[Book: Living off Your Money, by M. McClung (Prime Harvesting)]

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vigilant104
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by vigilant104 »

I just finished McClung's book and reading this thread. Thanks very much to AlohaJoe, Siamond, longinvest, leif, and all the others who contributed here (so far!). I've learned a lot from your comments, and especially the detailed re-examination of McClung's approach using slightly different data. I'll be starting my retirement withdrawals this year, so I very much appreciated McClung's book and your scrubbing of it.
My comments/observations:
1) I really liked the book. As cheap as I am, I think the book was a good investment. McClung's backtesting of his methods against UK and Japan data helped give me a little more confidence on the broadness of the usefulness of his proposed techniques.
2) Need for a global portfolio: I'm not entirely convinced. If all national markets were entirely open, if all accounting principles were uniform and uniformly enforced, if governments and bloc's didn't put their thumbs on the scales to affect equity prices (and restrict their citizens to domestic investments, etc), then we'd have accurate equity prices worldwide that reflected all market knowledge about companies and the relative competitiveness of national economies. I don't think that's the world we inhabit. I'll stay about 70% US and 30% Intl (where pricing reflects market forces and accounting is trustworthy).
3) Prime Harvesting: I'll probably use it. I have been a straight "rebalancer" during my accumulating years, and satisfied with an 80s/20b allocation. But PH looks like an appropriate strategy for our situation. I'll probably start with a 50s/50b allocation (but, the bonds may be primarily ST Treasuries.) Also, IIRC, McClung assumed re-investing of all dividends (which means his "you'll never buy more stocks" claim isn't quite accurate, technically). During a prolonged downturn in the equities market, I'd be very tempted to instead use those dividends for annual withdrawals to help delay the day (depressed) equities would need to be sold. Sure, this means I'm buying fewer of those shares when they are beaten down and cheaper, but that might be a "good deal" worth foregoing if spending the dividends buys me a couple more years for the turnaround to arrive.
4) Valuations: At the risk of being called a Dirty Market Timer, I think equity valuations give us useful, if imprecise, information. McClung said he examined the use of equity valuations as a tool in setting AA, but he was convinced the data set wasn't robust enough to support it. If he'd been happy with a more US-centric equity portfolio (see above), I think he might have reached a different conclusion. This paper by Wade Pfau is illuminating. https://mpra.ub.uni-muenchen.de/35006/2 ... _35006.pdf (esp pg 20, table 3). I'd never go 100% bonds or 100% stocks based strictly on PE10 (because I can't afford to be "hard wrong" for 10 years), but I do think it makes sense to "tilt" allocations a bit when valuations are extreme (as they are now). Then be ready to wrong for a long time. McClung apparently thinks valuations are appropriate for setting the initial withdrawal rate, but not for adjusting AA during retirement. I just wonder about that, especially for US equities (where the international "issues" with regard to assessing valuation aren't a factor).
5) "Known risk" vs "Speculative Risk": McClung classifies risks that are encompassed by the US, UK, and Japan market returns as "known risks," and defines all risks beyond those data sets as "speculative risk." He doesn't spend much time on those "speculative risks," First, I think his terminology is unfortunate. Risks/variation outside the recent US, UK, and Japanese market aren't "speculative"-- it's not speculation that economies experience hyperinflation, war, violent changes in government, currency collapse, etc. Thankfully, the US hasn't experienced any of this in the last hundred years, but we are in the minority. I don't expect McClung to morph into Harry Browne or turn into a goldbug, but deliberately examining various types of "out of dataset" risks that are out there and presenting ways to hedge against them would have been useful.
6) Not his fault, but obviously the information regarding inflation-protected SPIAs can't be practically implemented anymore.

Will I use book? Some of it. Using the spreadsheet isn't hard, but some of the links to external data are already dead. Will I be willing/able to do this in 30 years? Will the spreadsheet work? (Sure, as well as my 1984-era CP/M programs would run on my modern laptop). I think, for the most part, VPW is easier/simpler to implement, and that's worth a quite a bit. But I will look at Prime Harvesting a bit closer and compare it to straight rebalancing. I think it might be a good fit for our situation.

Thanks again for all the helpful analysis and comments.

Mark
2pedals
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by 2pedals »

McClung's book to taught me some very important concepts:

1) It's okay to let your asset allocation float.
2) In the withdrawal phase of life we can sell stocks after a threshold limit has been reached.
3) We don't need to re-balance into stocks in a bear market and new money doesn't need to go into stocks.

Since we retired a few years ago, I have been calculating spending amounts based on three calculations, McClung's EM withdrawal, Longinvest's VPW and Siamond's Amortized Spending Budget. So far each method has calculated a very comfortable retirement for us personally. We don't need (due to generous pension) to "optimize" something unpredictable, i.e. it's okay to be very lazy. We can let AA float, sell stocks after gains if bond funds are limited, don't buy stock anymore.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LadyGeek »

New member JF12 has a question which I've moved to a new thread. See: [WIthdrawal strategy: Living off Your Money (Prime Harvesting), Variable Percentage Withdrawal]
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siamond
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond »

vigilant104 wrote: Mon Jun 14, 2021 9:44 pm I just finished McClung's book and reading this thread. Thanks very much to AlohaJoe, Siamond, longinvest, leif, and all the others who contributed here (so far!). I've learned a lot from your comments, and especially the detailed re-examination of McClung's approach using slightly different data.
You're welcome. Thank you for the nice words and congrats for being a careful reader. And sorry for the late feedback, just noticed this thread being re-opened!
vigilant104 wrote: Mon Jun 14, 2021 9:44 pm I'll be starting my retirement withdrawals this year, so I very much appreciated McClung's book and your scrubbing of it.
My comments/observations:
1) I really liked the book. As cheap as I am, I think the book was a good investment. McClung's backtesting of his methods against UK and Japan data helped give me a little more confidence on the broadness of the usefulness of his proposed techniques.
2) Need for a global portfolio: I'm not entirely convinced. If all national markets were entirely open, if all accounting principles were uniform and uniformly enforced, if governments and bloc's didn't put their thumbs on the scales to affect equity prices (and restrict their citizens to domestic investments, etc), then we'd have accurate equity prices worldwide that reflected all market knowledge about companies and the relative competitiveness of national economies. I don't think that's the world we inhabit. I'll stay about 70% US and 30% Intl (where pricing reflects market forces and accounting is trustworthy).
Portfolio Charts now has a really great set of international returns, allowing to put yourself in the shoes of investors living in multiple developed countries. The data set is restricted to 1970+, which is clearly limitative compared to what McClung used, but still, this is now 50+ years of data and is pretty enlightening. I also updated my own study of those 50 years of data (see this blog article).

