Variable Percentage Withdrawal (VPW)

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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by retiringwhen »

Could someone post the link to the original video from Rob?
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

LadyGeek wrote: Wed Aug 03, 2022 10:01 am I moved a YouTube review of VPW into a new thread. See: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Let's use this thread for support questions.
Can we rename the thread to “VPW Spreadsheet Support Thread” if this is the purpose of the thread vs generic discussions about VPW?
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

margaritaville wrote: Wed Aug 03, 2022 6:54 am [Moved into a new thread from: Variable Percentage Withdrawal (VPW) Update: See below --admin LadyGeek]

Did anyone see Rob Berger's Financial Freedom Show this week (available on YouTube) where he provided his take on VPW? Short version is that he's not a big fan due to the potential large variability in withdrawals. He also didn't like the way VPW could push a large amount of withdrawal income to the late retirement years when you may not be able to enjoy it due to health concerns. I thought it was a fairly superficial review as he made several statements where he didn't show any data to back it up. I think the spreadsheet is one of the best features/tools for VPW and he gave it a very cursory mention. What did you think?
It was superficial because if anything VPW pushes a large amount of withdrawal income to the early retirement years, not later. This doesn't mean it always pans out this way but generally this is the case because you start off with 4.5~5% to begin with (large withdrawals upfront) and go higher. If anything, a bigger concern is running out of money later in life when you happen to live longer than you anticipated.

I think it was the variability aspect Berger disliked the most.
Last edited by Marseille07 on Wed Aug 03, 2022 10:18 am, edited 1 time in total.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

retiringwhen wrote: Wed Aug 03, 2022 10:10 am Could someone post the link to the original video from Rob?
https://youtu.be/gPyyl0c3tRY
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Re: Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

nigel_ht wrote: Wed Aug 03, 2022 10:10 am
LadyGeek wrote: Wed Aug 03, 2022 10:01 am I moved a YouTube review of VPW into a new thread. See: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Let's use this thread for support questions.
Can we rename the thread to “VPW Spreadsheet Support Thread” if this is the purpose of the thread vs generic discussions about VPW?
I agree with nigel_ht. The OP can't claim VPW and doesn't allow healthy conversations on VPW's discussion brought to us by Mr. Berger.
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Re: Variable Percentage Withdrawal (VPW)

Post by LadyGeek »

^^^ My mistake. Sorry about that. I put the thread back into here.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

Marseille07 wrote: Wed Aug 03, 2022 10:10 am
margaritaville wrote: Wed Aug 03, 2022 6:54 am [Moved into a new thread from: Variable Percentage Withdrawal (VPW) Update: See below --admin LadyGeek]

Did anyone see Rob Berger's Financial Freedom Show this week (available on YouTube) where he provided his take on VPW? Short version is that he's not a big fan due to the potential large variability in withdrawals. He also didn't like the way VPW could push a large amount of withdrawal income to the late retirement years when you may not be able to enjoy it due to health concerns. I thought it was a fairly superficial review as he made several statements where he didn't show any data to back it up. I think the spreadsheet is one of the best features/tools for VPW and he gave it a very cursory mention. What did you think?
It was superficial because if anything VPW pushes a large amount of withdrawal income to the early retirement years, not later. This doesn't mean it always pans out this way but generally this is the case because you start off with 4.5~5% to begin with (large withdrawals upfront) and go higher. If anything, a bigger concern is running out of money later in life when you happen to live longer than you anticipated.

I think it was the variability aspect Berger disliked the most.
I think that any 20 minute YouTube video is going to be somewhat superficial given that the information density of the format is going to be lower than say...an ERN blog post...

His example of pushing a lot of your withdrawals until later in life is from his analysis of 1990...certainly, all else being equal, VPW will provide higher early retirement income than something like SWR.

But in a relatively good outcome your later income will be much higher than the earlier years...which is good because otherwise Buy and Hold doesn't work...
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

nigel_ht wrote: Wed Aug 03, 2022 10:30 am I think that any 20 minute YouTube video is going to be somewhat superficial given that the information density of the format is going to be lower than say...an ERN blog post...

His example of pushing a lot of your withdrawals until later in life is from his analysis of 1990...certainly, all else being equal, VPW will provide higher early retirement income than something like SWR.

But in a relatively good outcome your later income will be much higher than the earlier years...which is good because otherwise Buy and Hold doesn't work...
I actually don't agree that "later income will be much higher than the earlier years" and not because Buy and Hold doesn't work.

What happens with VPW is that you start off with 4.5~5% and go higher. We're talking about years of withdrawing 6%, 7%, 8%/year. This hurts your portfolio growth, but basically you end up in a situation where you have to increase WR% (which VPW does) to generate the same amount of income. This is how VPW tries stabilizing withdrawals, and it's by design.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by retiringwhen »

nigel_ht wrote: Wed Aug 03, 2022 10:12 am
retiringwhen wrote: Wed Aug 03, 2022 10:10 am Could someone post the link to the original video from Rob?
https://youtu.be/gPyyl0c3tRY
Thanks. After watching the video, my take:

Rob does a really good job of placing VPW in the continuum of withdrawal strategies, shows the risks of "unconstrained" variable strategies and gives realistic views of how to address those challenges. Overall a very good summary of VPW strengths and weaknesses.

His demo via Ficalc appears to be reasonable and completely within the realm of VPW backtesting history. He shows the wide range of outcomes that VPW may experience and that is reality. Ficalc didn't do anything wrong, it just shows what backtesting can tell us about the past (the spreadsheet does the same thing).

I have been doing my own future test with realworld portfolio now for 3 years and yes the variations look small in the short-run, but long-run the market returns can and will vary by immense margins up or down. This is the achilles heel of "unconstrained" Variable withdrawal strategies.

The real challenge for anyone choosing a withdrawal strategy is to decide what variables are unconstrained and what variables are most constrained in the strategy. No approach is perfect, only optimized for one type of outcome. How does one decide those constraints? That is a very personal problem that requires insight, reflection, and education to do well. I don't think we have a tool on BH to support that process because it goes far beyond calculations.

I tried to build something to address strategy choice with my spare-time during lockdowns. I shared it with a few people and found it did not help because, my calculations and questions could be seen as plug and play, (things like age, SS amounts, pensions, return expectations), when the real questions were about temperament related to risk, vision for retirement activities/life-style, realistic views of one's own mortality, etc. I haven't figured out how to automate those things, and I am not interested in "Nudge"-like Behavioral Psychology solutions....

