A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

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longinvest
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Portfolio balance as of September 30, 2022

The September 2022 return of the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) was -7.25% and the annual percentage yield (APY) of the Ally savings account was 2.00%.

We use account balances as of August 31, 2022 and apply September 2022 growth on investments and interest on savings.
  • Vanguard LifeStrategy Moderate Growth Fund (VSMGX): ($881,057.46 X (1 + -7.25%)) = $817,180.79
  • Withdrawal cushion (at Ally Bank): ($29,283.07 X ((1 + 2.00%)^(1 / 12))) = $29,331.43
Total Portfolio Balance: $846,512.22
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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longinvest
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Forward test as of September 30, 2022

We continue our forward test. Here's a link to the previous entry.

As of September 30, 2022, the retiree's portfolio is composed of:
  • Vanguard LifeStrategy Moderate Growth Fund (VSMGX): $817,180.79
  • Withdrawal cushion (at Ally Bank): $29,331.43
Total Portfolio Balance: $846,512.22

The retiree has a fixed $1,000 per month pension and is delaying Social Security to age 70 to receive $2,180 per month (in 2022 dollars).

We update the Portfolio Balance cell in the Retirement sheet of the VPW Accumulation And Retirement Worksheet. No other entry needs updating. We get:

Image

The VPW Worksheet suggests to take a $5,302 withdrawal. The retiree withdraws the suggested amount.

After making the withdrawal, the retiree calculates an adjustment using the withdrawal cushion balance:
  • Adjusted withdrawal amount: (($5,302 + $29,331.43) / 6) = $5,772
  • Adjustment: ($5,772 - $5,302) = $470
The retiree transfers $470 out of the Ally savings account and combines it with the $5,302 withdrawal and the $1,000 October 2022 work pension payment for a total retirement income of $6,772 available for taxes and expenses in October 2022.

After withdrawal and transfer, ($817,180.79 - $5,302) = $811,878.79 is left invested into the Vanguard LifeStrategy Moderate Growth Fund and ($29,331.43 - $470) = $28,861.43 is left into the withdrawal cushion for a total portfolio balance of $840,740.22 at the end of September 2022.

The Ally savings account currently carries an annual percentage yield (APY) of 2.25%.

Chart

Here's a chart of total monthly retirement income (blue bars, left axis) and total portfolio balance after withdrawal (red line, right axis). Amounts are displayed as of the morning of the first day of the month.

October 2022 total retirement income is $6,772 and on the morning of October 1, 2022, the total portfolio balance is $840,740.22.

Image

Historical Annual Retirement Income
  • 2019: $76,406 (annualized) -- $38,203 in 6 months, starting retirement in July
  • 2020: $76,743
  • 2021: $82,388
  • 2022: $83,959 (annualized) -- $69,966 in 10 months
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Escapevelocity
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by Escapevelocity »

@longinvest,
Sorry if this is answered somewhere in the thread. Since the current situation with the spending cushion entails adding a significant adjustment from the savings account to supplement the VPW calculated withdrawal, if the portfolio stays flat, would there be some step change reduction in the adjustment that is available to be taken each month? How and when does the savings account get topped up and in my scenario, would this result in a sudden downward shift in total income?

Also, I'm struggling to understand why the savings account would be added to the invested portfolio in the VPW calculation as opposed to keeping it outside the calculation. Thanks!
Doc7
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by Doc7 »

Escapevelocity wrote: Tue Oct 11, 2022 11:54 am @longinvest,
Sorry if this is answered somewhere in the thread. Since the current situation with the spending cushion entails adding a significant adjustment from the savings account to supplement the VPW calculated withdrawal, if the portfolio stays flat, would there be some step change reduction in the adjustment that is available to be taken each month? How and when does the savings account get topped up and in my scenario, would this result in a sudden downward shift in total income?

Also, I'm struggling to understand why the savings account would be added to the invested portfolio in the VPW calculation as opposed to keeping it outside the calculation. Thanks!



The savings account is automatically topped off or sucked down each month because of its smoothing function - if VPW withdrawals were increasing significantly, it would be getting topped off. (a big bump in market returns and it calculated $6000 instead of $5300, the retiree would have been adding $3-400 instead of taking money out of the ally account). Any time the VPW withdrawal is exceeding the approximately the last 6 months rolling average it will add to account, and when it is lower than the 6 months average it will deplete from the account. I can’t see any reason a step change would take place the way the Ally account is being utilized as a smoothing function.



OP, are there significant drawbacks to filling with 5 months of expenses in the first year of retirement and conversion money with regards to taxes? I am wondering about instead filling 3 months in year 1 and a month additionally per year thereafter.
Escapevelocity
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by Escapevelocity »

Doc7 wrote: Tue Oct 11, 2022 12:55 pm
Escapevelocity wrote: Tue Oct 11, 2022 11:54 am @longinvest,
Sorry if this is answered somewhere in the thread. Since the current situation with the spending cushion entails adding a significant adjustment from the savings account to supplement the VPW calculated withdrawal, if the portfolio stays flat, would there be some step change reduction in the adjustment that is available to be taken each month? How and when does the savings account get topped up and in my scenario, would this result in a sudden downward shift in total income?

Also, I'm struggling to understand why the savings account would be added to the invested portfolio in the VPW calculation as opposed to keeping it outside the calculation. Thanks!



