Amortization Based Withdrawal (ABW)

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AlohaJoe
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by AlohaJoe »

michaeljc70 wrote: Sun Feb 07, 2021 8:15 am
Another thing is why would I spend money just because a formula tells me I can? Should I go to the casino and blow it?
I am always a bit saddened by how many Bogleheads are completely incapable of imagining using their portfolio for anything but spending on themselves.

ABW, and other similar approaches, give you guidelines for how much giving -- to family, to charities, to church, wherever your priorities are -- today instead of decades from now.

If you really can't think of anything better to do with your legacy than spend it at a casino I feel a bit sorry for the choices you've made over the many decades of your life while you were building your portfolio.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by dcabler »

michaeljc70 wrote: Sun Feb 07, 2021 8:15 am
jmk wrote: Sat Feb 06, 2021 5:57 pm
dknightd wrote: Thu Oct 29, 2020 12:11 pm And to me this is one of the biggest weakness of the PMT/TVM approach.
You have to predict when you will die.
You have to predict inflation.
You have to predict returns on investments.
You have to predict what your future expenses will be.
You have to predict when and how your cognitive ability will decline.
I suspect I have a 0% chance of predicting any one of those correctly.
These issues arise with any withdrawal approach one does oneself, other than hiring someone.
The PMT approach is one of the easiest to implement: it is as simple as one equation per year.
The IRS in fact uses a simple form of it in the RMD amounts, and if one wants to be really simple you can assume 0% return and the average life expectancy and have it as simple as 1/y, where y is the number of years one wants to live with rounding toward the low end.
True. Which is why I don't use any formal methodology to increase/decrease my spending in retirement.

A couple of other things I would add to the list above is you have to predict future tax rates/laws (and their impact on you) and you have to predict a potential inheritance (if applicable to you). We always say don't count on an inheritance, which is good advice, but it could potentially leave you with a lot more money than you planned for at an age where you are less likely to be spending more. So, I wouldn't count on any inheritance but I also wouldn't totally ignore a potential inheritance.

Another thing is why would I spend money just because a formula tells me I can? Should I go to the casino and blow it? Some years I want to take more/more expensive vacations. Some years I have big non-recurring expenses (new roof, new car, unexpected medical bill, etc.) Some years I might be in a pandemic and spend less :shock: I think I have a pretty good grasp if I can spend more or if I should spend less. Since I am in the first 5 years of retirement I am being conservative to avoid sequence of return problems.
Nothing in any of the formal withdrawal methods I know of compels one to either withdraw the full calculated amount, nor to spend it if one does. Not sure I know anybody who is retired who actually fully slavishly follows such a calculation, but rather uses it as a guideline since this is real life.

One form of smoothing for any of the more formal methods is to just leave any excess in the portfolio for the future if the calculated withdrawal is more than you actually need. Hopefully it continues to grow. Another is to go ahead and withdraw and bank it for a rainy day in case a year comes along where the withdrawal is less than needed expenses. And of course there are always unexpected expenses - real life is lumpy.

Also most formal withdrawal methods I'm aware of only calculate how much you can withdraw. It's up to the user to know whether that covers all of the expenses or not. If it does, great. If it doesn't, then there are the usual suggestions of reducing expenses, working longer & saving more (when possible). I'm not retired yet, but plan on using my own ABW spreadsheet that I created several years ago. And at least a few times a year, I pretend that I'm about to retire and I calculate what my withdrawal would be, along with estimated expenses & taxes as yet another way to answer the question: "Am I there yet?".

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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by michaeljc70 »

AlohaJoe wrote: Sun Feb 07, 2021 9:51 am
michaeljc70 wrote: Sun Feb 07, 2021 8:15 am
Another thing is why would I spend money just because a formula tells me I can? Should I go to the casino and blow it?
I am always a bit saddened by how many Bogleheads are completely incapable of imagining using their portfolio for anything but spending on themselves.

ABW, and other similar approaches, give you guidelines for how much giving -- to family, to charities, to church, wherever your priorities are -- today instead of decades from now.

If you really can't think of anything better to do with your legacy than spend it at a casino I feel a bit sorry for the choices you've made over the many decades of your life while you were building your portfolio.
I think that is a bit harsh. I retired based on having enough to live a life that makes me happy including satisfying my hobbies and interests, general expense, giving gifts, etc. Retiring in my 40s with 20+ years until FRA for SS and having relatives that have lived to 95 puts me in a bit of a different situation than someone retiring at 65 with investments, SS and a pension. As pointed out by someone else in the post you partially quoted, there are a lot of variables in retirement planning/withdrawing. You hope you get them right, but there is more risk when you have a potential 50 year retirement ahead of you. It is not that I cannot possibly think of something to spend excess money on but I am not going to start throwing money around because the stock market was good for a few years at this point in my retirement.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by willthrill81 »

michaeljc70 wrote: Sun Feb 07, 2021 10:14 am
AlohaJoe wrote: Sun Feb 07, 2021 9:51 am
michaeljc70 wrote: Sun Feb 07, 2021 8:15 am
Another thing is why would I spend money just because a formula tells me I can? Should I go to the casino and blow it?
I am always a bit saddened by how many Bogleheads are completely incapable of imagining using their portfolio for anything but spending on themselves.

ABW, and other similar approaches, give you guidelines for how much giving -- to family, to charities, to church, wherever your priorities are -- today instead of decades from now.

If you really can't think of anything better to do with your legacy than spend it at a casino I feel a bit sorry for the choices you've made over the many decades of your life while you were building your portfolio.
I think that is a bit harsh. I retired based on having enough to live a life that makes me happy including satisfying my hobbies and interests, general expense, giving gifts, etc. Retiring in my 40s with 20+ years until FRA for SS and having relatives that have lived to 95 puts me in a bit of a different situation than someone retiring at 65 with investments, SS and a pension. As pointed out by someone else in the post you partially quoted, there are a lot of variables in retirement planning/withdrawing. You hope you get them right, but there is more risk when you have a potential 50 year retirement ahead of you. It is not that I cannot possibly think of something to spend excess money on but I am not going to start throwing money around because the stock market was good for a few years at this point in my retirement.
If you don't need or want to spend as much as the ABW indicates that you can, then don't. Doing so will further pad your finances.