This comes back to Rob's critique of VPW. He doesn't think the unconstrained spending model is useful for a significant cadre of retirees. Near the end of the video, he actually clicks off a list of people he thinks it may support; essentially those people who have significant portions of their core spending requirements covered by non-portfolio sources and are looking for a good method to manage discretionary spending. I think that is a pretty defensible conclusion.

BTW, his schtick on his YT channel related to withdrawal strategies is to be very hard on them. The next video that came up was titled something like why bucket strategy is broken!
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by retiringwhen »

nigel_ht wrote: Wed Aug 03, 2022 10:30 am His example of pushing a lot of your withdrawals until later in life is from his analysis of 1990...certainly, all else being equal, VPW will provide higher early retirement income than something like SWR.

But in a relatively good outcome your later income will be much higher than the earlier years...which is good because otherwise Buy and Hold doesn't work...
Rob showed both extremes of very high late age spending and very low. His implied point is that the strategy has VERY divergent outcomes that cannot be forecast with any predictable certainty.

If we knew the answer to that conundrum, Bogleheads could be shut down since investing would be easy and we could get on with retirement! :sharebeer
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Re: Variable Percentage Withdrawal (VPW)

Post by dogagility »

I agree VPW is elegantly simple.
Zeno wrote: Wed Aug 03, 2022 8:15 am The main thing I've come to realize recently is that I can withdraw the recommended 4.6% but only spend half of it, while putting the remainder in safe, short-term investments. VPW suggests a "sell high" approach in this way.
Perhaps I've missed it, but does the method suggest withdrawing the output amount and then investing any remainder in a "safe" investments?

I could be wrong, but my recollection was that a suggested withdrawal is calculated. Then, the person decides what they need to withdraw to meet expenses... which can be any amount up to the suggested withdrawal amount.

With this process, there should be little (if any) excess withdrawal to be put into "safe" investments.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Zeno »

Great thread
Last edited by Zeno on Sun Aug 07, 2022 8:18 pm, edited 1 time in total.
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Re: Variable Percentage Withdrawal (VPW)

Post by willthrill81 »

nigel_ht wrote: Wed Aug 03, 2022 10:10 am
LadyGeek wrote: Wed Aug 03, 2022 10:01 am I moved a YouTube review of VPW into a new thread. See: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Let's use this thread for support questions.
Can we rename the thread to “VPW Spreadsheet Support Thread” if this is the purpose of the thread vs generic discussions about VPW?
There are certain posters on the forum who are adamant that VPW is the 'bees-knees' and is the most appropriate withdrawal strategy for virtually everyone, even though they seldom put it that bluntly. In reality, there is no such withdrawal method. All of them have pros and cons, and none are even close to universally 'best' for everyone in any meaning of the word. All of them have some type of embedded assumption, often multiple, and these are unfortunately not always made clear by those discussing or promoting them.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by retiringwhen »

Zeno wrote: Wed Aug 03, 2022 11:43 am VPW: The tool for retirees who will primarily be living off of a pension and SS -- and oh, don't forget to buy a SPIA at 80 do you don't run out of cash.
That is an excellent summary of VPW since it exposes the most important assumptions.

I would add "or can live with a very wide range of spending outcomes later in retirement".
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

retiringwhen wrote: Wed Aug 03, 2022 11:17 am Rob showed both extremes of very high late age spending and very low. His implied point is that the strategy has VERY divergent outcomes that cannot be forecast with any predictable certainty.

If we knew the answer to that conundrum, Bogleheads could be shut down since investing would be easy and we could get on with retirement! :sharebeer
It is not about forecasting or shutting down Bogleheads.

The method tries to front-load spending and deplete in the end. This is by design. It doesn't always pan out this way, but that's not the point.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by retiringwhen »

Marseille07 wrote: Wed Aug 03, 2022 12:05 pm
retiringwhen wrote: Wed Aug 03, 2022 11:17 am Rob showed both extremes of very high late age spending and very low. His implied point is that the strategy has VERY divergent outcomes that cannot be forecast with any predictable certainty.

If we knew the answer to that conundrum, Bogleheads could be shut down since investing would be easy and we could get on with retirement! :sharebeer
It is not about forecasting or shutting down Bogleheads.

The method tries to front-load spending and deplete in the end. This is by design. It doesn't always pan out this way, but that's not the point.
The conundrum is about forecasting the future with sufficient accuracy...... If we knew the future, this whole problem would essentially disappear.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

retiringwhen wrote: Wed Aug 03, 2022 12:21 pm The conundrum is about forecasting the future with sufficient accuracy...... If we knew the future, this whole problem would essentially disappear.
I guess I don't see how this would be a criticism of VPW because that's true of any withdrawal methodology.

When you use a method that doesn't run out of money prematurely, your withdrawal amount has to vary. Mr. Berger can choose SWR but then he's risking running out of money. We can't have both ways.

If anything, VPW actually does a great job of front-loading AND promises not to run out of money prematurely (i.e. before N years of your choosing).
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

Zeno wrote: Wed Aug 03, 2022 11:43 am
retiringwhen wrote: Wed Aug 03, 2022 11:13 am This comes back to Rob's critique of VPW. He doesn't think the unconstrained spending model is useful for a significant cadre of retirees. Near the end of the video, he actually clicks off a list of people he thinks it may support; essentially those people who have significant portions of their core spending requirements covered by non-portfolio sources and are looking for a good method to manage discretionary spending. I think that is a pretty defensible conclusion.
Then I guess I, too, have circled back on myself as to VPW, re-questioning its applicability.

...

I'm in the cohort of folks who are dreading the withdrawal stage. Worked decades to get to the precipice of it but now am dreading it.
Don't dread withdrawal phase! At least not without some analysis anyway :)

I'm going to guess you are more than fine.

Try this and see:

viewtopic.php?t=383126

You can try with constant dollar, VPW, constant percentage, etc…whatever FICalc does.
I'm off to resume excavation of my bunker in the backyard ...
Lol...obviously you have plenty of cash...I priced that once and said...What?!? Nah.
Last edited by nigel_ht on Wed Aug 03, 2022 12:53 pm, edited 1 time in total.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Da5id »

Marseille07 wrote: Wed Aug 03, 2022 12:26 pm
retiringwhen wrote: Wed Aug 03, 2022 12:21 pm The conundrum is about forecasting the future with sufficient accuracy...... If we knew the future, this whole problem would essentially disappear.
I guess I don't see how this would be a criticism of VPW because that's true of any withdrawal methodology.