The savings account is automatically topped off or sucked down each month because of its smoothing function - if VPW withdrawals were increasing significantly, it would be getting topped off. (a big bump in market returns and it calculated $6000 instead of $5300, the retiree would have been adding $3-400 instead of taking money out of the ally account). Any time the VPW withdrawal is exceeding the approximately the last 6 months rolling average it will add to account, and when it is lower than the 6 months average it will deplete from the account. I can’t see any reason a step change would take place the way the Ally account is being utilized as a smoothing function.



OP, are there significant drawbacks to filling with 5 months of expenses in the first year of retirement and conversion money with regards to taxes? I am wondering about instead filling 3 months in year 1 and a month additionally per year thereafter.
So if the market continues to bounce around at current levels, the ally account will just gradually deplete to zero?
Doc7
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by Doc7 »

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Last edited by Doc7 on Tue Oct 11, 2022 7:54 pm, edited 1 time in total.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Escapevelocity wrote: Tue Oct 11, 2022 11:54 am @longinvest,
Sorry if this is answered somewhere in the thread. Since the current situation with the spending cushion entails adding a significant adjustment from the savings account to supplement the VPW calculated withdrawal, if the portfolio stays flat, would there be some step change reduction in the adjustment that is available to be taken each month? How and when does the savings account get topped up and in my scenario, would this result in a sudden downward shift in total income?
Escapevelocity,

If the portfolio was to stay earning more or less approximately its growth trend ahead from now, withdrawals would stabilize around current amounts and the withdrawal cushion balance would eventually stabilize accordingly, leading to very small monthly adjustments (due to interest earned, among other things). The portfolio balance, on the other hand, would continue to gradually getting smaller over time; this is by design to avoid dying with a gigantic unspent portfolio.
Escapevelocity wrote: Tue Oct 11, 2022 11:54 am How and when does the savings account get topped up and in my scenario, would this result in a sudden downward shift in total income?
The withdrawal cushion is already adjusted every single month; there's no need for additional adjustments.

A detailed mathematical analysis of the withdrawal cushion is presented in this post and this post.
Escapevelocity wrote: Tue Oct 11, 2022 11:54 am Also, I'm struggling to understand why the savings account would be added to the invested portfolio in the VPW calculation as opposed to keeping it outside the calculation. Thanks!
Normally, the withdrawal cushion should have been kept separate from portfolio, for VPW calculation purposes. But, in this forward test, the size of the withdrawal cushion was specifically calibrated for inclusion within the portfolio balance while taking monthly withdrawals.

The decision to consider the withdrawal cushion as part of the portfolio, for VPW calculation purposes, was discussed and subjected to a community vote earlier in this thread. Here's the post explaining the issue, my personal opinion, and the result of the vote.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Escapevelocity wrote: Tue Oct 11, 2022 4:11 pm So if the market continues to bounce around at current levels, the ally account will just gradually deplete to zero?
The VPW worksheet is designed so that withdrawals never get to zero! At age 80 the retiree is invited to make sure non-portfolio income is sufficient for comfortable living. In old age (around age 90), the withdrawal percentage is capped at 10%. See the wiki page and this post for details.

As I've just explained in my previous post, the withdrawal cushion balance would eventually stabilize in your scenario. Monthly adjustments, on the other hand, would get near zero. But, this is unrealistic; in real life markets fluctuate.
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Escapevelocity
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by Escapevelocity »

longinvest wrote: Tue Oct 11, 2022 7:09 pm
Escapevelocity wrote: Tue Oct 11, 2022 4:11 pm So if the market continues to bounce around at current levels, the ally account will just gradually deplete to zero?
The VPW worksheet is designed so that withdrawals never get to zero! At age 80 the retiree is invited to make sure non-portfolio income is sufficient for comfortable living. In old age (around age 90), the withdrawal percentage is capped at 10%. See the wiki page and this post for details.

As I've just explained in my previous post, the withdrawal cushion balance would eventually stabilize in your scenario. Monthly adjustments, on the other hand, would get near zero. But, this is unrealistic; in real life markets fluctuate.
Thanks, I was not referring to the portfolio going to zero rather the withdrawal cushion in a scenario where the portfolio is declining or flat for extended periods of time. I think I’ve got my head around this now though after reading the whole thread thanks again for replying.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Escapevelocity wrote: Tue Oct 11, 2022 7:34 pm Thanks, I was not referring to the portfolio going to zero rather the withdrawal cushion in a scenario where the portfolio is declining or flat for extended periods of time. I think I’ve got my head around this now though after reading the whole thread thanks again for replying.
Escapevelocity, the Variable percentage withdrawal (VPW) method adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

If you wish to discuss the theory of VPW, please do so on the main VPW thread. This thread is about the forward test.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Escapevelocity
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by Escapevelocity »

longinvest wrote: Tue Oct 11, 2022 8:30 pm
Escapevelocity wrote: Tue Oct 11, 2022 7:34 pm Thanks, I was not referring to the portfolio going to zero rather the withdrawal cushion in a scenario where the portfolio is declining or flat for extended periods of time. I think I’ve got my head around this now though after reading the whole thread thanks again for replying.
Escapevelocity, the Variable percentage withdrawal (VPW) method adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

If you wish to discuss the theory of VPW, please do so on the main VPW thread. This thread is about the forward test.
As I stated above, my question was specifically aimed at the mechanics of the withdrawal cushion savings buffer nothing to do with the theory behind VPW which I believe is germane to the forward test. Also, as mentioned in my previous post, I believe that I understand it now after a more careful reading of the entire thread
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Escapevelocity wrote: Tue Oct 11, 2022 9:45 pm
longinvest wrote: Tue Oct 11, 2022 8:30 pm
Escapevelocity wrote: Tue Oct 11, 2022 7:34 pm Thanks, I was not referring to the portfolio going to zero rather the withdrawal cushion in a scenario where the portfolio is declining or flat for extended periods of time. I think I’ve got my head around this now though after reading the whole thread thanks again for replying.
Escapevelocity, the Variable percentage withdrawal (VPW) method adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

