Year 2000 retirees using the '4% rule' - Where are they now?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Sandi_k
Posts: 2304
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Sandi_k »

BlackStrat wrote: Tue Feb 11, 2020 8:49 am My approach is a 3.3% WR from age 60-65 (while DW is still working) and then a 4% WR from 65-70 (when she retires & starts collecting SS and we can travel) and then 3.26% at age 70 when my SS will kick in to make up the difference.

I haven't done any technical analysis on this but it looks pretty good on my spreadsheet, and we have hopes to leave a legacy.
What's the RMD rate after 70? I don't think you can keep it at 3.26% forever....

Edited to add: I just looked at an (old) table, and the RMD at age 70 starts at 3.69%.

https://www.bankrate.com/retirement/ira-rmd-table/

******

Our plan is 3.5% from 60-65; 3.75% for 66-70; and 4% after 70.

That's on top of a set-aside of $50k per year in Years 1-5, and $25k per year in Years 6-10. We want to spend more in our first decade of retirement.

- Years 1-3: 3.5% SWR + $50k + pension with COLA

- Years 4 & 5: 3.5% SWR + $50k + DH's Soc Sec + pension with COLA

- Years 6-10: 3.75% SWR, + $25k + DH's Soc Sec (and a paid off house) + pension with COLA

- Years 11 and on: 4% SWR + DH's Soc Sec + my delayed and maxed Soc Sec + paid off house + pension with COLA
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Sandi_k wrote: Tue Feb 11, 2020 11:30 am
BlackStrat wrote: Tue Feb 11, 2020 8:49 am My approach is a 3.3% WR from age 60-65 (while DW is still working) and then a 4% WR from 65-70 (when she retires & starts collecting SS and we can travel) and then 3.26% at age 70 when my SS will kick in to make up the difference.

I haven't done any technical analysis on this but it looks pretty good on my spreadsheet, and we have hopes to leave a legacy.
What's the RMD rate after 70? I don't think you can keep it at 3.26% forever....

Edited to add: I just looked at an (old) table, and the RMD at age 70 starts at 3.69%.
RMDs are withdrawals from tax-deferred accounts but need not be spent. Many reinvest at least a portion of them in taxable account.
The Sensible Steward
User avatar
Sandi_k
Posts: 2304
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Sandi_k »

willthrill81 wrote: Tue Feb 11, 2020 11:36 am
Sandi_k wrote: Tue Feb 11, 2020 11:30 am
BlackStrat wrote: Tue Feb 11, 2020 8:49 am My approach is a 3.3% WR from age 60-65 (while DW is still working) and then a 4% WR from 65-70 (when she retires & starts collecting SS and we can travel) and then 3.26% at age 70 when my SS will kick in to make up the difference.

I haven't done any technical analysis on this but it looks pretty good on my spreadsheet, and we have hopes to leave a legacy.
What's the RMD rate after 70? I don't think you can keep it at 3.26% forever....

Edited to add: I just looked at an (old) table, and the RMD at age 70 starts at 3.69%.
RMDs are withdrawals from tax-deferred accounts but need not be spent. Many reinvest at least a portion of them in taxable account.
Agreed, but I just wanted to make the point that RMDs matter in planning. If he really is planning on a reduced withdrawal rate to preserve capital, he needs to account for that via taxable accounts.
BlackStrat
Posts: 330
Joined: Wed Apr 29, 2015 9:20 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by BlackStrat »

willthrill81 wrote: Tue Feb 11, 2020 11:36 am
Sandi_k wrote: Tue Feb 11, 2020 11:30 am
BlackStrat wrote: Tue Feb 11, 2020 8:49 am My approach is a 3.3% WR from age 60-65 (while DW is still working) and then a 4% WR from 65-70 (when she retires & starts collecting SS and we can travel) and then 3.26% at age 70 when my SS will kick in to make up the difference.

I haven't done any technical analysis on this but it looks pretty good on my spreadsheet, and we have hopes to leave a legacy.
What's the RMD rate after 70? I don't think you can keep it at 3.26% forever....

Edited to add: I just looked at an (old) table, and the RMD at age 70 starts at 3.69%.
RMDs are withdrawals from tax-deferred accounts but need not be spent. Many reinvest at least a portion of them in taxable account.
This WR will be from my entire portfolio. Currently I'm at 57% taxable and 43% pretax.
Ramjet
Posts: 1464
Joined: Thu Feb 06, 2020 10:45 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Ramjet »

HomerJ wrote: Mon Feb 10, 2020 4:24 pm
Jags4186 wrote: Mon Feb 10, 2020 4:05 pm What’s interesting (and good news if you ask me) is that if you bootstrap this you make it 40 years of retirement with money to spare.

I.E.: 2000 - 2019 at 4% inflation adjusted, 60/40 leaves you with $1,080,000 at the end of 2019 withdrawing $61,000

Start this person over in 2000 with 1,080,000 but this time with an inflation adjusted $61,000 initial withdrawal and they again make it another 20 years, albeit with only $166,000 left and a $93,000 annual withdrawal.

This hypothetical investor did pretty good, some might say amazing, considering he would have experienced greater than 50% drawdowns in equites four separate times in his retirement.
Which is why 4% is considered very conservative.
Amen
ROIGuy
Posts: 2452
Joined: Sun May 08, 2016 10:10 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by ROIGuy »

willthrill81 wrote: Mon Jan 08, 2018 10:52 pm Here's another interesting tidbit. Over this period, with the starting portfolio in the OP, whether the retiree rebalanced their portfolio or not made a sizable difference.

With annual rebalancing: $982,518 (nominal)
Without rebalancing: $831,923 (nominal)

Over the long-term, it doesn't seem that rebalancing affects returns much in the accumulation phase. But it seems that in the withdrawal phase, particularly in bear markets, rebalancing is critical. This may be the most difficult time to do so, however, because it requires the retiree to sell their 'safe' assets (i.e. bonds) to purchase the 'risky' assets that have been declining significantly.
+1
ochotona
Posts: 217
Joined: Thu Jan 29, 2015 1:08 pm
Location: Houston, TX

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by ochotona »

1966 retirees had it worst of all.
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

ochotona wrote: Tue Feb 11, 2020 1:21 pm 1966 retirees had it worst of all.
Yep. Had they existed, TIPS would have very likely helped them out quite a bit. The late 1970s in particular were very hard on nominal bonds. From 1977-1981, intermediate-term Treasuries lost 32% of their inflation-adjusted value, mainly due to unexpected high inflation.
The Sensible Steward
Leesbro63
Posts: 10634
Joined: Mon Nov 08, 2010 3:36 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Leesbro63 »

Mr.BB wrote: Tue Feb 11, 2020 1:15 pm
willthrill81 wrote: Mon Jan 08, 2018 10:52 pm Here's another interesting tidbit. Over this period, with the starting portfolio in the OP, whether the retiree rebalanced their portfolio or not made a sizable difference.

With annual rebalancing: $982,518 (nominal)
Without rebalancing: $831,923 (nominal)

Over the long-term, it doesn't seem that rebalancing affects returns much in the accumulation phase. But it seems that in the withdrawal phase, particularly in bear markets, rebalancing is critical. This may be the most difficult time to do so, however, because it requires the retiree to sell their 'safe' assets (i.e. bonds) to purchase the 'risky' assets that have been declining significantly.
+1
Rebalancing in withdrawal is a Pascal’s Wager. You can rebalance safe money into risk money into permanent poverty.
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Leesbro63 wrote: Tue Feb 11, 2020 1:26 pm
Mr.BB wrote: Tue Feb 11, 2020 1:15 pm
willthrill81 wrote: Mon Jan 08, 2018 10:52 pm Here's another interesting tidbit. Over this period, with the starting portfolio in the OP, whether the retiree rebalanced their portfolio or not made a sizable difference.