I think that AlohaJoe's point was simply that you could give the surplus to those in need.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by GAAP »

michaeljc70 wrote: Sun Feb 07, 2021 8:15 am Another thing is why would I spend money just because a formula tells me I can? Should I go to the casino and blow it? Some years I want to take more/more expensive vacations. Some years I have big non-recurring expenses (new roof, new car, unexpected medical bill, etc.) Some years I might be in a pandemic and spend less :shock: I think I have a pretty good grasp if I can spend more or if I should spend less. Since I am in the first 5 years of retirement I am being conservative to avoid sequence of return problems.
I use the output from a process like this as an input to create a budgetary number for setting a safe upper limit to the spending rate for the year. Other inputs include the planned non-recurring items. But the budgetary limit is not absolute, nor is it really a target to hit. Actual spending is an entirely separate thing -- just guided by the results of computation somewhat like ABW.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by ryman554 »

michaeljc70 wrote: Sun Feb 07, 2021 8:15 am
A couple of other things I would add to the list above is you have to predict future tax rates/laws (and their impact on you) and you have to predict a potential inheritance (if applicable to you). We always say don't count on an inheritance, which is good advice, but it could potentially leave you with a lot more money than you planned for at an age where you are less likely to be spending more. So, I wouldn't count on any inheritance but I also wouldn't totally ignore a potential inheritance.
Tax rates are tricksy, given many different sources of income and taxation of which (roth vs ss vs taxable vs tira vs pension vs lottery winnings....) A spitball approach is what I'm using -- my effective tax rate over the past N years and estimates based on what's left in the portfolio and how it will be taxed (marginally)... gets me close/overstimates it going forward. Easy to put into a PMT-based system, as it just lops off the top from your budget so you can see the after tax estimate, but otherwise does not change the actual math.

Inheritance is also trivial, if you are using time-value-of-money. It's just a one-year income stream of unknown amount at an unknown time, but once you know that, the math works just the same as any other income stream (like, say, paying for kids/grandkids college, except in reverse!)

RIght now I have it in my worksheet as getting an inheritance in 20 years of $0. I've gamed it out by moving the amount and timing of it, and, well, it changes things a lot if the inheritance is in the 7 figure range. So I don't count on it until it's more sure, but I do run scenarios with it on to see how much of a budget it can add.. $10-$20k per annum maximally, or so.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by siamond »

ryman554 wrote: Tue Feb 09, 2021 2:12 pmRIght now I have it in my worksheet as getting an inheritance in 20 years of $0. I've gamed it out by moving the amount and timing of it, and, well, it changes things a lot if the inheritance is in the 7 figure range. So I don't count on it until it's more sure, but I do run scenarios with it on to see how much of a budget it can add.. $10-$20k per annum maximally, or so.
Perfect! This is what a flexible ABW spreadsheet can do for you, don't be afraid of uncertainties, just run scenarios and see what goes...
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by jmk »

Wrench wrote: Sat Feb 06, 2021 6:41 pm
jmk wrote: Sat Feb 06, 2021 5:57 pm
dknightd wrote: Thu Oct 29, 2020 12:11 pm And to me this is one of the biggest weakness of the PMT/TVM approach.
You have to predict when you will die.
You have to predict inflation.
You have to predict returns on investments.
You have to predict what your future expenses will be.
You have to predict when and how your cognitive ability will decline.
I suspect I have a 0% chance of predicting any one of those correctly.
These issues arise with any withdrawal approach one does oneself, other than hiring someone.
The PMT approach is one of the easiest to implement: it is as simple as one equation per year.
The IRS in fact uses a simple form of it in the RMD amounts, and if one wants to be really simple you can assume 0% return and the average life expectancy and have it as simple as 1/y, where y is the number of years one wants to live with rounding toward the low end.
There are lots of ways to create stable retirement income that do NOT require a PMT calculation. Here's one: work/save until you can take social security and then purchase an annuity that will cover the balance of your expenses. Invest remaining monies in an asset allocation for which you feel comfortable, and use those funds for one time/special expenses. You need not know ANY of the issues raised by dknightd, and you require NO calculations beyond RMDs. The approach in this thread is fine and can work well for the technically literate, and cognitively able. BUT, there are other ways to achieve an acceptable withdrawal approach that work fine too. As in all things financial, there is no one size fits all approach.
Getting an annuity to cover balance of expenses is certainly a credible alternative to PMT. But notice, again, that you still have to answer when you will die, expenses, inflation etc from the list above. You need to know these to know when to get an annuity and what kind. Either way there are a lot of unknowns. PMT or no PMT. I'm not at all saying everyone has to use PMT, just that the list of questions above is not the deal breaker it is being presented.
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Re: Amortization Based Withdrawal (ABW)

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Last edited by jmk on Mon Mar 08, 2021 12:18 am, edited 1 time in total.
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Re: Amortization Based Withdrawal (ABW)

Post by jmk »

corn18 wrote: Sun Feb 07, 2021 9:01 am If I wanted to model my chosen 2% real return, how would I do that in my simple approach? I thought about doing a NPV on the expenses with the rate = 2%.
Basically, yes, that is what you'd do. It's the same thing, but instead of discount rate of 0% like you did in your original analysis (raw costs and assets, assuming 0% growth), you'd have 2% growth, which would account for the time value of money. Most would advice you run NPV of both income and expenses, not just expenses. There are controversies about what you should use as the discount rate: many say your expected rate of return across portfolio, others say the safe rate.
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

I think it will be useful to add the following two "simulator" spreadsheets as companions to the basic ABW calculator in the wiki:

ABW simulator
ABW monte carlo simulator

These spreadsheets show what withdrawals would be for a given sequence of returns.

The first spreadsheet (ABW simulator) shows what withdrawals will be for one particular sequence of returns. The screenshot below shows how it works. You enter a sequence of returns in the orange column. The corresponding withdrawals are calculated in the green column. I entered the historical returns for a 35/65 portfolio for the last 36 years (1985-2020). The resulting withdrawals range from $41,341 at age 65 to 150,553 at age 100. The reason the withdrawals grew faster than the scheduled g=0.5% is because the portfolio returns were higher than the expected 3%.