I don't think there is anything wrong with your 70/30 plan, as long as you stay the course, but I think it is really good to keep one's eyes open for rich international data. It is kind of hard to shake one's background and preconceived ideas on this topic, but hard data is the best possible cure for such biases...
vigilant104 wrote: Mon Jun 14, 2021 9:44 pm 4) Valuations: At the risk of being called a Dirty Market Timer, I think equity valuations give us useful, if imprecise, information. McClung said he examined the use of equity valuations as a tool in setting AA, but he was convinced the data set wasn't robust enough to support it. If he'd been happy with a more US-centric equity portfolio (see above), I think he might have reached a different conclusion. This paper by Wade Pfau is illuminating. https://mpra.ub.uni-muenchen.de/35006/2 ... _35006.pdf (esp pg 20, table 3). I'd never go 100% bonds or 100% stocks based strictly on PE10 (because I can't afford to be "hard wrong" for 10 years), but I do think it makes sense to "tilt" allocations a bit when valuations are extreme (as they are now). Then be ready to wrong for a long time. McClung apparently thinks valuations are appropriate for setting the initial withdrawal rate, but not for adjusting AA during retirement. I just wonder about that, especially for US equities (where the international "issues" with regard to assessing valuation aren't a factor).
Those of us who ran thorough backtests in this respect (trying to use valuation metrics to enable a form of 'tactical' asset allocations, aka TAA) usually ended up with the same conclusion, including with a US-only data set. It just would not have worked in the past (and is highly unlikely to work in the future). This is HIGHLY counter-intuitive because there can be little discussion that those metrics did give a [weak-ish] signal in the past about expected returns to come, but it is one thing to get a probabilistic signal about expected returns, it is an entirely different thing to find a way to leverage such information, essentially because you just never know when things will turn around. As to Wade Pfau's table, I didn't read in details, but I suspect he made the classic mistake of ignoring the fact that Market Timing formulas tend to enable a skew towards higher exposure to stocks on average. If he had compared his MT numbers with a fixed AA with the same average stock % and bond % as the MT method, any gain would probably disappear.

Furthermore, what really nailed it for me is the realization that a tactical AA gain, if it does exist, is very tenuous, and highly dependent on overfitting the past with one formula or another. And then you always question yourself, am I using the right formula. And you keep reading and torturing spreadsheets. And you find another formula (say with some momentum baked in). And you change your mind. This is the problem with a strategy based on flaky assumptions, it is nearly impossible to stay the course over time. This behavioral line of thinking put a hard stop on my exploration of TAA strategies... Staying the course is HARD, and it only works with simple and easy to understand/justify assumptions.
Barsoom
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Barsoom »

Is anyone still using the companion spreadsheet from this book?

I hadn't updated my copy in awhile, so I thought I would. I noticed that the search text "Market value of equities outstanding" and "Net worth (market value)" for searching the Financial Accounts of the United States - Z.1 file no longer match to anything. This is in the "Initial Withdrawal Worksheet" tab.

Going to the site for the book, I see that McClung now has a V2 of the spreadsheet. I downloaded this, but the search text is still the same.

Does anyone know what the new search text for the appropriate values from the Z.1 file should be?

Thanks,
-B
LeeMKE
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LeeMKE »

Yup. I still use it.
Nope. I don't have an answer for you.
The mightiest Oak is just a nut who stayed the course.
tman9999
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

Barsoom wrote: Thu Nov 04, 2021 12:55 pm Is anyone still using the companion spreadsheet from this book?

I hadn't updated my copy in awhile, so I thought I would. I noticed that the search text "Market value of equities outstanding" and "Net worth (market value)" for searching the Financial Accounts of the United States - Z.1 file no longer match to anything. This is in the "Initial Withdrawal Worksheet" tab.

Going to the site for the book, I see that McClung now has a V2 of the spreadsheet. I downloaded this, but the search text is still the same.

Does anyone know what the new search text for the appropriate values from the Z.1 file should be?

Thanks,
-B
I was just playing around with my sheet yesterday, getting ready to update with Q4 data.You can get both the z1 numbers right off of this graph: https://fred.stlouisfed.org/graph/?g=FMBY Set the interval for 1 year, then mouse over the far right side and you'll get popups showing Market Value of Equities Outstanding and Net Worth.

The one I did have trouble finding was the CAPE10 numbers for Developed and Emerging markets. After multiple search attempts on Star Capital I was unable to surface either of these numbers there; and couldn't locate another source for them anywhere else on the interwebs.

Given the complexity of the McClung approach for determining the withdrawal rate for the year, I'm thinking about coming up with a hybrid approach that combines the Prime Harvesting approach with something like VPW. At the end of the day, just need to come up with something that minimizes the chance you'll run out of money in the long run without leaving too much on the table - all based on unknowable future information.
LeeMKE
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LeeMKE »

This is why I have 4 methods to calculate my annual withdrawals. One or more of the methods will fail at some point, so if I have several, I can see a range for withdrawals and make my decision from that data.

I'm using:
I-ORP extended calculator
Prime Harvesting
Fidelity Retirement Planner (my legacy calculator)
RMD from IRS applied to my entire portfolio

2022 was my 4th year calculating withdrawals and so far, so good.
The mightiest Oak is just a nut who stayed the course.
tman9999
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

LeeMKE wrote: Tue Dec 28, 2021 12:24 pm This is why I have 4 methods to calculate my annual withdrawals. One or more of the methods will fail at some point, so if I have several, I can see a range for withdrawals and make my decision from that data.

I'm using:
I-ORP extended calculator
Prime Harvesting
Fidelity Retirement Planner (my legacy calculator)
RMD from IRS applied to my entire portfolio

2022 was my 4th year calculating withdrawals and so far, so good.
I don't think Prime Harvesting as described by McClung actually tells you the percentage to withdraw - it tells you from which part of your portfolio to withdraw it (generally bonds first). Did you mean EM, McClung's recommended method for calculating annual withdrawal percentage?

Re applying rate for RMDs from IRS to rest of your portfolio, interesting! I like this because it's simple. Perhaps most useful from 70 (or72)-80. Not sure, though, how well that would work as one approaches their actuarial age. Or?
LeeMKE
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LeeMKE »

Re applying rate for RMDs from IRS to rest of your portfolio, interesting! I like this because it's simple. Perhaps most useful from 70 (or72)-80. Not sure, though, how well that would work as one approaches their actuarial age. Or?
Actually, the RMD calculator does not empty the account. So, not so aggressive that I'd run out of money. But I am planning on spending everything, until/unless the portfolio takes off running when I'm ready to sit still.
The mightiest Oak is just a nut who stayed the course.
LeeMKE
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LeeMKE »

I don't think Prime Harvesting as described by McClung actually tells you the percentage to withdraw - it tells you from which part of your portfolio to withdraw it (generally bonds first). Did you mean EM, McClung's recommended method for calculating annual withdrawal percentage?
Yup. I misunderstood. I use it to calculate my annual withdrawal, not where to draw from.
The mightiest Oak is just a nut who stayed the course.
DebiT
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

I'd like to re-activate this thread with a question specific to me as a very new retiree. I'm using McClung's spreadsheet and concepts, and I really like them. They are fitting well with my purchased spreadsheet from Jim Otar, and other tools from this website.

My question concerns my initial stock values. I stopped working in mid 2020, and therefore my first full year of retirement was 2021. As we all know, stock valuations have taken a dip recently, after a hitting all time highs. At early to mid 2021, I did sell some stock to rebalance back to 40/60, my desired AA.

I started my McClung spreadsheet as of 1/1/2021, using an initial stock value of $733K. My end of year stock value for 2021 was $767K, so my target value of stock on the spreadsheet was $777K, and the 120% of target value number was $933K.

If I were to start the spreadsheet as of today, my initial stock value value would be $687K, which would make the target value $730K and the 120% number $875K

My question is, should I do that, since the rest of my retirement will be based on these numbers? Are these more recent numbers more "realistic"? Which set of numbers would provide the "safest" assumptions moving forward, using McClung's method of withdrawing from the bond portion of the portfolio. I seem to have gotten myself quite confused, and would appreciate the sharp minds here who use McClung helping me decide which way to go. Obviously, I would only do this once, not further down the road, regardless of what the market does.