If you wish to discuss the theory of VPW, please do so on the main VPW thread. This thread is about the forward test.
As I stated above, my question was specifically aimed at the mechanics of the withdrawal cushion savings buffer nothing to do with the theory behind VPW which I believe is germane to the forward test. Also, as mentioned in my previous post, I believe that I understand it now after a more careful reading of the entire thread
Escapevelocity, the withdrawal cushion balance is constantly converging towards approximately 5 months of withdrawals, where recent withdrawals weight significantly more than older ones. For the withdrawal cushion balance to drop to zero, portfolio withdrawals would have to drop to zero (implying a zero portfolio balance). As I explained yesterday, the VPW worksheet is designed so that withdrawals never drop to zero.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Escapevelocity
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by Escapevelocity »

longinvest wrote: Wed Oct 12, 2022 6:49 am
Escapevelocity wrote: Tue Oct 11, 2022 9:45 pm
longinvest wrote: Tue Oct 11, 2022 8:30 pm
Escapevelocity wrote: Tue Oct 11, 2022 7:34 pm Thanks, I was not referring to the portfolio going to zero rather the withdrawal cushion in a scenario where the portfolio is declining or flat for extended periods of time. I think I’ve got my head around this now though after reading the whole thread thanks again for replying.
Escapevelocity, the Variable percentage withdrawal (VPW) method adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

If you wish to discuss the theory of VPW, please do so on the main VPW thread. This thread is about the forward test.
As I stated above, my question was specifically aimed at the mechanics of the withdrawal cushion savings buffer nothing to do with the theory behind VPW which I believe is germane to the forward test. Also, as mentioned in my previous post, I believe that I understand it now after a more careful reading of the entire thread
Escapevelocity, the withdrawal cushion balance is constantly converging towards approximately 5 months of withdrawals, where recent withdrawals weight significantly more than older ones. For the withdrawal cushion balance to drop to zero, portfolio withdrawals would have to drop to zero (implying a zero portfolio balance). As I explained yesterday, the VPW worksheet is designed so that withdrawals never drop to zero.
Understood.....thanks for taking the time to help me.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Here's how the VPW Accumulation And Retirement Worksheet calculated its suggested $5,302 portfolio withdrawal at the end of September 2022.

Detailed calculations are provided in the lower part of the Retirement sheet. Displayed amounts and percentages are rounded.

Image

Image

The retiree will get $2,180/month Social Security payments in 2 years. That's ($2,180 X 12) = $26,160/year. The percentage for a 2-year withdrawal schedule with a 60/40 stocks/bonds allocation in the VPW Table is 50.9% (called [G] above). As a consequence, ($26,160 / 50.9%) = $51,372 is kept aside (on paper) for Social Security bridge withdrawals.

The $1,000/month work pension isn't indexed to inflation. To dampen the erosion of its purchasing power due to inflation, only 65.7% (called [B] above) of the pension payment is spent (see this post and this post for detailed explanations). That's ($1,000 X 12 X 65.7%) = $7,887/year.

At age 68 with a 60/40 stocks/bonds allocation, the percentage in the VPW Table is 5.2% (called [A] above).

Image

The retiree has a $846,512 portfolio, but $51,372 is kept aside (on paper) for Social Security bridge withdrawals. This leaves ($846,512 - $51,372) = $795,140 available for VPW and results into a ($795,140 X 5.2%) = $41,574 VPW withdrawal. Adding ($26,160 + $7,887) = $34,047 of (bridged and adjusted) pension income results into a total annual retirement income of ($41,574 + $34,047) = $75,621.

Image

The monthly income target is ($75,621 / 12) = $6,302. The work pension provides $1,000. The difference, ($6,302 - $1,000) = $5,302, is withdrawn from the portfolio.

Image

The VPW worksheet also calculates a Required Flexibility that must be maintained by the retiree. To do so, it first applies a -50% loss to the stock allocation and then repeats its calculations. With 60/40 stocks/bonds allocation, this results into a (-50% X 60%) = -30% portfolio loss. That's a (-30% X $846,512) = -$253,954 portfolio loss, reducing the portfolio to ($846,512 - $253,954) = $592,558 after the loss. Then, it repeats its calculations:

Image

After such a loss, total annual retirement income would be reduced to $62,343, representing a reduction of (($62,343 - $75,621) / 12) = -$1,107/month.

The retiree must maintain the flexibility to easily cut spending by up to -$1,107/month because stocks could easily lose -50% of their value within a short time period. In other words, at least $1,107 must be budgeted for optional discretionary spending that could be eliminated without affecting the retiree's comfort (see this post for additional explanations).
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by Wannaretireearly »

Cool thread! Tagging for future reading…
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

The retiree's portfolio is entirely invested into the Vanguard LifeStrategy Moderate Growth Fund (VSMGX), an automatically-rebalanced low-cost global balanced index One-Fund Portfolio with a 60/40 stocks/bonds target allocation which, as of September 30, 2022, was spread across 4,066 U.S. stocks, 7,991 international stocks, 10,174 U.S. bonds, and 6,787 international bonds for a total of 29,018 global securities, approximating the (free float) Global Stock-and-Bond Portfolio with a moderate home bias.

