanguard isn't most folks, Read the Product summary.

https://personal.vanguard.com/us/funds/snapshot?FundId=0925&FundIntExt=INT

Plus https://www.thebalance.com/choosing-bond-fund-term-416948

Still a big difference between 5 to 10, and 10. Most intermediate bond funds run 5 to 6 years in average duration, and I notice that for BIV average duration is 6.5 years.

Apparently Bengen uses the annual Ibbotson yearbook for his data.

The Ibbotson U.S. Intermediate-Term Government Bond Index is an unweighted index which measures the performance of five-year maturity U.S. Treasury Bonds. Each year a one-bond portfolio containing the shortest noncallable bond having a maturity of not less than five years is constructed.

from https://www.columbiathreadneedleus.com/investment-products/index-description-glossary/

is measured using a one-bond portfolio with a maturity near five years.

from https://www.invesco.com/pdf/benchmarkdef.pdf

 

[alaska55]

Still a big difference between 5 to 10, and 10. Most intermediate bond funds run 5 to 6 years in average duration, and I notice that for BIV average duration is 6.5 years.

Reread what I wrote . Yes right now in a rising interest they are shorting the duration. Biv avg eff maturity is 7.20 Yrs pretty hard to have only have 3-7 bonds with 6.5 duration and maturity of 7.20. A couple of years ago(maybe longer) they were higher than now.

 

[audreyh1]

Still a big difference between 5 to 10, and 10. Most intermediate bond funds run 5 to 6 years in average duration, and I notice that for BIV average duration is 6.5 years.

Reread what I wrote . Yes right now in a rising interest they are shorting the duration. Biv avg eff maturity is 7.20 Yrs pretty hard to have only have 3-7 bonds with 6.5 duration and maturity of 7.20. A couple of years ago(maybe longer) they were higher than now.

The question was what data was Bengen using, and from what I can see the index he was using is based on a new 5yr treasury each year.

 

[alaska55]

I didn't response to runningman to talk about bond duration and what is a intermediate bond. it was to dispute what he was saying about Bengen 1994 papers.

 

[audreyh1]

I didn't response to runningman to talk about bond duration and what is a intermediate bond. it was to dispute what he was saying about Bengen 1994 papers.

I understand, sorry. I as concerned that your model didn't seem to quite match what Bengen was doing. But now I see you were using Vanguard funds as your benchmarks, not the 10year treasury per se. So never mind - close enough.

I don't think the FIRECALC results are as positive as yours. But it's a bit tricky to tease out the exact run for 2000 as you have to do a shorter run (16 years) to get data starting at 2000. I'm getting ending portfolio (for 60% total stock market, 40% 5 year treasuries, 4% withdrawal) as $569K nominal which is $406K inflation adjusted through the end of 2015 (spreadsheet generated by FIRECALC seems to mean the end of each numbered year). It doesn't output data for 2016 yet.

For 75% total stock market I get $507K nominal and $361K inflation adjusted.

 

[alaska55]

I understand, sorry. I as concerned that your model didn't seem to quite match what Bengen was doing. But now I see you were using Vanguard funds as your benchmarks, not the 10year treasury per se. So never mind - close enough.

I don't think the FIRECALC results are as positive as yours. But it's a bit tricky to tease out the exact run for 2000 as you have to do a shorter run (16 years) to get data starting at 2000. I'm getting ending portfolio (for 60% total stock market, 40% 5 year treasuries, 4% withdrawal) as $569K nominal which is $406K inflation adjusted through the end of 2015 (spreadsheet generated by FIRECALC seems to mean the end of each numbered year). It doesn't output data for 2016 yet.

For 75% total stock market I get $507K nominal and $361K inflation adjusted.

Check out this site https://www.portfoliovisualizer.com/ you can input by actual funds or ETF's. I used VTSMX and VFITX.

 

[kgtest]

He is probably right. Almost everyone on er.org is going to kick the bucket with their children fighting over several million dollars and who gets the old couch.

TRUTH. Trying to explain to my 66yr old father he can spend 100k/yr, gift the maximum until he dies, and still leave behind multi-millions to his undeserving millionaire children is what his forecast is.

He still recycle's dryer sheet's y'all!