I’m also curious what people who like McClung in general think about the idea that Prime Harvesting as an allocation is too dependent on strong performance from bonds, which we are unlikely to have going forward for some time to come.
Age 66, life turned upside down 3/2/19, thanking God for what I've learned from this group. AA 40/60 for now, possibly changing at age 70.
LeeMKE
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LeeMKE »

If I were to start the spreadsheet as of today, my initial stock value value would be. . .
I can only tell you what I am doing. Nothing.

My stocks are down, and I started just 2 years before you, so it might be a thought to reset everything now. However, I read and studied that book pretty throughly when I was setting up my withdrawal plan. The whole point that McClung works from is to set the boundaries so you won't be trapped in a downward spiral. That is my concern. I want to be able to spend my savings, and just can't afford to run out too soon.

You don't need to restart IMHO. If the market downturn lasts a few years, the worksheets will trigger you to adjust stocks and/or tamp down withdrawals. This is a downturn, but it ain't 2008. We are all a little gun-shy from living through that disaster. And many younger folks are too ebullient about the rising market they've enjoyed for the last decade -- which was bound to change. I am just staying the course.

I well remember being where you are. I fretted and worried over the process and was plenty nervous the first year. But I was amazed that I settled down and have been able to shift my focus to other things in retirement, and just follow the plan.
The mightiest Oak is just a nut who stayed the course.
tman9999
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

But I was amazed that I settled down and have been able to shift my focus to other things in retirement, and just follow the plan.
Great input, Lemke. And thanks for jumpstarting this thread again, DebiT. I'm in a similar boat to you - starting into full decum 10 days from now, and wondering how to handle this initial part year. I figured with all the volatility of late, I'm just going to pull out what I think I'll need to get me through the year, and then start McClunging (is that a word?) from scratch on 1/1/2023. Hopefully the volatility will have settled down by then, and in any case, I'll have a very clean starting portfolio balance because there won't be any paychecks, bonuses, etc coming in by then.

Two questions loom:
1. When those of you who are following the McClung approach do your withdrawals, do you do it all at once for the year, as he advocates, or do you do it more frequently in smaller amounts spread across the year?

2. Have you found an easy way to get the indexes he requires you input into the PH spreadsheet? I haven't looked for them since January, but I recall it was a bit of a pita because they weren't in quite the same place as they were the previous January (or whenever it was that I looked before then).

Thanks for any input.
LeeMKE
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LeeMKE »

Two questions loom:
1. When those of you who are following the McClung approach do your withdrawals, do you do it all at once for the year, as he advocates, or do you do it more frequently in smaller amounts spread across the year?

2. Have you found an easy way to get the indexes he requires you input into the PH spreadsheet? I haven't looked for them since January, but I recall it was a bit of a pita because they weren't in quite the same place as they were the previous January (or whenever it was that I looked before then).
1. I originally set my draws up for quarterly. That turned out to be too frequent, so I changed to twice a year. That works best for me, especially because I travel and my expenses are not even each month. A single draw each year was too much cash at one time for me.

2. I add new links when I find the indexes in a different location. I just copy them into a cell in the worksheet where I'll find them the next time I need them.
The mightiest Oak is just a nut who stayed the course.
tman9999
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

LeeMKE wrote: Wed Apr 27, 2022 3:45 pm
1. I originally set my draws up for quarterly. That turned out to be too frequent, so I changed to twice a year. That works best for me, especially because I travel and my expenses are not even each month. A single draw each year was too much cash at one time for me.

2. I add new links when I find the indexes in a different location. I just copy them into a cell in the worksheet where I'll find them the next time I need them.
Great - thanks! I was thinking quarterly might be good for us. Interesting to hear you say you felt that was too frequent. Good to know. Re item 2, I have done same - was hoping there was a more consistent source somewhere else out there on the web. Oh well...
tman9999
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

Where is everybody getting CAPE ratios from? Best I've found is a dataset showing individual countries. Haven't found anything aggregated for Developed Markets and Emerging Markets.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by dcabler »

tman9999 wrote: Wed Apr 27, 2022 5:28 pm Where is everybody getting CAPE ratios from? Best I've found is a dataset showing individual countries. Haven't found anything aggregated for Developed Markets and Emerging Markets.
Research Affiliates website has both their own model for expected returns and CAPE. CAPE is under "Asset Allocation Interactive", then Charts.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe »

DebiT wrote: Wed Apr 27, 2022 1:20 pm My question is, should I do that, since the rest of my retirement will be based on these numbers? Are these more recent numbers more "realistic"? [...] Obviously, I would only do this once, not further down the road, regardless of what the market does.
It isn't obvious to me at all why you'd only do it once. Either you think resetting is a valid thing or you don't. I can't really see why there would be a case for "do it exactly once and never again regardless of what the market does". Right now you haven't really put forward much reasoning for why you -- or anyone else -- would do this. So it is pretty hard to say it is a good idea. Are you saying everyone should reset if the market drops 7% below where you started at retirement ($733k -> $687k)? Or am I misunderstanding?
I’m also curious what people who like McClung in general think about the idea that Prime Harvesting as an allocation is too dependent on strong performance from bonds, which we are unlikely to have going forward for some time to come.
Why would it be dependent on strong performance from bonds?
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

AlohaJoe wrote: Thu Apr 28, 2022 1:16 am
DebiT wrote: Wed Apr 27, 2022 1:20 pm My question is, should I do that, since the rest of my retirement will be based on these numbers? Are these more recent numbers more "realistic"? [...] Obviously, I would only do this once, not further down the road, regardless of what the market does.
It isn't obvious to me at all why you'd only do it once. Either you think resetting is a valid thing or you don't. I can't really see why there would be a case for "do it exactly once and never again regardless of what the market does". Right now you haven't really put forward much reasoning for why you -- or anyone else -- would do this. So it is pretty hard to say it is a good idea. Are you saying everyone should reset if the market drops 7% below where you started at retirement ($733k -> $687k)? Or am I misunderstanding?
I’m also curious what people who like McClung in general think about the idea that Prime Harvesting as an allocation is too dependent on strong performance from bonds, which we are unlikely to have going forward for some time to come.
Why would it be dependent on strong performance from bonds?
I’m realizing this is a psychological / emotional adjustment question, more than anything. All during the accumulation phase, my rule was 40/60 AA, rebalance every so often. If I follow McClung’s strongly backtested advice, now in retirement it will be , “set it once, let it ride, skim off the top if it gets high”. So I guess I’m wondering if it matters that I set my retirement beginning date at a market high, as far as when I would move money from stocks to cash. I could just as easily as said I retired in March/April 2020, since I didn’t work after that. On a math/financial planning level (rather than emotional), do you think it matters?

Regarding bond performance, I’ll have to look later for specific posts up thread that seemed to say this. I know McClung backtested with very comprehensive data. This part matters more than starting date. Do I rebalance yearly, or follow McClung’s advice and let it ride? I plan to re-read that chapter and see what he concluded about how much more safety the latter provided versus the former. What do you think?
Age 66, life turned upside down 3/2/19, thanking God for what I've learned from this group. AA 40/60 for now, possibly changing at age 70.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by firebirdparts »

DebiT wrote: Wed Apr 27, 2022 1:20 pm My question is, should I do that, since the rest of my retirement will be based on these numbers?
Extreme overthinking in my opinion. Nobody knows the future. These concepts are very simple and give you some very blurry framework to take a shot in the dark that is just the tiniest bit more complex, and maybe a little better, than 60/40 rebalance yearly. Just a tiny bit.