When you use a method that doesn't run out of money prematurely, your withdrawal amount has to vary. Mr. Berger can choose SWR but then he's risking running out of money. We can't have both ways.

If anything, VPW actually does a great job of front-loading AND promise not to run out of money prematurely (i.e. before N years of your choosing).
A general problem with criticism is that "the perfect is the enemy of the good". It is generally easier to tear down other's ideas without proposing concrete ones of ones own (which are then of course also subject to attack). I haven't watched the video (not interested enough as I don't actually use VPW), but for those that have does Berger propose a *better* general purpose strategy? Because obviously any general purpose strategy may not be the best one for a specific set of circumstances or assumptions.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by retiringwhen »

Marseille07 wrote: Wed Aug 03, 2022 12:26 pm
retiringwhen wrote: Wed Aug 03, 2022 12:21 pm The conundrum is about forecasting the future with sufficient accuracy...... If we knew the future, this whole problem would essentially disappear.
I guess I don't see how this would be a criticism of VPW because that's true of any withdrawal methodology.

When you use a method that doesn't run out of money prematurely, your withdrawal amount has to vary. Mr. Berger can choose SWR but then he's risking running out of money. We can't have both ways.

If anything, VPW actually does a great job of front-loading AND promises not to run out of money prematurely (i.e. before N years of your choosing).
So there is a continuum between highly variable but mostly resilient outcomes and stable but potentially brittle outcomes. Rob's entire point (and mine) is that VPW optimizes in one direction, buyer beware.

Yes, there is some level of truth to this for any strategy that depends on the future, but how one mitigates that risk is quick different.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

retiringwhen wrote: Wed Aug 03, 2022 12:42 pm So there is a continuum between highly variable but mostly resilient outcomes and stable but potentially brittle outcomes. Rob's entire point (and mine) is that VPW optimizes in one direction, buyer beware.

Yes, there is some level of truth to this for any strategy that depends on the future, but how one mitigates that risk is quick different.
VPW actually optimizes for depleting your portfolio after N years (but promises no premature depletion before N) while smoothing out withdrawals to the extent it can. It happens to be more front-load-ish than other methodologies. It's not a bad method at all if you don't have a bequest motive.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by HootingSloth »

retiringwhen wrote: Wed Aug 03, 2022 11:13 am The real challenge for anyone choosing a withdrawal strategy is to decide what variables are unconstrained and what variables are most constrained in the strategy. No approach is perfect, only optimized for one type of outcome. How does one decide those constraints? That is a very personal problem that requires insight, reflection, and education to do well. I don't think we have a tool on BH to support that process because it goes far beyond calculations.

[snip]

This comes back to Rob's critique of VPW. He doesn't think the unconstrained spending model is useful for a significant cadre of retirees. Near the end of the video, he actually clicks off a list of people he thinks it may support; essentially those people who have significant portions of their core spending requirements covered by non-portfolio sources and are looking for a good method to manage discretionary spending. I think that is a pretty defensible conclusion.
Right on the money. Different strategies work well for different people with different priorities. Trying to convince other people that their priorities are the wrong ones obviously is a fruitless endeavor. In addition, the discussions on the forum of the pros and cons of different withdrawal strategies tend to be, by necessity, pretty shallow because people's circumstances vary so widely, it is difficult to make that full context explicit in a forum like this, and even when it is made explicit it can be hard to put yourself in someone else's shoes and really see all of the tradeoffs they are navigating.

As a very short summary, though, I do agree that people who like VPW tend to fit the description quoted above.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by retiringwhen »

Da5id wrote: Wed Aug 03, 2022 12:31 pm I haven't watched the video (not interested enough as I don't actually use VPW), but for those that have does Berger propose a *better* general purpose strategy?
He has done many reviews of different strategies. He isn't picking on VPW all by itself, but you have to watch a bunch of additional videos to get his whole perspective.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

retiringwhen wrote: Wed Aug 03, 2022 1:47 pm
Da5id wrote: Wed Aug 03, 2022 12:31 pm I haven't watched the video (not interested enough as I don't actually use VPW), but for those that have does Berger propose a *better* general purpose strategy?
He has done many reviews of different strategies. He isn't picking on VPW all by itself, but you have to watch a bunch of additional videos to get his whole perspective.
The Bengen interview was interesting…
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

Da5id wrote: Wed Aug 03, 2022 12:31 pm A general problem with criticism is that "the perfect is the enemy of the good". It is generally easier to tear down other's ideas without proposing concrete ones of ones own (which are then of course also subject to attack). I haven't watched the video (not interested enough as I don't actually use VPW), but for those that have does Berger propose a *better* general purpose strategy? Because obviously any general purpose strategy may not be the best one for a specific set of circumstances or assumptions.
I don't recall Berger suggesting something better. General-purpose is arguably the SWR because folks seem to love the idea that you can withdraw some fixed amount no matter what happens. I'm not sure which method you are using in retirement.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Da5id »

Marseille07 wrote: Wed Aug 03, 2022 3:19 pm
Da5id wrote: Wed Aug 03, 2022 12:31 pm A general problem with criticism is that "the perfect is the enemy of the good". It is generally easier to tear down other's ideas without proposing concrete ones of ones own (which are then of course also subject to attack). I haven't watched the video (not interested enough as I don't actually use VPW), but for those that have does Berger propose a *better* general purpose strategy? Because obviously any general purpose strategy may not be the best one for a specific set of circumstances or assumptions.
I don't recall Berger suggesting something better. General-purpose is arguably the SWR because folks seem to love the idea that you can withdraw some fixed amount no matter what happens. I'm not sure which method you are using in retirement.
No method actually. My spending is under 2% of invested assets not counting future social security or a future very small pension (this wasn't planned, just kinda happened) or a fully owned home. So I don't feel much need for structure given that I have no desire to spend more. I just started following this thread back when my circumstances were a bit different, and am somewhat interested in a theoretical way in different spending paradigms.

