Bogleheads at/Aiming For 2% SWR

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TN_Boy
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Re: Bogleheads at/Aiming For 2% SWR

Post by TN_Boy »

Admiral wrote: Wed May 25, 2022 10:20 am
TN_Boy wrote: Wed May 25, 2022 9:32 am
Admiral wrote: Wed May 25, 2022 7:39 am
Leesbro63 wrote: Wed May 25, 2022 7:22 am
carminered2019 wrote: Wed May 25, 2022 12:29 am I am trying to build a stock portfolio where dividends pay for all my living expenses by age 60.
Behaviorally I like this. A no-brainer income stream. But as a few others mentioned, you could live into your 90s and end up with a huge taxable income for many years that doesn’t need to be. I’ve read about people who use BRK (Warren Buffet’s Berkshire Hathaway) as their stock index fund. They sell a little each year, as needed for spending. Get the same capital gains tax rate as dividends. But they have control over their taxable income.
Not sure I would characterize this plan as "a no-brainer income stream" since companies can and do cut their dividends for various reasons. If you want steady income without selling stock, buy bonds or CDs.
Unless the bonds are TIPS, the income is steady in nominal terms, not real terms. The last 18 months have provided a clear demonstration of that fact.
Real vs. nominal is a separate discussion. There's no assurance stock dividends will pay out steadily in real terms either (see: 2022). And they are uncontrollable taxable events whether one needs the money or not.
I don't think it is a separate discussion. You said:
if you want steady income without selling stock, buy bonds or CDs
and I am pointing out that unless you buy inflation-indexed bonds, you may not get steady income from your fixed income interest. That is relevant.

And yes, a dividend stream from equity may or may not keep up with inflation either, and will definitely be variable.

If you want a steady income in real dollars (which is what I want) your income stream has to be inflation-indexed.

Or, if you have a mixture of stocks and bonds and you want a constant real dollar income, you take interest and dividends and if necessary sell shares to keep the income steady in real terms. Which is what I would do.

I don't see what the taxation of dividends has to do with with discussion. Even a very tax efficient total market index fund pays out dividends upon which tax will be due in a taxable account. When pulling from tax-deferred accounts, everything is taxable as ordinary income, etc. so dividend taxation is not an issue.
HootingSloth
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Re: Bogleheads at/Aiming For 2% SWR

Post by HootingSloth »

WestCoastPhan wrote: Wed May 25, 2022 11:44 am
Marseille07 wrote: Wed May 25, 2022 11:28 am
WestCoastPhan wrote: Wed May 25, 2022 11:22 am And nothing wrong with that, right? It's just a matter of personal preference.
Extra 10~15 years of work wasted.

Now, if you made a lot of money already and your withdrawal rate will be 2% because of that, then there's nothing wrong with that. Obviously you don't need to donate a million dollars to raise your SWR to 4%.
"Wasted"?!? If a BH wants to -- indeed has a GOAL -- of leaving substantial amounts to children, grandchildren and/or particular charities, how can another person say that the BH "wasted" his time at work? I read your comment as "That's not what I would do" . . . which is fine. To each his own. But it's laughable that you are taking the position of "My personal preferences are correct; others' personal preferences are wrong."
I agree that this is a worthy goal and could provide one among many reasonable justifications for working longer.

Have you considered giving additional money to your children, grandchildren, and particular charities during your lifetime (and, so, increasing your withdrawal rate) and rejected that option? What led you to prefer giving the money away only after you die?
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RoadThunder
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Re: Bogleheads at/Aiming For 2% SWR

Post by RoadThunder »

H-Town wrote: Mon May 23, 2022 9:27 am
Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
It's not really our initial financial goal. Our portfolio just continues to grow organically and crossed the 50x 2 years ago. Being a dual income family, it's easier for us to save and build wealth. We live on about roughly a quarter of one income and save the rest. We are not planning to retire or stop working anytime soon. Maybe we change our mind later. Who knows? At least we have plenty of options.
Fear based thinking.
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Re: Bogleheads at/Aiming For 2% SWR

Post by H-Town »

RoadThunder wrote: Wed May 25, 2022 3:18 pm
H-Town wrote: Mon May 23, 2022 9:27 am
Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
It's not really our initial financial goal. Our portfolio just continues to grow organically and crossed the 50x 2 years ago. Being a dual income family, it's easier for us to save and build wealth. We live on about roughly a quarter of one income and save the rest. We are not planning to retire or stop working anytime soon. Maybe we change our mind later. Who knows? At least we have plenty of options.
Fear based thinking.
How so?
Time is the ultimate currency.
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TheTimeLord
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Re: Bogleheads at/Aiming For 2% SWR

Post by TheTimeLord »

Marseille07 wrote: Wed May 25, 2022 11:47 am
WestCoastPhan wrote: Wed May 25, 2022 11:44 am "Wasted"?!? If a BH wants to -- indeed has a GOAL -- of leaving substantial amounts to children, grandchildren and/or particular charities, how can another person say that the BH "wasted" his time at work? I read your comment as "That's not what I would do" . . . which is fine. To each his own. But it's laughable that you are taking the position of "My personal preferences are correct; others' personal preferences are wrong."
OK, I wasn't aware what your goal was.

If you are earning money for legacy purposes, then it's not wasted. I said "wasted" in the sense of working extra years when they could have walked much earlier (and no legacy goals).
My wife is still working because she enjoys it. If not for Covid related changes chances are I would still be working. Financial Independence gives you choices, retirement is one possible choice. I do not regret any of the days I worked past what I needed for retirement.
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Re: Bogleheads at/Aiming For 2% SWR

Post by White Coat Investor »

Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
I would submit that most at that point simply have more than they need or want to spend. It's not deliberate, it just is what it is. 2% of $20 million is really a lot of money to spend each year.
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Re: Bogleheads at/Aiming For 2% SWR

Post by jebmke »

TheTimeLord wrote: Wed May 25, 2022 3:59 pm My wife is still working because she enjoys it. If not for Covid related changes chances are I would still be working. Financial Independence gives you choices, retirement is one possible choice. I do not regret any of the days I worked past what I needed for retirement.
Me neither. The last several years of my career were the among the most enjoyable and fulfilling of all of them. My decision to retire was not a financial decision. I finally reached a point where I was ready to do something different. The money was simply an enabler. Many of the things I did while working I still do on and off for organization that could never afford to pay me.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Bogleheads at/Aiming For 2% SWR

Post by radiowave »

Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
I'm a boomer who recently retired mid 60s. Our planning was to pay off the mortgage and all other debt prior to transitioning to retirement as a way to keep baseline cash flow needs as low as possible and SSx2 and small pensionsx2 would more that meet all our basic needs. I keep a detailed portfolio and analytic spreadsheet and part of that is to estimate portfolio withdrawals at 1, 2, 3, and 4%. Our thinking is that this is mostly discretionary and capital expenses so we can estimate for example what we could spend for a new vehicle or go on a very nice trip abroad above and beyond our income/expenses. So technically we have a 0% SWR as baseline and use the spreadsheet to plan other single time expenses. Of note, we do have a 2 year cash cushion which may seem high to some forum members in high inflation times, but it does help avoid selling total stock funds in our taxable account while the market is down. Also in taxable, we turn dividend reinvestment on/off depending on cash flow needs, use it as a cash spigot of sorts. Yes, I know it is essentially the same thing as selling the same amount of the mutual fund. But from a behavioral standpoint, it fun to know I spent a 40+ career saving and can splurge a little from time to time. :beer
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Re: Bogleheads at/Aiming For 2% SWR

Post by dbr »

radiowave wrote: Wed May 25, 2022 4:46 pm So technically we have a 0% SWR
Please forgive me for a quibble, but you have a 0% WR (withdrawal rate). Withdrawal rate can be set by the investor but SWR (safe withdrawal rate) is a property of a portfolio.