The only thing anybody could say is that if you have more in equities there's more risk and more reward. If you are tempted to market time (which you obviously are) then try to control that and/or do it in a way where it's not going to really matter. And it sounds like that is kinda where you are. If you lower the equity targets, overall, you're only lowering them a little bit.
This time is the same
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by HootingSloth »

DebiT wrote: Thu Apr 28, 2022 11:12 am
AlohaJoe wrote: Thu Apr 28, 2022 1:16 am
DebiT wrote: Wed Apr 27, 2022 1:20 pm My question is, should I do that, since the rest of my retirement will be based on these numbers? Are these more recent numbers more "realistic"? [...] Obviously, I would only do this once, not further down the road, regardless of what the market does.
It isn't obvious to me at all why you'd only do it once. Either you think resetting is a valid thing or you don't. I can't really see why there would be a case for "do it exactly once and never again regardless of what the market does". Right now you haven't really put forward much reasoning for why you -- or anyone else -- would do this. So it is pretty hard to say it is a good idea. Are you saying everyone should reset if the market drops 7% below where you started at retirement ($733k -> $687k)? Or am I misunderstanding?
I’m also curious what people who like McClung in general think about the idea that Prime Harvesting as an allocation is too dependent on strong performance from bonds, which we are unlikely to have going forward for some time to come.
Why would it be dependent on strong performance from bonds?
I’m realizing this is a psychological / emotional adjustment question, more than anything. All during the accumulation phase, my rule was 40/60 AA, rebalance every so often. If I follow McClung’s strongly backtested advice, now in retirement it will be , “set it once, let it ride, skim off the top if it gets high”. So I guess I’m wondering if it matters that I set my retirement beginning date at a market high, as far as when I would move money from stocks to cash. I could just as easily as said I retired in March/April 2020, since I didn’t work after that. On a math/financial planning level (rather than emotional), do you think it matters?

Regarding bond performance, I’ll have to look later for specific posts up thread that seemed to say this. I know McClung backtested with very comprehensive data. This part matters more than starting date. Do I rebalance yearly, or follow McClung’s advice and let it ride? I plan to re-read that chapter and see what he concluded about how much more safety the latter provided versus the former. What do you think?
It seems your issue is that Prime Harvesting is a path dependent method for setting your AA. This is similar to lots of withdrawal methods which have this kind of funky path dependence, where the amount that an individual withdraws depends not just on the size of the portfolio, asset allocation and present circumstances but also on seemingly irrelevant facts about how they got there, such that something like a small change in retirement date can have a relatively large impact on what the method tells them to do. The constant dollar SWR method has the same path dependence issue (while other methods like VPW do not). Some people avoid path dependent methods because they are necessarily "irrational," at least to some (although not necessarily material) degree.

If you would like to use McClung's Prime Harvesting method, in the way that it was backtested, I believe the only answer is to fix any thresholds based on the amounts at the time you began withdrawing. When you actually stopped working, as opposed to started making withdrawals (and certainly future prices) are not part of the method, as it was backtested.

If you would like to use the "DebiT" method, which works similar to McClung's Prime Harvesting method, but with a one-time reset, then the backtesting is not quite valid anymore. Of course, you could backtest this alternative method. It seems very likely that you would have fairly similar results but with lower withdrawals traded off against lower chances of running into trouble because you are effectively just making your AA a bit more conservative in certain cases.

Personally, if I wanted to use Prime Harvesting, I would not use a one-time reset. If I felt compelled to use a one-time reset, I would recognize that it would be fairly likely that I would feel similarly compelled to use future resets or other "tweaks," and this would suggest to me that Prime Harvesting is not the right method for me and not one where I can be sure that I would stay the course. If I felt this compulsion, I might look to something that is simpler and not path dependent.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

Good points above. I’ll have to think about it.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by 2pedals »

DebiT,
I found the first year (2019) I used the McClung spreadsheet my withdrawal numbers were less than they are now. I kind of view the first year as something similar to what I learned in mechanical engineering control systems, you have to assume something reasonable to start with but once the system is fully operational (i.e. after the first year) you reach a point where the feedback in the system is operating the way it is designed to and then all is behaving rationally.

To answer your question I don't think it will make much difference what your decision is to get started. If your target value is a little bit less you start selling stocks a little bit earlier.

Just be very careful of any rule changes you make in the future.

P.S. have you read the ERN review:
https://earlyretirementnow.com/2017/04/ ... arvesting/
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

2pedals wrote: Fri Apr 29, 2022 6:47 pm DebiT,
I found the first year (2019) I used the McClung spreadsheet my withdrawal numbers were less than they are now. I kind of view the first year as something similar to what I learned in mechanical engineering control systems, you have to assume something reasonable to start with but once the system is fully operational (i.e. after the first year) you reach a point where the feedback in the system is operating the way it is designed to and then all is behaving rationally.

To answer your question I don't think it will make much difference what your decision is to get started. If your target value is a little bit less you start selling stocks a little bit earlier.

Just be very careful of any rule changes you make in the future.

P.S. have you read the ERN review:
https://earlyretirementnow.com/2017/04/ ... arvesting/
Yes, I did. That’s the one that said PH worked well when bonds did well. However, what I’m finding is that various tools are giving me the same range of numbers, and they are luckily all at least a bit higher than what I would likely spend. Some of the tools ask for assumptions re stock / bond performance, and I kept those numbers very low, with still ok results. What I have realized is that in 5 years, once my own SS starts, my expenses really drop, so as long as I don’t lose a lot of money between now and then, I’ll be fine. Assuming literally 0 growth in my portfolio until then, I should be in good shape .
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

AlohaJoe wrote: Thu Apr 28, 2022 1:16 am
DebiT wrote: Wed Apr 27, 2022 1:20 pm My question is, should I do that, since the rest of my retirement will be based on these numbers? Are these more recent numbers more "realistic"? [...] Obviously, I would only do this once, not further down the road, regardless of what the market does.
It isn't obvious to me at all why you'd only do it once. Either you think resetting is a valid thing or you don't. I can't really see why there would be a case for "do it exactly once and never again regardless of what the market does". Right now you haven't really put forward much reasoning for why you -- or anyone else -- would do this. So it is pretty hard to say it is a good idea. Are you saying everyone should reset if the market drops 7% below where you started at retirement ($733k -> $687k)? Or am I misunderstanding?
I’m also curious what people who like McClung in general think about the idea that Prime Harvesting as an allocation is too dependent on strong performance from bonds, which we are unlikely to have going forward for some time to come.
Why would it be dependent on strong performance from bonds?
Sorry it took so long to respond to this. I wanted to respond to both questions. Regarding my re-set question, I guess I'm just trying to be cautious about where I begin this model, since it is so based on the value of stocks when it begins. So it seems important to me that so early in my retirement the value of the stock portion of my portfolio has changed by quite a bit. I know this will happen throughout, but it is definitely different to be in retirement and deciding how to stick to a model that has a changing AA, rather than (perhaps blindly) keeping that AA constant. I'm re-reading posts in this very valuable thread that point out the value of this in terms of not buying more and more stocks in a long-term falling market.