Here's a growth chart of the Vanguard LifeStrategy Moderate Growth Fund and of the four markets it invests into from the start of this forward test until September 30, 2022:

Image

Here's a comparative chart of the growth of the four markets relative to the Vanguard LifeStrategy Moderate Growth Fund over the same period:

Image
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

The Bureau of Labor Statistics has published the consumer price index for all urban consumers (CPI-U) for September 2022.

We're interested to calculate an average CPI-U to associate with our forward test at the end of September 2022. Here are the last 12 CPI-U values:

Code: Select all

 Month   CPI-U
10/2021 276.589
11/2021 277.948
12/2021 278.802
01/2022 281.148
02/2022 283.716
03/2022 287.504
04/2022 289.109
05/2022 292.296
06/2022 296.311
07/2022 296.276
08/2022 296.171
09/2022 296.808
We take note that the average CPI-U for the last 12 months at the end of September 2022 was 287.723.

Last year, we calculated that the average CPI-U for the last 12 months at the end of September 2021 was 266.616.

The trailing 1-year average inflation at the end of September 2022 was ((287.723 / 266.616) - 1) = 7.92%.

The chosen Ally savings account has an annual percentage yield (APY) of 2.35%. It's -5.57% below trailing average inflation.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Using average CPI-U calculated in this and previous posts, here's an inflation-adjusted chart of this forward test expressed in September 2022 dollars:

Image
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by espressofreak »

The interest rate for the Ally Savings account has increased from 2.35% to 2.50%, as of 2 November 2022.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by FiveK »

FiveK wrote: Sat Dec 04, 2021 6:57 pm
longinvest wrote: Sat Dec 04, 2021 5:03 pm
FiveK wrote: Wed Oct 14, 2020 8:40 pm
FiveK, it would be nice if you could provide the age 70 Social Security estimate in 2022 dollars using latest COLA announcement. I'll need it for next month's entry. Thanks.
$2,180
With the 8.7% COLA announced recently, the age 70 estimate goes up to $2,370 for next year.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

espressofreak wrote: Wed Nov 02, 2022 8:27 pm The interest rate for the Ally Savings account has increased from 2.35% to 2.50%, as of 2 November 2022.
Thanks Espressofreak.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

FiveK wrote: Wed Nov 02, 2022 10:12 pm With the 8.7% COLA announced recently, the age 70 estimate goes up to $2,370 for next year.
Thanks FiveK for the age 70 Social Security estimate in 2023 dollars. I'll use it when transitioning into the new year at the end of December.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Portfolio balance as of October 31, 2022

The October 2022 return of the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) was 3.39% and the annual percentage yield (APY) of the Ally savings account was 2.25%.

We use account balances as of September 30, 2022 and apply October 2022 growth on investments and interest on savings.
  • Vanguard LifeStrategy Moderate Growth Fund (VSMGX): ($811,878.79 X (1 + 3.39%)) = $839,401.48
  • Withdrawal cushion (at Ally Bank): ($28,861.43 X ((1 + 2.25%)^(1 / 12))) = $28,915.00
Total Portfolio Balance: $868,316.48
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Forward test as of October 31, 2022

We continue our forward test. Here's a link to the previous entry.

As of October 31, 2022, the retiree's portfolio is composed of:
  • Vanguard LifeStrategy Moderate Growth Fund (VSMGX): $839,401.48
  • Withdrawal cushion (at Ally Bank): $28,915.00
Total Portfolio Balance: $868,316.48

The retiree has a fixed $1,000 per month pension and is delaying Social Security to age 70 to receive $2,180 per month (in 2022 dollars).

We update the Portfolio Balance cell in the Retirement sheet of the VPW Accumulation And Retirement Worksheet. No other entry needs updating. We get:

Image

The VPW Worksheet suggests to take a $5,397 withdrawal. The retiree withdraws the suggested amount.

After making the withdrawal, the retiree calculates an adjustment using the withdrawal cushion balance:
  • Adjusted withdrawal amount: (($5,397 + $28,915.00) / 6) = $5,719
  • Adjustment: ($5,719 - $5,397) = $322
The retiree transfers $322 out of the Ally savings account and combines it with the $5,397 withdrawal and the $1,000 November 2022 work pension payment for a total retirement income of $6,719 available for taxes and expenses in November 2022.

After withdrawal and transfer, ($839,401.48 - $5,397) = $834,004.48 is left invested into the Vanguard LifeStrategy Moderate Growth Fund and ($28,915.00 - $322) = $28,593.00 is left into the withdrawal cushion for a total portfolio balance of $862,597.48 at the end of October 2022.

The Ally savings account currently carries an annual percentage yield (APY) of 2.50%.

Chart

Here's a chart of total monthly retirement income (blue bars, left axis) and total portfolio balance after withdrawal (red line, right axis). Amounts are displayed as of the morning of the first day of the month.

November 2022 total retirement income is $6,719 and on the morning of November 1, 2022, the total portfolio balance is $862,597.48.

Image

Historical Annual Retirement Income
  • 2019: $76,406 (annualized) -- $38,203 in 6 months, starting retirement in July
  • 2020: $76,743
  • 2021: $82,388
  • 2022: $83,656 (annualized) -- $76,685 in 11 months
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Here's how the VPW Accumulation And Retirement Worksheet calculated its suggested $5,397 portfolio withdrawal at the end of October 2022.

Detailed calculations are provided in the lower part of the Retirement sheet. Displayed amounts and percentages are rounded.