Image

The second spreadsheet (ABW monte carlo simulator) simply reruns this simulation 500 times by randomly drawing returns from a given set of returns. The screenshot below shows the results of randomly drawing returns from the 150 year historical returns of a 35/65 portfolio. (There is also an option to reduce historical returns to bring it in line with future expectations, if the user wants.)

Image

The results of the monte carlo simulation are summarized using percentiles. It shows the tradeoff between risk and return in the ABW withdrawal plan. The user can adjust their plan by changing asset allocation and g till they arrive at their preferred plan.

If there are no objections, I will add these two spreadsheets to the "basic calculator" section of the wiki.
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Re: Amortization Based Withdrawal (ABW)

Post by CalPoppy »

Ben Mathew wrote: Tue Jul 20, 2021 11:40 am The first spreadsheet (ABW simulator) shows what withdrawals will be for one particular sequence of returns. The screenshot below shows how it works. You enter a sequence of returns in the orange column. The corresponding withdrawals are calculated in the green column. I entered the historical returns for a 35/65 portfolio for the last 36 years (1985-2020). The resulting withdrawals range from $41,341 at age 65 to 150,553 at age 100. The reason the withdrawals grew faster than the scheduled g=0.5% is because the portfolio returns were higher than the expected 3%.
Hi Ben,

The sheets look great! Can you please help me understand the interplay between expected return and the historic returns?
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

CalPoppy wrote: Tue Jul 20, 2021 4:00 pm Hi Ben,

The sheets look great! Can you please help me understand the interplay between expected return and the historic returns?
Sure. The spreadsheet itself does not force any link between expected return and simulated returns. So, for example, you are free to put in a 3% expected return in the ABW plan, but simulate using a distribution that has a 5% expected return. While it seems reasonable that the expected return of the simulated returns should equal the expected return of the ABW plan, I leaves it to the user to make that happen. I think this allows the user more flexibility in considering all the what-ifs.

Simulated returns could be anything--drawn from a historical distribution, drawn from a mathematical distribution, or just arbitrary made up numbers. Historical returns seem to be the most widely used in such simulations and so I used them in the examples I gave. But a concern that some people have is that because of high current valuations, expected future returns may be lower than historical returns. So I've made it easy in the spreadsheet to modify the historical returns to reduce it by some percentage points before using it in the simulation.
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Re: Amortization Based Withdrawal (ABW)

Post by CalPoppy »

Ben Mathew wrote: Tue Jul 20, 2021 5:07 pm
CalPoppy wrote: Tue Jul 20, 2021 4:00 pm Hi Ben,

The sheets look great! Can you please help me understand the interplay between expected return and the historic returns?
Sure. The spreadsheet itself does not force any link between expected return and simulated returns. So, for example, you are free to put in a 3% expected return in the ABW plan, but simulate using a distribution that has a 5% expected return. While it seems reasonable that the expected return of the simulated returns should equal the expected return of the ABW plan, I leaves it to the user to make that happen. I think this allows the user more flexibility in considering all the what-ifs.

Simulated returns could be anything--drawn from a historical distribution, drawn from a mathematical distribution, or just arbitrary made up numbers. Historical returns seem to be the most widely used in such simulations and so I used them in the examples I gave. But a concern that some people have is that because of high current valuations, expected future returns may be lower than historical returns. So I've made it easy in the spreadsheet to modify the historical returns to reduce it by some percentage points before using it in the simulation.
Thanks for the explanation!
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Re: Amortization Based Withdrawal (ABW)

Post by klaus14 »

Dumb Question:

Is the return parameter in the spreadsheet arithmetic mean return or CAGR ?

I'd guess CAGR.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: Amortization Based Withdrawal (ABW)

Post by sixtyforty »

I really like the idea of the simulators. Would it be possible to include future cash flows ? A $1M current portfolio with simulated returns will not yield the same results as a $1M portfolio that also receives a pension or SS. The differences could be significant.
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

klaus14 wrote: Wed Jul 21, 2021 7:02 am Dumb Question:

Is the return parameter in the spreadsheet arithmetic mean return or CAGR ?

I'd guess CAGR.
Yes, it's CAGR.
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

sixtyforty wrote: Wed Jul 21, 2021 8:47 am I really like the idea of the simulators. Would it be possible to include future cash flows ? A $1M current portfolio with simulated returns will not yield the same results as a $1M portfolio that also receives a pension or SS. The differences could be significant.
One way to handle a pension would be to set aside a part of your portfolio to build a bond bridge to cover the gap till the pension begins. Then you can enter the remaining funds in the simulator to model what will happen with your variable withdrawals.

For more options on incorporating future income and expenses, see total portfolio allocation and withdrawal (TPAW). That has the basic simulator (first spreadsheet) already. I'll add a monte carlo simulator (the second spreadsheet) in the next few weeks.
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Re: Amortization Based Withdrawal (ABW)

Post by klaus14 »

Aiming to retire at age 40. I am thinking using ABW in the following fashion:

- Set duration to 30 years
- Set ending balance to 25%

At age 70, start receiving social security and invest a portion of the remaining balance to SPIA. If one expects these two to cover essential expenses, is this a reasonable approach?
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: Amortization Based Withdrawal (ABW)

Post by CalPoppy »

klaus14 wrote: Thu Jul 22, 2021 8:30 am Aiming to retire at age 40. I am thinking using ABW in the following fashion:

- Set duration to 30 years
- Set ending balance to 25%

At age 70, start receiving social security and invest a portion of the remaining balance to SPIA. If one expects these two to cover essential expenses, is this a reasonable approach?
I would:
- Use your full time horizon (from age 40 until estimated end of life)
- Enter social security cash flows in the appropriate years
- Enter an amount for a SPIA as a large cash outflow at age 70

I use the "PV-based Annuitized Spending" spreadsheet found here http://bit.ly/2WuNmvf
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

klaus14 wrote: Thu Jul 22, 2021 8:30 am Aiming to retire at age 40. I am thinking using ABW in the following fashion:

- Set duration to 30 years
- Set ending balance to 25%

At age 70, start receiving social security and invest a portion of the remaining balance to SPIA. If one expects these two to cover essential expenses, is this a reasonable approach?
Sounds like you want to use ABW for the gap years 40-70 and then rely primarily on SS and the SPIA. Your income during the gap years will be variable. Then when you turn 70 and SS kicks in, your income will become much more certain and likely quite different from what it was earlier. If that is in line with what you want, your strategy should work. But if you don't want that pre-70 post-70 dichotomy, you could make a plan where your pre SS income is more consistent with post SS income. One way is to build a bond bridge to age 70 and use ABW to calculate withdrawals on the remaining portfolio. My thoughts on when that would be appropriate, and an alternative for when it's not appropriate, are here:

Managing gap years without a bridge to Social Security
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Re: Amortization Based Withdrawal (ABW)

Post by klaus14 »

Ben Mathew wrote: Thu Jul 22, 2021 10:38 am
klaus14 wrote: Thu Jul 22, 2021 8:30 am Aiming to retire at age 40. I am thinking using ABW in the following fashion:

- Set duration to 30 years
- Set ending balance to 25%

At age 70, start receiving social security and invest a portion of the remaining balance to SPIA. If one expects these two to cover essential expenses, is this a reasonable approach?
Sounds like you want to use ABW for the gap years 40-70 and then rely primarily on SS and the SPIA. Your income during the gap years will be variable. Then when you turn 70 and SS kicks in, your income will become much more certain and likely quite different from what it was earlier. If that is in line with what you want, your strategy should work. But if you don't want that pre-70 post-70 dichotomy, you could make a plan where your pre SS income is more consistent with post SS income. One way is to build a bond bridge to age 70 and use ABW to calculate withdrawals on the remaining portfolio. My thoughts on when that would be appropriate, and an alternative for when it's not appropriate, are here:

Managing gap years without a bridge to Social Security
Thank you Ben, I'll think about the method you suggested.

In my method, I have the ending balance knob available for tuning. 25% sounds arbitrary but I selected it to make pre-70 and post-70 close to each other (I hypothetically invest all ending balance to SPIA with today's SPIA payout rate). If I update numbers before every withdrawal accordingly, wouldn't my method avoid the problem you described?
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

klaus14 wrote: Thu Jul 22, 2021 11:49 am
Ben Mathew wrote: Thu Jul 22, 2021 10:38 am
klaus14 wrote: Thu Jul 22, 2021 8:30 am Aiming to retire at age 40. I am thinking using ABW in the following fashion:

- Set duration to 30 years
- Set ending balance to 25%

At age 70, start receiving social security and invest a portion of the remaining balance to SPIA. If one expects these two to cover essential expenses, is this a reasonable approach?
Sounds like you want to use ABW for the gap years 40-70 and then rely primarily on SS and the SPIA. Your income during the gap years will be variable. Then when you turn 70 and SS kicks in, your income will become much more certain and likely quite different from what it was earlier. If that is in line with what you want, your strategy should work. But if you don't want that pre-70 post-70 dichotomy, you could make a plan where your pre SS income is more consistent with post SS income. One way is to build a bond bridge to age 70 and use ABW to calculate withdrawals on the remaining portfolio. My thoughts on when that would be appropriate, and an alternative for when it's not appropriate, are here:

Managing gap years without a bridge to Social Security
Thank you Ben, I'll think about the method you suggested.

In my method, I have the ending balance knob available for tuning. 25% sounds arbitrary but I selected it to make pre-70 and post-70 close to each other (I hypothetically invest all ending balance to SPIA with today's SPIA payout rate). If I update numbers before every withdrawal accordingly, wouldn't my method avoid the problem you described?
Yes, if you keep updating the terminal balance to set SPIA income + SS equal to your current ABW withdrawal, the pre-70 and post-70 income levels will align. So that's good.

Still, note that with your method, you would be taking all of your portfolio risk before age 70 and then stop taking risk thereafter. There are some benefits to spreading risk across your whole life. You can get a higher return at lower risk because of better time diversification. The TPAW thread has more on this. But if you prefer to avoid risk after age 70, I think your method makes sense.
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Re: Amortization Based Withdrawal (ABW)

Post by klaus14 »

Ben Mathew wrote: Thu Jul 22, 2021 12:25 pm
klaus14 wrote: Thu Jul 22, 2021 11:49 am
Ben Mathew wrote: Thu Jul 22, 2021 10:38 am
klaus14 wrote: Thu Jul 22, 2021 8:30 am Aiming to retire at age 40. I am thinking using ABW in the following fashion:

- Set duration to 30 years
- Set ending balance to 25%

At age 70, start receiving social security and invest a portion of the remaining balance to SPIA. If one expects these two to cover essential expenses, is this a reasonable approach?
Sounds like you want to use ABW for the gap years 40-70 and then rely primarily on SS and the SPIA. Your income during the gap years will be variable. Then when you turn 70 and SS kicks in, your income will become much more certain and likely quite different from what it was earlier. If that is in line with what you want, your strategy should work. But if you don't want that pre-70 post-70 dichotomy, you could make a plan where your pre SS income is more consistent with post SS income. One way is to build a bond bridge to age 70 and use ABW to calculate withdrawals on the remaining portfolio. My thoughts on when that would be appropriate, and an alternative for when it's not appropriate, are here:

Managing gap years without a bridge to Social Security
Thank you Ben, I'll think about the method you suggested.

In my method, I have the ending balance knob available for tuning. 25% sounds arbitrary but I selected it to make pre-70 and post-70 close to each other (I hypothetically invest all ending balance to SPIA with today's SPIA payout rate). If I update numbers before every withdrawal accordingly, wouldn't my method avoid the problem you described?
Yes, if you keep updating the terminal balance to set SPIA income + SS equal to your current ABW withdrawal, the pre-70 and post-70 income levels will align. So that's good.

Still, note that with your method, you would be taking all of your portfolio risk before age 70 and then stop taking risk thereafter. There are some benefits to spreading risk across your whole life. You can get a higher return at lower risk because of better time diversification. The TPAW thread has more on this. But if you prefer to avoid risk after age 70, I think your method makes sense.
This is also good analysis.
I have the "what percentage of ending balance should go to SPIA" knob too. I could use that if i wanted to take some risk at age 70. But yes, it will be hard to equalize that risk to pre-70. I think it is fine to err on the side of having less risk post-70.

