Early retiree safe withdrawal done right?

[REWahoo]

Going a bit off-topic, but can you actually eat (not to mention safely catch) an alligator?

How does that work?

You need to get out from behind that spreadsheet and live a little. Google 'fried alligator'...

 

[MichaelB]

Going a bit off-topic, but can you actually eat (not to mention safely catch) an alligator?

How does that work?

You need to get out from behind that spreadsheet and live a little. Google 'fried alligator'...

+1

I've had alligator in chili, chowder, tacos, and quesadillas. Doesn't taste like chicken.

 

[NW-Bound]

And wash that down with some moonshine.

I still do not know about alligator tasting like chicken or not, but did learn that moonshine was no Cognac.

 

[nash031]

I am 36, so we're about the same age. In my investment plan, I use a 3% real return assumption, even though my AA has historically returned about 4.5-5% (based on historical return and inflation). With this return, and my savings rate, no SS factored in, and my pension, FIRECalc shows 100% spending a fixed amount from 42 until 95 (the amount comes out to about 3.5% of my starting value).

Until that changes, I'm not going to sweat market conditions too much. Talk to me again in 2019!

Of course, the T Rowe Price calculator shows me more than $5,000 per month short because they think I need $14,500 per month to maintain my standard of living. There have been two months in my life where I've approached that spending number: my wedding and my 2.5 week honeymoon to Australia/Fiji.

Long story short: make conservative assumptions. If your math is based on everything being perfect, you're not going to sleep well in retirement anyway!

 

[aim-high]

We have a joint life expectancy of 50 more years. We have 35x expenses saved up (not including any Social Security in 20 years.) That's got to be enough.

 

[martyb]

You need to get out from behind that spreadsheet and live a little. Google 'fried alligator'...

People here in Louisiana eat all kinds of things. I've eaten alligator a few times, it's ok. I wouldn't drive outta my way for it, but it's ok. Same with crawfish, although I do like it more than 'gator, and will join in with friends & family if somebody's throwing a crawfish boil, like my daughter & her husband did when she graduated college a couple of yrs ago. Don't have any plans to eat nutria. Just a big rat.

 

[photoguy]

Can you add a target of having 100% in your portfolio after 10 years (100% in real terms, not nominal)? I can't find such an option in firecalc.

I think you have to export the data as an excel file and than manually tabulate the results.

The issue is that I want to simulate a very long period (50+ years), and that means you'll be using a very limited dataset (1964 is the latest start date!). I think a better proxy is then simulate several 10 year returns and see which ones end up at least as high as your initial portfolio in real returns.

I also prefer not to use very long runs in Firecalc for the same reason.

I didn't simulate, so there is no confidence bound in a statistical sense. I simply took historical 10y real returns with a CAPE above 25 and then counted the ones the returned 4% or more (20% of them, 16 of the 79 periods). The returns vary quite a bit: from -5% p.a. up to 6% p.a. or so. It seems pretty evenly spread between that interval (didn't check in detail yet).

One problem with using rolling/overlapping periods is that it inflates the number of data points (compared to using completely separate periods). You can see that in the graph as there are "lines" in the way the points are distributed. I don't think there is a good statistical solution to this dependence and I don't believe MC methods can help here either.

And as I said, the analysis is a bit rough right now, if there is appetite I can polish and clean it up a bit and include more recent data

I think this board loves to see graphs and analysis, so I'm sure it would be welcome.

 

[Totoro]

Ok, just to clarify on the alligator issue: I do get out sometimes

Have eaten crocodile in Kenya, and the occasional deer and such. Couldn't stomach spiders & crickets though.

Was just wondering how to actually catch a wild alligator without getting injured, and whether it was legal to do so. Apparently it's not legal unless specificallly bred for it i've learned in the mean time ..

Have started to look around here in Amsterdam to see if I can get my hands on some gator meat .. it should be possible. I'm curious now

 

[REWahoo]

Was just wondering how to actually catch a wild alligator without getting injured, and whether it was legal to do so. Apparently it's not legal unless specificallly bred for it i've learned in the mean time ..

I think you are misinformed. Here in Texas all you need is a hunting license ....and some low-lying swamp land.

Here are the regs, including information on how to catch them:

Hunting Alligators in Texas: Rules, Regulations and General Information - Texas Parks and Wildlife Department

 

[MRG]

+1

I've had alligator in chili, chowder, tacos, and quesadillas. Doesn't taste like chicken.