You obviously know what you are doing but some readers could get confused. Assuming a typical set of investments your SWR is presumably more or less the infamous 4%.
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Re: Bogleheads at/Aiming For 2% SWR

Post by Leesbro63 »

dbr wrote: Wed May 25, 2022 4:53 pm
radiowave wrote: Wed May 25, 2022 4:46 pm So technically we have a 0% SWR
Please forgive me for a quibble, but you have a 0% WR (withdrawal rate). Withdrawal rate can be set by the investor but SWR (safe withdrawal rate) is a property of a portfolio.

You obviously know what you are doing but some readers could get confused. Assuming a typical set of investments your SWR is presumably more or less the infamous 4%.
You are right. I also use “SWR” when I really mean “WR”. It’s kinda become a Boglehead shorthand for how much you withdraw, but technically it’s incorrect.
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

abc132 wrote: Wed May 25, 2022 11:54 am
randomguy wrote: Wed May 25, 2022 10:02 am
Normchad wrote: Wed May 25, 2022 7:16 am
Scorpion Stare wrote: Wed May 25, 2022 12:20 am
Leesbro63 wrote: Mon May 23, 2022 4:07 pm Nope. I was referring to 2% for age 65ish retirement for 30 more years.
2% for a 30-year retirement would be ridiculously conservative. Even if your investment return was negative 3% per year, for thirty years in a row, you would still have money left at the end.

By the time you've saved 50x for a 30-year retirement, you're no longer saving for yourself, but for your heirs.
Intuitively, this seems wrong. Out of curiosity though I worked it up in a spreadsheet and it’s correct. I find that amazing. Very thought provoking.
Intuitively it sounds right. At 3% it would take like 25 years for the money to halve if you weren't taking money out. But taking money out reduces the drain and gets you those few extra years. Now the real world problem is that -3% over 30 years isn't likely to be a steady -3%. More like something where you lose 90% over a decade and then creep back up over 20 years. In that case SORR will kill you.
At 50x expenses, you will actually do pretty well with a 90% drop AND -3% average annual returns with a 50/50 portfolio if you don't rebalance too often.

Assumptions: 25 years in bonds, 25 years in stocks, 1 year of expenses withdrawn each year (2% withdrawal)
Bonds return 0
Annual withdrawal moves AA towards 50/50
Year 1: 90% drop
Years 2-30: 5% stock growth to average out to -3% per year
Rebalance when 50/50 stock bond AA gets to 25/75 stock bond AA (when stocks drop 66.7%)

Results:
2 rebalancing events in the 90% drop
20.1 years of expenses left after 90% drop and year 1 of expenditure
20.1 year portfolio at 50/50 with 5% stock growth lasts 29 years

The 50/50 AA can think of rebalancing as trying to make sure you always have at least 25% stocks for the growth potential.

If you drop down to a 30/70 stock/bond AA with the same rebalancing scheme (when stocks drop 66.7%) you do make it 30 years, but only barely. With the 30/70 AA, the money preserved in the drop is offset by earning less when the market starts to recover. Of course staring at 30/70 and never rebalancing would always leave you with 35 years of expenses. If you are super conservative, 50x expenses with 30/70 AA and no rebalancing will always get you that 35 years. You would want mostly TIPS for the bond portion to protect against inflation.
You are modeling a 45% drop not a 90%. Give bonds their -90% drop and rerun your math:) But lets assume bonds never lose money and look at a one more case
a) stocks lose 50% year til we get to 90% loss
year 1: 12.5x stocks 25x bonds -1 = 18.25/18.25 50% loss
year 2 = 9.125/18.25 -1 = 26.35 = 13.185/13.185, 75% loss
year 3 = 6/13.185 -1 = 9/9, 78, 88% loss
year 4: only have a 20% loss. 7.2/9 = 7.6/7.6 and a 90% loss
So we are hitting year 5 with ~15x in assets. We now get 0%/year for 6 years to finish out the decade. So you hit year 11 with 9x in assets but are about to get some positive returns for a change. Now add in say a 30% drop in bonds over the first decade and things get grim in a hurry. For a real world example do something like 1989-1999 japan stocks (Sept 1929-1939 US ) combined 1970-1980 US bonds and inflation.

And yes those are some pessimistic cases but that is the type of stuff we are talking about with 2% SWR. If you look at the places with SWR like that, they tend to when bonds got crushed by inflation and the rest of the economy also struggled. We like to think our bonds can't lose 50%+ but they can. Obviously we would need something to change (default by the treasury?) to cause this but the possibility is there.

And no I don't plan for cases like this. I accept they can happen but I am willing to gamble they are rate enough that I am not going to plan for them.
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Re: Bogleheads at/Aiming For 2% SWR

Post by afan »

Marseille07 wrote: Wed May 25, 2022 11:28 am
WestCoastPhan wrote: Wed May 25, 2022 11:22 am And nothing wrong with that, right? It's just a matter of personal preference.
Extra 10~15 years of work wasted.
One of the many fascinating side notes in Fama's interview on the Rational Reminder podcast was when he said that he had no intention of retiring. He also marveled that there existed a field, academic finance, that would pay him to do something he would happily do for free.

He is in his 80's, should be quite wealthy from his work with DFA and intends to keep working for the rest of his life if he can. I assume his SWR would be far less than 2%. Probably less than 1%

For him, time spent working could not be wasted. It is time spent doing what he wants to do.

SOME people consider their jobs to be nothing more than ways to make money. They want to quit the moment they have enough. Other people view their jobs as important, valuable to society or simply interesting enough that they will not quit just because they can afford to.

Fama is not the only person in the world who feels that way.
Last edited by afan on Wed May 25, 2022 6:15 pm, edited 3 times in total.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
59Gibson
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Re: Bogleheads at/Aiming For 2% SWR

Post by 59Gibson »

randomguy wrote: Wed May 25, 2022 5:35 pm
abc132 wrote: Wed May 25, 2022 11:54 am
randomguy wrote: Wed May 25, 2022 10:02 am
Normchad wrote: Wed May 25, 2022 7:16 am
Scorpion Stare wrote: Wed May 25, 2022 12:20 am

2% for a 30-year retirement would be ridiculously conservative. Even if your investment return was negative 3% per year, for thirty years in a row, you would still have money left at the end.

By the time you've saved 50x for a 30-year retirement, you're no longer saving for yourself, but for your heirs.
Intuitively, this seems wrong. Out of curiosity though I worked it up in a spreadsheet and it’s correct. I find that amazing. Very thought provoking.
Intuitively it sounds right. At 3% it would take like 25 years for the money to halve if you weren't taking money out. But taking money out reduces the drain and gets you those few extra years. Now the real world problem is that -3% over 30 years isn't likely to be a steady -3%. More like something where you lose 90% over a decade and then creep back up over 20 years. In that case SORR will kill you.
At 50x expenses, you will actually do pretty well with a 90% drop AND -3% average annual returns with a 50/50 portfolio if you don't rebalance too often.