Image

Image

The retiree will get $2,180/month Social Security payments in 2 years. That's ($2,180 X 12) = $26,160/year. The percentage for a 2-year withdrawal schedule with a 60/40 stocks/bonds allocation in the VPW Table is 50.9% (called [G] above). As a consequence, ($26,160 / 50.9%) = $51,372 is kept aside (on paper) for Social Security bridge withdrawals.

The $1,000/month work pension isn't indexed to inflation. To dampen the erosion of its purchasing power due to inflation, only 65.7% (called [B] above) of the pension payment is spent (see this post and this post for detailed explanations). That's ($1,000 X 12 X 65.7%) = $7,887/year.

At age 68 with a 60/40 stocks/bonds allocation, the percentage in the VPW Table is 5.2% (called [A] above).

Image

The retiree has a $868,316 portfolio, but $51,372 is kept aside (on paper) for Social Security bridge withdrawals. This leaves ($868,316 - $51,372) = $816,944 available for VPW and results into a ($816,944 X 5.2%) = $42,714 VPW withdrawal. Adding ($26,160 + $7,887) = $34,047 of (bridged and adjusted) pension income results into a total annual retirement income of ($42,714 + $34,047) = $76,761.

Image

The monthly income target is ($76,761 / 12) = $6,397. The work pension provides $1,000. The difference, ($6,397 - $1,000) = $5,397, is withdrawn from the portfolio.

Image

The VPW worksheet also calculates a Required Flexibility that must be maintained by the retiree. To do so, it first applies a -50% loss to the stock allocation and then repeats its calculations. With 60/40 stocks/bonds allocation, this results into a (-50% X 60%) = -30% portfolio loss. That's a (-30% X $868,316) = -$260,495 portfolio loss, reducing the portfolio to ($868,316 - $260,495) = $607,821 after the loss. Then, it repeats its calculations:

Image

After such a loss, total annual retirement income would be reduced to $63,141, representing a reduction of (($63,141 - $76,761) / 12) = -$1,135/month.

The retiree must maintain the flexibility to easily cut spending by up to -$1,135/month because stocks could easily lose -50% of their value within a short time period. In other words, at least $1,135 must be budgeted for optional discretionary spending that could be eliminated without affecting the retiree's comfort (see this post for additional explanations).
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espressofreak
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by espressofreak »

Another increase in Ally Savings interest rate, this time going from 2.50% to 2.75%, as of 10 Nov 2022.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by AlohaBill »

Hi longinvest:
Would there be much difference in results using Vanguard’s Target Retirement Income Fund (Vtinx) than your vsmgx fund? We have been retired for 5 years now and the most we’ve withdrawn in a year from our savings is about .7%. We are rather conservative investors with no more than 75% stock/ 25% bond in the past and no less than Vtinx’s 30/70 today. At this point in time for us, I don’t really think it matters. Thank you.
Cheers and keep up the good work.
I was going to follow your % withdrawals noted in the wiki per my RSP, but haven’t had to make any meaningful withdrawals.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

AlohaBill wrote: Sun Nov 13, 2022 10:53 am
AlohaBill, I've replied to your post in the this post of the main VPW thread.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

The retiree's portfolio is entirely invested into the Vanguard LifeStrategy Moderate Growth Fund (VSMGX), an automatically-rebalanced low-cost global balanced index One-Fund Portfolio with a 60/40 stocks/bonds target allocation which, as of October 31, 2022, was spread across 4,028 U.S. stocks, 7,985 international stocks, 10,220 U.S. bonds, and 6,863 international bonds for a total of 29,096 global securities, approximating the (free float) Global Stock-and-Bond Portfolio with a moderate home bias.

Here's a growth chart of the Vanguard LifeStrategy Moderate Growth Fund and of the four markets it invests into from the start of this forward test until October 31, 2022:

Image

Here's a comparative chart of the growth of the four markets relative to the Vanguard LifeStrategy Moderate Growth Fund over the same period:

Image
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

The Bureau of Labor Statistics has published the consumer price index for all urban consumers (CPI-U) for October 2022.

We're interested to calculate an average CPI-U to associate with our forward test at the end of October 2022. Here are the last 12 CPI-U values:

Code: Select all

 Month   CPI-U
11/2021 277.948
12/2021 278.802
01/2022 281.148
02/2022 283.716
03/2022 287.504
04/2022 289.109
05/2022 292.296
06/2022 296.311
07/2022 296.276
08/2022 296.171
09/2022 296.808
10/2022 298.012
We take note that the average CPI-U for the last 12 months at the end of October 2022 was 289.508.

Last year, we calculated that the average CPI-U for the last 12 months at the end of October 2021 was 267.966.

The trailing 1-year average inflation at the end of October 2022 was ((289.508 / 267.966) - 1) = 8.04%.

The chosen Ally savings account has an annual percentage yield (APY) of 3.00%. It's -5.04% below trailing average inflation.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Using average CPI-U calculated in this and previous posts, here's an inflation-adjusted chart of this forward test expressed in October 2022 dollars:

Image
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by espressofreak »

Ally savings interest rate went from 2.75% to 3.00% APY as of 22 November 2022.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by dknightd »

First, thanks for keeping up with this thread. I'm sure it is a lot of work. Unless this is the plan you are following, then it is no more work. Except sharing your plan with us. I appreciate the effort! And you sharing!
Coincidentally I retired at about the same you started this forward test. With about the same amount of money.
I use an older version of your VPW in my planning. Again, thanks for sharing. I use the VPW suggested withdrawal as my top. I use the flexible suggested withdrawal as my bottom. This version is very interesting, with the buffer, and I might adopt it as part of my planning when I start to loose me mind. Which no doubt will happen one day.

