Conundrum

[psmalloy]

What do you make of this question? If my portfolio amount will allow for a withdrawal rate of, say $30,000 per year and achieve 99% FIREcalc results, what happens if in, say, 5 years the portfolio increases to a level where FIREcalc says I can withdraw $50,00 per year and still achieve 99%? Can you reset the annual withdrawal amount based on better than expected returns? This would seem to fly in the face of the underlying principle. Same question holds for any calculation of withdrawal amounts - like the 4% rule.

 

[Cut-Throat]

Can you reset the annual withdrawal amount based on better than expected returns?

Yes, as long as you believe future returns will be no worse than historical returns.

If you are complete pessimist, though - you should not spend any money at all, until you are safely dead

 

[hocus]

The thread linked below might help, PSMalloy. It's long, but there's lots of good stuff in it. It is one of our best threads ever, in my view.

http://early-retirement.org/cgi-bin...e_board;action=display;num=1080235218;start=0

 

[cute fuzzy bunny]

***** likes it because it points out the flaw and the valuations argument, which he enjoys trolling through.

The bottom line is the calculator has no idea WHEN you actually retire, just what you tell it, and will produce a faithfully accurate result for what you feed it, based on historical data.

It is however, just a tool that has the same limitations of any other tool...it cant forsee the future, it can only explore results and information that are included in its coding, and it is only as good as its data, all of which is historical and some of which is implied.

The bottom line is that historically you can take 4% of your initial investment, inflation adjusted, for life and not run out of money.

Go ahead troll, run with it.

 

[Jarhead*]

The bottom line is that historically you can take 4% of your initial investment, inflation adjusted, for life and not run out of mo

TH: When I retired in 1987, a guy I worked with was worried sick about me. (What me worry?)
His parting shot to me was "remember, don't take out more than 5% of your net worth each year. That sounded pretty damn spartan at the time.
Everything I've ever read since that time, by all brands of investment advice uses 4% as a benchmark.
The first 10 years of our retirement, we (as close as I can figure) were probably spending about 6%.
Probably not good advise, but you"re only young once, and we had a good time.
In the last 4 or 5 years, we've tried to hold it to about 4% or so, and feel comfortable that we'll be alright at that figure.
If the "real old me", has a problem with the younger "me" for spending more than he should have, well there's always litigation

 

[cute fuzzy bunny]

Adds new meaning to the term "sue me", doesnt it

 

[unclemick]

Psmalloy

Trust no one. If your portfolio is not producing enough dividends and interest to live on - change the portfolio!

SWR is just a number in a spreadsheet calc.

Dividends and interest are real money.

A little tongue in cheek - but only a little.

If what you got ain't cranking out real money - you'd better be doing some hard looking and hard thinking.

Harsh words but I'm tuning myself up to hit my two file cabinets of DRIP dividend stocks to see how much I owe the IRS.

 

[BigMoneyJim]

psmalloy, welcome to the board. Funny you should mention this as we had a very long thread discussing this a while back that was recently...a couple of hours before your post, I think...mentioned again. And ***** promptly and helpfully provided the link in response to your first post here. Hope the Canadian joke doesn't offend you.

I think the consensus was that SWR theory and the 4% rule is a reality check guideline and not a religious belief. For religion I'm sure ***** can provide you with an alternate toolset to provide a "true" SWR. Mormons and Jehova's Witnesses are less persistent, though.

 

[hocus]

For religion I'm sure ***** can provide you...

You don't think Team Intercst treats the SWR question with all the intensity of a do-or-die religious dogma, BigMoneyJim?

Are you looking at the same posts I'm looking at? Intercst has a board over at his web site that he calls the HocoMania Forum that has generated more posts in a few weeks than any other board there has generated in over a year. He put one up here today showing how they are trying to get new words put in the dictionary.

You think these guys are all cool with a "live and let live" take on this?

 

[cute fuzzy bunny]

Its about the only response one can have to an energizer bunny troll like yourself. Band together and make fun of it.

Just so the folks that dont wander very far afield in the ER community are aware. ***** makes this volume of posts not just here, but on at least 3 different other web sites. He's equally despised on all three, except by a couple of guys and one webmaster he pays. At least its possible there are a couple of other guys, might just be him and three PC's.

And he tells me to get a hobby.
:

 

[hocus]

He's equally despised on all three

I don't think that anyone despises me, TH. I'll grant you the possibility that intercst really does, but I am not personally convinced of even that.

 

[cute fuzzy bunny]

Oh believe me...you're very widely despised.

If you really and truly dont think so...wow. Just wow.

 

[hocus]

I see lots of evidence going the other way, TH. Maybe you are seeing something you want to see.

 

[REWahoo]

I see lots of evidence going the other way....

*****, is it true you put the river in denial?

 

[BigMoneyJim]

For religion I'm sure ***** can provide you...

You don't think Team Intercst treats the SWR question with all the intensity of a do-or-die religious dogma, BigMoneyJim?