I don't think basic SWR is actually implemented by many people for all its discussion in the forums, but who knows? I expect most people use some kind of informal variable plan. I appreciate that VPW is trying to make that informal plan more formal.
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Re: Variable Percentage Withdrawal (VPW)

Post by Zeno »

We like VPW
Last edited by Zeno on Sun Aug 07, 2022 8:21 pm, edited 2 times in total.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

Da5id wrote: Wed Aug 03, 2022 3:26 pm No method actually. My spending is under 2% of invested assets not counting future social security or a future very small pension (this wasn't planned, just kinda happened) or a fully owned home. So I don't feel much need for structure given that I have no desire to spend more. I just started following this thread back when my circumstances were a bit different, and am somewhat interested in a theoretical way in different spending paradigms.

I don't think basic SWR is actually implemented by many people for all its discussion in the forums, but who knows? I expect most people use some kind of informal variable plan. I appreciate that VPW is trying to make that informal plan more formal.
I see. No method certainly works when you know your WR% is low. And I think many people actually use that.

Personally I like to use a method to guide the ceiling of my spending, and if I am underspending then I simply do not sell equities that month and continue spending down fixed income until next month.

I'm not a huge fan of VPW because it depletes your portfolio in the end. I know SPIA is talked about 10 years before N, but your portfolio will have gone down quite a bit by then after years of withdrawing 7%, 8%, 9%/year. But those who want to front-load spending and do not have a bequest motive, it is certainly a viable method.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by willthrill81 »

Marseille07 wrote: Wed Aug 03, 2022 12:54 pm VPW actually optimizes for depleting your portfolio after N years (but promises no premature depletion before N) while smoothing out withdrawals to the extent it can.
VPW doesn't do anything to 'smooth' withdrawals. Rather, it makes one's withdrawals essentially as volatile as one's portfolio.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

willthrill81 wrote: Wed Aug 03, 2022 5:40 pm VPW doesn't do anything to 'smooth' withdrawals. Rather, it makes one's withdrawals essentially as volatile as one's portfolio.
OK, it tries to smooth out when your portfolio goes flat or decreases.

For example, say you're 10 years away from N (10% WR) on 500K. You take out 50K, market goes flat, you have 450K left. Next year, you withdraw 11.1% on 450K = 50K. You don't have this property if you were just doing constant-%.

This effect is what I called smoothing out. Now, if your portfolio goes up then you get to withdraw more, but generally that's a good problem to have.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by willthrill81 »

Marseille07 wrote: Wed Aug 03, 2022 5:44 pm
willthrill81 wrote: Wed Aug 03, 2022 5:40 pm VPW doesn't do anything to 'smooth' withdrawals. Rather, it makes one's withdrawals essentially as volatile as one's portfolio.
OK, it tries to smooth out when your portfolio goes flat or decreases.

For example, say you're 10 years away from N (10% WR) on 500K. You take out 50K, market goes flat, you have 450K left. Next year, you withdraw 11.1% on 450K = 50K. You don't have this property if you were just doing constant-%.

This effect is what I called smoothing out. Now, if your portfolio goes up then you get to withdraw more, but generally that's a good problem to have.
That example only works in that fashion with the number of remaining years are short. In earlier years (e.g., age 65), the withdrawal rate changes minimally from one year to the next, usually increasing by only .1%. For someone with a 60/40 AA, the returns so far this year would result in about a 12% drop in their nominal amount withdrawn plus whatever inflation averages out to be this year, so the real reduction in the withdrawal could easily be 20%, which is also how much this portfolio and the withdrawals would have dropped in 2008.

There just isn't any smoothing mechanism in VPW. Some are fine with that, but some are not.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

willthrill81 wrote: Wed Aug 03, 2022 5:54 pm That example only works in that fashion with the number of remaining years are short. In earlier years (e.g., age 65), the withdrawal rate changes minimally from one year to the next, usually increasing by only .1%. For someone with a 60/40 AA, the returns so far this year would result in about a 12% drop in their nominal amount withdrawn plus whatever inflation averages out to be this year, so the real reduction in the withdrawal could easily be 20%, which is also how much this portfolio and the withdrawals would have dropped in 2008.

There just isn't any smoothing mechanism in VPW. Some are fine with that, but some are not.
VPW is not straight up 1/N, but 1/N does smooth out regardless of the remaining years being short or long.

It's fine if someone can't handle the flexibility required to operate percentage-based methods. Maybe they prefer to risk running out of money. People make different retirement tradeoffs.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by dcabler »

willthrill81 wrote: Wed Aug 03, 2022 5:40 pm
Marseille07 wrote: Wed Aug 03, 2022 12:54 pm VPW actually optimizes for depleting your portfolio after N years (but promises no premature depletion before N) while smoothing out withdrawals to the extent it can.
VPW doesn't do anything to 'smooth' withdrawals. Rather, it makes one's withdrawals essentially as volatile as one's portfolio.
Not quite - the version of VPW illustrated in the VPW forward test thread uses a dampening savings account to provide some smoothing of spending. It's only short term smoothing so longer term differences between the fixed assumption for returns and reality can still cause larger excursions over time.

Cheers.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by canadianbacon »

willthrill81 wrote: Wed Aug 03, 2022 5:54 pm There just isn't any smoothing mechanism in VPW. Some are fine with that, but some are not.
I think one feature intended to help smoothing was to keep the allocation between 30/70 and 70/30. I don't have the current spreadsheet but at one point there was a limit on how aggressive you could make the portfolio. The 50% loss number is also intended to remind you of what can happen if you are using VPW in an overly aggressive portfolio. Of course a 60/40 portfolio can also be plenty volatile in certain years :-D.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by SnowBog »

dcabler wrote: Wed Aug 03, 2022 6:10 pm
willthrill81 wrote: Wed Aug 03, 2022 5:40 pm
Marseille07 wrote: Wed Aug 03, 2022 12:54 pm VPW actually optimizes for depleting your portfolio after N years (but promises no premature depletion before N) while smoothing out withdrawals to the extent it can.
VPW doesn't do anything to 'smooth' withdrawals. Rather, it makes one's withdrawals essentially as volatile as one's portfolio.
Not quite - the version of VPW illustrated in the VPW forward test thread uses a dampening savings account to provide some smoothing of spending. It's only short term smoothing so longer term differences between the fixed assumption for returns and reality can still cause larger excursions over time.

Cheers.
For those that haven't seen the "forward test", here's the most recent update. What always amazes me is the inflation-adjusted withdrawal amounts have held fairly reliably around $7k/month from 2019 to today (technically this is the retirement income - which could include pensions/etc.). There was a brief run-up in the amount in 2021, which is coming back down (actually ever so slightly lower right now).