As to the strong performance from bonds questions, I found the main reference in a blog post others have mentioned. I believe upthread others commented on this post, but haven't yet found those comments. However, here it is
https://earlyretirementnow.com/2017/04/ ... arvesting/. I'd be interested in your take on this.

I'm realizing that deciding how to manage the portfolio in retirement is really a much bigger and more important decision in many ways than picking a withdrawal rate. That can be changed / reduced / increased. But this portfolio management / AA / PH or not decision is one that should be made wisely and then not continually re-set.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

McClung definitely says that his model uses re-investment of dividends. More than half of my total stock allocation is in my taxable account. As a new retiree, I am still getting my head around how to manage the many moving parts. I have about 2 years of cash in my taxable account, and after that obviously will be selling the stock funds as needed, so I have turned off dividends. But is that the right idea, if I want to use Prime Harvesting?

I do know that when I sell stock out of taxable, I’ll replace it by the same in dollar amount in my IRA by switching from bonds. If I’m not concerned about tax loss harvesting, should I just turn the dividend reinvesting back on, in both the IRA and the taxable?

Really appreciate this thread.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by HansT »

As a reminder, McClung Chapter 9 assesses current market valuations (well, at least equities) to choose the initial withdrawal rate. If the market looks toppy, the initial withdrawal rate will be lower.

I agree with the guidance that just following PH (or similar algorithms, like the ERN variant) rigorously will likely work out fine. They work better than most alternatives in virtually all markets we've ever seen.

I did some PH back testing here: viewtopic.php?p=5881259#p5881259, where we focus on one of the worst years ever (1937), and one whose conditions mirror the FI markets today: historically very highly valued. Equities were also priced very high. Read that post. Four rebalancing strategies there achieved 6% SWR (and they backtest well in other markets).

Note that the inherent bond-vs-stock rebalancing of these algorithms feels challenged today, with FI markets at very toppy levels. (The reasons: worldwide glut in savings and aging population, both of which depress FI yields. This will continue going forward.) To guide an expectation for future FI returns, see this: viewtopic.php?p=5868456#p5868456.

Frankly FI has almost no role to play in retirement accounts today; so the benefits of rebalancing will have to derive from diversification within your equity holdings.

Remember you're in this for the long haul -- plan on living for 30+ more years.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe »

DebiT wrote: Sat Apr 30, 2022 8:57 am I guess I'm just trying to be cautious about where I begin this model, since it is so based on the value of stocks when it begins.
But the work McClung did already takes this into account. After all, he backtested against years like 1929 where the fall was much steeper than anything you've seen. If you were a believer of McClung's work two years ago, nothing in recent market history should have caused you to reevaluate.
As to the strong performance from bonds questions, I found the main reference in a blog post others have mentioned. I believe upthread others commented on this post, but haven't yet found those comments. However, here it is
https://earlyretirementnow.com/2017/04/ ... arvesting/. I'd be interested in your take on this.
ERN doesn't say that Prime Harvesting is "too dependent on strong performance from bonds". What he wrote is "So the caveat here: Prime Harvesting works best if bonds do well." That's not the same thing. In fact, he never points to a single time in history when Prime Harvesting did poorly because of low bond yields. But saying Prime Harvesting works "best" if bonds do well is kind of an obvious insight. The whole point of Prime Harvesting is to spend from your bonds and let your equities grow. If bonds do well then your equities have more time to grow. So, uh, yeah of course? That works dynamic better when bonds perform well. That doesn't mean it works poorly when bond returns aren't amazing.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

HansT wrote: Sat Apr 30, 2022 10:14 am As a reminder, McClung Chapter 9 assesses current market valuations (well, at least equities) to choose the initial withdrawal rate. If the market looks toppy, the initial withdrawal rate will be lower.

I agree with the guidance that just following PH (or similar algorithms, like the ERN variant) rigorously will likely work out fine. They work better than most alternatives in virtually all markets we've ever seen.

I did some PH back testing here: viewtopic.php?p=5881259#p5881259, where we focus on one of the worst years ever (1937), and one whose conditions mirror the FI markets today: historically very highly valued. Equities were also priced very high. Read that post. Four rebalancing strategies there achieved 6% SWR (and they backtest well in other markets).

Note that the inherent bond-vs-stock rebalancing of these algorithms feels challenged today, with FI markets at very toppy levels. (The reasons: worldwide glut in savings and aging population, both of which depress FI yields. This will continue going forward.) To guide an expectation for future FI returns, see this: viewtopic.php?p=5868456#p5868456.

Frankly FI has almost no role to play in retirement accounts today; so the benefits of rebalancing will have to derive from diversification within your equity holdings.

Remember you're in this for the long haul -- plan on living for 30+ more years.
Thanks for your post, and the links. I read them, as well as others, and I'm feeling more reassured about just following McClung's PH method for maintaining my portfolio. I also realize that my stock allocation isn't going to get to crazy high levels overnight, and my portfolio is a decent size. It looks to me as if I have 17 years of residual expense (with plenty of room to cut back if needed) in FI, and 32 years in the total portfolio. That's good, because I have to plan to live to 100. My mom's going strong at 90, and I work a lot harder at it, so ...

I'm confused by your next to the last sentence, which I bolded. Do you mean one should have no fixed income, or do you simply mean it's just ballast and isn't going to help?
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

AlohaJoe wrote: Sat Apr 30, 2022 10:16 am
DebiT wrote: Sat Apr 30, 2022 8:57 am I guess I'm just trying to be cautious about where I begin this model, since it is so based on the value of stocks when it begins.
But the work McClung did already takes this into account. After all, he backtested against years like 1929 where the fall was much steeper than anything you've seen. If you were a believer of McClung's work two years ago, nothing in recent market history should have caused you to reevaluate.
As to the strong performance from bonds questions, I found the main reference in a blog post others have mentioned. I believe upthread others commented on this post, but haven't yet found those comments. However, here it is
https://earlyretirementnow.com/2017/04/ ... arvesting/. I'd be interested in your take on this.
ERN doesn't say that Prime Harvesting is "too dependent on strong performance from bonds". What he wrote is "So the caveat here: Prime Harvesting works best if bonds do well." That's not the same thing. In fact, he never points to a single time in history when Prime Harvesting did poorly because of low bond yields. But saying Prime Harvesting works "best" if bonds do well is kind of an obvious insight. The whole point of Prime Harvesting is to spend from your bonds and let your equities grow. If bonds do well then your equities have more time to grow. So, uh, yeah of course? That works dynamic better when bonds perform well. That doesn't mean it works poorly when bond returns aren't amazing.
Thank you, of course you are right, but it's good to be reminded. Sometimes I feel like I'm retiring into a perfect storm of high inflation, low bond returns, a topped out stock market, and oh yes, a plague. Seriously, though, I think I've got all the pieces in place in the sense of it looks my portfolio size is good, I know my expenses well, and where I can cut if need be, and they don't require an excessive withdrawal rate, especially after 70. I like McClung's spreadsheet as probably my primary tool of a maximum withdrawal amount (which is more than I need). So this final piece is how to maintain the portfolio, by following McClung's rule of don't buy stock, harvest in great years, and if things stay bad for a long time be ready to see to a high stock/bond AA.