No. I haven't figured out who's on Team Intercst. And in that 6.21% thread everyone wound up saying 4% is just a guideline anyway--we didn't come up with anyone who follows it as the studies are structured. As I understand it intercst himself is probably way under schedule due to a concentrated portfolio that shot up after retirement. intercst's an engineer by trade. I see intercst answering techincal questions about the studies, laws and tax implications. You are the one interjecting a methodology into threads on 3 or more boards and can't explain the methodology to anyone's satisfaction. The people posting to the 4% rule boards seem to largely favor diversification and passive management, but as I understand it your method requires active management and technical analysis which by the way is disputed. You are the one that likes to call your SWR method "true", and you keep reminding people of your participation and contributions to the ER community. intercst may preach some, but you're knocking on doors and evangelizing.

EDIT: By the way, I know where to go if I want to find out more about your and JWR's research. You have your place to do that. Is Team Intercst assaulting your ability to do that?

Are you looking at the same posts I'm looking at? Intercst has a board over at his web site that he calls the HocoMania Forum that has generated more posts in a few weeks than any other board there has generated in over a year.

As you've seen, I'm posting there now.

EDIT: What puzzles me is you are, too. Many of those posts are by you, and you come off as quite insane sometimes.

He put one up here today showing how they are trying to get new words put in the dictionary.

Calling Wikipedia a dictionary is a bit off base. It's a world-editable web encyclopedia where anyone can create or edit entries. Right now I could edit Hitler's entry to say "cool guy but didn't plan for retirement" or you could edit Hocomania's entry to explain your SWR research.

You think these guys are all cool with a "live and let live" take on this?

You've been pounding the same drum for 3 years. Nobody likes your SWR ideas or thinks the method is valid. You keep pressing anyway. I think you're shown way more tolerance than anyone else on these boards.

 

[hocus]

everyone wound up saying 4% is just a guideline

If 4 percent is just a guideline, then why can't we have other guidelines put forward for our consideration? Why is there such hostility evidenced anytime puts up a thread identifying the SWR for stocks as some number other than 4?

your method requires active management and technical analysis

I have not put anything forward requiring any such thing. I have reported to the board that intercst got the number wrong in the REHP study. I explained why. JWR1945 calculated the number properly and told us what the correct number is. There's lots of other stuff he has done following up from that. But it's not the other stuff causing the trouble. It's me telling the board that intercst got the number wrong that is the cause of the trouble. That's clear as clear can be.

you're knocking on doors and evangelizing.

It's A-OK by me if no one accepts what I say re SWRs. What I ask is that people stop disrupting the threads so that anyone who wants to listen and ask questions may do so. All that I ask is a minimal level of civility.

You've been pounding the same drum for 3 years.

I've never pounded a drum for 10 seconds. I put up a post reporting accurately what the historical data says re SWRs. That is what you are supposed to do on a Retire Early board, provide solid information on the subject of early retirement. Since then I have been responding to thousands of questions directed at me.

The drum is being pounded by others. If others cool down, there will be no drums to be heard. Just learning together threads participated in by those with an interest in participating on them.

Nobody likes your SWR ideas or thinks the method is valid.

If no one liked the ideas, there would be no problem. If no one liked the ideas, there would be no threat to intercst. Team Intercst could ignore my stuff and all would be groovy.

The trouble is that there has been a strong positive response at every board community at which I have brought forward the Data-Based SWR Tool. Allow the discussions and people are going to learn. Allow people to learn, and people are going to shift over time from using the REHP study to using a valid SWR methodology.

That's what I want to see happen. That's what intercst and his supporters do not want to see happen. The concern that that is what will happen if the threads are not disrupted is the source of all the friction.

 

[unclemick]

2.53% Vanguard Balanced Index - 60/40

3.06% Vanguard Target Retirement 2015 - 50/50

3.6% Vanguard Wellesley - 40/60 managed value.

Yawn!

 

[BigMoneyJim]

The drum is being pounded by others. If others cool down, there will be no drums to be heard. Just learning together threads participated in by those with an interest in participating on them.

Nobody likes your SWR ideas or thinks the method is valid.

If no one liked the ideas, there would be no problem. If no one liked the ideas, there would be no threat to intercst. Team Intercst could ignore my stuff and all would be groovy.

The trouble is that there has been a strong positive response at every board community at which I have brought forward the Data-Based SWR Tool. Allow the discussions and people are going to learn. Allow people to learn, and people are going to shift over time from using the REHP study to using a valid SWR methodology.

That's what I want to see happen. That's what intercst and his supporters do not want to see happen. The concern that that is what will happen if the threads are not disrupted is the source of all the friction.

I'm reading that over and over, and what I hear is that you want to be able to teach your vision on SWR without interruption or dissention.

All threads have interruptions and dissenting opinions. They're public forums, heloooOOOooo. You want to pontificate without interruption then make your own website.