Granted this is "only" a 3-year period, but it's a period that saw the March 2020 market crash, unexpected high returns in some years, and the market decline and high inflation this year.
longinvest wrote: Sat Jul 30, 2022 6:24 am Using average CPI-U calculated in this and previous posts, here's an inflation-adjusted chart of this forward test expressed in June 2022 dollars:

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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by willthrill81 »

Marseille07 wrote: Wed Aug 03, 2022 6:00 pm It's fine if someone can't handle the flexibility required to operate percentage-based methods. Maybe they prefer to risk running out of money. People make different retirement tradeoffs.
VPW isn't the only withdrawal method out there that doesn't risk premature portfolio depletion. There are many, but they are all percentage-based in some way.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

dcabler wrote: Wed Aug 03, 2022 6:10 pm
willthrill81 wrote: Wed Aug 03, 2022 5:40 pm
Marseille07 wrote: Wed Aug 03, 2022 12:54 pm VPW actually optimizes for depleting your portfolio after N years (but promises no premature depletion before N) while smoothing out withdrawals to the extent it can.
VPW doesn't do anything to 'smooth' withdrawals. Rather, it makes one's withdrawals essentially as volatile as one's portfolio.
Not quite - the version of VPW illustrated in the VPW forward test thread uses a dampening savings account to provide some smoothing of spending. It's only short term smoothing so longer term differences between the fixed assumption for returns and reality can still cause larger excursions over time.

Cheers.
Can anyone definitely state that the wiki is up to date on what the spreadsheet does today?

I guess the core of VPW is the table of percentages…so as long as the various retirement tools implement that you get a reasonable approximation of VPW performance.

Is it fair to say that if you add your SS and pensions into FICalc the withdrawal numbers will be pretty close to what the spreadsheet produces?
Last edited by nigel_ht on Wed Aug 03, 2022 7:46 pm, edited 1 time in total.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

willthrill81 wrote: Wed Aug 03, 2022 7:01 pm VPW isn't the only withdrawal method out there that doesn't risk premature portfolio depletion. There are many, but they are all percentage-based in some way.
VPW (a flavor of 1/N) is actually the middle ground where it doesn't deplete before N years but surely at N years. It's not a bad method, provided you know what you're getting yourself into.

My reservation is that when you reach N-10 and think about SPIA, you can't turn around and change the course then.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

Marseille07 wrote: Wed Aug 03, 2022 7:45 pm
willthrill81 wrote: Wed Aug 03, 2022 7:01 pm VPW isn't the only withdrawal method out there that doesn't risk premature portfolio depletion. There are many, but they are all percentage-based in some way.
VPW (a flavor of 1/N) is actually the middle ground where it doesn't deplete before N years but surely at N years. It's not a bad method, provided you know what you're getting yourself into.

My reservation is that when you reach N-10 and think about SPIA, you can't turn around and change the course then.
For a sufficiently large N the probability of reaching N is small even at N-10…
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by willthrill81 »

Marseille07 wrote: Wed Aug 03, 2022 7:45 pm
willthrill81 wrote: Wed Aug 03, 2022 7:01 pm VPW isn't the only withdrawal method out there that doesn't risk premature portfolio depletion. There are many, but they are all percentage-based in some way.
VPW (a flavor of 1/N) is actually the middle ground where it doesn't deplete before N years but surely at N years. It's not a bad method, provided you know what you're getting yourself into.
Retirees can certainly do a lot worse than VPW, which is itself only a single application of the amortization based withdrawal (ABW) method. VPW embeds historic stock and bond returns into the formula used to derive the annual withdrawal rates, something that not everyone is aware of.
Marseille07 wrote: Wed Aug 03, 2022 7:45 pm My reservation is that when you reach N-10 and think about SPIA, you can't turn around and change the course then.
My understanding is that the general advice given with regard to VPW is to consider a SPIA at age 80, which corresponds to N-20. And SPIAs have their own pros and cons too; very few even on this forum seem to use them, though they are discussed often.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

nigel_ht wrote: Wed Aug 03, 2022 7:47 pm For a sufficiently large N the probability of reaching N is small even at N-10…
If N = 100 - age, then probably, and that's a good thing. It is still a big unknown later in life though. What if SPIA isn't affordable with the leftover money you have in your VPW portfolio? You'd be stranded then.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

willthrill81 wrote: Wed Aug 03, 2022 7:51 pm
Marseille07 wrote: Wed Aug 03, 2022 7:45 pm
willthrill81 wrote: Wed Aug 03, 2022 7:01 pm VPW isn't the only withdrawal method out there that doesn't risk premature portfolio depletion. There are many, but they are all percentage-based in some way.
VPW (a flavor of 1/N) is actually the middle ground where it doesn't deplete before N years but surely at N years. It's not a bad method, provided you know what you're getting yourself into.
Retirees can certainly do a lot worse than VPW, which is itself only a single application of the amortization based withdrawal (ABW) method. VPW embeds historic stock and bond returns into the formula used to derive the annual withdrawal rates, something that not everyone is aware of.
Marseille07 wrote: Wed Aug 03, 2022 7:45 pm My reservation is that when you reach N-10 and think about SPIA, you can't turn around and change the course then.
My understanding is that the general advice given with regard to VPW is to consider a SPIA at age 80, which corresponds to N-20. And SPIAs have their own pros and cons too; very few even on this forum seem to use them, though they are discussed often.
I wasn't aware the advice was N-20. You're correct that buying SPIAs at N-20 brings in a different set of pros and cons. I do not believe SPIAs are a panacea.
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Re: Variable Percentage Withdrawal (VPW)

Post by SnowBog »

truenorth418 wrote: Wed Aug 03, 2022 8:30 am Why don’t people watch the Rob Berger video before chiming in and criticizing it?

I saw the video. He obviously spent far more time reading through the VPW threads and content here on BH.org than the commenters here did on his video analysis.
Fair point. After watching his video, I think the video was far more balanced - and overall "fairer" than it was initially implied by the post that focused solely on his criticisms of VPW. In fact, as I note below, I think he ultimately validated that VPW did what it was designed to do...

But my initial criticism stands, I'll try to add some more perspective and context.