Assumptions: 25 years in bonds, 25 years in stocks, 1 year of expenses withdrawn each year (2% withdrawal)
Bonds return 0
Annual withdrawal moves AA towards 50/50
Year 1: 90% drop
Years 2-30: 5% stock growth to average out to -3% per year
Rebalance when 50/50 stock bond AA gets to 25/75 stock bond AA (when stocks drop 66.7%)

Results:
2 rebalancing events in the 90% drop
20.1 years of expenses left after 90% drop and year 1 of expenditure
20.1 year portfolio at 50/50 with 5% stock growth lasts 29 years

The 50/50 AA can think of rebalancing as trying to make sure you always have at least 25% stocks for the growth potential.

If you drop down to a 30/70 stock/bond AA with the same rebalancing scheme (when stocks drop 66.7%) you do make it 30 years, but only barely. With the 30/70 AA, the money preserved in the drop is offset by earning less when the market starts to recover. Of course staring at 30/70 and never rebalancing would always leave you with 35 years of expenses. If you are super conservative, 50x expenses with 30/70 AA and no rebalancing will always get you that 35 years. You would want mostly TIPS for the bond portion to protect against inflation.
You are modeling a 45% drop not a 90%. Give bonds their -90% drop and rerun your math:) But lets assume bonds never lose money and look at a one more case
a) stocks lose 50% year til we get to 90% loss
year 1: 12.5x stocks 25x bonds -1 = 18.25/18.25 50% loss
year 2 = 9.125/18.25 -1 = 26.35 = 13.185/13.185, 75% loss
year 3 = 6/13.185 -1 = 9/9, 78, 88% loss
year 4: only have a 20% loss. 7.2/9 = 7.6/7.6 and a 90% loss
So we are hitting year 5 with ~15x in assets. We now get 0%/year for 6 years to finish out the decade. So you hit year 11 with 9x in assets but are about to get some positive returns for a change. Now add in say a 30% drop in bonds over the first decade and things get grim in a hurry. For a real world example do something like 1989-1999 japan stocks (Sept 1929-1939 US ) combined 1970-1980 US bonds and inflation.

And yes those are some pessimistic cases but that is the type of stuff we are talking about with 2% SWR. If you look at the places with SWR like that, they tend to when bonds got crushed by inflation and the rest of the economy also struggled. We like to think our bonds can't lose 50%+ but they can. Obviously we would need something to change (default by the treasury?) to cause this but the possibility is there.

And no I don't plan for cases like this. I accept they can happen but I am willing to gamble they are rate enough that I am not going to plan for them.
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Re: Bogleheads at/Aiming For 2% SWR

Post by afan »

randomguy wrote: Wed May 25, 2022 5:35 pm
abc132 wrote: Wed May 25, 2022 11:54 am
randomguy wrote: Wed May 25, 2022 10:02 am
Normchad wrote: Wed May 25, 2022 7:16 am
Scorpion Stare wrote: Wed May 25, 2022 12:20 am

2% for a 30-year retirement would be ridiculously conservative. Even if your investment return was negative 3% per year, for thirty years in a row, you would still have money left at the end.

By the time you've saved 50x for a 30-year retirement, you're no longer saving for yourself, but for your heirs.
Intuitively, this seems wrong. Out of curiosity though I worked it up in a spreadsheet and it’s correct. I find that amazing. Very thought provoking.
Intuitively it sounds right. At 3% it would take like 25 years for the money to halve if you weren't taking money out. But taking money out reduces the drain and gets you those few extra years. Now the real world problem is that -3% over 30 years isn't likely to be a steady -3%. More like something where you lose 90% over a decade and then creep back up over 20 years. In that case SORR will kill you.
At 50x expenses, you will actually do pretty well with a 90% drop AND -3% average annual returns with a 50/50 portfolio if you don't rebalance too often.

Assumptions: 25 years in bonds, 25 years in stocks, 1 year of expenses withdrawn each year (2% withdrawal)
Bonds return 0
Annual withdrawal moves AA towards 50/50
Year 1: 90% drop
Years 2-30: 5% stock growth to average out to -3% per year
Rebalance when 50/50 stock bond AA gets to 25/75 stock bond AA (when stocks drop 66.7%)

Results:
2 rebalancing events in the 90% drop
20.1 years of expenses left after 90% drop and year 1 of expenditure
20.1 year portfolio at 50/50 with 5% stock growth lasts 29 years

The 50/50 AA can think of rebalancing as trying to make sure you always have at least 25% stocks for the growth potential.

If you drop down to a 30/70 stock/bond AA with the same rebalancing scheme (when stocks drop 66.7%) you do make it 30 years, but only barely. With the 30/70 AA, the money preserved in the drop is offset by earning less when the market starts to recover. Of course staring at 30/70 and never rebalancing would always leave you with 35 years of expenses. If you are super conservative, 50x expenses with 30/70 AA and no rebalancing will always get you that 35 years. You would want mostly TIPS for the bond portion to protect against inflation.
You are modeling a 45% drop not a 90%. Give bonds their -90% drop and rerun your math:) But lets assume bonds never lose money and look at a one more case
a) stocks lose 50% year til we get to 90% loss
year 1: 12.5x stocks 25x bonds -1 = 18.25/18.25 50% loss
year 2 = 9.125/18.25 -1 = 26.35 = 13.185/13.185, 75% loss
year 3 = 6/13.185 -1 = 9/9, 78, 88% loss
year 4: only have a 20% loss. 7.2/9 = 7.6/7.6 and a 90% loss
So we are hitting year 5 with ~15x in assets. We now get 0%/year for 6 years to finish out the decade. So you hit year 11 with 9x in assets but are about to get some positive returns for a change. Now add in say a 30% drop in bonds over the first decade and things get grim in a hurry. For a real world example do something like 1989-1999 japan stocks (Sept 1929-1939 US ) combined 1970-1980 US bonds and inflation.

And yes those are some pessimistic cases but that is the type of stuff we are talking about with 2% SWR. If you look at the places with SWR like that, they tend to when bonds got crushed by inflation and the rest of the economy also struggled. We like to think our bonds can't lose 50%+ but they can. Obviously we would need something to change (default by the treasury?) to cause this but the possibility is there.

And no I don't plan for cases like this. I accept they can happen but I am willing to gamble they are rate enough that I am not going to plan for them.
After decades the Japanese market is still 31% below its all time high.

Bad markets happen to good people.

I have not checked but since they did not mention it, I suspect these simulations of -3% returns assume zero inflation. If inflation is operative on top of negative nominal returns the picture gets ugly
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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Re: Bogleheads at/Aiming For 2% SWR

Post by MikeG62 »

coffeeblack wrote: Wed May 25, 2022 11:20 am
…Inflation. Not everyone will increase their spending every year by inflation OR by the general level of inflation. Someone's individual spending may not increase all their spending by inflation. Perhaps only a portion of their spending needs adjusting for inflation. Perhaps they go for 4 to 5 years without adjusting at all.
This is true.