With annual rebalancing: $982,518 (nominal)
Without rebalancing: $831,923 (nominal)

Over the long-term, it doesn't seem that rebalancing affects returns much in the accumulation phase. But it seems that in the withdrawal phase, particularly in bear markets, rebalancing is critical. This may be the most difficult time to do so, however, because it requires the retiree to sell their 'safe' assets (i.e. bonds) to purchase the 'risky' assets that have been declining significantly.
+1
Rebalancing in withdrawal is a Pascal’s Wager. You can rebalance safe money into risk money into permanent poverty.
That's why some here like McClung's Prime Harvesting approach (e.g. sell stocks if they rise in value but never buy them back), which actually backtests pretty well, though Karsten at Early Retirement Now suggests some very logical improvements to it.
The Sensible Steward
Unladen_Swallow
Posts: 784
Joined: Tue Dec 10, 2019 5:12 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Unladen_Swallow »

What? The poster child of all financial disaster doomsday predictions aka Japan, supported a > 3% withdrawal rate?

Stop it!! :D

siamond wrote: Wed Jan 15, 2020 1:11 pm
jubby288 wrote: Wed Jan 15, 2020 9:47 am
siamond wrote: Wed Jan 15, 2020 9:28 am
Stef wrote: Tue Jan 14, 2020 12:13 pm
jubby288 wrote: Tue Jan 14, 2020 11:41 am So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.
Hm, no. This is only true with the known US history. In multiple other large developed countries, the 4% rule didn't quite work... World wars of course played a big role in this, but even in a time of relative peace (i.e. after 1950), there are notable exceptions.
Would be interested in understanding a few of the exceptions you're thinking of
I am going to write a detailed article in a few weeks, when the 2019 inflation numbers will be more solid, but here is a quick preview of SWR numbers. Those are based on total returns for each country (stocks and bonds), based on local currency and local inflation, over the past 50 years (i.e. since 1970). The asset allocation is 60/40, all domestic. Investment periods are the usual 30 years, while varying the starting year, and selecting the worst scenario. No expense ratio was applied. As you can see, Australia, Italy, Japan and Spain really struggled. Among other reasons, inflation and exchange rate challenges played a significant role in such underperformance. It is also interesting to see the winners (e.g. Belgium, Denmark, Netherlands, Sweden).

Image

Whether there is a lesson to learn for US investors or not is a matter of opinion (unfortunately often subject to strong biases), but personally, I certainly won't discard such data. Note that increasing the amount of international exposure would have helped flattening the chart and mitigating the worst cases, but some countries would remain squarely under 4%.

I don't have the 1900+ numbers, but Wade Pfau provided an SWR analysis for such longer history. I don't have the pointer handy, but I do remember that, unsurprisingly, the countries which were hit the hardest by World War II ended up with truly dismal numbers.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
User avatar
siamond
Posts: 6008
Joined: Mon May 28, 2012 5:50 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by siamond »

Unladen_Swallow wrote: Tue Feb 11, 2020 2:03 pm What? The poster child of all financial disaster doomsday predictions aka Japan, supported a > 3% withdrawal rate?

Stop it!! :D
I'm still working on this data set, I refined it last week-end with better inflation data and better bond returns data, and the Japan result does seem to hold. We now have exactly 30 years to look at the doomsday scenario (1990-2019). And it's cheating a bit imho, because it took a LOT of climbing to go to the peak (1989) before the steep fall began. Also most Japanese retirees still benefit from fairly stable pensions.

This being said, as I indicated, Spain and Italy ended up much worse in the same time period, if only because of raging inflation. And this is only 1970-2019, world wars and in-territory devastation were even more impactful (I believe France went down to 1% at some point, according to Wade Pfau and the DMS dataset).
Unladen_Swallow
Posts: 784
Joined: Tue Dec 10, 2019 5:12 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Unladen_Swallow »

siamond wrote: Tue Feb 11, 2020 2:34 pm
Unladen_Swallow wrote: Tue Feb 11, 2020 2:03 pm What? The poster child of all financial disaster doomsday predictions aka Japan, supported a > 3% withdrawal rate?

Stop it!! :D
I'm still working on this data set, I refined it last week-end with better inflation data and better bond returns data, and the Japan result does seem to hold. We now have exactly 30 years to look at the doomsday scenario (1990-2019). And it's cheating a bit imho, because it took a LOT of climbing to go to the peak (1989) before the steep fall began. Also most Japanese retirees still benefit from fairly stable pensions.

This being said, as I indicated, Spain and Italy ended up much worse in the same time period, if only because of raging inflation. And this is only 1970-2019, world wars and in-territory devastation were even more impactful (I believe France went down to 1% at some point, according to Wade Pfau and the DMS dataset).
I am glad you pointed this out. Often I think this is lost in looking back at Japan or any other situation (US - 2000, 2008). I think the run up was the anamoly, the crash just brought it to it's more reasonable state.

Many seem to equate stock markets to random chance/casino gambling games. Roulette or slots. For no apparent reason, and whenever it damn well please, and by however much - stocks will fall. That is the sentiment.

Stock markets is a representation of business and enterprise. Lucrative anamolies don't last forever. House of cards will fall. And the post crash will represent the more reasonable state.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
Financologist
Posts: 390
Joined: Wed Jan 01, 2020 10:16 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Financologist »

Leesbro63 wrote: Thu Feb 21, 2019 1:12 pm
Kaktus wrote: Thu Feb 21, 2019 12:47 pm Alohajoe, very good, you forgot the reference by Aristoteles to the options market. But otherwise nice googling.
Ddont get your knickers in a twist and try to develop new thoughts instead. Todays stock markets available to the average alohaJoe developed around the previous turn of the century.
Say I sit and ponder on my old age. and my stocks are worth 3m dollars. But I feel sick of worry that a terrible sequence of events will wipe it out. Is it then rational to say " I will work really hard ten more years so that I can add 1m more in stocks before I retire!" I dont think that seems rational. It would be at least MORE rational to by say a farm or something to complement the 3m in stocks. Anything that is not totally in tune with the functioning of the stock market. Or as someone put it in a similar thread: "to someone living in the Weimar republic it didnt matter if you had a million or a billion in bonds. It all went to zero".
The odds are great that the same economic problem (tragedy?) that wipes out stocks will do the same for demand for farm products. Or rental real estate. Buying a farm is just another sector bet.
Not really. A farm produces real food that you can eat. In a doomsday scenario, that could be useful if the bandits don't find you.
Financologist
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Leesbro63 wrote: Thu Feb 21, 2019 1:12 pm The odds are great that the same economic problem (tragedy?) that wipes out stocks will do the same for demand for farm products. Or rental real estate.
That depends greatly on the type of real estate. Commercial real estate could suffer a lot. Higher end residential properties could as well, but entry-level SFHs, those one 'level' up from there, and multi-units, would likely do well. TMK, rents for all of these latter properties held up well in the last recession even as property prices fell.