I have one suggestion. And I'm not sure if it can be included since you plan monthly, and I plan annually. My suggestion is to include the more or less government required RMD when you reach that age.

My suggestion is. If the required flexibility is less than the RMD, raise a red flag! I'm not sure if that has ever happened, but it might. We do not want our people to pay 50% tax on money they should have withdrawn.

It would be complicated coding for me. But it might be simple for you.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

dknightd wrote: Mon Nov 28, 2022 7:54 am First, thanks for keeping up with this thread. I'm sure it is a lot of work. Unless this is the plan you are following, then it is no more work. Except sharing your plan with us. I appreciate the effort! And you sharing!
Coincidentally I retired at about the same you started this forward test. With about the same amount of money.
I use an older version of your VPW in my planning. Again, thanks for sharing. I use the VPW suggested withdrawal as my top. I use the flexible suggested withdrawal as my bottom. This version is very interesting, with the buffer, and I might adopt it as part of my planning when I start to loose me mind. Which no doubt will happen one day.

I have one suggestion. And I'm not sure if it can be included since you plan monthly, and I plan annually. My suggestion is to include the more or less government required RMD when you reach that age.

My suggestion is. If the required flexibility is less than the RMD, raise a red flag! I'm not sure if that has ever happened, but it might. We do not want our people to pay 50% tax on money they should have withdrawn.

It would be complicated coding for me. But it might be simple for you.
Dknightd, thanks for the nice comments.

This thread's retiree is really hypothetical. I'm still in the accumulation phase. But I do use an income cushion (similar to the withdrawal cushion) to dampen the impact of portfolio fluctuations on available money to spend. See this thread for an explanation of adaptive savings using the Accumulation sheet (for accumulating investors) similar to variable withdrawals using the Retirement sheet (for retired investors).

For simplicity, how the retiree's portfolio is spread across accounts has been kept out of this thread (see this earlier post).

But, here's a quick answer to your worksheet modification suggestion.

As you've already noted in the past, VPW percentages are usually above RMD percentages (except after the 10% cap is reached). As a consequence, the situation you describe, where the RMD amount is higher than the worksheet's suggested withdrawal amount, is unlikely to happen. Yet, it could happen in rare cases.

It's pretty easy to handle this rare situation without any worksheet modification. There's a difference between an account withdrawal, where money is taken out of a specific account possibly moving it into a different portfolio account or outside the portfolio, and a portfolio withdrawal, where money is definitely taken out of the investment portfolio. An RMD can easily be satisfied without taking much money out of the portfolio; one can move the money into a different investment account, except for withheld taxes which are considered to have been taken out of the portfolio.

Note that further discussion of VPW and its worksheet should be continued in the VPW thread to avoid derailing this thread.

Thanks again for your nice words and for highlighting an interesting situation.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Portfolio balance as of November 30, 2022

The November 2022 return of the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) was 6.38% and the annual percentage yield (APY) of the Ally savings account was 2.50%.

We use account balances as of October 31, 2022 and apply November 2022 growth on investments and interest on savings.
  • Vanguard LifeStrategy Moderate Growth Fund (VSMGX): ($834,004.48 X (1 + 6.38%)) = $887,213.97
  • Withdrawal cushion (at Ally Bank): ($28,593.00 X ((1 + 2.50%)^(1 / 12))) = $28,651.90
Total Portfolio Balance: $915,865.87
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Forward test as of November 30, 2022

We continue our forward test. Here's a link to the previous entry.

As of November 30, 2022, the retiree's portfolio is composed of:
  • Vanguard LifeStrategy Moderate Growth Fund (VSMGX): $887,213.97
  • Withdrawal cushion (at Ally Bank): $28,651.90
Total Portfolio Balance: $915,865.87

The retiree has a fixed $1,000 per month pension and is delaying Social Security to age 70 to receive $2,180 per month (in 2022 dollars).

We update the Portfolio Balance cell in the Retirement sheet of the VPW Accumulation And Retirement Worksheet. No other entry needs updating. We get:

Image

The VPW Worksheet suggests to take a $5,604 withdrawal. The retiree withdraws the suggested amount.

After making the withdrawal, the retiree calculates an adjustment using the withdrawal cushion balance:
  • Adjusted withdrawal amount: (($5,604 + $28,651.90) / 6) = $5,709
  • Adjustment: ($5,709 - $5,604) = $105
The retiree transfers $105 out of the Ally savings account and combines it with the $5,604 withdrawal and the $1,000 December 2022 work pension payment for a total retirement income of $6,709 available for taxes and expenses in December 2022.

After withdrawal and transfer, ($887,213.97 - $5,604) = $881,609.97 is left invested into the Vanguard LifeStrategy Moderate Growth Fund and ($28,651.90 - $105) = $28,546.90 is left into the withdrawal cushion for a total portfolio balance of $910,156.87 at the end of November 2022.

The Ally savings account currently carries an annual percentage yield (APY) of 3.00%.

Chart

Here's a chart of total monthly retirement income (blue bars, left axis) and total portfolio balance after withdrawal (red line, right axis). Amounts are displayed as of the morning of the first day of the month.

December 2022 total retirement income is $6,709 and on the morning of December 1, 2022, the total portfolio balance is $910,156.87.

Image

Historical Annual Retirement Income
  • 2019: $76,406 (annualized) -- $38,203 in 6 months, starting retirement in July
  • 2020: $76,743
  • 2021: $82,388
  • 2022: $83,394
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Here's how the VPW Accumulation And Retirement Worksheet calculated its suggested $5,604 portfolio withdrawal at the end of November 2022.