 

[audreyh1]

Check out this site https://www.portfoliovisualizer.com/ you can input by actual funds or ETF's. I used VTSMX and VFITX.

Yes, I can see that if I had 75% VTSMX and 25% VFITX, $40K annual income inflation adjusted, you'd be at $974K nominal and and $670K inflation adjusted through part of 2017.

If I do the numbers through 2015 which matches the FIRECALC data, you're looking at $866K nominal and $616K inflation adjusted.

Way better than the FIRECALC results. Can't explain the discrepancy as total stock market and intermediate treasury shouldn't be that far off from the FIRECALC models of total stock market and 5 year treasuries. Running_Man was using S&P500, which would have been worse, but my results through 20015 are not that far from his.

 

[alaska55]

Go back to Portfolio Visualizer and do comparison of VTSMX and VFINX diff of 548k vs 457k and look at a short term treasury vs intermediate treasury 204k for short term and 400k for intermediate term. I use used 600k for stock fund and 400k for bond with a 20k inflation adjusted withdrawal rate with annual rebalance. What kill it was having all short term treasuries. Now put 6 month paper and cds in there thats how he comes with 491k ending balance on his 75/25 portfolio. It also show why you rebalance. I got too much free time!

 

[Totoro]

He is probably right. Almost everyone on er.org is going to kick the bucket with their children fighting over several million dollars and who gets the old couch.

Joke's on them: My children don't exist. Ha!

If anyone will fight over whatever is left for me, it will be several governments trying to get estate taxes. Jurisdiction is not an easy task to solve.

 

[googily]

He is probably right. Almost everyone on er.org is going to kick the bucket with their children fighting over several million dollars and who gets the old couch.

And when you have no direct heirs, and no grand plans for gifting, the eternal SWR question takes on a sort of bizarre tenor - how do I spend as much of it as possible while still making sure I have enough? I don't care at all about "touching the principal," other than how spending too much too early will cause trouble later.

Some days I feel like I need to go ahead and RE just to stop accumulating and start spending. I/we earned it, it's our/my money, it's now my responsibility to use it.

(Though then the caution always kicks in and I feel myself saying, "but without DH or kids you want to be sure to be able to afford top-notch assisted living someday...." The mentality of the FIREer is tough to shake!)

 

[marko]

Joke's on them: My children don't exist. Ha!

Same here. But DW has nieces and nephews who'll be faced with a huge "lottery winner's syndrome" challenge.

It won't be pretty for a few of the ingrates. If any of them bothered to give me the time of day I might be able to coach them......(sigh)

 

[Gumby]

Same here. But DW has nieces and nephews who'll be faced with a huge "lottery winner's syndrome" challenge.

It won't be pretty for a few of the ingrates. If any of them bothered to give me the time of day I might be able to coach them......(sigh)

My plan is to pick the nephew I like best and give it all to him. It's academic in any event, because I'm sure the young wife will outlive me. She can give it all to Lorenzo the pool boy.

 

[Totoro]

I have two nieces (sisters, 7&10) and a nephew (2).

The two nieces in particular have a lot of 'no-kids' relatives and decently middle-class grandparents with either a decent cash reserve or solid pensions, which in practice means they'll have several houses and quite a wad of cash coming their way, regardless of what I do (or have) in the end.

 

[karen1972]

at 4.5% it has a fair chance of success about 50/50 I would think to make 30 years