Yes not even close to chicken. I think it has an aquatic taste, not like fish, shrimp, or uni. More like turtle.
MRG

 

[Totoro]

I think you have to export the data as an excel file and than manually tabulate the results.

I found a decent approximation in firecalc: use the "percentage of remaining portfolio" with remainder set at 100%. That'll work quite well.

One problem with using rolling/overlapping periods is that it inflates the number of data points (compared to using completely separate periods). You can see that in the graph as there are "lines" in the way the points are distributed. I don't think there is a good statistical solution to this dependence and I don't believe MC methods can help here either.

You are right, no easy solution. This is going to sound weird to some folks, but there just isn't enough data to work with. In any case, in many ways we are looking at the outcome of a process no-one really understands in a fundamental way, so it's dangerous to extrapolate to the future. Still, you have to work with some assumptions .. both in theory and practice.

I think this board loves to see graphs and analysis, so I'm sure it would be welcome.

Thanks for the encouragement! Thinking about refining the thing and launching a small web app that gives back total 10y return when starting from a given CAPE-range. Could be a nice hobby project.

What I'm trying to establish is whether somehow there is a strong relation between yield (earnings / price) and returns, just like there is in bonds. I suspect there is, but with so much variability that it becomes useless as forecasting tool. Probably since stocks have a "forever" duration.

I'm just wondering out of curiosity and because in the Intelligent Investor benjamin graham often refers to equity yield vs. bond yield as a yardstick to compare risk between asset classes.

 

[Totoro]

Thanks REWahoo, I learned something new today!

(Actually, something new which was wrong which I now have to forget and replace with something new which is right)

Pretty strict guidelines and a short hunting season it seems, guess that makes it expensive?

 

[NW-Bound]

You are right, no easy solution. This is going to sound weird to some folks, but there just isn't enough data to work with. In any case, in many ways we are looking at the outcome of a process no-one really understands in a fundamental way, so it's dangerous to extrapolate to the future. Still, you have to work with some assumptions .. both in theory and practice.

Life is a much more important random process that has no guarantee. Forever a pessimist, yet I was reminded again recently that one cannot really extrapolate the perfect health of his first 56 years of life into the future. Yes, there's a correlation between good life habits and health, but it is not 1:1.

So, why worry so much about money? It's just... money! Do the best you can, and enjoy life. I still care about money, no I love it and look at my stocks all the time, but it's my health that is the much larger and more important uncertainty.

 

[REWahoo]

Pretty strict guidelines and a short hunting season it seems, guess that makes it expensive?

Alligators were on the US list of endangered species until 1987, so that may be one of the reasons for all the restrictions.

As to expense, I have no idea as gator hunting isn't one of my hobbies. I grew up in gator country, spent a lot of time fishing and became very aware of the importance of maintaining a safe distance from the snake population. I have no interest in tangling with another water moccasin - ever.

 

[Alan]

People here in Louisiana eat all kinds of things. I've eaten alligator a few times, it's ok. I wouldn't drive outta my way for it, but it's ok. Same with crawfish, although I do like it more than 'gator, and will join in with friends & family if somebody's throwing a crawfish boil, like my daughter & her husband did when she graduated college a couple of yrs ago. Don't have any plans to eat nutria. Just a big rat.

When we lived in Louisiana a local chef had nutria on the menu for a while. Of course I had to try it and it was okay, but not as nice as alligator. Nutria may look like a big rat but their eating habits are quite different as they are vegetarian.

 

[unclemick]

Just back from a New Orleans/Mississippi visit. Along the lines of 'you can never go home again' my old area is undergoing severe gentrification - McMansions on now 20 foot pilings, bulheads, boatlifts, long runs(piers) and a new bridge over Rigolets Pass.

1979 to 2005 I only met one neighbor who regularly got an alligator license. The bulk were shrimpers and crab fishermen with a few straight commercial fishermen.

Newly transferred from Denver I was immediately trained in the art of boiling seafood - shrimp, crab, and crawfish. Tryed alligator once - wasn't thrilled and saw the PBS tv specials on Nutria and never tryed it.

heh heh heh - All my friends from before Katrina are settled outside New Orleans with no immediate plans to move back. The Burbs are booming.