Detailed calculations are provided in the lower part of the Retirement sheet. Displayed amounts and percentages are rounded.

Image

Image

The retiree will get $2,180/month Social Security payments in 2 years. That's ($2,180 X 12) = $26,160/year. The percentage for a 2-year withdrawal schedule with a 60/40 stocks/bonds allocation in the VPW Table is 50.9% (called [G] above). As a consequence, ($26,160 / 50.9%) = $51,372 is kept aside (on paper) for Social Security bridge withdrawals.

The $1,000/month work pension isn't indexed to inflation. To dampen the erosion of its purchasing power due to inflation, only 65.7% (called [B] above) of the pension payment is spent (see this post and this post for detailed explanations). That's ($1,000 X 12 X 65.7%) = $7,887/year.

At age 68 with a 60/40 stocks/bonds allocation, the percentage in the VPW Table is 5.2% (called [A] above).

Image

The retiree has a $915,866 portfolio, but $51,372 is kept aside (on paper) for Social Security bridge withdrawals. This leaves ($915,866 - $51,372) = $864,494 available for VPW and results into a ($864,494 X 5.2%) = $45,201 VPW withdrawal. Adding ($26,160 + $7,887) = $34,047 of (bridged and adjusted) pension income results into a total annual retirement income of ($45,201 + $34,047) = $79,248.

Image

The monthly income target is ($79,248 / 12) = $6,604. The work pension provides $1,000. The difference, ($6,604 - $1,000) = $5,604, is withdrawn from the portfolio.

Image

The VPW worksheet also calculates a Required Flexibility that must be maintained by the retiree. To do so, it first applies a -50% loss to the stock allocation and then repeats its calculations. With 60/40 stocks/bonds allocation, this results into a (-50% X 60%) = -30% portfolio loss. That's a (-30% X $915,866) = -$274,760 portfolio loss, reducing the portfolio to ($915,866 - $274,760) = $641,106 after the loss. Then, it repeats its calculations:

Image

After such a loss, total annual retirement income would be reduced to $64,882, representing a reduction of (($64,882 - $79,248) / 12) = -$1,197/month.

The retiree must maintain the flexibility to easily cut spending by up to -$1,197/month because stocks could easily lose -50% of their value within a short time period. In other words, at least $1,197 must be budgeted for optional discretionary spending that could be eliminated without affecting the retiree's comfort (see this post for additional explanations).
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by espressofreak »

Ally Savings interest rate went from 3.00% to 3.30%, as of 16 December 2022.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

espressofreak wrote: Thu Dec 15, 2022 8:22 pm Ally Savings interest rate went from 3.00% to 3.30%, as of 16 December 2022.
Thanks Espressofreak.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

The retiree's portfolio is entirely invested into the Vanguard LifeStrategy Moderate Growth Fund (VSMGX), an automatically-rebalanced low-cost global balanced index One-Fund Portfolio with a 60/40 stocks/bonds target allocation which, as of November 30, 2022, was spread across 4,026 U.S. stocks, 7,955 international stocks, 10,366 U.S. bonds, and 6,831 international bonds for a total of 29,178 global securities, approximating the (free float) Global Stock-and-Bond Portfolio with a moderate home bias.

Here's a growth chart of the Vanguard LifeStrategy Moderate Growth Fund and of the four markets it invests into from the start of this forward test until November 30, 2022:

Image

Here's a comparative chart of the growth of the four markets relative to the Vanguard LifeStrategy Moderate Growth Fund over the same period:

Image
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

The Bureau of Labor Statistics has published the consumer price index for all urban consumers (CPI-U) for November 2022.

We're interested to calculate an average CPI-U to associate with our forward test at the end of November 2022. Here are the last 12 CPI-U values:

Code: Select all

 Month   CPI-U
12/2021 278.802
01/2022 281.148
02/2022 283.716
03/2022 287.504
04/2022 289.109
05/2022 292.296
06/2022 296.311
07/2022 296.276
08/2022 296.171
09/2022 296.808
10/2022 298.012
11/2022 297.711
We take note that the average CPI-U for the last 12 months at the end of November 2022 was 291.155.

Last year, we calculated that the average CPI-U for the last 12 months at the end of November 2021 was 269.442.

The trailing 1-year average inflation at the end of November 2022 was ((291.155 / 269.442) - 1) = 8.06%.

The chosen Ally savings account has an annual percentage yield (APY) of 3.30%. It's -4.76% below trailing average inflation.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Using average CPI-U calculated in this and previous posts, here's an inflation-adjusted chart of this forward test expressed in November 2022 dollars:

Image
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

After 3.5 years, the portfolio has declined, in inflation-adjusted terms, from $1,149,592.33 before withdrawal on June 30, 2019 to $915,865.87 before withdrawal on November 30, 2022. That's -20.3% less.

The VPW worksheet has been providing for missing Social Security payments, as this pension is delayed to age 70.

We can check that this is perfectly normal, putting a $1,149,592 portfolio balance at age 65 into the VPW worksheet with $2,299/month Social Security and $1,150/month work pension payments:
  • Calculations for 2019 (expressed in November 2022 dollars)
    • Cost of bridges: $128,299
    • Balance for VPW: $1,021,293
    • ($128,299 + $1,021,293) = $1,149,592
  • Calculations after loss
    • Cost of bridges: $128,299
    • Balance for VPW: $676,416
    • ($128,299 + $676,416) = $804,715 (that's -30% less than $1,149,592)
In a recent post, 3.5 years later, we got:
  • Calculations for 2022
    • Cost of bridges: $51,372
    • Balance for VPW: $864,494
    • ($51,372 + $864,494) = $915,866
The cost of bridges estimate is driven by projected Social Security payments. It's what it is. The interesting part is to compare the balance available for VPW 3.5 later, based on the initial 2019 balances available for VPW before and after loss.