No one is deleting your posts. Your presentations and arguments are there. If they can't stand up on their own merits it's not Dory36's job to prop them up for you. And it's not my job to stand by and watch you make grandiose statements about some magic true valid method that nobody else seems to understand and not challenge it if I feel so inclined.

The fact that I've been around this community the past 3 years and can't describe (to your satisfaction) your method is a failure on your part, no? Or did Team Intercst disrupt my understanding?

 

[retire@40]

What do you make of this question?  If my portfolio amount will allow for a withdrawal rate of, say $30,000 per year and achieve 99% FIREcalc results, what happens if in, say, 5 years the portfolio increases to a level where FIREcalc says I can withdraw $50,00 per year and still achieve 99%?  Can you reset the annual withdrawal amount based on better than expected returns?  This would seem to fly in the face of the underlying principle.  Same question holds for any calculation of withdrawal amounts - like the 4% rule.

I believe there are at least two methodologies you could use.

Method I: Start with your initial portfolio and withdraw no more than 4% adjusted for inflation forever.

Method II: Each year determine what your portfolio is and withdraw no more than 4%. In years where the portfolio goes up, your withdrawal goes up. In years where it goes down, your withdrawal goes down.

 

[intercst]

I believe there are at least two methodologies you could use.  

Method I:  Start with your initial portfolio and withdraw no more than 4% adjusted for inflation forever.  

Method II:  Each year determine what your portfolio is and withdraw no more than 4%.  In years where the portfolio goes up, your withdrawal goes up.  In years where it goes down, your withdrawal goes down.

There's also a third method called the "Pay Out Period Reset (POPR) Method.

http://www.retireearlyhomepage.com/popr.html

intercst

 

[retire@40]

There's also a third method called the "Pay Out Period Reset (POPR) Method.

http://www.retireearlyhomepage.com/popr.html

intercst

You say in that article that "Adopting this practice greatly reduces the likelihood that you'll have a large net worth at the end of the pay out period."

Isn't another way of saying that, adopting this practice greatly increases the likelihood that you'll have a negative net worth at the end of the pay out period?

If so, that may be a viable method, but also the most risky of the three methods.

 

[intercst]

You say in that article that "Adopting this practice greatly reduces the likelihood that you'll have a large net worth at the end of the pay out period."

Isn't another way of saying that, adopting this practice greatly increases the likelihood that you'll have a negative net worth at the end of the pay out period?

If so, that may be a viable method, but also the most risky of the three methods.

Only if you happen to retire at the start of a 30-year period that's worse than the Crash of 1929 and the Great Depression. As long as the future isn't worse than the past, the POPR allows you to maintain a withdrawal rate that was 100% survivable in all past periods, yet increase your withdrawals beyond the rate of inflation if your portfolio grows in value.

intercst

 

[hocus]

Only if you happen to retire at the start of a 30-year period that's worse than the Crash of 1929 and the Great Depression.

What intercst means here by the phrase "a 30-year period that's worse" is a 30-year period that provides the stock investor worse returns. In order to determine what sort of return is likely, you need to look at two factors: (1) the possible returns sequences (you might get a lucky one, an average one, or an unlucky one); and (2) the retirement starting-date valuation level--even an unlucky returns sequences won't do too much harm if you start at low enough valuations, and even a lucky sequence may not help enough to pull you through if you start at extremely high valuations.

The intercst response begs the question. What we need to know is, What are the odds that the returns experienced from investors retiring today are going to be bad enough to cause busted retirements for those following the Pay-Out Reset Method recommended in the REHP study? The historical data says that, in the event stocks perform in the future as they have in the past, the odds are high.

It is possible that those using the REHP study will not experience busted retirements. But the odds that they will go bust are high in the event that stocks perform in the future as they have in the past. That's why Bernstein says that anyone using a conventional methodology SWR study to plan a retirement beginning today would be well-advised to "FuGeddaboutIt." The REHP study identifies what might fairly be termed the High-Risk Safe Withdrawal Rate (HRSWR).

That's not the same thing as the plain old Safe Withdrawal Rate (SWR), which is what intercst thought he was calculating when he prepared the study. It's something very different indeed. It's the opposite.

 

[unclemick]

Pssst - Wellesley

Hint - I own seven of their top ten stocks. Get a copy of Ben Graham's Intelligent Investor. Make sure you understand what 'your portfolio' is producing in income(divs/interest).

Then you can SWR, slice and dice, spreadsheet, debate to your hearts content.

Remember this - once you retire - real money is real money.

You never know - heck, like electricity, this computer, spreadsheet, retirement calc thing ala SWR or whatever may catch on.

Meanwhile - I'll stick with the Norwegian widow, De Gaul, and perhaps Bogle(still a rookie but he has promise).

 

[Jarhead*]

If you are complete pessimist, though - you should not spend any money at all, until you are safely dead

Cutthroat: I think I'd rather spend it all to the point of becoming a burden to my children, and giving them an important "character building" lesson