People have to live somewhere.
The Sensible Steward
smitcat
Posts: 13300
Joined: Mon Nov 07, 2016 9:51 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by smitcat »

willthrill81 wrote: Sat Feb 15, 2020 11:34 pm
Leesbro63 wrote: Thu Feb 21, 2019 1:12 pm The odds are great that the same economic problem (tragedy?) that wipes out stocks will do the same for demand for farm products. Or rental real estate.
That depends greatly on the type of real estate. Commercial real estate could suffer a lot. Higher end residential properties could as well, but entry-level SFHs, those one 'level' up from there, and multi-units, would likely do well. TMK, rents for all of these latter properties held up well in the last recession even as property prices fell.

People have to live somewhere.
"People have to live somewhere."
During the last recession many folks that rented in our area did not fully pay their rents for long periods of time.
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

smitcat wrote: Sun Feb 16, 2020 8:10 am
willthrill81 wrote: Sat Feb 15, 2020 11:34 pm
Leesbro63 wrote: Thu Feb 21, 2019 1:12 pm The odds are great that the same economic problem (tragedy?) that wipes out stocks will do the same for demand for farm products. Or rental real estate.
That depends greatly on the type of real estate. Commercial real estate could suffer a lot. Higher end residential properties could as well, but entry-level SFHs, those one 'level' up from there, and multi-units, would likely do well. TMK, rents for all of these latter properties held up well in the last recession even as property prices fell.

People have to live somewhere.
"People have to live somewhere."
During the last recession many folks that rented in our area did not fully pay their rents for long periods of time.
You allude to one of my biggest problems with physical RE: it's expensive and time-consuming to get geographic diversification.
The Sensible Steward
User avatar
siamond
Posts: 6008
Joined: Mon May 28, 2012 5:50 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by siamond »

willthrill81 wrote: Sun Feb 16, 2020 10:05 amYou allude to one of my biggest problems with physical RE: it's expensive and time-consuming to get geographic diversification.
Having seen two generations in my -large!- family (+ various acquaintances) getting very involved in physical RE, I think you can actually simplify your statement: it's expensive and time-consuming (period).
User avatar
geerhardusvos
Posts: 2046
Joined: Wed Oct 23, 2019 10:20 pm
Location: heavenlies

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by geerhardusvos »

willthrill81 wrote: Mon Jan 08, 2018 6:27 pm There is always discussion regarding withdrawal rates and what is safe. Those who retired in the year 2000 have probably had the roughest road of any retirees in terms of market returns since the early 1970s. Let's take a look to see where they would be today, 18 years later, if they had used a 4% plus inflation withdrawal rate.

First, let's assume that they used a 60/40 portfolio, where half of their equities were in VTSMX (U.S. stocks) and half in VGTSX (international equities), and the bonds were in VBMFX (total U.S. bond market). Let's also assume that their starting portfolio was $1M. Their withdrawals occur at year end (first year withdrawal of $41,355 on 12/31/2000).

Image

As of 12/31/2017, the inflation-adjusted value of the portfolio would have been $670,363. Their last year's withdrawal would have been $58,626. This means that they have about 11.4 years of withdrawals left, assuming a 0% real return going forward. So as long as these retirees get a small real return on their remaining portfolio, they shouldn't have a problem making it to the 30 year milestone typically used in safe withdrawal rate research.

What if they had gone with a more conservative portfolio like 40/60? Their portfolio would now be worth an inflation-adjusted $748,413.

What if they had gone exclusively with U.S. equities and had no international exposure (60 U.S. equities/40 U.S. bonds)? Their portfolio would now be worth an inflation-adjusted $702,401.

Anything could happen going forward, but it looks as though retirees who rigidly followed the '4% rule' will make it to the 30 year milestone. That being said, their portfolio would have dropped to an inflation-adjusted $532,570 in Feb., 2009. The portfolio recovered to $684,815 by the end of 2009, but it still would have been difficult to withdraw that year's spending of $49,965, 7.3% of the remaining portfolio, only 10 years into their retirement.

NOTE: I mistakenly adjusted for inflation twice in the above numbers, which are overly pessimistic. The retirees would have had a nominal balance at the end of 2017 of $982,518, about 16.75 years of spending assuming 0% real growth going forward. So they could 'guarantee' success by buying enough TIPS to cover the next 12 years of spending, ensuring that they make it to the 30 year mark.
Great post thank you
VTSAX and chill
MathIsMyWayr
Posts: 2775
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by MathIsMyWayr »

HomerJ wrote: Mon Feb 10, 2020 4:24 pm
Jags4186 wrote: Mon Feb 10, 2020 4:05 pm What’s interesting (and good news if you ask me) is that if you bootstrap this you make it 40 years of retirement with money to spare.

I.E.: 2000 - 2019 at 4% inflation adjusted, 60/40 leaves you with $1,080,000 at the end of 2019 withdrawing $61,000

Start this person over in 2000 with 1,080,000 but this time with an inflation adjusted $61,000 initial withdrawal and they again make it another 20 years, albeit with only $166,000 left and a $93,000 annual withdrawal.

This hypothetical investor did pretty good, some might say amazing, considering he would have experienced greater than 50% drawdowns in equites four separate times in his retirement.
Which is why 4% is considered very conservative.
Yes, very conservative in this particular case. It may be imprudent or even reckless to rely on a flimsy statistical analysis because the sample size is too small. The basis of statistics and probability is the central limit theorem. Our entire sample size is only a little over 100. The bell curve is nowhere near a Dirac's delta function, but it is a fat bell.
Normchad
Posts: 5648
Joined: Thu Mar 03, 2011 6:20 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Normchad »

This is very reassuring. I’m all aboard the 4% train. Lots of folks say it isn’t a plan, but it is basically my plan. (I may cut back once SS kicks in though). And if things go horribly awry, I’ll just cut back.
rich126
Posts: 4475
Joined: Thu Mar 01, 2018 3:56 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by rich126 »

I think if someone’s portfolio dropped that dramatically in the early years of retirement it would take serious guts to continue taking 4%+ withdrawals. I would imagine most would have reduced their withdrawal rate and either cut back expenses or find another source of income. And in real life I would imagine a fair amount of people would not have rebalanced yearly.

The ones likely to ignore the drop would be those who didn’t really need the money.
----------------------------- | If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

MathIsMyWayr wrote: Sun Feb 16, 2020 10:03 pm
HomerJ wrote: Mon Feb 10, 2020 4:24 pm
Jags4186 wrote: Mon Feb 10, 2020 4:05 pm What’s interesting (and good news if you ask me) is that if you bootstrap this you make it 40 years of retirement with money to spare.

I.E.: 2000 - 2019 at 4% inflation adjusted, 60/40 leaves you with $1,080,000 at the end of 2019 withdrawing $61,000

Start this person over in 2000 with 1,080,000 but this time with an inflation adjusted $61,000 initial withdrawal and they again make it another 20 years, albeit with only $166,000 left and a $93,000 annual withdrawal.

This hypothetical investor did pretty good, some might say amazing, considering he would have experienced greater than 50% drawdowns in equites four separate times in his retirement.
Which is why 4% is considered very conservative.
Yes, very conservative in this particular case. It may be imprudent or even reckless to rely on a flimsy statistical analysis because the sample size is too small. The basis of statistics and probability is the central limit theorem. Our entire sample size is only a little over 100. The bell curve is nowhere near a Dirac's delta function, but it is a fat bell.
Yet no matter how much we opine the lack of data (and after eight graduate courses in statistics, I'm with you there), retirees still have to determine how much they can withdraw.

