Markedward
Confused about dryer sheets
- Joined
- Jun 14, 2006
- Messages
- 5
I have discovered this web-site very recently and have been favorably impressed both with FireCalc and with some of the people who post here. As a quick intro - I am a 48 y/o Wall Street professional (23 years in the business) and I am seriously considering pulling the cord on the career, hence the interest that led to this site.
One initial point, I have read may posts regarding SWR's etc, and it seems that the 4% number has become somewhat of a Holy Grail, as in , you can't go wrong if you adhere to the 4 % WR. I would point out a few issues with this thinking:
1) This 4% number is based on historical analysis, and much of the data is not independent. In my case for example, I must plan for 45+ years in retirement, the data from 1871 dont really give me (2007-46-1871 = 90) 90 separate points from which to infer that I should be able to sustain a 4% withdrawal rate. This data obviously contains a very significant amount of overlapping information, for example, the 1871-1917 period has almost all of the same data as the 1872-1918 period. Really, there are only about 2 independent samples from which to draw data regarding historical performance, no statistician would want to draw firm conclusions from such a set of data, and I will not base my retirement decisions on any such analysis.
2) This historical data was compiled over a period of time when it is highly likely that stocks were inefficiently cheap (glad to discuss this in a separate topic if you would like). Cheap stocks lead to high returns. If I don't think that stocks are as cheap now as they were in the past, then I should not expect to earn the same kind of returns going forward.
3) Given that I am dubious as to future returns being equal to the past, I prefer to use a Monte Carlo approach, which FireCalc provides in a nice and easy to use fashion.
In my own case, using my rather lousy DB pension, SS at 80% (at 80% the SS system IS solvent for the foreseeable future), decent amount in 401K, I come up with something like a 3% SWR being one that I am more comfortable to live with. In my case, using my return assumptions and a 4% WR led to a 30% likelihood that my plan would fail. Given that I really, really don't want to have to go back tp work in 25 years if my plan should fail, I will only tolerate something like a 3% chance of failure via a Monte Carlo. In my case, I am using a 5.9% return with a 8.75% standard deviation in that return for the MC inputs.
So, be careful with that 4% assumption....In my MC testing , I would say that if you only need 30 years worth of coverage, 4% may be ok, depending on your other details, but if you are like me and want to plan for more like 45 or so, use that Monte Carlo tool with your own personal circumstances and see what you get.
One initial point, I have read may posts regarding SWR's etc, and it seems that the 4% number has become somewhat of a Holy Grail, as in , you can't go wrong if you adhere to the 4 % WR. I would point out a few issues with this thinking:
1) This 4% number is based on historical analysis, and much of the data is not independent. In my case for example, I must plan for 45+ years in retirement, the data from 1871 dont really give me (2007-46-1871 = 90) 90 separate points from which to infer that I should be able to sustain a 4% withdrawal rate. This data obviously contains a very significant amount of overlapping information, for example, the 1871-1917 period has almost all of the same data as the 1872-1918 period. Really, there are only about 2 independent samples from which to draw data regarding historical performance, no statistician would want to draw firm conclusions from such a set of data, and I will not base my retirement decisions on any such analysis.
2) This historical data was compiled over a period of time when it is highly likely that stocks were inefficiently cheap (glad to discuss this in a separate topic if you would like). Cheap stocks lead to high returns. If I don't think that stocks are as cheap now as they were in the past, then I should not expect to earn the same kind of returns going forward.
3) Given that I am dubious as to future returns being equal to the past, I prefer to use a Monte Carlo approach, which FireCalc provides in a nice and easy to use fashion.
In my own case, using my rather lousy DB pension, SS at 80% (at 80% the SS system IS solvent for the foreseeable future), decent amount in 401K, I come up with something like a 3% SWR being one that I am more comfortable to live with. In my case, using my return assumptions and a 4% WR led to a 30% likelihood that my plan would fail. Given that I really, really don't want to have to go back tp work in 25 years if my plan should fail, I will only tolerate something like a 3% chance of failure via a Monte Carlo. In my case, I am using a 5.9% return with a 8.75% standard deviation in that return for the MC inputs.
So, be careful with that 4% assumption....In my MC testing , I would say that if you only need 30 years worth of coverage, 4% may be ok, depending on your other details, but if you are like me and want to plan for more like 45 or so, use that Monte Carlo tool with your own personal circumstances and see what you get.