One thing I haven't seen yet is his false assertion that VPW is based on "assuming when you die". I don't believe the withdrawal table ending at 100 was intended to imply that everyone using VPW lives to 100. In fact, VPW makes specific recommendations (SPIA and 10% withdrawal cap) to account for living past 100. And statistically, very few people will live to 100. So I'm not sure why he draws that conclusion, other than he hasn't really tried to understand what VPW is intending to do or why...

I continue to think his concerns on the "variability" of VPW are misleading and/or addressable.
  • He doesn't note that this is "by design" - in the context of dynamically adjusting to changes in your portfolio, which in essence helps to act as a "self-correcting" method trying to keep you between two extremes (more on that below).
  • The results he references are skewed by using the default withdrawal table (without the recommended 10% cap as noted in the wiki), which when used that way will result in 100% portfolio depletion by age 100 (or end of retirement period as FICalc shows it).
  • Around the 21 minutes he references using the "average of X years" as the basis of withdrawal (vs. the annual basis), and notes that may help (but has its own tradeoffs)...
  • No mention of using the "buffering" (or dampening) withdrawal approach as used by the VPW Forward Test - which IMHO is going to have the largest impact on "variability" concerns.
On this last point - the wiki does not reference the idea of the "buffering" approach - as I recall the first, I discovered it being used in the VPW Forward Test thread. Personally, that seems like a notable inclusion for the wiki - as it's a good approach to help those concerned with the perceived "variability".

But let's dig a little deeper. He picked two years (1966 and 1990) to show examples of his concerns with variability (without any of the options noted above that could have helped address that). But he didn't contrast those with alternatives, let's do that comparing what happens with a 4% SWR (aka the default "Constant Dollar" approach...

Code: Select all

  Scenario     VPW    SWR
------------   ----   ----
Base success   100%    95%
1966 success   100%     0%
2000 success   100%   100%
VPW shows 100% success rate vs. SWR's 95.08%. Now, that's maybe not the "whole" story - as a fair (but often misused) criticism of VPW is "just because it doesn't fail - doesn't mean that you have enough to live off of". Personally, that gets back to the notion of ensuring you have the "required flexibility" to drastically scale back expenses should the markets (and thus the variable withdrawal) require it...

Looking at 1966, his criticism is that VPW has a wide variability with the highest withdrawal rate being the initial withdrawal, the lowest being around 1982 (IIRC), and then it recovers - but never back to the initial withdrawal amount. To me, he failed to recognize that VPW is doing exactly what VPW is designed to do - adapt to the markets (as defined by your portfolio balance) - so in a "bad" sequence of returns - yes spending will end up being "variable" as a goal is to ensure you don't prematurely deplete the portfolio. By comparison, the 4% SWR approach completely fails, with the portfolio being depleted in 1989.

Looking at 1990, his criticism is that VPW ends up with a much higher withdrawal later in retirement - when the retiree might not need as much. But again, seems like he failed to understand VPW is doing what it was designed to do - when the markets are doing well - your portfolio can support more spending. By comparison, with the 4% SWR approach you continue to spend "constant dollars", and your heirs will end up with 2.4X your original portfolio balance.

As I understand it, VPW was designed to help narrow the potential extremes of SWR, making you less likely to end up broke (as per the 1966 example) and less likely to end up dying the richest corpse in the graveyard (as per the 1990 example). To my eyes, it did exactly that... But instead of giving VPW credit for doing so - he used the vary method it uses to achieve those results as a criticism???

And I'm sure someone will come along and argue that the 4% SWR isn't really 4% anymore, and we should use < 4%... But that just pushes one side of those extremes. Sure, you could pick 2% SWR and basically never fail, but that means you likely way over saved (aka worked more years than needed and thus had less years to enjoy retirement) and/or will be an even richer corpse in the graveyard.

Moreso, I'm not sure what a "better alternative" would be... In his intro, he talked about the 3 "buckets" of withdrawal approaches, and it seemed to me like the last option using a combination of variable withdrawal and "guardrails" seemed like it might be his favorite option... But I didn't (and don't plan on) watching his other videos to find out. But assuming that the "guardrail" related once are his preference, that could be accomplished with VPW as well be constraining the max withdrawal % (which he illudes to at one point) and/or capping the withdrawal (as the FICalc tool could show); with the understanding that caping the withdrawal ultimately results in not depleting the portfolio (up to you if that's good or bad). Maybe his preference is something like Bernicke's Reality Retirement Plan (or similar) which assumes higher retiree spending in younger years with reduced spending as you age?

Going back to his intro, he did note that all methods have pros and cons, and specially noted the pros of VPW include the simplicity of the model. For me, this perhaps the biggest benefit - and the primary reason I've become a VPW advocate. I accept that no withdrawal method is "perfect", that people may have different priorities and preferences (for example someone who wants to leave a large inheritance likely has no issues with being the "richest corpse"), and that - used properly and with the required diligence - multiple withdrawal approaches could result in successful outcomes the majority of the time.

But even if "everything else was equal", the simplicity factor of VPW is (as far as I know) unmatched. Most of the credit goes to the underlying simplicity of the model (basic math principles). But the excellent spreadsheet longinvest created is worth specific notice as well. From the long-term view, it's the only thing I've found thus far that I think my spouse who hates finances could reasonably utilize if I'm no longer around. That alone is huge for me... It's also one of the very few tools that helped me reconcile how to work through the math of potentially retiring in our 50's with delayed pensions and social security, where general rules of thumb like 25X (or 4% - or pick your number) don't really work out - as your X varies with the initial years being 100% dependent on the portfolio and later years less dependent as retirement income kicks in.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by SnowBog »

nigel_ht wrote: Wed Aug 03, 2022 7:44 pm
dcabler wrote: Wed Aug 03, 2022 6:10 pm
willthrill81 wrote: Wed Aug 03, 2022 5:40 pm
Marseille07 wrote: Wed Aug 03, 2022 12:54 pm VPW actually optimizes for depleting your portfolio after N years (but promises no premature depletion before N) while smoothing out withdrawals to the extent it can.
VPW doesn't do anything to 'smooth' withdrawals. Rather, it makes one's withdrawals essentially as volatile as one's portfolio.
Not quite - the version of VPW illustrated in the VPW forward test thread uses a dampening savings account to provide some smoothing of spending. It's only short term smoothing so longer term differences between the fixed assumption for returns and reality can still cause larger excursions over time.

Cheers.
Can anyone definitely state that the wiki is up to date on what the spreadsheet does today?