Thank you again for your thought-provoking responses.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by HansT »

DebiT,

I knew I was going to get in trouble for that one. :|

A couple of points:
  • FI is priced nearly to perfection (or it was before this year’s treasuries sell-off). If you go in, longer duration might be more attractive. Still it’s hard to forecast meaningful returns from FI going forward compared to almost any kind of equity exposure. (Note that after 1937, the year that may rhyme with our market situation today, real FI returns were negative for the next decade. Yet still PH etc. worked pretty well. So FI today won’t necessarily ruin your retirement, just be mindful that over the long term rates seem to mean revert.)
  • Almost all back testing shows that during decumulation you want rising, not falling, equity exposure. In fact your rebalancing program will come close to optimal if you begin retirement liquidations simply by selling your FI holdings first, and then sell equities.
  • Corporate credit is a surprisingly poor hedge of equity exposure. In fact almost “all correlations go to 1” in a downturn except for Treasuries. So if you want true hedging, it has to be with govvies.
  • That said, diversification and rebalancing can produce meaningful long-term performance improvement. You simply want to find assets with low correlations. This can be somewhat achieved with various equity classes (value vs growth, int’l, etc.)
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

HansT wrote: Sat Apr 30, 2022 10:14 am As a reminder, McClung Chapter 9 assesses current market valuations (well, at least equities) to choose the initial withdrawal rate. If the market looks toppy, the initial withdrawal rate will be lower.

I agree with the guidance that just following PH (or similar algorithms, like the ERN variant) rigorously will likely work out fine. They work better than most alternatives in virtually all markets we've ever seen.

I did some PH back testing here: viewtopic.php?p=5881259#p5881259, where we focus on one of the worst years ever (1937), and one whose conditions mirror the FI markets today: historically very highly valued. Equities were also priced very high. Read that post. Four rebalancing strategies there achieved 6% SWR (and they backtest well in other markets).

Note that the inherent bond-vs-stock rebalancing of these algorithms feels challenged today, with FI markets at very toppy levels. (The reasons: worldwide glut in savings and aging population, both of which depress FI yields. This will continue going forward.) To guide an expectation for future FI returns, see this: viewtopic.php?p=5868456#p5868456.

Frankly FI has almost no role to play in retirement accounts today; so the benefits of rebalancing will have to derive from diversification within your equity holdings.

Remember you're in this for the long haul -- plan on living for 30+ more years.
Great input, HansT. Like DebiT, as of yesterday my wife and I are now job-free, and I'm feeling like I couldn't have picked a worse time to bail out of the security that a regular paycheck provides. Yet we're not getting any younger either, and it's time to do it.

I'm a big McClung fan, and have been working on our withdrawal plan for a year or more, so I was curious to read the post you wrote back in September that you pointed DebiT to:
I'm going to focus on 1937 for a bit:
It's the worst retirement year in history -- excepting the late 1960s. Review almost any of McClung's back testing charts and 1937 stands out as a singularly awful year surrounded by merely bad years. (The late 1960s however presented a string of awful years.)
It rhymes with today. Interest rates had been falling for a multidecade period. They bottomed a few years later. (While I think today's can still fall considerably further -- there is certainly more risk to rate falls than rises -- market bottom calls are frequent (and persistent).)
Equities were also pricey in 1937 -- 1/CAPE of 4% vs today's 3%
I prefer 1937 to the late 1960s because the latter saw rising, not falling, rates.
I bolded your last point because that certainly seems to have shifted and I'm curious whether you have any further adjustments/thoughts on PH or VPW approaches given that perhaps it is starting to look more like the 1960s for retirees now.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by HansT »

tman9999 wrote: Sat May 07, 2022 5:00 pm
HansT wrote: Sat Apr 30, 2022 10:14 am
I prefer 1937 to the late 1960s because the latter saw rising, not falling, rates.
I bolded your last point because that certainly seems to have shifted and I'm curious whether you have any further adjustments/thoughts on PH or VPW approaches given that perhaps it is starting to look more like the 1960s for retirees now.
(emphasis added)

First, I'd take issue that with the idea that rates will rise. Consensus is that they have fallen because of
  1. Global savings glut
  2. Rising wealth inequality
  3. Aging demographics
(Of the three, the last may be weaker than originally thought: boomers have started decumulation, without an obvious upward pressure on interest rates). Evidence here. The driving forces have not changed, and another year of inflation (and Fed actions) won't change the big picture. The US is still several years behind in the movie that we are repeating: developed Europe, and Japan. See what's happened there to discover our future.

Everyone freaks out a bit now that the UST has risen from 0.5% (early Covid) to ~3% recently. That's still fighting the trend; eventually supply chains (etc.) will smooth out and rates will continue their downward march, now 40 years (nominal) or 50 years (real), depending on how you measure.

Second, McClung (and Bengen) have back tested, including the 1960s, so I don't think any change is needed? Changing those well-tested rebalancing and drawdown strategies would invalidate all of the back testing that has been done on those - so maybe they would work well if we indeed exactly repeat the late 1960s, or 1937, but may underperform for other environments. Here:
HootingSloth wrote: Thu Apr 28, 2022 12:37 pm If you would like to use the "DebiT" method, which works similar to McClung's Prime Harvesting method, but with a one-time reset, then the backtesting is not quite valid anymore. Of course, you could backtest this alternative method.
(I'm too lazy to back test with McClung's rigor!)

To summarize at a high level: all of the best rebalancing strategies sell down FI holdings quickly, and there's every reason to follow that strategy now. Over the long haul equities will get you your 5% or 6% SWR, in every environment we have seen.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

Hey all - just curious how everyone is faring given the last 4-5 months of market turmoil since the last post in this thread? @DebIT, I'm particularly curious how you're doing, since from the sound of it you and I are on very similar timelines and planning horizons (my wife and I both have good genes and longevity in our families, too, and both work more at staying healthy than our parents did).

Interest rates have shot up bringing iBonds, SSA payments, and Treasury bonds with them, but corporate bonds and bond ETFs are still experiencing historic declines like nothing anyone has ever seen since bonds were introduced in the 1700s.

Big ERN just dropped another one of his incredibly detailed analysis blog posts about CAPE and how he has created his own modifications of it to use for calculating SWR. He also suggests looking at post 18 in his SWR series to find out more about using CAPE. In that post he namechecks Bogleheads in referencing the VPW approach, saying "If you’re fine with depleting your capital then that’s an appropriate thing to do."

Which led me to wonder whether I'm overthinking things by relying on McClung, prime harvesting, and EM for our withdrawal strategy, which ERN seems to think is a better way to go IF one wishes to leave money behind. OTOH, if you don't, then based on that one sentence he wrote, maybe it'd keep things a lot simpler to just pursue VPW.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

tman9999 wrote: Sat Oct 08, 2022 11:20 am Hey all - just curious how everyone is faring given the last 4-5 months of market turmoil since the last post in this thread? @DebIT, I'm particularly curious how you're doing, since from the sound of it you and I are on very similar timelines and planning horizons (my wife and I both have good genes and longevity in our families, too, and both work more at staying healthy than our parents did).

Interest rates have shot up bringing iBonds, SSA payments, and Treasury bonds with them, but corporate bonds and bond ETFs are still experiencing historic declines like nothing anyone has ever seen since bonds were introduced in the 1700s.