Still, i understand this method is not as systematic as TPAW. But it is simpler and i understand the mechanics of it :) I'll study TPAW at some point though.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: Amortization Based Withdrawal (ABW)

Post by klaus14 »

CalPoppy wrote: Thu Jul 22, 2021 9:29 am
klaus14 wrote: Thu Jul 22, 2021 8:30 am Aiming to retire at age 40. I am thinking using ABW in the following fashion:

- Set duration to 30 years
- Set ending balance to 25%

At age 70, start receiving social security and invest a portion of the remaining balance to SPIA. If one expects these two to cover essential expenses, is this a reasonable approach?
I would:
- Use your full time horizon (from age 40 until estimated end of life)
- Enter social security cash flows in the appropriate years
- Enter an amount for a SPIA as a large cash outflow at age 70

I use the "PV-based Annuitized Spending" spreadsheet found here http://bit.ly/2WuNmvf

Thanks for the suggestion. I tried this. It gave a similar number to the method i described.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

I have added these two simulators to the wiki:
Ben Mathew wrote: Tue Jul 20, 2021 11:40 am I think it will be useful to add the following two "simulator" spreadsheets as companions to the basic ABW calculator in the wiki:

ABW simulator
ABW monte carlo simulator

These spreadsheets show what withdrawals would be for a given sequence of returns.

The first spreadsheet (ABW simulator) shows what withdrawals will be for one particular sequence of returns. The screenshot below shows how it works. You enter a sequence of returns in the orange column. The corresponding withdrawals are calculated in the green column. I entered the historical returns for a 35/65 portfolio for the last 36 years (1985-2020). The resulting withdrawals range from $41,341 at age 65 to 150,553 at age 100. The reason the withdrawals grew faster than the scheduled g=0.5% is because the portfolio returns were higher than the expected 3%.

Image

The second spreadsheet (ABW monte carlo simulator) simply reruns this simulation 500 times by randomly drawing returns from a given set of returns. The screenshot below shows the results of randomly drawing returns from the 150 year historical returns of a 35/65 portfolio. (There is also an option to reduce historical returns to bring it in line with future expectations, if the user wants.)

Image

The results of the monte carlo simulation are summarized using percentiles. It shows the tradeoff between risk and return in the ABW withdrawal plan. The user can adjust their plan by changing asset allocation and g till they arrive at their preferred plan.

If there are no objections, I will add these two spreadsheets to the "basic calculator" section of the wiki.
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

A post in the TPAW thread that may be of interest to ABW users:

The withdrawal strategy derived in Merton (1969) is ABW.

Summary:

The seminal academic papers on optimal allocation and withdrawal are Samuelson (1969) and Merton (1969). They have similar models and were published as companion papers in the August 1969 issue of The Review of Economics and Statistics. I show that the withdrawal strategy derived in Merton (1969) is ABW.

ABW is a simple and natural withdrawal technique that investors came up with on their own. The fact that it is also the optimal withdrawal strategy formally derived in Merton (1969) puts ABW on a firm theoretical footing.
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Re: Amortization Based Withdrawal (ABW)

Post by AlohaJoe »

Ben Mathew wrote: Sat Oct 09, 2021 1:06 am The seminal academic papers on optimal allocation and withdrawal are Samuelson (1969) and Merton (1969). They have similar models and were published as companion papers in the August 1969 issue of The Review of Economics and Statistics. I show that the withdrawal strategy derived in Merton (1969) is ABW.
That's interesting! I don't think I've ever seen anyone else connect Merton's work to amortization-style withdrawals. I wonder if it is one of those things that academics consider "obvious" and that's why it never seems to get mentioned?

While it is fine to have some healthy skepticism about the formal mathematical models and how they translate to reality, it is also nice to see the link; making it feel less like the whole endeavour isn't just some overly backtested hand-wavy just-so methodology.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by littlebird »

Deltoid wrote: Thu Feb 28, 2019 2:49 pm This is the most intuitively appealing withdrawal method to me.

I really like your idea of creating a spreadsheet requiring only simple market measures as inputs for a spouse to follow.
Over the course of time the program which supported the spreadsheet becomes obsolete, the surviving spouse now has only a tablet and does not know how to reproduce the spreadsheet, becomes anxious and insecure.

Use a simple method that can be calculated or looked up.

Littlebird, 79 year old widow. 39 years of rolling computer replacements. Luckily always did and still do my all arithmetic in my head or with a simple calculator. Managing very well, thank you. KIS
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by AlohaJoe »

littlebird wrote: Sat Oct 09, 2021 2:19 am Use a simple method that can be calculated or looked up.
Luckily ABW is a simple method that can be calculated with a $28 financial desktop calculator you can buy in any Walmart (or Amazon).
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

AlohaJoe wrote: Sat Oct 09, 2021 1:45 am
Ben Mathew wrote: Sat Oct 09, 2021 1:06 am The seminal academic papers on optimal allocation and withdrawal are Samuelson (1969) and Merton (1969). They have similar models and were published as companion papers in the August 1969 issue of The Review of Economics and Statistics. I show that the withdrawal strategy derived in Merton (1969) is ABW.
That's interesting! I don't think I've ever seen anyone else connect Merton's work to amortization-style withdrawals. I wonder if it is one of those things that academics consider "obvious" and that's why it never seems to get mentioned?
I haven't seen the connection mentioned elsewhere. This may be because academics who work in this area may not be aware that some investors are explicitly using ABW methods to calculate withdrawals. Also, there isn't much incentive to make these connections because that's not the sort of work that will be published in top journals. Occasionally there is a popularizing book like Ayres and Nalebuffs that try to bridge the gap. Hopefully there will be more.
AlohaJoe wrote: Sat Oct 09, 2021 1:45 am While it is fine to have some healthy skepticism about the formal mathematical models and how they translate to reality, it is also nice to see the link; making it feel less like the whole endeavour isn't just some overly backtested hand-wavy just-so methodology.
Formal mathematical models can be bad abstractions in that they don't capture the important aspects of the problem. So the advanced math can end up saying crazy things. So it's understandable that people are skeptical of a model they don't understand. I am too.