I guess the core of VPW is the table of percentages…so as long as the various retirement tools implement that you get a reasonable approximation of VPW performance.

Is it fair to say that if you add your SS and pensions into FICalc the withdrawal numbers will be pretty close to what the spreadsheet produces?
As far as I understand, they are pretty well up-to-date.

But a notable difference is the spreadsheet caps withdrawals at 10%, which is only "recommended" in the wiki. And tools like FICalc do not follow this recommendation, which will cause differences in the last 12 years (or so) of the model (when the withdrawal %'s in the table start to exceed 10%).

You can attempt to approximate this in FICalc by using the "Maximum annual withdrawal" selection - but that is entered as a constant dollar amount (aka it will be adjusted for inflation) not as a representation of the portfolio balance (so the results won't be exact).

One thing that isn't in either the spreadsheet or the wiki, but is in the VPW Forward Test (done "outside" the spreadsheet) is the use of a "buffering" (or dampening") account to minimize the volatility. The general idea is to withdraw more initially (6 months in the VPW Forward Test), and then take 1/x (1/6 in the VPW Forward Test) of that amount for your expenses. In future months, the "recommended" withdrawal is made and added to that account, and again you take 1/X of the aggregate amount. In effect, this serves as a "'shock absorber" of sorts - helping to normalize portfolio changes over a longer period (6 months in the VPW forward test). Personally, I think this would be a great addition to the wiki...
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

SnowBog wrote: Wed Aug 03, 2022 8:42 pm One thing that isn't in either the spreadsheet or the wiki, but is in the VPW Forward Test (done "outside" the spreadsheet) is the use of a "buffering" (or dampening") account to minimize the volatility. The general idea is to withdraw more initially (6 months in the VPW Forward Test), and then take 1/x (1/6 in the VPW Forward Test) of that amount for your expenses. In future months, the "recommended" withdrawal is made and added to that account, and again you take 1/X of the aggregate amount. In effect, this serves as a "'shock absorber" of sorts - helping to normalize portfolio changes over a longer period (6 months in the VPW forward test). Personally, I think this would be a great addition to the wiki...
I don't see how this helps because if you withdraw more initially, then effectively what you're doing is your starting WR becomes 4.8% instead of 4.5%; and your rising WR% becomes less steep. That's pretty much all it's doing as far as I see.

If you withdraw 4.8% but claim that all you needed was 4.5% and carry a 0.3% extra buffer, then obviously you can make it look like the withdrawals are more stable. But this is very much what some people call mental accounting.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by SnowBog »

Marseille07 wrote: Thu Aug 04, 2022 12:02 am
SnowBog wrote: Wed Aug 03, 2022 8:42 pm One thing that isn't in either the spreadsheet or the wiki, but is in the VPW Forward Test (done "outside" the spreadsheet) is the use of a "buffering" (or dampening") account to minimize the volatility. The general idea is to withdraw more initially (6 months in the VPW Forward Test), and then take 1/x (1/6 in the VPW Forward Test) of that amount for your expenses. In future months, the "recommended" withdrawal is made and added to that account, and again you take 1/X of the aggregate amount. In effect, this serves as a "'shock absorber" of sorts - helping to normalize portfolio changes over a longer period (6 months in the VPW forward test). Personally, I think this would be a great addition to the wiki...
I don't see how this helps because if you withdraw more initially, then effectively what you're doing is your starting WR becomes 4.8% instead of 4.5%; and your rising WR% becomes less steep. That's pretty much all it's doing as far as I see.

If you withdraw 4.8% but claim that all you needed was 4.5% and carry a 0.3% extra buffer, then obviously you can make it look like the withdrawals are more stable. But this is very much what some people call mental accounting.
I'm not sure I follow you... Or I didn't do a good job explaining... So I'll quote what I think are the relevant parts of the first post in the forward test thread.
longinvest wrote: Sun Jun 30, 2019 10:37 am Retirement funding can be simple. It's sufficient to combine income from Social Security (possibly delayed to age 70) and a pension (if any) with portfolio withdrawals from a balanced Bogleheads portfolio using a sensible approach.
...
Monthly portfolio withdrawal amounts will be determined using the new VPW Accumulation And Retirement Worksheet which takes into account current and future pensions (like delayed Social Security), with and without cost-of-living adjustments. Portfolio withdrawals will be taken on the last day of the month and their short-term fluctuations will be dampened using a savings account containing a few months worth of withdrawals.

The dampening savings account will accrue interest based on the rates of high-interest online savings accounts (like an Ally savings account which currently pays 2.10%).
...
In preparation for retirement, an initial withdrawal is hypothetically taken today from the $1,000,000 portfolio, exceptionally equal to 6 monthly VPW withdrawals, to provide income for July 2019 and pre-fill the dampening savings account with an additional 5 months worth of withdrawals.
...
The VPW Worksheet suggests to take a $5,356 withdrawal and tells us that total annual retirement income is currently estimated at $76,276. In case of unfavorable market returns where stocks would lose 50%, the portfolio would lose -$300,000 and retirement income would be reduced by -20% to $61,286. The retiree is OK with that.

As income for July 2019 and to pre-fill the dampening savings account, the retiree exceptionally withdraws 6 times the suggested amount. That's (6 X $5,356) = $32,136. This leaves ($1,000,000 - $32,136) = $967,864 invested into the Vanguard LifeStrategy Moderate Growth Fund at the end of June 2019.

After making the withdrawal, the retiree deposits (5 X $5,356) = $26,780 into the dampening savings account, and combines the remaining $5,356 with the $1,000 July work pension payment for a total income of $6,356 available to pay taxes and expenses in July 2019.

...
July 2019 total retirement income is ($1,000 work pension + $5,356 VPW withdrawal) = $6,356. Tomorrow morning, on July 1, 2019, total portfolio balance will be ($967,864 LifeStrategy Moderate Growth Fund + $26,780 dampening savings account) = $994,644.
...
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

SnowBog wrote: Thu Aug 04, 2022 12:25 am I'm not sure I follow you... Or I didn't do a good job explaining... So I'll quote what I think are the relevant parts of the first post in the forward test thread.
longinvest wrote: Sun Jun 30, 2019 10:37 am Retirement funding can be simple. It's sufficient to combine income from Social Security (possibly delayed to age 70) and a pension (if any) with portfolio withdrawals from a balanced Bogleheads portfolio using a sensible approach.
...
Monthly portfolio withdrawal amounts will be determined using the new VPW Accumulation And Retirement Worksheet which takes into account current and future pensions (like delayed Social Security), with and without cost-of-living adjustments. Portfolio withdrawals will be taken on the last day of the month and their short-term fluctuations will be dampened using a savings account containing a few months worth of withdrawals.