That said, I'm far more attracted to the time value of money formula as a means of determining each year's (or month's) withdrawal given its great flexibility and ability to prohibit, with mathematical certainty, prematurely depleting one's portfolio.

But as a general tool for estimating when one has 'enough' for a ~30 year retirement, the '4% rule' (i.e. 25x) is still a good guide.
The Sensible Steward
Oatmeal
Posts: 22
Joined: Mon Dec 31, 2018 1:02 pm
Location: Portland

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Oatmeal »

Question about the 4% WR. How are the dividends received from AA are calculated here in relation to the 4% WR? Assume a 60/40 for example.

I'm thinking there is a number for the dividends. Say 2% projected for the upcoming year, so then the retiree withdraws 2% more from portfolio? If yes, how does the retiree figure out the projected dividends in AA?

And were the dividend payments factored into the study posted earlier?
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

rich126 wrote: Sun Feb 16, 2020 11:02 pm I think if someone’s portfolio dropped that dramatically in the early years of retirement it would take serious guts to continue taking 4%+ withdrawals. I would imagine most would have reduced their withdrawal rate and either cut back expenses or find another source of income.

I agree. By 2003 and especially by 2009, almost any sane person who had any ability to reduce their withdrawals would have.
rich126 wrote: Sun Feb 16, 2020 11:02 pmAnd in real life I would imagine a fair amount of people would not have rebalanced yearly.
I noted in this post that not rebalancing would have left the retiree worse off in this instance.
The Sensible Steward
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Oatmeal wrote: Sun Feb 16, 2020 11:31 pm Question about the 4% WR. How are the dividends received from AA are calculated here in relation to the 4% WR? Assume a 60/40 for example.

I'm thinking there is a number for the dividends. Say 2% projected for the upcoming year, so then the retiree withdraws 2% more from portfolio? If yes, how does the retiree figure out the projected dividends in AA?

And were the dividend payments factored into the study posted earlier?
Dividends are just part of the total return (i.e. nothing special). So if the starting balance were $100 and dividends and interest produced $3, you withdraw all of that plus another $1 in the first year (and adjust that upward for inflation in subsequent years).
The Sensible Steward
Leesbro63
Posts: 10634
Joined: Mon Nov 08, 2010 3:36 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Leesbro63 »

rich126 wrote: Sun Feb 16, 2020 11:02 pm I think if someone’s portfolio dropped that dramatically in the early years of retirement it would take serious guts to continue taking 4%+ withdrawals. I would imagine most would have reduced their withdrawal rate and either cut back expenses or find another source of income. And in real life I would imagine a fair amount of people would not have rebalanced yearly.

The ones likely to ignore the drop would be those who didn’t really need the money.
We only know in hindsight that rebalancing worked. While you’re going through it, you’re converting “safe” money into additional risk money. A Pascal’s Wager. The odds of a bad outcome are low but the consequences of that bad result showing up are catastrophic. Too catastrophic a risk for most retirees to take, in my opinion. Never rebalance bonds into stocks at or near retirement.
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by MnD »

Leesbro63 wrote: Mon Feb 17, 2020 4:12 am We only know in hindsight that rebalancing worked. While you’re going through it, you’re converting “safe” money into additional risk money. A Pascal’s Wager. The odds of a bad outcome are low but the consequences of that bad result showing up are catastrophic. Too catastrophic a risk for most retirees to take, in my opinion. Never rebalance bonds into stocks at or near retirement.
While this sounds plausible, comforting and "safer", those who follow it end up worse off and in greater risk of experiencing portfolio failure than those who don't. It is the primary reason that "buckets of cash" approaches to prevent selling in down markets also is riskier as demonstrated with 115 years of data across 21 countries.

https://papers.ssrn.com/sol3/papers.cfm ... id=3274499
https://www.marketwatch.com/story/do-bu ... 2019-02-12

"Why are bucket strategies more likely to fail than the non-bucket strategies? The answer has to do with the periodic rebalancing transactions periodically undertaken by the non-bucket strategies. Such rebalancing, of course, involves selling a portion of outperforming assets and purchasing more of underperforming ones, in order to bring the portfolio’s allocation back in line with its intended allocation. This rebalancing means that the approach constantly is buying low and selling high, which needless to say is a winning strategy.

The bucket portfolios, in contrast, at most engage in only half of these rebalancing transactions, since they do sell some of their outperforming assets to fund withdrawals. But they do not engage in the other half of rebalancing—purchasing more of underperforming assets. And that puts a significant damper on these portfolios’ longer-term returns. So retirees are paying a high price for the comfort and ease of accounting that accompany a bucket strategy."
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
Leesbro63
Posts: 10634
Joined: Mon Nov 08, 2010 3:36 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Leesbro63 »

MnD wrote: Mon Feb 17, 2020 7:38 am
Leesbro63 wrote: Mon Feb 17, 2020 4:12 am We only know in hindsight that rebalancing worked. While you’re going through it, you’re converting “safe” money into additional risk money. A Pascal’s Wager. The odds of a bad outcome are low but the consequences of that bad result showing up are catastrophic. Too catastrophic a risk for most retirees to take, in my opinion. Never rebalance bonds into stocks at or near retirement.
While this sounds plausible, comforting and "safer", those who follow it end up worse off and in greater risk of experiencing portfolio failure than those who don't. It is the primary reason that "buckets of cash" approaches to prevent selling in down markets also is riskier as demonstrated with 115 years of data across 21 countries.

https://papers.ssrn.com/sol3/papers.cfm ... id=3274499
https://www.marketwatch.com/story/do-bu ... 2019-02-12

"Why are bucket strategies more likely to fail than the non-bucket strategies? The answer has to do with the periodic rebalancing transactions periodically undertaken by the non-bucket strategies. Such rebalancing, of course, involves selling a portion of outperforming assets and purchasing more of underperforming ones, in order to bring the portfolio’s allocation back in line with its intended allocation. This rebalancing means that the approach constantly is buying low and selling high, which needless to say is a winning strategy.

The bucket portfolios, in contrast, at most engage in only half of these rebalancing transactions, since they do sell some of their outperforming assets to fund withdrawals. But they do not engage in the other half of rebalancing—purchasing more of underperforming assets. And that puts a significant damper on these portfolios’ longer-term returns. So retirees are paying a high price for the comfort and ease of accounting that accompany a bucket strategy."
Ok but so what? Isn't this the reason to have a low SWR in the first place? I agree that your odds of greater success are better doing the rebalances, but this ignores the "crash into a pole and die instantly" risk of "flushing" good money after bad until you're broke. Very low odds but very catastrophic result.
ryman554
Posts: 1635
Joined: Sun Jan 12, 2014 8:44 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by ryman554 »

MathIsMyWayr wrote: Sun Feb 16, 2020 10:03 pm
HomerJ wrote: Mon Feb 10, 2020 4:24 pm
Jags4186 wrote: Mon Feb 10, 2020 4:05 pm What’s interesting (and good news if you ask me) is that if you bootstrap this you make it 40 years of retirement with money to spare.

I.E.: 2000 - 2019 at 4% inflation adjusted, 60/40 leaves you with $1,080,000 at the end of 2019 withdrawing $61,000

Start this person over in 2000 with 1,080,000 but this time with an inflation adjusted $61,000 initial withdrawal and they again make it another 20 years, albeit with only $166,000 left and a $93,000 annual withdrawal.