 

[tuixiu]

I knew they had gator hunting, assumed it was like most other states where there are general seasonal licenses then special tags/stamps for certain other big critters. Out west you generally have to get lucky and win the draw to get a play at bear, mountain lion, bighorn sheep, etc.

 

[David1961]

I think if you retire very early and expect to live another 50+ years, you need to have either a safety cushion of assets so if your investments go down by 40% you are still in good shape. Or have a plan B of going back to work if your investments tank during your first years of retirement.

 

[Options]

Research some of the variable withdrawal schemes like Guyton and Bob Clyatt.

You're trying to fund a constant real stream of withdrawals from an uncertain return investment. You can do all the calculations you want, there is not "rule" that will enable you to claim anything approaching certainty.

+1
All this "analysis"/predictions/recency, confirmation bias (or is it?) makes my head hurt (although I'm thankful for the discussion!). AFAICT, Pfau's research is basically using valuations to say this time it's different. To his credit, he does say no one can predict the future. He, Bernstein, among others, simply advocate the safety first approach (build a floor for basic expenses using TIPS, annuitization, bond ladders, etc., then expose any leftover PF monies to risky assets such as stocks, bonds for upside).

Interestingly, PFau had lived the past few years in Japan, so I'm curious how much that country's woes influence his conservative approach. And yes, he, among others advocate using some kind of variable withdrawals (Guyton, et al), versus constant inflation adjusted withdrawals. All this has been discussed/debated before here and on the BH forum.

BTW, Pfau's acknowledges a safety first approach is expensive. I'll probably use/am using a combination of safety first and probability based planning.

 

[nun]

I've always been skeptical of SWR and the advice of financial and retirement gurus. Back in 1987 I chose TIAA-Traditional over the mutual fund option because of the guaranteed return. Since then I have invested in mutual funds, but will not be relying on them in retirement. I've always planned to fund retirement from sources that aren't
directly dependent on the performance of the S&P500 as I figured when we all had pensions or fixed annuities, we didn't have to worry about SWR or much about the CAPE.

I've arranged my ER so that I can live off rent, cash and my Stable Value fund from 52 to 59.5. After that a state pension, a TIAA-Traditional annuity and eventually UK and US social security will more than cover my expenses so that after 66 I plan to be adding to my equity investments with the goal of leaving money to my young relatives. My ER plan does not require me to spend any of my savings that are invested in mutual funds. Because I have my expenses covered by fixed income sources I can be aggressive with the rest of my money and have an 80/20 AA, the 20% bonds coming mostly from Wellesley.

 

[NW-Bound]

I just reminded myself that the OP was talking about WR for a really early retiree, perhaps in his 40s or even late 30s. So, the situation may not be of a real concern to pre-geezers like many of us here.

In my situation, my planned WR was 3.5%, which has dropped to 3.1% due to reduced spending and the rising stock market, but both of that can reverse at any time. But then, SS and Medicare will come on line later, which will help a lot, and if the market just muddles along and not crashes, I will be quite all right.

And if things go bad, really bad, I can just liquidate my homes, and drive off in my motorhome. The situation must be like near the end of the world, I think, and there will be a lot of people suffering a lot worse. So, what's there for me to worry about but my health? No money can buy that.

Still, I like to be able to keep my stash, and to die a millionaire. I love counting money, or rather let Quicken count and add it all up for me.

"Money is much more exciting than anything it buys." -- Mignon McLauglin

 

[Totoro]

Yes, my new takeaway is that once you have a reasonable horizon of 30 years or less the dynamics and math become different. This is in contrast to what many others seem to advocate (30 years = essentially the same as forever).

This is because for most the principal alone can cover almost the full period, as well as pensions, SS, inheritance etc .. being there for some support.

'Retirees' of 40 years old or less have no such buffer, and we have to rely fully on uncertain future income streams from capital.

One blessing is that we can more easily get backup income streams from working, but hey, that's not why many of us are on this forum are we

 

[nun]

This is because for most the principal alone can cover almost the full period, as well as pensions, SS, inheritance etc .. being there for some support.

'Retirees' of 40 years old or less have no such buffer, and we have to rely fully on uncertain future income streams from capital.

This board is pretty rarified. Most people don't have the principal to fund their retirement without capital appreciation and there is a common approach that spends down retirement investments to zero....I've never been comfortable with that.