The dampening savings account will accrue interest based on the rates of high-interest online savings accounts (like an Ally savings account which currently pays 2.10%).
...
In preparation for retirement, an initial withdrawal is hypothetically taken today from the $1,000,000 portfolio, exceptionally equal to 6 monthly VPW withdrawals, to provide income for July 2019 and pre-fill the dampening savings account with an additional 5 months worth of withdrawals.
...
The VPW Worksheet suggests to take a $5,356 withdrawal and tells us that total annual retirement income is currently estimated at $76,276. In case of unfavorable market returns where stocks would lose 50%, the portfolio would lose -$300,000 and retirement income would be reduced by -20% to $61,286. The retiree is OK with that.

As income for July 2019 and to pre-fill the dampening savings account, the retiree exceptionally withdraws 6 times the suggested amount. That's (6 X $5,356) = $32,136. This leaves ($1,000,000 - $32,136) = $967,864 invested into the Vanguard LifeStrategy Moderate Growth Fund at the end of June 2019.

After making the withdrawal, the retiree deposits (5 X $5,356) = $26,780 into the dampening savings account, and combines the remaining $5,356 with the $1,000 July work pension payment for a total income of $6,356 available to pay taxes and expenses in July 2019.

...
July 2019 total retirement income is ($1,000 work pension + $5,356 VPW withdrawal) = $6,356. Tomorrow morning, on July 1, 2019, total portfolio balance will be ($967,864 LifeStrategy Moderate Growth Fund + $26,780 dampening savings account) = $994,644.
...
OK so this seems like a one-time thing at the beginning of retirement. Well, then, the net effect is that your allocation became 58/42 instead of 60/40 before retiring, and you apply special property on the extra 2% of fixed income. A little different than how I understood initially but mental accounting nonetheless.

I'm not saying modifying 60/40 to 58/42 at the beginning of retirement is a bad idea. It might very well be a good idea. We just have to see through what is being said and understand what the implications are.
Last edited by Marseille07 on Thu Aug 04, 2022 12:40 am, edited 2 times in total.
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Re: Variable Percentage Withdrawal (VPW)

Post by ElGalloRico »

Reading up on this whole thread has been fascinating.

The one topic regarding personal finance that gives me incredible stress is RW. I know some have mentioned that Rob being harsh on withdrawals strategies is part of his brand; but I personally appreciate the reality check that markets CAN go wrong and at the worst possible time.

Personally, a while ago I decided I was going to tweak the classic Bengen strategy and turn it into the 3.5% rule and just reassess 10 years into retirement. If anything that approached has pushed me to be a bigger accumulator so that I have a bigger net worth come retirement.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by SnowBog »

Marseille07 wrote: Thu Aug 04, 2022 12:36 am We just have to see through what is being said and understand what the implications are.
The primary implications, as evidenced by the 3 years of the forward test, is the fluctuations of the withdrawals are dampened - as the name implies.

This may well be mental accounting, as mathematically the aggregate result of 6 months of averaged withdrawals versus 6 months of straight withdrawals should be fairly close (excluding slight difference in the first 6 months).

But it may be useful for those "concerned" about the "variability" of VPW, as apparently Rob Berger was.

And the dampening approach definitely isn't "required" for VPW. So those interested can use it, otherwise skip it.

In our case, we likely won't use a dampening approach (but TBD when we get there). For us, one of the main appeals of VPW is its simplicity. Towards that end, we'll likely make annual withdrawals and avoid the extra math required to maintain the dampening account, with the goal of keeping things as simple as possible. But then again, we aren't concerned [anymore] about the variability of VPW, we understand it to be a feature of the model.
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Re: [YouTube] Rob Berger's opinion of Variable Percentage Withdrawal (VPW)

Post by dcabler »

SnowBog wrote: Thu Aug 04, 2022 2:46 am
Marseille07 wrote: Thu Aug 04, 2022 12:36 am We just have to see through what is being said and understand what the implications are.
The primary implications, as evidenced by the 3 years of the forward test, is the fluctuations of the withdrawals are dampened - as the name implies.

This may well be mental accounting, as mathematically the aggregate result of 6 months of averaged withdrawals versus 6 months of straight withdrawals should be fairly close (excluding slight difference in the first 6 months).

But it may be useful for those "concerned" about the "variability" of VPW, as apparently Rob Berger was.

And the dampening approach definitely isn't "required" for VPW. So those interested can use it, otherwise skip it.

In our case, we likely won't use a dampening approach (but TBD when we get there). For us, one of the main appeals of VPW is its simplicity. Towards that end, we'll likely make annual withdrawals and avoid the extra math required to maintain the dampening account, with the goal of keeping things as simple as possible. But then again, we aren't concerned [anymore] about the variability of VPW, we understand it to be a feature of the model.
Somewhere along the forward test thread it was mentioned that the dampening account is included as part of the AA. However, the choice of investment for the dampening account is not the same as the choice for bonds, having significantly shorter duration. So, if the overall AA is to be maintained as 40% fixed income, that portion of the portfolio will have ever so slightly reduced returns for having the 6 months of short term cash instruments as part of the small price to pay for reduced month-to-month withdrawal variation. And as the bond portion of the portfolio depletes over time via withdrawals, more and more of the fixed income portion may be the dampening account.

I have a friend who is otherwise 100% SP500 and makes monthly withdrawals. His approach is more ABW-like than VPW and he uses a 2 year dampening account via a bond ETF. Makes a withdrawal from stocks, deposits it into the dampening fund and divides that by 24 to get his spending. If I were to do that I would probably consider a short term TIPs fund which has 2.5 years duration and would go to 30 months accordingly.

I won't be using VPW in retirement (will use something more ABW-like) but will retain a customized, pre-calculated VPW annual percentage withdrawal table for my DW in the event I pre-decease and she's not interested in the maintenance of our primarily plan. I know I won't do monthly withdrawals, but I haven't yet decided whether I'll do annual or quarterly withdrawals yet but I likely won't use a dampening account. Will figure that out before early 2023...

Cheers.
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