Guyton review of 2008-2009 wrt SWR

[LOL!]

We have discussed Guyton's safe withdrawal articles in the past. Here he reviews safe withdrawal rate stuff for 2008-2009:
Back to School: Past, Present, and Future (link should work until Nov 1st).

I'm not sure this article says anything important to folks here, but here's a quote:

...However, TIPS fell 8 percent as inflation expectations evaporated, and emerging market, corporate high yield, and convertible bonds plummeted 18 percent, 25 percent, and 31 percent, respectively.
...
Clearly, the length (in years) of a portfolio’s fixed-income cushion was highly dependent upon its holdings: a bond is not a bond is not a bond in times of severe economic distress. Moreover, there was virtually no chance to change the quality of these horses in the middle of the stream. Things happened too fast.

 

[Gone4Good]

Nice article.

In the "lesson's learned" category, I put this:

Be that as it may, it seems significant that our body of knowledge regarding safe withdrawal rates routinely assumes fixed-income holdings (and, hence, the length of the fixed-income cushion) made up almost exclusively of the types of bonds that hold up best under severe economic systemic risk. This suggests that distribution portfolios with fixed income positions that vary noticeably from those modeled in past research may not enjoy the degree of sustainability that their creators are assuming.

Pre-crisis, I had spent countless hours making sure my equity investments were as diversified as possible. It wasn't until the poo hit the fan that I noticed nearly all of my "safe" investments were in the muni bonds of one state. All of a sudden, my safe portfolio didn't look so safe. In the thick of it, I was actually more concerned about my fixed income holdings, knowing that defaults in that portfolio would never be recovered. Whereas I fully expected my equity portfolio to bounce back at some point.

 

[Onward]

Good read. Can someone point me to a description of the "guardrail" withdrawal policies that he mentions?

 

[W2R]

Good read. Can someone point me to a description of the "guardrail" withdrawal policies that he mentions?

This is one of his papers that discusses the "guardrails":

http://spwfe.fpanet.org:10005/public/Unclassified%20Records/FPA%20Journal%20March%202006%20-%20Decision%20Rules%20and%20Maximum%20Initial%20Withdrawal%20Rates.pdf

 

[walkinwood]

Guyton/Klinger paper that spoke of decision rules for SWR
http://www.bobsfinancialwebsite.com/pdfs/Decision_Rules_and_Maximum_Initial_Withdrawal_Rates.pdf

Thanks for posting the link - great reading. While he may be accused of data-mining, I think the SWR rules are a good way of taking the emotion out of varying your withdrawal rate based on portfolio & market conditions.

I use a simpler 4% of portfolio value, but also calculate the withdrawal based on Guyton's rules. In case I need to go over 4%, I plan to stay within the dynamic withdrawal rate specified by Guyton/Klinger decision rules.

I shared my spreadsheet on this forum. Please check it thoroughly before use. I haven't looked at the calculations in ages.

http://www.early-retirement.org/for...tions-using-guytons-decision-rules-29684.html

 

[Onward]

Guyton/Klinger paper that spoke of decision rules for SWR

Interesting paper. There are a few too many rules for my taste, but I could see it being useful to someone who absolutely needed to start with a 5+% withdrawal rate.

 

[walkinwood]

Interesting paper. There are a few too many rules for my taste, but I could see it being useful to someone who absolutely needed to start with a 5+% withdrawal rate.

Or, for those who are uncomfortable with the 4% SWR, these rules allow for a larger safety margin. I fall into this category.

 

[Onward]

Or, for those who are uncomfortable with the 4% SWR, these rules allow for a larger safety margin. I fall into this category.

Ah. yes.

Have you considered/rejected the Work Less Live More system? As I recall, it's simpler but has a withdrawal-rule and cap-preservation policy similar to Guyton's, with comparable swr's.

 

[walkinwood]

Ah. yes.

Have you considered/rejected the Work Less Live More system? As I recall, it's simpler but has a withdrawal-rule and cap-preservation policy similar to Guyton's, with comparable swr's.

My SWR is loosely based on the 4%/95% SWR methodology. In a discussion on this forum, ESRBob recommended against using the 95% backstop early in retirement (in my case it would have been triggered in the 2nd year!). So, we managed with 4% of a much lowered portfolio for 2009.

I keep track of what the Guyton SWR formula would recommend for SWR, but haven't used it to determine my withdrawal for the year.

 

[Dog]

Yikes...I will probably have to hire someone to step me through this phase. The article(s) couldn't hold my attention. Maybe when I get to that phase of my life?

 

[Nords]

Yikes...I will probably have to hire someone to step me through this phase.

When you're ready to research it, about 50 of the posters here will walk you through it for free...