But Samuelson and Merton's models are not bad abstractions that say crazy things. They are good abstractions that provide valuable practical insights. It's great that Ayres and Nalebuff popularized the asset allocation aspect of the model. The withdrawal aspect also needs some popularizing. The fact that the withdrawal is ABW which is already in use means that the gap between theory and practice is bridge-able.

It is reassuring that we can justify ABW by optimizing a reasonable utility function. I doubt that we can justify SWR the same way. Any reasonable utility function would be screaming to adjust--at least partially--in response to changes in portfolio value and expected growth. Looking at a strategy through the lens of a formal model can help keep things honest. It's easy to become misguided by an ad-hoc strategy based solely on backtesting. Anyone who saved a reasonable amount these last few decades and didn't panic during crashes did fine--whether they used a good withdrawal strategy, a bad withdrawal strategy, or just withdrew whatever they wanted. That may not be true for the next generation of retirees if they face significantly lower long term returns as seems likely based on valuations. If that happens, the shortcomings of logically unsound strategies will become apparent.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by willthrill81 »

AlohaJoe wrote: Sat Oct 09, 2021 4:45 am
littlebird wrote: Sat Oct 09, 2021 2:19 am Use a simple method that can be calculated or looked up.
Luckily ABW is a simple method that can be calculated with a $28 financial desktop calculator you can buy in any Walmart (or Amazon).
You're such a spender Joe. :P I use Excel (already have it for free through work), an online time value of money calculator, or a phone app.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by willthrill81 »

littlebird wrote: Sat Oct 09, 2021 2:19 am
Deltoid wrote: Thu Feb 28, 2019 2:49 pm This is the most intuitively appealing withdrawal method to me.

I really like your idea of creating a spreadsheet requiring only simple market measures as inputs for a spouse to follow.
Over the course of time the program which supported the spreadsheet becomes obsolete, the surviving spouse now has only a tablet and does not know how to reproduce the spreadsheet, becomes anxious and insecure.
It's reasonable to use one withdrawal method while both spouses are alive but for the surviving spouse who is less financially savvy to use a simpler withdrawal. I've left fairly detailed instructions for my DW to this effect in the event of my untimely passing.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by Ben Mathew »

littlebird wrote: Sat Oct 09, 2021 2:19 am Over the course of time the program which supported the spreadsheet becomes obsolete, the surviving spouse now has only a tablet and does not know how to reproduce the spreadsheet, becomes anxious and insecure.

Use a simple method that can be calculated or looked up.

Littlebird, 79 year old widow. 39 years of rolling computer replacements. Luckily always did and still do my all arithmetic in my head or with a simple calculator. Managing very well, thank you. KIS
You can use ABW with a table like this and some simple arithmetic:

Image

The table shows withdrawal rates as a function of years left and expected portfolio growth (r). Each year, calculate r using the following simple arithmetic:

Real growth rate of portfolio (r) = stock % * expected real return of stocks + bond % * expected real return of bonds.

This table assumes withdrawal growth rate (g) = 0.75%. If you prefer a different g, you can change that assumption in the attached spreadsheet and generate your own custom table.

Print out several copies of the table. Keep one with your IPS. Stick one on the wall. Give one to your spouse.

If you are past 80 and are tired of computing r every year, cross out the right half of the table and withdraw from anywhere in the left half. As you get older, there is less of a difference between the withdrawals specified by the different columns.

Also consider adding instructions regarding annuitization. Example:
- Annuitize 1/4 of the remaining portfolio at age 80
- Annuitize 1/3 of the remaining portfolio at age 85
- Annuitize 1/2 of the remaining portfolio at age 90
- Annuitize the entire remaining portfolio at age 90

Here's the spreadsheet with the table.
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Re: Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example

Post by AlohaJoe »

willthrill81 wrote: Sat Oct 09, 2021 5:29 pm
AlohaJoe wrote: Sat Oct 09, 2021 4:45 am
littlebird wrote: Sat Oct 09, 2021 2:19 am Use a simple method that can be calculated or looked up.
Luckily ABW is a simple method that can be calculated with a $28 financial desktop calculator you can buy in any Walmart (or Amazon).
You're such a spender Joe. :P I use Excel (already have it for free through work), an online time value of money calculator, or a phone app.
But what if civilization collapses!? What if Microsoft, the most profitable company in the world at the moment, suddenly disappears and takes Excel with it and everyone goes back to using slide rules!? What if cell phones are all vaporized in a massive solar flare!? Clearly you need to account for every contingency or Bogleheads will find another reason to discount it.....
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Re: Amortization Based Withdrawal (ABW)

Post by Iconicus »

In siamond's excellent Google sheet called Amortized Spending Budget http://bit.ly/2WuNmvf on the Simple Example tab, shouldn't the PMT formula in J7 use the adjusted portfolio duration (J6) so that the grace period is included instead of using the non-grace period adjusted duration (F8)?
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Re: Amortization Based Withdrawal (ABW)

Post by siamond »

Iconicus wrote: Sun Oct 24, 2021 9:21 pm In siamond's excellent Google sheet called Amortized Spending Budget http://bit.ly/2WuNmvf on the Simple Example tab, shouldn't the PMT formula in J7 use the adjusted portfolio duration (J6) so that the grace period is included instead of using the non-grace period adjusted duration (F8)?
Hm, yes, this was indeed the intent… Not sure what happened here. Will revisit tomorrow…
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Re: Amortization Based Withdrawal (ABW)

Post by siamond »

siamond wrote: Sun Oct 24, 2021 10:12 pm
Iconicus wrote: Sun Oct 24, 2021 9:21 pm In siamond's excellent Google sheet called Amortized Spending Budget http://bit.ly/2WuNmvf on the Simple Example tab, shouldn't the PMT formula in J7 use the adjusted portfolio duration (J6) so that the grace period is included instead of using the non-grace period adjusted duration (F8)?
Hm, yes, this was indeed the intent… Not sure what happened here. Will revisit tomorrow…
I think I remember now, I was having an ABW discussion with a friend... I tweaked the reference spreadsheet in the course of the discussion to make a point and then... I forgot to restore it to its original state. I should have made a copy before doing anything, I was lazy... MY BAD. :oops:

I just restored it to use the grace period in cell J6. Many thanks for your eagle eye, that was a dumb mistake.
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Re: Amortization Based Withdrawal (ABW)

Post by tman9999 »

15 pages, 700+ posts. The BH community is nothing if not thorough!