While our intention has been to increase our spending each year by the rate of inflation, in reality we have chosen not to increase our spending for inflation following years when we underspent our budget. Our rationale is we have room to increase our spend from the prior year and still stay within the prior year budget level. A large % of our spend is discretionary which is really what gives rise to this situation.
Real Knowledge Comes Only From Experience
randomguy
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

afan wrote: Wed May 25, 2022 6:14 pm

After decades the Japanese market is still 31% below its all time high.

Bad markets happen to good people.

I have not checked but since they did not mention it, I suspect these simulations of -3% returns assume zero inflation. If inflation is operative on top of negative nominal returns the picture gets ugly
Sort of depends how you measure. Nikki225 is down in nominal terms but with divs rreinvested, they are up in nominal terms. In real they are down either. Japan had ~2%/year real between 1989-2018. Bad but at -3% we are talking about an even worse case. Granted the bubble there looks to be much worse than anything the US has ever seen if you just look at how fast PEs inflated.

We can come up with some horrible cases (go look at Weimar Germany to see what can happen to bonds in a couple of years) if you really want to go down that path. Now it is a lot harder to say if that stuff can happen to a diversified portfolio. It is one things for 1 country to run into issues. The whole world would be another thing. At some point you have to accept that bad things can happen.
TN_Boy
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Re: Bogleheads at/Aiming For 2% SWR

Post by TN_Boy »

randomguy wrote: Wed May 25, 2022 6:41 pm
afan wrote: Wed May 25, 2022 6:14 pm

After decades the Japanese market is still 31% below its all time high.

Bad markets happen to good people.

I have not checked but since they did not mention it, I suspect these simulations of -3% returns assume zero inflation. If inflation is operative on top of negative nominal returns the picture gets ugly
Sort of depends how you measure. Nikki225 is down in nominal terms but with divs rreinvested, they are up in nominal terms. In real they are down either. Japan had ~2%/year real between 1989-2018. Bad but at -3% we are talking about an even worse case. Granted the bubble there looks to be much worse than anything the US has ever seen if you just look at how fast PEs inflated.

We can come up with some horrible cases (go look at Weimar Germany to see what can happen to bonds in a couple of years) if you really want to go down that path. Now it is a lot harder to say if that stuff can happen to a diversified portfolio. It is one things for 1 country to run into issues. The whole world would be another thing. At some point you have to accept that bad things can happen.
The Nikki225 certainly had an epic, long lasting meltdown, but I'm thinking most investors in it did not obtain 100% of their holdings at exactly the market high ....
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Re: Bogleheads at/Aiming For 2% SWR

Post by Leesbro63 »

TN_Boy wrote: Wed May 25, 2022 6:49 pm The Nikki225 certainly had an epic, long lasting meltdown, but I'm thinking most investors in it did not obtain 100% of their holdings at exactly the market high ....
Yeah but human nature tends to mentally "lock in" high water marks. Losses from there feel painful, regardless of a much lower cost.
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Re: Bogleheads at/Aiming For 2% SWR

Post by afan »

Presumably not. But it does not matter when they bought. It matters how far it fell and how long it stayed down.

Or other worse examples.

We may not have had a market that bad in the US, but it is possible. Something to plan for while working and able to add to savings.
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Re: Bogleheads at/Aiming For 2% SWR

Post by JoMoney »

If someone was aiming for a "2% SWR" why would they be invested in stocks at all? They could build a TIPS ladder guaranteed to last 30 years with quite a bit less than 50x expenses. A 2% SWR isn't someone worried about a SWR, that is to say someone worried their portfolio will be depleted after 30 years, it's someone plotting to leave an estate for someone else to spend.
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Re: Bogleheads at/Aiming For 2% SWR

Post by sailaway »

JoMoney wrote: Wed May 25, 2022 7:27 pm If someone was aiming for a "2% SWR" why would they be invested in stocks at all? They could build a TIPS ladder guaranteed to last 30 years with quite a bit less than 50x expenses. A 2% SWR isn't someone worried about a SWR, that is to say someone worried their portfolio will be depleted after 30 years, it's someone plotting to leave an estate for someone else to spend.
No, it is often someone who realizes that life sometimes throws things at you beyond your expected expenses. Since they can't know what those things are, what they might cost, or when they might happen, they use their expenses as a meter. Not much different that holding an emergency fund whose size is determined in relation to your expenses, even though you don't actually know what kind of emergency it might end up being used for.

I think a lot of people whose kids aren't launched would gravitate to this kind of safety, but then if their kids get a foothold in adulthood, they might start gifting or help with down payments, rather than focus on leaving an estate.
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Re: Bogleheads at/Aiming For 2% SWR

Post by RustyShackleford »

Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending.
Seems silly. Even these days, one can very safely invest their money at 0% real-APR (using individual TIPS). Given that, why would you need your withdrawal rate to be less than the reciprocal of the highest percentiles of your life expectancy (e.g. 3.3% if you're 70yo and have no expectation of living past age 100) ?
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Re: Bogleheads at/Aiming For 2% SWR

Post by TN_Boy »

Leesbro63 wrote: Wed May 25, 2022 7:12 pm
TN_Boy wrote: Wed May 25, 2022 6:49 pm The Nikki225 certainly had an epic, long lasting meltdown, but I'm thinking most investors in it did not obtain 100% of their holdings at exactly the market high ....
Yeah but human nature tends to mentally "lock in" high water marks. Losses from there feel painful, regardless of a much lower cost.
Absolutely, but it remains the case that most investors would have had money in before and after the meltdown. That is true of all crashes; just saying a market is down X percent from its high generally won't capture the experience of most people. This is not to minimize the crash, but its effect wasn't as epic as it might look at first.
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Re: Bogleheads at/Aiming For 2% SWR

Post by TN_Boy »

afan wrote: Wed May 25, 2022 7:15 pm Presumably not. But it does not matter when they bought. It matters how far it fell and how long it stayed down.

Or other worse examples.

We may not have had a market that bad in the US, but it is possible. Something to plan for while working and able to add to savings.
I have a globally diversified portfolio. That's not an accident.

I can't get in as much trouble as the Japanese investor did unless all the major markets on the planet do that. A Japan investor with a global portfolio would have been much better off than a Japan only investor. Much. Something to ponder when constructing an asset allocation.

[Edited to add] A lot of things are possible. I'm not going to work until I'm 75 to cover all possibilities. I have to things to do in this life I cannot do while working. There are many risks to balance.

The only thing I'm sure of is that I will run out time. Running out of money is only a possibility, and very unlikely for people with good savings and reasonable spending habits.
Last edited by TN_Boy on Wed May 25, 2022 8:15 pm, edited 1 time in total.
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Re: Bogleheads at/Aiming For 2% SWR

Post by Exchme »

Marseille07 wrote: Tue May 24, 2022 3:13 pm Imo the biggest risk of aiming for 2% SWR is overearning. You might work extra 10~15 years when you didn't need to to fund your retirement with your lifestyle.
I looked at our records and we were lucky enough that it didn't take anything like that long. Even doing dumb things in investing, our portfolio doubled in the four years prior to ending full time work. That's what a big bull market and the highest earning years of the career will do. Of course, that got us four years closer to SS and once SS kicks in, the WR will really drop off.