This hypothetical investor did pretty good, some might say amazing, considering he would have experienced greater than 50% drawdowns in equites four separate times in his retirement.
Which is why 4% is considered very conservative.
Yes, very conservative in this particular case. It may be imprudent or even reckless to rely on a flimsy statistical analysis because the sample size is too small. The basis of statistics and probability is the central limit theorem. Our entire sample size is only a little over 100. The bell curve is nowhere near a Dirac's delta function, but it is a fat bell.
But what, based on data and math, would you replace it with?

If we take the limit of "bare-bone, just able to eat" = the SWR, where would you place the withdrawal strategy? 3%? 2%? Realize that, by placing it at 2%, the retiree would have to save *twice as much* to protect against the fat tail you are worried about, but seems to not exist, based on world-wide portfolios even including things like world wars.

It's very much a numbers game, and you have to balance the risk of going broke with the risk of overworking and not being able to enjoy the fruits of your labor. So, please put numbers to it.

Whats the "I have enough" number for a person who needs every last penny to eat/live for the next 30 years until they expire?
Whats the "I have enough" number for a person who has a 25% "for fun" budget as well?
Whats the "I have enough" number for a person who has a 100% "for fun" budget as well?
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by MnD »

Leesbro63 wrote: Mon Feb 17, 2020 8:01 am
MnD wrote: Mon Feb 17, 2020 7:38 am
Leesbro63 wrote: Mon Feb 17, 2020 4:12 am We only know in hindsight that rebalancing worked. While you’re going through it, you’re converting “safe” money into additional risk money. A Pascal’s Wager. The odds of a bad outcome are low but the consequences of that bad result showing up are catastrophic. Too catastrophic a risk for most retirees to take, in my opinion. Never rebalance bonds into stocks at or near retirement.
While this sounds plausible, comforting and "safer", those who follow it end up worse off and in greater risk of experiencing portfolio failure than those who don't. It is the primary reason that "buckets of cash" approaches to prevent selling in down markets also is riskier as demonstrated with 115 years of data across 21 countries.

https://papers.ssrn.com/sol3/papers.cfm ... id=3274499
https://www.marketwatch.com/story/do-bu ... 2019-02-12

"Why are bucket strategies more likely to fail than the non-bucket strategies? The answer has to do with the periodic rebalancing transactions periodically undertaken by the non-bucket strategies. Such rebalancing, of course, involves selling a portion of outperforming assets and purchasing more of underperforming ones, in order to bring the portfolio’s allocation back in line with its intended allocation. This rebalancing means that the approach constantly is buying low and selling high, which needless to say is a winning strategy.

The bucket portfolios, in contrast, at most engage in only half of these rebalancing transactions, since they do sell some of their outperforming assets to fund withdrawals. But they do not engage in the other half of rebalancing—purchasing more of underperforming assets. And that puts a significant damper on these portfolios’ longer-term returns. So retirees are paying a high price for the comfort and ease of accounting that accompany a bucket strategy."
Ok but so what? Isn't this the reason to have a low SWR in the first place? I agree that your odds of greater success are better doing the rebalances, but this ignores the "crash into a pole and die instantly" risk of "flushing" good money after bad until you're broke. Very low odds but very catastrophic result.
if you read the articles you would observe that the odds of outright portfolio failure is higher without both-way rebalancing than it is with it. Repeating loaded terms like "crash into pole and die instantly", "flushing good money after bad" etc. does nothing to justify a sub-optimal and riskier approach to financial management around and in retirement. In fact it weakens such arguments since it clearly demonstrates an emotional and data-free approach to investing.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt »

Leesbro63 wrote: Mon Feb 17, 2020 8:01 am
MnD wrote: Mon Feb 17, 2020 7:38 am
Leesbro63 wrote: Mon Feb 17, 2020 4:12 am We only know in hindsight that rebalancing worked. While you’re going through it, you’re converting “safe” money into additional risk money. A Pascal’s Wager. The odds of a bad outcome are low but the consequences of that bad result showing up are catastrophic. Too catastrophic a risk for most retirees to take, in my opinion. Never rebalance bonds into stocks at or near retirement.
While this sounds plausible, comforting and "safer", those who follow it end up worse off and in greater risk of experiencing portfolio failure than those who don't. It is the primary reason that "buckets of cash" approaches to prevent selling in down markets also is riskier as demonstrated with 115 years of data across 21 countries.

https://papers.ssrn.com/sol3/papers.cfm ... id=3274499
https://www.marketwatch.com/story/do-bu ... 2019-02-12

"Why are bucket strategies more likely to fail than the non-bucket strategies? The answer has to do with the periodic rebalancing transactions periodically undertaken by the non-bucket strategies. Such rebalancing, of course, involves selling a portion of outperforming assets and purchasing more of underperforming ones, in order to bring the portfolio’s allocation back in line with its intended allocation. This rebalancing means that the approach constantly is buying low and selling high, which needless to say is a winning strategy.

The bucket portfolios, in contrast, at most engage in only half of these rebalancing transactions, since they do sell some of their outperforming assets to fund withdrawals. But they do not engage in the other half of rebalancing—purchasing more of underperforming assets. And that puts a significant damper on these portfolios’ longer-term returns. So retirees are paying a high price for the comfort and ease of accounting that accompany a bucket strategy."
Ok but so what? Isn't this the reason to have a low SWR in the first place? I agree that your odds of greater success are better doing the rebalances, but this ignores the "crash into a pole and die instantly" risk of "flushing" good money after bad until you're broke. Very low odds but very catastrophic result.
If you have a low enough withdrawal rate. Nothing you do after really matters. But of course you also wasted years of your life working for money you don’t need. Some people prefer this strategy and I guess I can understand that choice.

I prefer to retire early and have lots of options if things go bad within the first 5 years.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

I'm thankful that by the time I'm 70, combined SS benefits for my DW and myself will be enough to cover all of our anticipated essential spending (under current law). So from that point and going forward, our portfolio will only be for discretionary spending and potential LTC needs, and we might mitigate the risk of the latter by buying a type A contract at a CCRC. As such, I'm not worried about the risk of ruin, which I frankly think to be more hype and fear than anything grounded in reality, at least for a knowledgeable BH.
The Sensible Steward
User avatar
Top99%
Posts: 465
Joined: Sat Apr 22, 2017 9:30 am
Location: Austin, TX

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Top99% »

willthrill81 wrote: Mon Feb 17, 2020 8:51 am I'm thankful that by the time I'm 70, combined SS benefits for my DW and myself will be enough to cover all of our anticipated essential spending (under current law). So from that point and going forward, our portfolio will only be for discretionary spending and potential LTC needs, and we might mitigate the risk of the latter by buying a type A contract at a CCRC. As such, I'm not worried about the risk of ruin, which I frankly think to be more hype and fear than anything grounded in reality, at least for a knowledgeable BH.
We are in the same boat. Finally, if/when we really do have another 2008/2009 crash it is likely travel, restaurants etc. will cut prices so that provides even more buffer. There were some really great deals on hotels in 2009.
Adapt or perish
Oatmeal
Posts: 22
Joined: Mon Dec 31, 2018 1:02 pm
Location: Portland

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Oatmeal »

willthrill81 wrote: Sun Feb 16, 2020 11:35 pm
Oatmeal wrote: Sun Feb 16, 2020 11:31 pm Question about the 4% WR. How are the dividends received from AA are calculated here in relation to the 4% WR? Assume a 60/40 for example.