Big ERN just dropped another one of his incredibly detailed analysis blog posts about CAPE and how he has created his own modifications of it to use for calculating SWR. He also suggests looking at post 18 in his SWR series to find out more about using CAPE. In that post he namechecks Bogleheads in referencing the VPW approach, saying "If you’re fine with depleting your capital then that’s an appropriate thing to do."

Which led me to wonder whether I'm overthinking things by relying on McClung, prime harvesting, and EM for our withdrawal strategy, which ERN seems to think is a better way to go IF one wishes to leave money behind. OTOH, if you don't, then based on that one sentence he wrote, maybe it'd keep things a lot simpler to just pursue VPW.
I still like McClung's approach, and have come to realize it is probably a more conservative form of VPW. I especially like it this year as a "health check" since what he says I can withdraw is still a bit more than I need. I just can't go down a rabbit hole of CAPE posts right now, since I am already in a rabbit hole of should I or shouldn't I buy TIPS. That has got my head spinning.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

DebiT wrote: Sat Oct 08, 2022 12:06 pm I still like McClung's approach, and have come to realize it is probably a more conservative form of VPW. I especially like it this year as a "health check" since what he says I can withdraw is still a bit more than I need. I just can't go down a rabbit hole of CAPE posts right now, since I am already in a rabbit hole of should I or shouldn't I buy TIPS. That has got my head spinning.
Hey - thanks for the update. Good to hear you still like McClung's approach. Would love to know where you're getting the inputs from for his spreadsheet; and how often you're updating it and pulling money out.

Re TIPS, not sure how those rates compare with T-bonds, but I can say we just pulled a chunk out of our bond ETFs and moved it into a 12 month Treasury Bond at 4.4% APR. You can buy these at the big brokerages and the charges to do so are minimal - and well worth it given that it totally sidesteps having to deal with buying at auction on Treasury Direct.

Then in October next year when that bond matures we'll have a choice of either using it to cover our 2024 living expenses, or put it back in the portfolio and source cash from somewhere else in the portfolio. All depends on whether things recover or not. But I can say for sure that I'm going to sleep better knowing that even if things continue going south in the markets we have the cash we need to get us through two more years, and that's before draw on backstops that are mostly in bond ETFs and down not very much from when we bought them.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

I had to dig around for the inputs, but to be honest I don't remember how I did it, since it was a one-time project.

You raise a good point. I pulled 2023 money and put it into 2 $25K Tbills in October, maturing this December, but I need to do it again for 2024 money, maturing in Dec 2023. That's my next project.

The whole TIPS thing is amazingly confusing to me. There are several threads on it, with lots of activity, because apparently something is going on with long TIPS, making them more attractive than they were. I cannot get my head around it, and am actually going to schedule a time with Rick Ferri (who I've used before) because I just can't seem to grasp whether or not it is a good idea for me.
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tman9999
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

DebiT wrote: Sat Oct 08, 2022 1:44 pm I had to dig around for the inputs, but to be honest I don't remember how I did it, since it was a one-time project.

You raise a good point. I pulled 2023 money and put it into 2 $25K Tbills in October, maturing this December, but I need to do it again for 2024 money, maturing in Dec 2023. That's my next project.

The whole TIPS thing is amazingly confusing to me. There are several threads on it, with lots of activity, because apparently something is going on with long TIPS, making them more attractive than they were. I cannot get my head around it, and am actually going to schedule a time with Rick Ferri (who I've used before) because I just can't seem to grasp whether or not it is a good idea for me.
Actually, if you're planning on following McClung's methodology it's not a one and done project. You adjust your withdrawal amount and asset allocation annually based on the previous year's ending numbers. It's kind of a pita because so far every year I've looked the actual location of Fed Reserve numbers have moved around a bit; and the CAPE number is devilishly hard to pin down because it's not just for domestic markets.

Note to BH Mods: I wonder if it would be a good public service to add a pinned thread or a wikipedia entry with annual updates for McClung's spreadsheet numbers. I'd be happy to contribute to it when I find them, but would love some help gathering them, too.

Good luck with your research - please share what you learn and decide to do if you're so inclined.
DebiT
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by DebiT »

You’re right, I guess I forgot from last year. I was thinking of the initial setup spreadsheets. Such a great idea for wiki article. I think there are quite a few of us who follow McClung.
Age 66, life turned upside down 3/2/19, thanking God for what I've learned from this group. AA 40/60 for now, possibly changing at age 70.
Retirement Nerd
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Retirement Nerd »

I am following Mcclung's strategy as well. I have not looked back at his spreadsheet methodology in a while, so I just wanted to pose a question to make sure I understand things correctly. It was my understanding that the market parameters were used to set the initial withdrawal rate and that future withdrawal percentages were a product of years left in the plan and inflation. Additionally, prime harvesting was based on growth in the equity portion of the portfolio. Are people suggesting that we have a Wiki post of parameters yearly to recalculate or would this just be for new users? This was not my impression on how his spreadsheet operated. If I misunderstood the previous posts, please excuse this comment.
L
tman9999
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

Retirement Nerd wrote: Sat Oct 08, 2022 3:10 pm I am following Mcclung's strategy as well. I have not looked back at his spreadsheet methodology in a while, so I just wanted to pose a question to make sure I understand things correctly. It was my understanding that the market parameters were used to set the initial withdrawal rate and that future withdrawal percentages were a product of years left in the plan and inflation. Additionally, prime harvesting was based on growth in the equity portion of the portfolio. Are people suggesting that we have a Wiki post of parameters yearly to recalculate or would this just be for new users? This was not my impression on how his spreadsheet operated. If I misunderstood the previous posts, please excuse this comment.
Actually, you're absolutely correct - I was wrong (@DebIT - please take note!).

I just re-read Mclung Chapter 9, Using Valuations: Picking the Initial Withdrawal Rate. In his step by step example, he starts off with:
This book's website provides a spreadsheet for helping to tilt the initial withdrawal rate; however, the following steps also walk the retiree through the process. Forturneately, this needs to be done only once at the beginning of retirement.
I've got to re-read the sections on EM, ECM and Prime Harvesting to make sure I understand how all this fits together. I'm planning on starting to follow his approach for real on January 1, 2023, so coming up soon.

Thank you for setting me straight!
T
tman9999
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Article (Wade Pfau): Taxes and the 4% rule

Post by tman9999 »

In this article Wade Pfau provides a simple comparison of how different asset placements affect taxes under the 4% rule decumulation approach. He takes account of the effects of taxable income on medicare and social security taxation and shows the degree of reduction in spending the extra tax incurs. Great info.
https://www.advisorperspectives.com/art ... the-4-rule
stuartb3502
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by stuartb3502 »

Anyone care to comment on these sources as replacement of the McClung spreadsheet links for use in calculating initial withdrawal rate? I mean - check that I've found appropriate replacements for McClung's links. Thanks.

"Market value of equities outstanding*"

I believe this is item LM103164103 in the Fed's Z1 current release. That can be found by going to:

https://www.federalreserve.gov/releases/z1/default.htm (i.e. the current release of data)

Then download the PDF (Release Tables) and search for LM103164103 and look for the most recent value on that line.
Searching by name as McClung suggested is unhelpful since the name he used no longer exists in the latest releases and the Fed describe this item in multiple different ways depending on context throughout the release, e.g.
  • Nonfinancial corporate business (under the Corporate Equities section)
  • Corporate equities (market value)
  • Corporate equity
  • etc.
If you need an HTML source instead, you click on Balance Sheet, the links on the default release page and then scroll down to:
"L.103 Nonfinancial Corporate Business"
Then find the line which is currently descrbed as: ""Nonfinancial corporate business; corporate equities; liability"

Net worth (market value)

Similarly, this can be found (I think) in the PDF by searching for FL102090005 and is listed in a couple of places with a similar description to McClung's.