The best target for us was to be conservative in squirreling away money as our kids have careers that have much more modest pay, so we felt it would be awful if we ended up being a financial burden on them someday. Now we are in a happy place where we don't need to worry and we can give the kids some money while they are young enough for it to be impactful in their lives. Everyone is different, for us that's the right answer.
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

TN_Boy wrote: Wed May 25, 2022 7:41 pm
Leesbro63 wrote: Wed May 25, 2022 7:12 pm
TN_Boy wrote: Wed May 25, 2022 6:49 pm The Nikki225 certainly had an epic, long lasting meltdown, but I'm thinking most investors in it did not obtain 100% of their holdings at exactly the market high ....
Yeah but human nature tends to mentally "lock in" high water marks. Losses from there feel painful, regardless of a much lower cost.
Absolutely, but it remains the case that most investors would have had money in before and after the meltdown. That is true of all crashes; just saying a market is down X percent from its high generally won't capture the experience of most people. This is not to minimize the crash, but its effect wasn't as epic as it might look at first.
When they invested the money (1960 or 1989) doesn't matter. It is the experience of people who retired around1989. If I did the calcs right the numbers look like

1986 1.3%
1987 -.9%/year
1988 -1.5%
1989 -1.8%
1990 - 2%
1991 -.25%
1992 .6%
2000 (only ~20 years) = .7%
You basically had over decade of people retiring into really poor situations.

The 1980 Japanese retirement might be interesting. Basically great sequence for 10 years and then a horrible 20. I expect they did OK....

My understanding is that few people were invested in stocks and most were doing bonds and pensions so it isn't the same as a 401(k) based system.
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Re: Bogleheads at/Aiming For 2% SWR

Post by Marseille07 »

H-Town wrote: Wed May 25, 2022 11:52 am When you build your portfolio past $2 million mark, the "money printing machine" will run by itself and it runs hard. Any additional years that you work is just your own pleasure. I.e. my company is paying for my vacations, my vacation home, a future new luxury car, etc. while I'm just working half of my capacity.

Of course there is outliners for people who are workaholic and can't get out of their own way. But generally I wouldn't say the extra years are wasted. It's just a different experience.
Are we sure? 2% on 2M is only 40K/year. While I don't doubt the machine itself runs hard, the issue is that it is difficult to retire with 2% WR.

I face the same dilemma at 3% WR, I don't doubt the machine would still run hard, but being able to "hit the number" even at 3% isn't so easy (but certainly easier than 2%).
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Re: Bogleheads at/Aiming For 2% SWR

Post by michaeljc70 »

Reasons to aim for 2%:

-You really like working or don't want to stop working due to various reasons (no hobbies, don't want to see spouse much, etc.)
-Extremely risk averse
-Feel the need to leave big inheritance for heirs/charity

I don't fall under any of those.
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Re: Bogleheads at/Aiming For 2% SWR

Post by TN_Boy »

randomguy wrote: Wed May 25, 2022 11:16 pm
TN_Boy wrote: Wed May 25, 2022 7:41 pm
Leesbro63 wrote: Wed May 25, 2022 7:12 pm
TN_Boy wrote: Wed May 25, 2022 6:49 pm The Nikki225 certainly had an epic, long lasting meltdown, but I'm thinking most investors in it did not obtain 100% of their holdings at exactly the market high ....
Yeah but human nature tends to mentally "lock in" high water marks. Losses from there feel painful, regardless of a much lower cost.
Absolutely, but it remains the case that most investors would have had money in before and after the meltdown. That is true of all crashes; just saying a market is down X percent from its high generally won't capture the experience of most people. This is not to minimize the crash, but its effect wasn't as epic as it might look at first.
When they invested the money (1960 or 1989) doesn't matter. It is the experience of people who retired around1989. If I did the calcs right the numbers look like

1986 1.3%
1987 -.9%/year
1988 -1.5%
1989 -1.8%
1990 - 2%
1991 -.25%
1992 .6%
2000 (only ~20 years) = .7%
You basically had over decade of people retiring into really poor situations.

The 1980 Japanese retirement might be interesting. Basically great sequence for 10 years and then a horrible 20. I expect they did OK....

My understanding is that few people were invested in stocks and most were doing bonds and pensions so it isn't the same as a 401(k) based system.
Are those numbers the real (not nominal) growth rate including dividends? My recollection is that Japan also experienced deflation for years after the bubble burst. Which meant the economy was doing badly, but market returns were ...less bad.... than nominal returns would imply.

Returns going forward were very bad for an 89 retiree, no way around that. But it is true that someone investing for years before 89 had lots of good returns. And of course most people were not 100% stocks (I assume).

And as I mentioned before, international diversification would have helped a lot. I hold the view that the only country in the world where international diversification is not a great idea is the US ... for the US investor it is only a really good idea :-)
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Re: Bogleheads at/Aiming For 2% SWR

Post by saagar_is_cool »

When all of you talk about SWR - 2% or 4%, is that inclusive of dividends or just the principal amount. If it is not inclusive of dividends, then you will survive just off of dividends and will never need to touch the principal in a 2% SWR scenario. What am I missing.
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Re: Bogleheads at/Aiming For 2% SWR

Post by TN_Boy »

saagar_is_cool wrote: Thu May 26, 2022 9:49 am When all of you talk about SWR - 2% or 4%, is that inclusive of dividends or just the principal amount. If it is not inclusive of dividends, then you will survive just off of dividends and will never need to touch the principal in a 2% SWR scenario. What am I missing.
The short answer is that withdrawal rates include the dividends.

I.e I want 2% from my portfolio. It throws off say 1.5% in dividends and interest. I take the dividends and interest and I sell .5% (in dollar value) of shares of something (stocks, bonds, whatever) to get to my 2%.
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Re: Bogleheads at/Aiming For 2% SWR

Post by dbr »

saagar_is_cool wrote: Thu May 26, 2022 9:49 am When all of you talk about SWR - 2% or 4%, is that inclusive of dividends or just the principal amount. If it is not inclusive of dividends, then you will survive just off of dividends and will never need to touch the principal in a 2% SWR scenario. What am I missing.
In the framing of safe withdrawal rate analysis not reinvesting dividends is a withdrawal, meaning it is included in the X%. In this system of bookkeeping there is no such thing as principal. The entities are total portfolio value as a function of time, periodic returns, contributions, and withdrawals. Return by universally agreed definition includes both price changes of assets, dividends, and any other distributions, all of which are taken to be reinvested. Anything not reinvested is a withdrawal. This is a complete and self consistent model of the arithmetic of investing that is widely accepted and most helpful.

Also there is confusion in postings between WR, the rate at what a person chooses to withdraw, SWR, the largest rate at which one could withdraw with little or no chance of running out of money in a certain time. SWR is a property of a portfolio and WR is a choice made by the investor. You can withdraw at 2% from a portfolio that is estimated to have an SWR of 4%. It might also be that someone is estimating the SWR to be 2%, but an estimate like that is extreme to an excess.
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Re: Bogleheads at/Aiming For 2% SWR

Post by abc132 »

randomguy wrote: Wed May 25, 2022 5:35 pm
abc132 wrote: Wed May 25, 2022 11:54 am
randomguy wrote: Wed May 25, 2022 10:02 am
Normchad wrote: Wed May 25, 2022 7:16 am
Scorpion Stare wrote: Wed May 25, 2022 12:20 am

2% for a 30-year retirement would be ridiculously conservative. Even if your investment return was negative 3% per year, for thirty years in a row, you would still have money left at the end.