I'm thinking there is a number for the dividends. Say 2% projected for the upcoming year, so then the retiree withdraws 2% more from portfolio? If yes, how does the retiree figure out the projected dividends in AA?

And were the dividend payments factored into the study posted earlier?
Dividends are just part of the total return (i.e. nothing special). So if the starting balance were $100 and dividends and interest produced $3, you withdraw all of that plus another $1 in the first year (and adjust that upward for inflation in subsequent years).
Thanks for the reply. It makes sense that it is part of the total return. My question was more of how to use that dividend number. Let's say I retire in the fall and start my withdrawals on the follow on Jan 1st. I'm thinking to withdraw 4% on that date to use thoughout the year. How do I figure out my dividend number on that day since these haven't happened yet.
protagonist
Posts: 9277
Joined: Sun Dec 26, 2010 11:47 am

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by protagonist »

Since the year 2000, the DJIA has roughly tripled, taxes have dropped, while cumulative inflation has been under 50%. I would have expected 2000 retirees to do well.
What relevance does that have to the financial health of 2020 retirees in 2040?
Your guess is as good as mine (or anybody else's).
rich126
Posts: 4475
Joined: Thu Mar 01, 2018 3:56 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by rich126 »

Top99% wrote: Mon Feb 17, 2020 9:48 am
willthrill81 wrote: Mon Feb 17, 2020 8:51 am I'm thankful that by the time I'm 70, combined SS benefits for my DW and myself will be enough to cover all of our anticipated essential spending (under current law). So from that point and going forward, our portfolio will only be for discretionary spending and potential LTC needs, and we might mitigate the risk of the latter by buying a type A contract at a CCRC. As such, I'm not worried about the risk of ruin, which I frankly think to be more hype and fear than anything grounded in reality, at least for a knowledgeable BH.
We are in the same boat. Finally, if/when we really do have another 2008/2009 crash it is likely travel, restaurants etc. will cut prices so that provides even more buffer. There were some really great deals on hotels in 2009.
While it was bad for many people, I do recall some great deals. I flew to Belgium from AZ, and the price was low and they had so many bonuses that I got the lowest status on the airline just for that one trip alone. Airports weren't crowded, bargains galore for those that managed to escape job losses and other financial issues.
----------------------------- | If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Oatmeal wrote: Mon Feb 17, 2020 11:55 am
willthrill81 wrote: Sun Feb 16, 2020 11:35 pm
Oatmeal wrote: Sun Feb 16, 2020 11:31 pm Question about the 4% WR. How are the dividends received from AA are calculated here in relation to the 4% WR? Assume a 60/40 for example.

I'm thinking there is a number for the dividends. Say 2% projected for the upcoming year, so then the retiree withdraws 2% more from portfolio? If yes, how does the retiree figure out the projected dividends in AA?

And were the dividend payments factored into the study posted earlier?
Dividends are just part of the total return (i.e. nothing special). So if the starting balance were $100 and dividends and interest produced $3, you withdraw all of that plus another $1 in the first year (and adjust that upward for inflation in subsequent years).
Thanks for the reply. It makes sense that it is part of the total return. My question was more of how to use that dividend number. Let's say I retire in the fall and start my withdrawals on the follow on Jan 1st. I'm thinking to withdraw 4% on that date to use thoughout the year. How do I figure out my dividend number on that day since these haven't happened yet.
You don't have to determine how much you're getting in dividends. If you are implementing the '4% rule' you just withdraw 4% of the total portfolio balance, likely selling shares, in the first year and then withdraw that same dollar amount, adjusted for inflation, in subsequent years.

It's probably easiest to set the dividends to not be reinvested. They will then be part of your withdrawal each year.
The Sensible Steward
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ »

willthrill81 wrote: Mon Feb 17, 2020 9:37 pm
Oatmeal wrote: Mon Feb 17, 2020 11:55 am
willthrill81 wrote: Sun Feb 16, 2020 11:35 pm
Oatmeal wrote: Sun Feb 16, 2020 11:31 pm Question about the 4% WR. How are the dividends received from AA are calculated here in relation to the 4% WR? Assume a 60/40 for example.

I'm thinking there is a number for the dividends. Say 2% projected for the upcoming year, so then the retiree withdraws 2% more from portfolio? If yes, how does the retiree figure out the projected dividends in AA?

And were the dividend payments factored into the study posted earlier?
Dividends are just part of the total return (i.e. nothing special). So if the starting balance were $100 and dividends and interest produced $3, you withdraw all of that plus another $1 in the first year (and adjust that upward for inflation in subsequent years).
Thanks for the reply. It makes sense that it is part of the total return. My question was more of how to use that dividend number. Let's say I retire in the fall and start my withdrawals on the follow on Jan 1st. I'm thinking to withdraw 4% on that date to use thoughout the year. How do I figure out my dividend number on that day since these haven't happened yet.
You don't have to determine how much you're getting in dividends. If you are implementing the '4% rule' you just withdraw 4% of the total portfolio balance, likely selling shares, in the first year and then withdraw that same dollar amount, adjusted for inflation, in subsequent years.

It's probably easiest to set the dividends to not be reinvested. They will then be part of your withdrawal each year.
That's how I will do it... Set all dividends and capital gains from all my stock and bond funds to be sent to a money market fund.

Then sell the assets that are doing best to get to 4%.

So if I have $1 million, with 50% in stocks and 50% in bonds... Then if they are both paying 2% dividends, at the end of the year I'll have $20,000 in the money market.

I'll sell $20,000 of whichever asset is doing best. If stocks were up that year and I now have $540,000 in stocks and $500,000 in bonds, I'll sell $20,000 in stocks...

I'll have my $40,000 (4%) in the money market for next year, and I'll still have $1,020,000 in my accounts ($520k/$500k)

If stocks are down that year, I might have $420,000 in stocks and $500,000 in bonds... I'll sell $20,000 from bonds.

I'll have my $40,000 (4%) in the money market for next year, and I'll still have $900,000 in my accounts ($420k/$480k).
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Leesbro63
Posts: 10634
Joined: Mon Nov 08, 2010 3:36 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Leesbro63 »

To the post just above: Maybe do this twice of four times a year instead of having an entire year’s spending money just sitting there. Remember, you’ll have the ongoing income/cash flow of the dividend so you don’t need all that money just sitting.
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt »

Leesbro63 wrote: Tue Feb 18, 2020 4:31 am To the post just above: Maybe do this twice of four times a year instead of having an entire year’s spending money just sitting there. Remember, you’ll have the ongoing income/cash flow of the dividend so you don’t need all that money just sitting.
Just to add, spending is lumpy. If one spends $40k per year, that does not mean they spend ($40K / 12) = $3,333 per month. Some months will be more and some less. Our plan is as you described to use dividends and when those run out sell whatever is high in our AA every few months to cover our other expenses. For example, our property tax is about $15k but it isn’t due till Jan 31st of next year. No reason to have that cash sitting around for 1 year waiting to be spent. I’ll sell what I need at years end and then pay my property tax.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
Leesbro63
Posts: 10634
Joined: Mon Nov 08, 2010 3:36 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Leesbro63 »