Based on all of this discussion I was hoping that the wikipedia page for ABW would be updated to include a summary of both the pros and the cons of the ABW method described there.

I'm currently planning on following McClung's approach, but this thread got my attention. So now feeling rather stuck - we only get one shot at this, and I'm planning on starting in the next year or so.
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Re: Amortization Based Withdrawal (ABW)

Post by willthrill81 »

tman9999 wrote: Tue Oct 26, 2021 12:35 pm Based on all of this discussion I was hoping that the wikipedia page for ABW would be updated to include a summary of both the pros and the cons of the ABW method described there.
The list of cons would be very short. About the only meaningful one I can think of is that it is more complex than most other withdrawal methods, but the spreadsheets that others have developed go a long way to simplifying its implementation.
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

tman9999 wrote: Tue Oct 26, 2021 12:35 pm 15 pages, 700+ posts. The BH community is nothing if not thorough!

Based on all of this discussion I was hoping that the wikipedia page for ABW would be updated to include a summary of both the pros and the cons of the ABW method described there.

I'm currently planning on following McClung's approach, but this thread got my attention. So now feeling rather stuck - we only get one shot at this, and I'm planning on starting in the next year or so.
ABW is extremely flexible. With the use of multiple subportfolios for separate spending goals (including legacy as a separate goal for example), and the ability to incorporate future income into the portfolio by present value calculations, ABW can be made to fit most reasonable situations. Where it seems it can't, there is often a misunderstanding about what ABW can do or what the alternatives can do.

The con is that people have to get used to the idea that the future is uncertain and so withdrawals will be uncertain. Capturing that uncertain reality properly requires a little more effort. Compare these two statements:

- SWR says that your withdrawal at age 80 will be $60,000 with 95% probability.

- ABW says that your withdrawal at age 80 will be $90,000 +/- $20,000 with 95% probability.

The latter is a more sensible strategy, but there's a bit more information to process.

That I think explains the popularity of inflexible SWR calculations. People seem to know in the back of their mind that future withdrawals really are variable. But they don't model it explicitly. Instead they assume withdrawals will be inflexible--just for the sake of the calculation. But that assumption leads to conclusions that are quite misleading.

A list of pros and cons of ABW will likely get pretty contentious, because many alleged cons would be from misunderstandings or not seeing how a particular situation can be modeled within ABW. So it might be better suited to the thread than the wiki.

Feel free to ask questions as you work through ABW versus alternate strategies. What is it about an alternate strategy that you find attractive, and maybe we can compare it to what ABW offers.
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Re: Amortization Based Withdrawal (ABW)

Post by siamond »

tman9999 wrote: Tue Oct 26, 2021 12:35 pmBased on all of this discussion I was hoping that the wikipedia page for ABW would be updated to include a summary of both the pros and the cons of the ABW method described there.

I'm currently planning on following McClung's approach, but this thread got my attention. So now feeling rather stuck - we only get one shot at this, and I'm planning on starting in the next year or so.
As you undoubtedly noticed by browsing those 15 pages, we had a hard time to come to a consensus with the wording of the wiki page and I suspect there is little appetite for doing another round of word smithing... At least, as one of the lead contributors, I don't have any.

Pros and cons are tricky, because it's really an "it's in the eye of the beholder" thing. Case in point:
- I genuinely believe ABW is one of the best approaches for people with a Do-It-Yourself mentality and having fairly solid spreadsheet skills.
- but the counterpart is that it might not be that great for people with limited spreadsheet skills and/or people who seek a fully shrink-wrapped approach (VPW might then be a better choice; although a simple 5% of one's current portfolio would be a better choice for some).
- ABW is a variable withdrawal method, which is only good if one has a financial situation allowing year-to-year flexibility in one's spending (i.e. room for discretionary expenses; AND a corresponding mindset of flexible spending).
- But the counterpart is that if you don't have such mindset and/or flexible financial situation, then other approaches (e.g. the more slowly moving Guyton-Klinger decision rules; or the more extreme approach of annuitizing [all or some of] one's portfolio with an SPIA) might be for you.
- Some people with more wealth might not care whatsoever about such withdrawal formulas and be happier winging it.
- Some very frugal (and a tad paranoid) people might be happier just navigating way under past safe withdrawal rates.
- Etc.

What I am trying to say is that there is no one-size-fits-all. It all depends on your personal circumstances and behavior.
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Re: Amortization Based Withdrawal (ABW)

Post by tman9999 »

Ben Mathew wrote: Tue Oct 26, 2021 4:36 pm A list of pros and cons of ABW will likely get pretty contentious, because many alleged cons would be from misunderstandings or not seeing how a particular situation can be modeled within ABW. So it might be better suited to the thread than the wiki.

Feel free to ask questions as you work through ABW versus alternate strategies. What is it about an alternate strategy that you find attractive, and maybe we can compare it to what ABW offers.
I'm not interested in overly simplistic approaches to decumulation like SWR or 4% rule. A variable approach, therefore, makes sense to me.

I don't mind complexity, as long as there isn't a simpler way to get to the same answer. "Answer" in this case means to me that I have adequately accounted for known unknowns, and modeled them to a level that any sensible person would deem reasonable. So if it's between $100,000/yr, 95% success probability, and $100,000/yr, +/- $20,000, 95% success probability, and there are sound reasons behind both, then I'm probably going to go with the latter one because it seems to be taking a more nuanced approach to acknowledging known unknowns.
siamond wrote: Tue Oct 26, 2021 5:37 pm What I am trying to say is that there is no one-size-fits-all. It all depends on your personal circumstances and behavior.
As for my behavior, I already know that my wife and I are both a) frugal; b) adaptable to circumstances. We've spent our whole lives living that way, so we know we can do it. My greatest fear is that we don't loosen up enough to enjoy what we've spent decades building, and end up dying rich. OTOH, as we stare down what could be 40 years of living off our nest egg, getting it wrong and overspending is not acceptable.