Year	Start of Year	Annual withdrawal	Investable	Annual % Return	Closing Balance	Yearly Inflation
2000	1,000,000.00	(45,000.00)	955,000.00	2.86%	982,313.00	3.40%
2001	982,313.00	(46,530.00)	935,783.00	0.47%	940,181.18	2.80%
2002	940,181.18	(47,832.84)	892,348.34	-6.78%	831,847.12	1.60%
2003	831,847.12	(48,598.17)	783,248.96	23.80%	969,662.21	2.30%
2004	969,662.21	(49,715.92)	919,946.29	12.27%	1,032,823.70	2.70%
2005	1,032,823.70	(51,058.25)	981,765.44	6.89%	1,049,409.08	3.40%
2006	1,049,409.08	(52,794.23)	996,614.85	14.38%	1,139,928.06	3.20%
2007	1,139,928.06	(54,483.65)	1,085,444.41	5.12%	1,141,019.17	2.80%
2008	1,141,019.17	(56,009.19)	1,085,009.98	-20.44%	863,233.94	3.80%
2009	863,233.94	(58,137.54)	805,096.40	20.75%	972,153.90	-0.40%
2010	972,153.90	(57,904.99)	914,248.91	12.83%	1,031,547.04	1.60%
2011	1,031,547.04	(58,831.47)	972,715.57	-9.20%	883,225.74	3.20%
2012	883,225.74	(60,714.08)	822,511.66	11.10%	913,810.46	2.10%
2013	913,810.46	(61,989.07)	851,821.38	15.80%	986,409.16	1.50%
2014	986,409.16	(62,918.91)	923,490.25	6.40%	982,593.63	1.60%
2015	982,593.63	(63,925.61)	918,668.02	-0.82%	911,134.94	0.10%
2016	911,134.94	(63,989.54)	847,145.40	9.20%	925,082.78	1.30%
2017	925,082.78	(64,821.40)	860,261.38
			-7.0%

First thanks for this chart it was helpful to me. Looking at this it makes me wonder, doing FireCalc, I use the 3% inflation rule, but in theory, when the market goes through these massive drops maybe one thing that helps is that inflation was not 3%. The average of these 17 years had inflation at 2.17% vs 3% thus creating an additional buffer to the portfolio??

 

[googily]

I have two nieces (sisters, 7&10) and a nephew (2).

The two nieces in particular have a lot of 'no-kids' relatives and decently middle-class grandparents with either a decent cash reserve or solid pensions, which in practice means they'll have several houses and quite a wad of cash coming their way, regardless of what I do (or have) in the end.

I'm waiting for my nieces and nephews to get old enough to realize that being nice to and helping take care of old aunt googily might have some benefits.

 

[rayvt]

I'm waiting for my nieces and nephews to get old enough to realize that being nice to and helping take care of old aunt googily might have some benefits.

That'll never happen.

 

[Lawrence of Suburbia]

I'm rounding up to 5% when I finally retire.

 

[RobLJ]

I'm taking 3% for the next 3 years while I work online part-time (about 15 hours/week) since DW is hanging it up. Then 6.5% for 3 years until my SS (I'm assuming the portfolio value will go down), then back to 4.5% until DW hits full SS age, then 3.5-4%.
As Bergen, I think, indicates at less than 4% withdrawal rate most of us are likely to leave a big bequest to family or charity or the state, unless we hit very bad returns.
And I started in '94 with a 90-10 (not 2000, admittedly) and the portfolio did very very well, although of course I was contributing until 2 years ago, not withdrawing.

 

[teejayevans]

I’ve calculated the value of SS (how much I would need now to get SS payout), and include that as part of my retirement funds, then I take 4% of that, use it as a guideline, generally I’m 3%, one year 9%...I don’t sweat it.

 

[W2R]

I'm taking 3% for the next 3 years while I work online part-time (about 15 hours/week) since DW is hanging it up. Then 6.5% for 3 years until my SS (I'm assuming the portfolio value will go down), then back to 4.5% until DW hits full SS age, then 3.5-4%.

My withdrawal percentages have been pretty irregular too, up to almost 9%!! See below. I use the "% of 12/31 portfolio value" method, and I feel that 3.5% is reasonable for me, or maybe even 4% since I turn 70 next year. But here's what reality has been, for me:

2010: 2.6%
2011: 1.9%
2012: 2.1%
2013: 2.4%
2014: 1.7%
2015: 1.7% + 6.9% (dream home) = 8.6%
2016: 1.7%
2017: 1.6%

My SS began in 2014 so I haven't had to rely as much on my portfolio since then. In 2015 I bought my dream home which cost more than my old home, so the excess cost plus fix-up cost is where that 6.9% went.

When the next market crash descends upon us, I am SO ready.

 

[Honeyfill]

I'm rounding up to 5% when I finally retire.

I'm with Lawrence of Suburbia. 5% of investments yearly WR. I don't count home equity or social security. We are 60/58 so we can be a little extra aggressive. Our plan is to delay SS for 9 -10 years to max it out but we can always start early if the market tanks.