EnjoyIt wrote: Tue Feb 18, 2020 10:34 am
Leesbro63 wrote: Tue Feb 18, 2020 4:31 am To the post just above: Maybe do this twice of four times a year instead of having an entire year’s spending money just sitting there. Remember, you’ll have the ongoing income/cash flow of the dividend so you don’t need all that money just sitting.
Just to add, spending is lumpy. If one spends $40k per year, that does not mean they spend ($40K / 12) = $3,333 per month. Some months will be more and some less. Our plan is as you described to use dividends and when those run out sell whatever is high in our AA every few months to cover our other expenses. For example, our property tax is about $15k but it isn’t due till Jan 31st of next year. No reason to have that cash sitting around for 1 year waiting to be spent. I’ll sell what I need at years end and then pay my property tax.
The only caveat to that is you can become a mini market timer. “I won’t sell today, the market is down”. Might be best to come up with a definitive plan of what gets sold when, on a regular basis.
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt »

Leesbro63 wrote: Tue Feb 18, 2020 10:41 am
EnjoyIt wrote: Tue Feb 18, 2020 10:34 am
Leesbro63 wrote: Tue Feb 18, 2020 4:31 am To the post just above: Maybe do this twice of four times a year instead of having an entire year’s spending money just sitting there. Remember, you’ll have the ongoing income/cash flow of the dividend so you don’t need all that money just sitting.
Just to add, spending is lumpy. If one spends $40k per year, that does not mean they spend ($40K / 12) = $3,333 per month. Some months will be more and some less. Our plan is as you described to use dividends and when those run out sell whatever is high in our AA every few months to cover our other expenses. For example, our property tax is about $15k but it isn’t due till Jan 31st of next year. No reason to have that cash sitting around for 1 year waiting to be spent. I’ll sell what I need at years end and then pay my property tax.
The only caveat to that is you can become a mini market timer. “I won’t sell today, the market is down”. Might be best to come up with a definitive plan of what gets sold when, on a regular basis.
If no one can predict the market, being a “mini market timer” will more than likely lead to underperformance.

So there is a Coronavirus. How is that actionable for a savvy Boglehead? It isn’t.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

EnjoyIt wrote: Tue Feb 18, 2020 10:34 am
Leesbro63 wrote: Tue Feb 18, 2020 4:31 am To the post just above: Maybe do this twice of four times a year instead of having an entire year’s spending money just sitting there. Remember, you’ll have the ongoing income/cash flow of the dividend so you don’t need all that money just sitting.
Just to add, spending is lumpy. If one spends $40k per year, that does not mean they spend ($40K / 12) = $3,333 per month. Some months will be more and some less. Our plan is as you described to use dividends and when those run out sell whatever is high in our AA every few months to cover our other expenses. For example, our property tax is about $15k but it isn’t due till Jan 31st of next year. No reason to have that cash sitting around for 1 year waiting to be spent. I’ll sell what I need at years end and then pay my property tax.
I almost included something like that in my reply above but didn't want to complicate it. At current yields, the difference between between something like TBM and a high yield savings account may not be worth worrying over for such a small portion of one's portfolio for no more than a year.
The Sensible Steward
Oatmeal
Posts: 22
Joined: Mon Dec 31, 2018 1:02 pm
Location: Portland

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Oatmeal »

Exactly. Actually I should have explained my plan a little more. I was thinking to follow a VPW method instead of the fixed 4% + inflation rate. I like VPW and I build my retirement budget and savings sort with enough cushion to be able to do it.

So anyway, initial thinking here that whatever rate I want to withdraw for a given year I would just take it out at the beginning of that year. Deposit into a high yield savings account until the follow on year. Spend from that. Extra money goes into a pool for big expenses. Sort of like saving today while getting an income from work.

But the dividends in the taxable account sort of complicate my plan since I don't really know what that return for the year is going to be. But maybe I would follow the quarterly plan suggested earlier in the thread. Ie see what income I get for the quarter and withdraw/sell funds at the end of the quarter. As long as the total for the year is less or equal than total withdrawal rate for that year.

Or maybe I'm just over complicating it... hmm. Anyway, I got couple of years before I need to do this.
User avatar
Topic Author
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Oatmeal wrote: Tue Feb 18, 2020 6:45 pm Exactly. Actually I should have explained my plan a little more. I was thinking to follow a VPW method instead of the fixed 4% + inflation rate. I like VPW and I build my retirement budget and savings sort with enough cushion to be able to do it.

So anyway, initial thinking here that whatever rate I want to withdraw for a given year I would just take it out at the beginning of that year. Deposit into a high yield savings account until the follow on year. Spend from that. Extra money goes into a pool for big expenses. Sort of like saving today while getting an income from work.

But the dividends in the taxable account sort of complicate my plan since I don't really know what that return for the year is going to be. But maybe I would follow the quarterly plan suggested earlier in the thread. Ie see what income I get for the quarter and withdraw/sell funds at the end of the quarter. As long as the total for the year is less or equal than total withdrawal rate for that year.

Or maybe I'm just over complicating it... hmm. Anyway, I got couple of years before I need to do this.
VPW is a fine withdrawal approach. The percentage is based on the total amount in your portfolio (i.e. including dividends and interest produced by the stocks and bonds).
The Sensible Steward
Oatmeal
Posts: 22
Joined: Mon Dec 31, 2018 1:02 pm
Location: Portland

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Oatmeal »

willthrill81 wrote: Tue Feb 18, 2020 7:22 pm
Oatmeal wrote: Tue Feb 18, 2020 6:45 pm Exactly. Actually I should have explained my plan a little more. I was thinking to follow a VPW method instead of the fixed 4% + inflation rate. I like VPW and I build my retirement budget and savings sort with enough cushion to be able to do it.

So anyway, initial thinking here that whatever rate I want to withdraw for a given year I would just take it out at the beginning of that year. Deposit into a high yield savings account until the follow on year. Spend from that. Extra money goes into a pool for big expenses. Sort of like saving today while getting an income from work.

But the dividends in the taxable account sort of complicate my plan since I don't really know what that return for the year is going to be. But maybe I would follow the quarterly plan suggested earlier in the thread. Ie see what income I get for the quarter and withdraw/sell funds at the end of the quarter. As long as the total for the year is less or equal than total withdrawal rate for that year.

Or maybe I'm just over complicating it... hmm. Anyway, I got couple of years before I need to do this.
VPW is a fine withdrawal approach. The percentage is based on the total amount in your portfolio (i.e. including dividends and interest produced by the stocks and bonds).
I think this sounds like what I need to do. Thanks willthrill81.
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt »

willthrill81 wrote: Tue Feb 18, 2020 2:29 pm
EnjoyIt wrote: Tue Feb 18, 2020 10:34 am
Leesbro63 wrote: Tue Feb 18, 2020 4:31 am To the post just above: Maybe do this twice of four times a year instead of having an entire year’s spending money just sitting there. Remember, you’ll have the ongoing income/cash flow of the dividend so you don’t need all that money just sitting.
Just to add, spending is lumpy. If one spends $40k per year, that does not mean they spend ($40K / 12) = $3,333 per month. Some months will be more and some less. Our plan is as you described to use dividends and when those run out sell whatever is high in our AA every few months to cover our other expenses. For example, our property tax is about $15k but it isn’t due till Jan 31st of next year. No reason to have that cash sitting around for 1 year waiting to be spent. I’ll sell what I need at years end and then pay my property tax.
I almost included something like that in my reply above but didn't want to complicate it. At current yields, the difference between between something like TBM and a high yield savings account may not be worth worrying over for such a small portion of one's portfolio for no more than a year.
I was thinking more in lines of having that money invested as per my AA as opposed to sitting in bonds. I really like Livesoft's strategy. Just pull out what you need when you need it. Over long term it leads to more money invested in the market for a longer period of time which historically has been a positive thing.