So some sort of a VWR-based approach is what I've concluded will work best for us.

Thanks for all the input - I feel better about plowing into this more and figuring out ABW.
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Re: Amortization Based Withdrawal (ABW)

Post by siamond »

tman9999 wrote: Tue Oct 26, 2021 6:33 pmI don't mind complexity, as long as there isn't a simpler way to get to the same answer.
[...]
As for my behavior, I already know that my wife and I are both a) frugal; b) adaptable to circumstances. We've spent our whole lives living that way, so we know we can do it. My greatest fear is that we don't loosen up enough to enjoy what we've spent decades building, and end up dying rich. OTOH, as we stare down what could be 40 years of living off our nest egg, getting it wrong and overspending is not acceptable.
Then yes, assuming you have at least a moderate amount of spreadsheet skills, then ABW does seem a good candidate for you. And I personally share the "fear of not loosen up enough to enjoy" what our savings (and a possibly rosy future!) will bring us. One of the top goals in our IPS is "Enjoy life as much as we can" (and yes, this is a financial goal).
Last edited by siamond on Tue Oct 26, 2021 8:58 pm, edited 1 time in total.
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Re: Amortization Based Withdrawal (ABW)

Post by Ben Mathew »

tman9999 wrote: Tue Oct 26, 2021 6:33 pm As for my behavior, I already know that my wife and I are both a) frugal; b) adaptable to circumstances. We've spent our whole lives living that way, so we know we can do it. My greatest fear is that we don't loosen up enough to enjoy what we've spent decades building, and end up dying rich. OTOH, as we stare down what could be 40 years of living off our nest egg, getting it wrong and overspending is not acceptable.

So some sort of a VWR-based approach is what I've concluded will work best for us.

Thanks for all the input - I feel better about plowing into this more and figuring out ABW.
I think ABW will work well for you. You will not run out of money. To reduce the chances that your withdrawals will become too low in late retirement, you can choose a conservative portfolio growth rate (r) and a growing amortization schedule (g>0). That will mean lower withdrawals early, but you can be more confident about late ages. That balance between consumption today vs the future is not hard-baked into ABW. It's an input. You get to pick.

As part of your planning, I recommend using the ABW Monte Carlo Simulator (located under "Basic calculator" section in the ABW wiki) to see the range of withdrawals. That may seem a bit involved, but it's useful to see the range of outcomes your plan generates (rather than just the expected outcome.)

This is not part of ABW, but if you don't plan to leave a bequest and are seeking to maximize withdrawals, it will usually make sense to start annuitizing the portfolio at some point. So for example, you might rely solely on ABW till age 80, and then start annuitizing gradually until the portfolio is fully annuitized by some point in your 90s.
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Re: Amortization Based Withdrawal (ABW)

Post by maloflora »

Hi all,

I'm really attracted to this way of thinking about retirement spending, for reasons outlined in this thread: viewtopic.php?f=10&t=360739&p=6289993#p6289993

I wonder if I could please check that I'm ok to apply its logic in the way I outline there as a UK investor? I can't see any reasons why if the inflation assumptions are very similar you couldn't just update portfolio performance annually without having to make forecasts about UK rates of return separate from US ones.

I appreciate that logic doesn't work for SWR-based retirement strategies but I think I'm flexible enough (and have the base pension income) to avoid the need to follow that route.

All help appreciated, and as I say in the thread, I'm really grateful for all the work and explanation in all these threads!
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Re: Amortization Based Withdrawal (ABW)

Post by AlohaJoe »

maloflora wrote: Wed Oct 27, 2021 3:00 pm I can't see any reasons why if the inflation assumptions are very similar you couldn't just update portfolio performance annually without having to make forecasts about UK rates of return separate from US ones.
There is a wide variety of approaches for the rate parameter. Everything from "use historical global averages" to "use current TIPS rates" to "perform complicated estimates for each asset class separately and then combine them".

Simply picking the US estimated returns (for a global or non-US portfolio) seems like a perfectly acceptable choice here, especially given any estimate is going to have some pretty large error-bars on it.
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Re: Amortization Based Withdrawal (ABW)

Post by maloflora »

Thanks for the response AlohaJoe. Yes that's my feeling about it - I really like the self-correcting aspect of these kinds of approaches. But it requires spending flexibility, of course, which I'm definitely up for.
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Re: Amortization Based Withdrawal (ABW)

Post by siamond »

AlohaJoe wrote: Thu Oct 28, 2021 4:12 am
maloflora wrote: Wed Oct 27, 2021 3:00 pm I can't see any reasons why if the inflation assumptions are very similar you couldn't just update portfolio performance annually without having to make forecasts about UK rates of return separate from US ones.
There is a wide variety of approaches for the rate parameter. Everything from "use historical global averages" to "use current TIPS rates" to "perform complicated estimates for each asset class separately and then combine them".

Simply picking the US estimated returns (for a global or non-US portfolio) seems like a perfectly acceptable choice here, especially given any estimate is going to have some pretty large error-bars on it.
Well... It really depends on the asset allocation and the use (or not) of UK-only funds...

Using 1/CAPE as simple and yet fairly effective model for expected returns, if one goes to the Barclays CAPE site and select US and UK, you will see that the trajectories have been highly correlated, but the absolute values were not. And well, only absolute values matter for ABW. Barclays is also handy to find the latest CAPE value for a given market.
https://indices.barclays/IM/21/en/indic ... c-cape.app
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Re: Amortization Based Withdrawal (ABW)

Post by maloflora »

siamond wrote: Thu Oct 28, 2021 8:27 pm Using 1/CAPE as simple and yet fairly effective model for expected returns, if one goes to the Barclays CAPE site and select US and UK, you will see that the trajectories have been highly correlated, but the absolute values were not. And well, only absolute values matter for ABW. Barclays is also handy to find the latest CAPE value for a given market.
Thanks Siamond. I've tried a different set of assumptions for future returns (3% stock and 0% bonds) just to see what the results were across the various spreadsheets: viewtopic.php?p=6301075#p6301075

Assuming I've got it right, I think I'm still in the right ballpark for a well-funded but flexible withdrawal strategy.
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