As an aside, FL103164106 sounds like it's the the Q-factor that McClung then calculates but as a percentage. But it's NOT as far as I can tell. This is because the Fed calculate this using the sum of "Corporate equities (market value)" and "Foreign direct investment: equity" as the numerator in the division. There's possibly a rabbit hole here about whether it would be more appropriate to use this value, but it's not what McClung uses so would not be appropriate in the context of his method and sheet.

The iCAGR20 and CAPE10 links appear to remain valid at the time of writing.

Developed Market CAPE10 and Emerging Market CAPE10
These are, I believe, currently available here:

https://interactive.researchaffiliates. ... valuations

Or the Boxplot version: https://interactive.researchaffiliates. ... valuations

Either way, you'll need to then read off the value. If you register a free account, you can click on the chart to see values. Take care with the Boxplot version which as well as current CAPE10, shows CAPE10 expected in 10 years time (I think - again, please correct me if I'm talking nonsense).
HansT
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by HansT »

stuartb3502 wrote: Thu Jul 06, 2023 7:34 am Anyone care to comment on these sources as replacement of the McClung spreadsheet links for use in calculating initial withdrawal rate?
First, THANK YOU for posting these links.

Can you post the values you have found? (Or, ideally, a screen shot of your entire "Initial Withdrawal Worksheet".) So we can compare numbers.

It looks like there are sites that publish the US Q.
  • E.g. https://ycharts.com/indicators/tobins_q (value today: 1.38) includes links to numerator and denominator historical data.

    FWIW, I tried to tie to McClung's "EXAMPLE" calculated value of 1.11144628791688 -- this source can't replicate that, the closest it comes is around Sep 2015 for a value of 1.22

    Note that some Q calculations include debt in numerator and denominator; I don't know if the Fed "Z.1" source does (or whether these sources I cite do).
  • https://www.gurufocus.com/economic_indi ... 99/tobin-q also gets to 1.38 today .. I assume it's using the same source as Y charts.
These values above are defensible Q ratio values, but it's probably good to try to match McClung's methodology exactly since he has hardcoded threshold for "Valuation Level" assessments. (That said, any Q above 0.84 looks like level "4", so we're stuck up there.)
Last edited by HansT on Sun Jul 09, 2023 5:30 pm, edited 1 time in total.
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HansT
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by HansT »

...On to iCAGR20 and (US) CAPE10. It's nice his EXAMPLE sheet mentions a August 2014 end date so one can match up the values exactly in the sources -- and they tie.
Today, FTR, those values are 5.094% (5/2003 to 5/2023) and 30.82 respectively.

From your new DM and EM sources: comparing Aug 2014 the source's values (20.8, 14.2) don't quite match his 19.5 and 15.4, but perhaps close enough. Today I read 24.9 and 13.5? The former raises the DM valuation to "4" from "3".

I see an overall valuation level of 3.3 (up from 3.0 in his EXAMPLE sheet).
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stuartb3502
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by stuartb3502 »

Hi,

Thanks for replying and checking.

Screenshot attached, but in case that disappears in future, I used the Q1 2023 figures from the June release for the first two values:

Market value of equities outstanding - 43,118.7 (found on line 40 of page 139, but also in five more places).
Net worth (market value) - 31231 (line 39 of page 139) - I'm referencing page 139 only because it has both values close together on the same page, but they are easy to find now there are unique reference codes for them.

....giving Q of 1.38 (we seem to be agreeing).

iCAGR20 and CAPE10 from McClung's sources.

I used the Developed Market and Emerging Market CAPE10 figures for June 2023 (I think yours are May which lines up better with the iCAGR20 since that only has data to May). As you say however, we're resolutely in the realm of it's all very expensive and these minor differences are not going to make any difference if using McClung - I've not gone through the rest of the exercise yet to confirm that but feel confident.

The Global Valuation Level of course will depend on what mix of US, Developed Market and Emerging Market you have in portfolio.

I had a look back to see if I could find McClung's example figures - a good idea - I couldn't find exact matches either. If you look at the December 2014 release, "Market value of equities outstanding" is 21,666 for Q3 2014 (he says in the book that the example retirement is September 2014) and "Net worth (market value)" is 19,950.7 (i.e. vs 21,222.4 and 19094.4 in the example tab and book). This gives a Q of 1.086 vs his value of 1.11.

I noticed that these figures change between different Fed releases for the same periods anyway so his numbers may be there somewhere. In some cases there is commentary in the release explaining the changes (better source, different IRS conventions etc).

Short answer, I think we're looking at the right numbers and they are good enough.

Stuart

Image
HansT
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by HansT »

stuartb3502 wrote: Sat Jul 08, 2023 10:17 am As you say however, we're resolutely in the realm of it's all very expensive and these minor differences are not going to make any difference if using McClung
Recent work reminds us that CAPE has criticisms, including its (well, GAAP's) inconsistent accounting for intangibles investment. See e.g. here and here.

If that's true (and I believe it is) then one easy fix could be to adjust the hardcoded CAPE thresholds for "Valuation Level" mapping:
=IF(B17<9.74,1,IF(B17<16.6,2,IF(B17<23.5,3,4)))
Ditto for Q ratio thresholds (because GAAP book values are understated).
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stuartb3502
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by stuartb3502 »

Sounds plausible, but I wouldn't know how to adjust them :happy

I'm currently just trying to get a sensible withdrawal rate to use as I am formally retiring now (been informally retired since Covid).

I've been looking at ERNs approach as well and plan to try VPW and maybe others if easy to get a range to work with. My portfolio is possibly now also overcomplicated which makes this process harder (UK based and tried to diversify globally without just sticking it all in a global fund).

I know there is quite a lot of debate about use of CAPE, but I'm comfortable that since it's more cautious to tilt my withdrawal rate based on CAPE than not currently.

But I also need to find something which is realistic for me and Mrs B. to use in the future. Usual story. Thanks for your sanity checks on sources I'd found. I can go and play with the various withdrawal planning sheets again now and see what's what.

I remembered that there's also this post on Monevator about use of CAPE for withdrawal rates and it includes other sources for e.g. Global and Emerging Market CAPE figures as well as a discussion about McClung and ERN's use. Worth a look if you've not seen before:

https://monevator.com/cape-ratio-by-country/
tman9999
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by tman9999 »

stuartb3502 wrote: Mon Jul 10, 2023 5:28 am
But I also need to find something which is realistic for me and Mrs B. to use in the future. Usual story. Thanks for your sanity checks on sources I'd found. I can go and play with the various withdrawal planning sheets again now and see what's what.
Have you ever explored Guardrails Withdrawal methods? Kitces has written up one way to do this - search for the thread here on BH.
I first learned about it from a 2017 podcast that I only discovered six months ago. https://podcasts.apple.com/us/podcast/m ... 0386103377

This one is on Bloomberg’s Masters In Business podcast and has Barry Ritholtz interviewing William Sharpe. Eye opening to me. And so simple. My thinking now is to use this to establish the annual SWR in conjunction with some version of prime harvesting to make my AA moves the right way.
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