By the time you've saved 50x for a 30-year retirement, you're no longer saving for yourself, but for your heirs.
Intuitively, this seems wrong. Out of curiosity though I worked it up in a spreadsheet and it’s correct. I find that amazing. Very thought provoking.
Intuitively it sounds right. At 3% it would take like 25 years for the money to halve if you weren't taking money out. But taking money out reduces the drain and gets you those few extra years. Now the real world problem is that -3% over 30 years isn't likely to be a steady -3%. More like something where you lose 90% over a decade and then creep back up over 20 years. In that case SORR will kill you.
At 50x expenses, you will actually do pretty well with a 90% drop AND -3% average annual returns with a 50/50 portfolio if you don't rebalance too often.

Assumptions: 25 years in bonds, 25 years in stocks, 1 year of expenses withdrawn each year (2% withdrawal)
Bonds return 0
Annual withdrawal moves AA towards 50/50
Year 1: 90% drop
Years 2-30: 5% stock growth to average out to -3% per year
Rebalance when 50/50 stock bond AA gets to 25/75 stock bond AA (when stocks drop 66.7%)

Results:
2 rebalancing events in the 90% drop
20.1 years of expenses left after 90% drop and year 1 of expenditure
20.1 year portfolio at 50/50 with 5% stock growth lasts 29 years

The 50/50 AA can think of rebalancing as trying to make sure you always have at least 25% stocks for the growth potential.

If you drop down to a 30/70 stock/bond AA with the same rebalancing scheme (when stocks drop 66.7%) you do make it 30 years, but only barely. With the 30/70 AA, the money preserved in the drop is offset by earning less when the market starts to recover. Of course staring at 30/70 and never rebalancing would always leave you with 35 years of expenses. If you are super conservative, 50x expenses with 30/70 AA and no rebalancing will always get you that 35 years. You would want mostly TIPS for the bond portion to protect against inflation.
You are modeling a 45% drop not a 90%. Give bonds their -90% drop and rerun your math:) But lets assume bonds never lose money and look at a one more case
If you believe a 90% drop in bonds prices is a reasonable scenario, I have no comment other than recommending a pile of gold and wishing you luck with your financial planning.
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

abc132 wrote: Thu May 26, 2022 11:53 am
If you believe a 90% drop in bonds prices is a reasonable scenario, I have no comment other than recommending a pile of gold and wishing you luck with your financial planning.
Bond have lost 90%+ in several different countries. Probably more often than the stock markets losing 90%. It is reasonable but not likely. But again note how with 0% bond losses how close things are when you rebalance into a falling market. Even minor 20% bond loss would make that much worse.

My worst case would be along the lines oof 2000s stocks and 1970s bonds and inflation. That would be very grim. You could argue we are looking at that right now but 1 year doesn't make a trend. If interest rate go frrom 2% to 7% and inflation stays at the current rate, we might end up with the situation that all those monte carlo simulators use to generate their 2% SWR. Or of course this is an 18 month hick up, inflation goes back to 2%, bond yields stabilize at 3%, and stock go back to making 12%/year (that 10% people quote include the crashes).
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

TN_Boy wrote: Thu May 26, 2022 8:32 am
Are those numbers the real (not nominal) growth rate including dividends? My recollection is that Japan also experienced deflation for years after the bubble burst. Which meant the economy was doing badly, but market returns were ...less bad.... than nominal returns would imply.

Returns going forward were very bad for an 89 retiree, no way around that. But it is true that someone investing for years before 89 had lots of good returns. And of course most people were not 100% stocks (I assume).

And as I mentioned before, international diversification would have helped a lot. I hold the view that the only country in the world where international diversification is not a great idea is the US ... for the US investor it is only a really good idea :-)
Real but I can't remember if I did yen or dollars. It doesn't change much. Having good returns before hand only matters if your dropped your SWR. If the say 1980 retire went from 4% to 1% because of the run up they were fine. If they were doing 4% off the 1990 portfolio value it was sketchy. Bonds did do pretty well with the deflation and dropping so it wasn't as grim but I seem to remember a 50/50 person still running out of money after about 15 years.

And yes the obvious answer is diversification. If the US is big enough that diversification isn't needed is impossible to say. We all like to think that something like Japan can't happens but who knows. In 1987 nobody was talking about the need for the Japanese investor to divest or how the bubble would soon pop. I can't imagine what would be required for that to happen but that is a lack of creativity on my part.
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Re: Bogleheads at/Aiming For 2% SWR

Post by abc132 »

randomguy wrote: Thu May 26, 2022 12:07 pm
abc132 wrote: Thu May 26, 2022 11:53 am
If you believe a 90% drop in bonds prices is a reasonable scenario, I have no comment other than recommending a pile of gold and wishing you luck with your financial planning.
Bond have lost 90%+ in several different countries. Probably more often than the stock markets losing 90%. It is reasonable but not likely. But again note how with 0% bond losses how close things are when you rebalance into a falling market. Even minor 20% bond loss would make that much worse.

My worst case would be along the lines oof 2000s stocks and 1970s bonds and inflation. That would be very grim. You could argue we are looking at that right now but 1 year doesn't make a trend. If interest rate go frrom 2% to 7% and inflation stays at the current rate, we might end up with the situation that all those monte carlo simulators use to generate their 2% SWR. Or of course this is an 18 month hick up, inflation goes back to 2%, bond yields stabilize at 3%, and stock go back to making 12%/year (that 10% people quote include the crashes).
It seems we both agree that rebalancing too often (or at all) is a problem in a sinking market. By the time someone is conservative enough to pick 30/70 at 50x expenses, they should consider not rebalancing at all and sitting on their 35 years of expenses. The only way to make it to 30 years is to have 30 years of safe expenses. We now have TIPS and I-bonds that help negate inflation risk in bond-heavy portfolios. The rest of us with more than 30% stocks or less than 50 years of expenses can go broke in a sufficient downturn.

I recommend avoiding single country risk and having some hard assets like gold for those planning for 2% SWR scenarios.
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Re: Bogleheads at/Aiming For 2% SWR

Post by SurferLife »

abc132 wrote: Thu May 26, 2022 12:29 pm
randomguy wrote: Thu May 26, 2022 12:07 pm
abc132 wrote: Thu May 26, 2022 11:53 am
If you believe a 90% drop in bonds prices is a reasonable scenario, I have no comment other than recommending a pile of gold and wishing you luck with your financial planning.
Bond have lost 90%+ in several different countries. Probably more often than the stock markets losing 90%. It is reasonable but not likely. But again note how with 0% bond losses how close things are when you rebalance into a falling market. Even minor 20% bond loss would make that much worse.

My worst case would be along the lines oof 2000s stocks and 1970s bonds and inflation. That would be very grim. You could argue we are looking at that right now but 1 year doesn't make a trend. If interest rate go frrom 2% to 7% and inflation stays at the current rate, we might end up with the situation that all those monte carlo simulators use to generate their 2% SWR. Or of course this is an 18 month hick up, inflation goes back to 2%, bond yields stabilize at 3%, and stock go back to making 12%/year (that 10% people quote include the crashes).
It seems we both agree that rebalancing too often (or at all) is a problem in a sinking market. By the time someone is conservative enough to pick 30/70 at 50x expenses, they should consider not rebalancing at all and sitting on their 35 years of expenses. The only way to make it to 30 years is to have 30 years of safe expenses. We now have TIPS and I-bonds that help negate inflation risk in bond-heavy portfolios. The rest of us with more than 30% stocks or less than 50 years of expenses can go broke in a sufficient downturn.