I realize that all the money I have is invested in some way or another. I agree with you and consider cash sitting in a high yields savings account, a money market account or bonds to be relatively similar over short term. That means that my emergency fund is part of my AA. My spending money is also part of my AA. The coins sitting on my dresser are part of my AA although they add up to a meaningless amount so its easier to ignore them. If all that is true, then I should just pull out what I need, when I need it by selling the asset that helps realign my AA back to desired risk levels. I think this strategy simplifies things significantly and I am all for simplifying life.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
User avatar
aj76er
Posts: 1179
Joined: Tue Dec 01, 2015 10:34 pm
Location: Austin, TX

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by aj76er »

HomerJ wrote: Mon Feb 17, 2020 10:41 pm
willthrill81 wrote: Mon Feb 17, 2020 9:37 pm
Oatmeal wrote: Mon Feb 17, 2020 11:55 am
willthrill81 wrote: Sun Feb 16, 2020 11:35 pm
Oatmeal wrote: Sun Feb 16, 2020 11:31 pm Question about the 4% WR. How are the dividends received from AA are calculated here in relation to the 4% WR? Assume a 60/40 for example.

I'm thinking there is a number for the dividends. Say 2% projected for the upcoming year, so then the retiree withdraws 2% more from portfolio? If yes, how does the retiree figure out the projected dividends in AA?

And were the dividend payments factored into the study posted earlier?
Dividends are just part of the total return (i.e. nothing special). So if the starting balance were $100 and dividends and interest produced $3, you withdraw all of that plus another $1 in the first year (and adjust that upward for inflation in subsequent years).
Thanks for the reply. It makes sense that it is part of the total return. My question was more of how to use that dividend number. Let's say I retire in the fall and start my withdrawals on the follow on Jan 1st. I'm thinking to withdraw 4% on that date to use thoughout the year. How do I figure out my dividend number on that day since these haven't happened yet.
You don't have to determine how much you're getting in dividends. If you are implementing the '4% rule' you just withdraw 4% of the total portfolio balance, likely selling shares, in the first year and then withdraw that same dollar amount, adjusted for inflation, in subsequent years.

It's probably easiest to set the dividends to not be reinvested. They will then be part of your withdrawal each year.
That's how I will do it... Set all dividends and capital gains from all my stock and bond funds to be sent to a money market fund.

Then sell the assets that are doing best to get to 4%.

So if I have $1 million, with 50% in stocks and 50% in bonds... Then if they are both paying 2% dividends, at the end of the year I'll have $20,000 in the money market.

I'll sell $20,000 of whichever asset is doing best. If stocks were up that year and I now have $540,000 in stocks and $500,000 in bonds, I'll sell $20,000 in stocks...

I'll have my $40,000 (4%) in the money market for next year, and I'll still have $1,020,000 in my accounts ($520k/$500k)

If stocks are down that year, I might have $420,000 in stocks and $500,000 in bonds... I'll sell $20,000 from bonds.

I'll have my $40,000 (4%) in the money market for next year, and I'll still have $900,000 in my accounts ($420k/$480k).
What you really have is a CASH asset as part of your overall AA. So, using your example, at year 0 of retirement:

500k stocks
500k bonds
40k cash

Overall AA is:
48% stocks
48% bonds
4% cash

Now, your just withdrawing from the 4% cash portion throughout the year (with dividends and cap-gains flowing back into the cash pile). At end of year, you rebalance back to some % of cash.

Personally, I think it's easier to just use real accounting and have a small cash allocation as part of one's AA. Anywhere from 2% to 5% seems reasonable; but some may even want 10-15% if it helps them sleep better. But it's really just part of your overall fixed-income. Then, withdraw from this all year and at the end of the year do:

(total amount of spending) / (beginning portfolio balance)

Which had better get close to what you had planed at beginning of the year (based on 4% rule, VPW, etc...).
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
Oatmeal
Posts: 22
Joined: Mon Dec 31, 2018 1:02 pm
Location: Portland

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Oatmeal »

aj76er wrote: Wed Feb 19, 2020 6:18 pm
HomerJ wrote: Mon Feb 17, 2020 10:41 pm
willthrill81 wrote: Mon Feb 17, 2020 9:37 pm
Oatmeal wrote: Mon Feb 17, 2020 11:55 am
willthrill81 wrote: Sun Feb 16, 2020 11:35 pm

Dividends are just part of the total return (i.e. nothing special). So if the starting balance were $100 and dividends and interest produced $3, you withdraw all of that plus another $1 in the first year (and adjust that upward for inflation in subsequent years).
Thanks for the reply. It makes sense that it is part of the total return. My question was more of how to use that dividend number. Let's say I retire in the fall and start my withdrawals on the follow on Jan 1st. I'm thinking to withdraw 4% on that date to use thoughout the year. How do I figure out my dividend number on that day since these haven't happened yet.
You don't have to determine how much you're getting in dividends. If you are implementing the '4% rule' you just withdraw 4% of the total portfolio balance, likely selling shares, in the first year and then withdraw that same dollar amount, adjusted for inflation, in subsequent years.

It's probably easiest to set the dividends to not be reinvested. They will then be part of your withdrawal each year.
That's how I will do it... Set all dividends and capital gains from all my stock and bond funds to be sent to a money market fund.

Then sell the assets that are doing best to get to 4%.

So if I have $1 million, with 50% in stocks and 50% in bonds... Then if they are both paying 2% dividends, at the end of the year I'll have $20,000 in the money market.

I'll sell $20,000 of whichever asset is doing best. If stocks were up that year and I now have $540,000 in stocks and $500,000 in bonds, I'll sell $20,000 in stocks...

I'll have my $40,000 (4%) in the money market for next year, and I'll still have $1,020,000 in my accounts ($520k/$500k)

If stocks are down that year, I might have $420,000 in stocks and $500,000 in bonds... I'll sell $20,000 from bonds.

I'll have my $40,000 (4%) in the money market for next year, and I'll still have $900,000 in my accounts ($420k/$480k).
What you really have is a CASH asset as part of your overall AA. So, using your example, at year 0 of retirement:

500k stocks
500k bonds
40k cash

Overall AA is:
48% stocks
48% bonds
4% cash

Now, your just withdrawing from the 4% cash portion throughout the year (with dividends and cap-gains flowing back into the cash pile). At end of year, you rebalance back to some % of cash.

Personally, I think it's easier to just use real accounting and have a small cash allocation as part of one's AA. Anywhere from 2% to 5% seems reasonable; but some may even want 10-15% if it helps them sleep better. But it's really just part of your overall fixed-income. Then, withdraw from this all year and at the end of the year do:

(total amount of spending) / (beginning portfolio balance)

Which had better get close to what you had planed at beginning of the year (based on 4% rule, VPW, etc...).
It would require tracking spending closely. But if the person withdraws some set amount at the beginning of the year and deposit that money into a high yield account then you simply monitor that account and know right away how much is left and how you much you spent so far anytime during the year.. Plus I think there is a psychological component to managing money in a bank account during the ups and downs of the equity and bond markets throughout the year. (Yeah I know you said the beginning portfolio balance... but does it really work that way in practice when the market is down say 20 to 30% mid year?)
Post Reply