Instead of using a financial calculator (which could be intimidating for some readers), we'll use the VPW Table to project VPW portfolio balances at ages 68 and 69, and calculate the average of these amounts as projected portfolio balance at age 68.5, 3.5 years after age 65:
  • VPW percentage at age 65: 5.0%
  • VPW percentage at age 68: 5.2%
  • VPW percentage at age 69: 5.3%
The idea is this. In a hypothetical world where market returns are constant and predictable, the VPW table delivers a constant withdrawal amount. So, if at age 65 it delivers $x, the age 65 portfolio (before withdrawal) has to be $x/5.0%. Similarly, if at age 68 it delivers the same $x, the age 68 portfolio (before withdrawal) has to be $x/5.2%. Neat, isn't it?

We must also take into account the work pension. It initially was $1,150/month ($13,800 annual). The adjusted annual amount was $9,070 (using the 65.7% fixed pension adjustment factor) and was projected to lose ((1 / (1.02^3)) - 1) = -5.8% ($523 annual) in 3 years or ((1 / (1.02^4)) - 1) = -7.6% ($691 annual) in 4 years. As a consequence, we'll estimate the age 68 projected balance available for VPW as: (((Balance X 5.0%) + $523) / 5.2%) and do a similar calculation for age 69.

2019 Projections in November 2022 dollars:
  • Before loss:
    • Age 68: (($1,021,293 X 5.0%) + $523) / 5.2%) = $992,070
    • Age 69: (($1,021,293 X 5.0%) + $691) / 5.3%) = $976,522
    • Age 68.5: (($992,070 + $976,522) / 2) = $984,296
  • After loss:
    • Age 68: (($676,416 X 5.0%) + $523) / 5.2%) = $660,458
    • Age 69: (($676,416 X 5.0%) + $691) / 5.3%) = $651,166
    • Age 68.5: (($660,458 + $651,166) / 2) = $655,812
Adding the cost of bridges ($51,372) to both amounts gives us the projected portfolio balance range in 2019 for 3.5 years later, based on the simple -50% stock loss test, expressed in November 2022 dollars:
  • Lower projected portfolio balance: ($655,812 + $51,372) = $707,184
  • Higher projected portfolio balance: ($984,296 + $51,372) = $1,035,668
There we go. Everything is normal. The $915,866 November 2022 balance is actually closer to the high $1,035,668 projection than to the low $707,184 projection.

VPW doesn't aim to preserve a constant or increasing portfolio balance! On the contrary, VPW aims to safely spend most of the portfolio while the retiree is alive.

Happy holidays!
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

The month of December 2022 has 5 weekends. This weekend, I'll look back at the required flexibility since the beginning of this forward test.

The retiree's initial income in July 2019 was $6,356. It came with information that income could easily be reduced by -$1,249 within a short time period (using a simple -50% stock loss test). The retiree had to aim for the flexibility to easily live on ($6,356 - $1,249) = $5,107/month. These amounts are in nominal dollars. In inflation-adjusted dollars of November 2022, we would say that the retiree's initial income in July 2019 was $7,307 and the retiree had to aim for the flexibility to easily live on -$1,436 less or $5,871/month.

These amounts fluctuated over the last 3.5 years. In December 2022, the retiree's income was $6,709 and the retiree had to aim for the flexibility to easily live on -$1,197 less or $5,512/month.

Here's a inflation-adjusted chart of the retiree's evolving retirement income with the associated required flexibility:

Image


🎉 I wish you a very happy new year 2023! 🎉
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by mkc »

Thank you longinvest for this forward test. I've been following for over a year and have been using VPW as a guideline for our post-retirement withdrawals for the past year.
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by espressofreak »

mkc wrote: Sat Dec 31, 2022 8:01 pm Thank you longinvest for this forward test. I've been following for over a year and have been using VPW as a guideline for our post-retirement withdrawals for the past year.
Great to hear, as I'm also planning on using the VPW spreadsheet as a guide for post-retirement withdrawals in a year. Are you doing monthly, quarterly, or annual withdrawals from your accounts, so far, and how big of a cash cushion are you using?

I'd also like to thank longinvest for this forward test thread; it's been a most helpful and practical example of the spreadsheet in action.
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longinvest
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

Mkc and Espressofreak, it's nice to read that you've found this thread useful.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
iim7V7IM7
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by iim7V7IM7 »

Can you kindly point me to the answer for somethings that must have been discussed before:

1) Difference in income smoothing between annual balance, quarterly balance and monthly balance withdrawals?
2) The optimal size of a cash buffer in terms of months or years of withdrawal income (and rationale underpinning it) and is it kept in a money market or checking account?
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longinvest
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by longinvest »

iim7V7IM7 wrote: Sun Jan 01, 2023 12:22 pm Can you kindly point me to the answer for...
Iim7V7IM7, this thread is about the forward test. I've replied to your post in the main VPW thread.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
loghound
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Re: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test)

Post by loghound »

I wanted to thank you for running this long test -- I'm approaching retirement and one of the things that was complex to sort out was how to withdraw money. I've pretty much settled on the approach you outline here...

Thanks!
I would have written a shorter letter, but I did not have the time. | - Blaise Pascal
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