I recommend avoiding single country risk and having some hard assets like gold for those planning for 2% SWR scenarios.
But what if you have access to the TSP G fund for your bond holding?
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Re: Bogleheads at/Aiming For 2% SWR

Post by abc132 »

SurferLife wrote: Thu May 26, 2022 12:34 pm
abc132 wrote: Thu May 26, 2022 12:29 pm
randomguy wrote: Thu May 26, 2022 12:07 pm
abc132 wrote: Thu May 26, 2022 11:53 am
If you believe a 90% drop in bonds prices is a reasonable scenario, I have no comment other than recommending a pile of gold and wishing you luck with your financial planning.
Bond have lost 90%+ in several different countries. Probably more often than the stock markets losing 90%. It is reasonable but not likely. But again note how with 0% bond losses how close things are when you rebalance into a falling market. Even minor 20% bond loss would make that much worse.

My worst case would be along the lines oof 2000s stocks and 1970s bonds and inflation. That would be very grim. You could argue we are looking at that right now but 1 year doesn't make a trend. If interest rate go frrom 2% to 7% and inflation stays at the current rate, we might end up with the situation that all those monte carlo simulators use to generate their 2% SWR. Or of course this is an 18 month hick up, inflation goes back to 2%, bond yields stabilize at 3%, and stock go back to making 12%/year (that 10% people quote include the crashes).
It seems we both agree that rebalancing too often (or at all) is a problem in a sinking market. By the time someone is conservative enough to pick 30/70 at 50x expenses, they should consider not rebalancing at all and sitting on their 35 years of expenses. The only way to make it to 30 years is to have 30 years of safe expenses. We now have TIPS and I-bonds that help negate inflation risk in bond-heavy portfolios. The rest of us with more than 30% stocks or less than 50 years of expenses can go broke in a sufficient downturn.

I recommend avoiding single country risk and having some hard assets like gold for those planning for 2% SWR scenarios.
But what if you have access to the TSP G fund for your bond holding?
Can you elaborate why you believe having access to the TSP G fund is relevant?

Thanks!
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

SurferLife wrote: Thu May 26, 2022 12:34 pm
But what if you have access to the TSP G fund for your bond holding?
Over the last 10 year it has returned 1.94%. Inflation over that period has been about 2.5%. You have lost real dollars during a time period when inflation was largely under control. In the last year you have made 1.6% while inflation was 7%. You had huge real losses.
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Re: Bogleheads at/Aiming For 2% SWR

Post by SurferLife »

randomguy wrote: Thu May 26, 2022 12:44 pm
SurferLife wrote: Thu May 26, 2022 12:34 pm
But what if you have access to the TSP G fund for your bond holding?
Over the last 10 year it has returned 1.94%. Inflation over that period has been about 2.5%. You have lost real dollars during a time period when inflation was largely under control. In the last year you have made 1.6% while inflation was 7%. You had huge real losses.
This is true, though it seems like it hasn’t been as bad as other bond holdings. Maybe the best of the worst in a high inflation scenario? I’m not entirely sure.
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Re: Bogleheads at/Aiming For 2% SWR

Post by TN_Boy »

randomguy wrote: Thu May 26, 2022 12:23 pm
TN_Boy wrote: Thu May 26, 2022 8:32 am
Are those numbers the real (not nominal) growth rate including dividends? My recollection is that Japan also experienced deflation for years after the bubble burst. Which meant the economy was doing badly, but market returns were ...less bad.... than nominal returns would imply.

Returns going forward were very bad for an 89 retiree, no way around that. But it is true that someone investing for years before 89 had lots of good returns. And of course most people were not 100% stocks (I assume).

And as I mentioned before, international diversification would have helped a lot. I hold the view that the only country in the world where international diversification is not a great idea is the US ... for the US investor it is only a really good idea :-)
Real but I can't remember if I did yen or dollars. It doesn't change much. Having good returns before hand only matters if your dropped your SWR. If the say 1980 retire went from 4% to 1% because of the run up they were fine. If they were doing 4% off the 1990 portfolio value it was sketchy. Bonds did do pretty well with the deflation and dropping so it wasn't as grim but I seem to remember a 50/50 person still running out of money after about 15 years.

And yes the obvious answer is diversification. If the US is big enough that diversification isn't needed is impossible to say. We all like to think that something like Japan can't happens but who knows. In 1987 nobody was talking about the need for the Japanese investor to divest or how the bubble would soon pop. I can't imagine what would be required for that to happen but that is a lack of creativity on my part.
For international, 4% hasn't been the number -- it's more like 3.5%. The US has been a (fortunate) outlier. And that's even taking out eras where a country got crushed in WW II. Investors have been blessed in the US for the last 100 years or so.

I think ... okay guess ... that a Japan investor with reasonable international diversification (30% or more say for equity) and not so close to 100% stocks might have survived with a 3 to 3.5 withdrawal. Japan's stock bubble was truly epic. But I'm open to correction if someone has seen a study on this.

My international stocks have not made me that happy over the last decade or so ... but every time I think about Japan, I decide that it was an okay decision to hold them.
randomguy
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

SurferLife wrote: Thu May 26, 2022 12:48 pm
randomguy wrote: Thu May 26, 2022 12:44 pm
SurferLife wrote: Thu May 26, 2022 12:34 pm
But what if you have access to the TSP G fund for your bond holding?
Over the last 10 year it has returned 1.94%. Inflation over that period has been about 2.5%. You have lost real dollars during a time period when inflation was largely under control. In the last year you have made 1.6% while inflation was 7%. You had huge real losses.
This is true, though it seems like it hasn’t been as bad as other bond holdings. Maybe the best of the worst in a high inflation scenario? I’m not entirely sure.
It is good in a rising rate environment and not as good in a falling one. The GFund is like a high yield savings account. It is nice but I don't think it is going to be enough to change anything. I am not sure TIPs are a panacea either. You get the inflation protection but you are still exposed to interest rate risk. We will have to see how they play out.
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

TN_Boy wrote: Thu May 26, 2022 1:03 pm

For international, 4% hasn't been the number -- it's more like 3.5%. The US has been a (fortunate) outlier. And that's even taking out eras where a country got crushed in WW II. Investors have been blessed in the US for the last 100 years or so.

I think ... okay guess ... that a Japan investor with reasonable international diversification (30% or more say for equity) and not so close to 100% stocks might have survived with a 3 to 3.5 withdrawal. Japan's stock bubble was truly epic. But I'm open to correction if someone has seen a study on this.

My international stocks have not made me that happy over the last decade or so ... but every time I think about Japan, I decide that it was an okay decision to hold them.
We have had several threads on this. https://blbarnitz4.wordpress.com/2017/0 ... se-crisis/ is source for most of them. The 60/40 nondiversifed investor could have done 3.3%. The 40/20/40 person had 80% of their starting portfolio left after taking out 4%.
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Re: Bogleheads at/Aiming For 2% SWR

Post by coffeeblack »

MikeG62 wrote: Wed May 25, 2022 6:30 pm
coffeeblack wrote: Wed May 25, 2022 11:20 am
…Inflation. Not everyone will increase their spending every year by inflation OR by the general level of inflation. Someone's individual spending may not increase all their spending by inflation. Perhaps only a portion of their spending needs adjusting for inflation. Perhaps they go for 4 to 5 years without adjusting at all.
This is true.

While our intention has been to increase our spending each year by the rate of inflation, in reality we have chosen not to increase our spending for inflation following years when we underspent our budget. Our rationale is we have room to increase our spend from the prior year and still stay within the prior year budget level. A large % of our spend is discretionary which is really what gives rise to this situation.
Correct. I'll give you another example. Vacations. So in some parts of the world due to pandemic and perhaps inflation, the price of hotels have actually gone down but the price of the flight has gone up. When you do all the math it comes out about the same. So, no real need to increase for inflation. It worked out our vacation budget didn't go up even for international travel.
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Re: Bogleheads at/Aiming For 2% SWR

Post by TN_Boy »

randomguy wrote: Thu May 26, 2022 1:11 pm
TN_Boy wrote: Thu May 26, 2022 1:03 pm

For international, 4% hasn't been the number -- it's more like 3.5%. The US has been a (fortunate) outlier. And that's even taking out eras where a country got crushed in WW II. Investors have been blessed in the US for the last 100 years or so.

I think ... okay guess ... that a Japan investor with reasonable international diversification (30% or more say for equity) and not so close to 100% stocks might have survived with a 3 to 3.5 withdrawal. Japan's stock bubble was truly epic. But I'm open to correction if someone has seen a study on this.

My international stocks have not made me that happy over the last decade or so ... but every time I think about Japan, I decide that it was an okay decision to hold them.
We have had several threads on this. https://blbarnitz4.wordpress.com/2017/0 ... se-crisis/ is source for most of them. The 60/40 nondiversifed investor could have done 3.3%. The 40/20/40 person had 80% of their starting portfolio left after taking out 4%.
Okay, thanks for posting that. Diversification .... might save your retirement.
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Re: Bogleheads at/Aiming For 2% SWR

Post by HomerJ »

For almost everyone here who is at 2%, it happened by accident, not design.

Many people here make far more than the average, and spend far less than they could.

Many people here hit 4% at 40 or 45 or 50, and it's no great sacrifice to work a little longer. Or they don't even notice because they plan to retire at a certain age or when the last kid graduates from college. Or they haven't even figured out yet what their expenses will be retirement.

Working an extra 5 years to get from 4% to 3% from age 60-65 is a real risk. Ray Liotta just died in his sleep at age 67. It's not a rare occurrence.

Working an extra 10 years to get from 4% to 2% from age 40-50 or 45-55 is not as risky, and 4% doesn't really work at 40 or 45 anyway (4% represents a safe historical withdrawal for 30 years).

I do think it's very silly to think one NEEDS 50x expenses to retire..

But I understand completely how so many of us end up with 2% withdrawal rates.

Heck, I'm strong proponent of 4%, and I hit 25x expenses a couple of years ago at age 50, but kept working because I had just got my last kid in college, and the job isn't too bad (especially remote now), and 50 is a bit young for 4% withdrawals.

So I'm now about to turn 53, and even with this stock downturn, I think we still have 27x expenses... Oh, and since I am still fairly far away from Social Security, I haven't really incorporated that into my planning (I did count my wife's SS, since she is 8 years older than, and will start collecting soon).

So if I retire at 54-55, I'll probably be pulling 3.5% or something, and by the time my SS kicks in, and we've stopped traveling so much, we may only be pulling 2.5% or even 2%.

But it will just happen that way... Most of us here are pretty conservative. Even if my expenses are only 2% when I'm 65 and pulling SS, I'll probably pull 3%-4% and just take the grandkids on trips or set up college funds with the money.

Saving 50 years of expenses to last 30+ years is not necessary and is really quite silly. But it does just happen. Count our blessings.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: Bogleheads at/Aiming For 2% SWR

Post by Lee_WSP »

When Firecalc shows a 100% probability of success for a 3.1% withdrawal rate over 100 years, I think aiming for a 2% SWR (initial) is overkill.

Also, these discussions would be far better if everyone used the terms identically. For example, is a safe withdrawal rate the initial percentage of the portfolio adjusted for inflation each year? Because a lot of people seem to use it to refer to a perpetual withdrawal rate or a constant withdrawal rate.

Why was it even coined as a rate anyway? Why not safe withdrawal amount? Or safe yearly spend?
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Re: Bogleheads at/Aiming For 2% SWR

Post by dbr »

Lee_WSP wrote: Thu May 26, 2022 1:54 pm When Firecalc shows a 100% probability of success for a 3.1% withdrawal rate over 100 years, I think aiming for a 2% SWR (initial) is overkill.

Also, these discussions would be far better if everyone used the terms identically. For example, is a safe withdrawal rate the initial percentage of the portfolio adjusted for inflation each year? Because a lot of people seem to use it to refer to a perpetual withdrawal rate or a constant withdrawal rate.

Why was it even coined as a rate anyway? Why not safe withdrawal amount? Or safe yearly spend?
The best answer would be to read the Trinity study or similar to see what they are talking about.

https://www.aaii.com/journal/199802/feature.pdf
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Re: Bogleheads at/Aiming For 2% SWR

Post by Lee_WSP »

dbr wrote: Thu May 26, 2022 4:00 pm
Lee_WSP wrote: Thu May 26, 2022 1:54 pm When Firecalc shows a 100% probability of success for a 3.1% withdrawal rate over 100 years, I think aiming for a 2% SWR (initial) is overkill.

Also, these discussions would be far better if everyone used the terms identically. For example, is a safe withdrawal rate the initial percentage of the portfolio adjusted for inflation each year? Because a lot of people seem to use it to refer to a perpetual withdrawal rate or a constant withdrawal rate.

Why was it even coined as a rate anyway? Why not safe withdrawal amount? Or safe yearly spend?
The best answer would be to read the Trinity study or similar to see what they are talking about.

https://www.aaii.com/journal/199802/feature.pdf
The study does not use the term safe withdrawal rate. Hence my rehetorical question as to why they (those that came after) coined it as a rate.
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Re: Bogleheads at/Aiming For 2% SWR

Post by randomguy »

Lee_WSP wrote: Thu May 26, 2022 4:03 pm
dbr wrote: Thu May 26, 2022 4:00 pm
Lee_WSP wrote: Thu May 26, 2022 1:54 pm When Firecalc shows a 100% probability of success for a 3.1% withdrawal rate over 100 years, I think aiming for a 2% SWR (initial) is overkill.

Also, these discussions would be far better if everyone used the terms identically. For example, is a safe withdrawal rate the initial percentage of the portfolio adjusted for inflation each year? Because a lot of people seem to use it to refer to a perpetual withdrawal rate or a constant withdrawal rate.

Why was it even coined as a rate anyway? Why not safe withdrawal amount? Or safe yearly spend?
The best answer would be to read the Trinity study or similar to see what they are talking about.

https://www.aaii.com/journal/199802/feature.pdf
The study does not use the term safe withdrawal rate. Hence my rehetorical question as to why they (those that came after) coined it as a rate.
Rate is the common term for a percentage. Amounts tend to be absolute numbers.
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