The Day the 4% Rule Died

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nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

runninginvestor wrote: Thu Jun 16, 2022 8:57 am
McQ wrote: Wed Jun 15, 2022 5:10 pm [Snip]

Yes, I wanted to put the hypothetical "post-2022 years" in context, so returns are 2017-2047. The idea: the past few years "borrowed from the future"

[Snip]
Thank you, that's what I thought. I'm out of town so can't recreate the spreadsheet to see how the retirement only returns are.

W/ the thought of borrowing from the future, I think that's a plausible idea as a caution to those nearing retirement. If outsized returns accelerate you to hit portfolio retirement threshold, extra caution should be heeded in the first few years of retirement if you're counting on a SWR.
Make 4% expenses adjusted by CPI fail with $1666/mo Social Security income starting age 70.

https://www.ssa.gov/policy/docs/quickfa ... _snapshot/

The odds of even a strict adherence to spending 4% of the starting portfolio adjusted annually by CPI every year failing a US retiree is very remote if they could LBYM at that original 4% number.

If you can save $1M by retirement age and live on $40K a year then you can essentially forget about SORR if you have at least average social security coming.

This probably holds true for $2M…maybe not but you have more slack built into your budget anyway with an $80K a year spend rate.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

marcopolo wrote: Thu Jun 16, 2022 2:27 am Can you explain what magic system allows you to spend more and have more leftover?!?

If 3% magically gives you more spending and larger ending balance than 4%, then 2% must be even better, I guess...
Assuming your question is sincere, this is no magic. I posted several cFiresim links in this thread to show this.

The caveat is, "spend more & have more leftover" tends to be able to spend a lot later in life, not the early "go-go" years.

I'm OK to make that tradeoff but some people prefer to spend more earlier, which is fine.
Last edited by Marseille07 on Thu Jun 16, 2022 10:21 am, edited 2 times in total.
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

HootingSloth wrote: Thu Jun 16, 2022 9:50 am We are all different and personal finance is personal. As long has someone recognizes that flexibility may be required (and hopefully has given at least some thought in advance as to how they will be flexible), then they certainly can have a workable plan. Whether that is a formula-based variable withdrawal rate strategy or ad hoc adjustments (effectively the "Taylor Method") is a matter of personal preference.
I have never had a problem with VPW. It’s a useful method.

No flexibility is required for SWR to support an spending plan of 4% of initial portfolio adjusted annually for CPI once you factor in SS and imputed rent commonly as you suggest for VPW above.

An effective sub 3% WR is sufficiently safe that the failure scenarios generally can’t be fixed with normal retirement strategies or being flexible.

Flexibility has a breaking point.

I will leave it to the OP to postulate a plausible non-catastrophic scenario where that fails.

As an aside, I believe that Taylor objected the last time someone brought up the “Taylor Method” in one of these discussions. I don’t recall exactly what he said but I recall it was along the lines of “no, that’s not what I do and please keep me out of your squabbles”…only vastly more politely.
HootingSloth
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Re: The Day the 4% Rule Died

Post by HootingSloth »

nigel_ht wrote: Thu Jun 16, 2022 10:14 am An effective sub 3% WR is sufficiently safe that the failure scenarios generally can’t be fixed with normal retirement strategies or being flexible.
This is just demonstrably false. The "safe" withdrawal rate for a German investor living through the early 20th century holding, say, German real estate and a globally-diversified portfolio of stocks and bonds was effectively zero and certainly less than 1%. Yet, many Germans survived both wars and continued to live their lives. Many of their children and grandchildren prospered. Flexibility can deal with failure scenarios that are much, much more severe than a sub 3% withdrawal rate. Humans are much more adaptable, and the full range of potential future outcomes is much wider, than you suppose.
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Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

nigel_ht wrote: Thu Jun 16, 2022 10:14 am As an aside, I believe that Taylor objected the last time someone brought up the “Taylor Method” in one of these discussions. I don’t recall exactly what he said but I recall it was along the lines of “no, that’s not what I do and please keep me out of your squabbles”…only vastly more politely.
That's interesting. It's not really a method, and it's unfortunate if Taylor is attributed to it when that's not what he does.
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alpine_boglehead
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Re: The Day the 4% Rule Died

Post by alpine_boglehead »

HootingSloth wrote: Thu Jun 16, 2022 10:21 am
nigel_ht wrote: Thu Jun 16, 2022 10:14 am An effective sub 3% WR is sufficiently safe that the failure scenarios generally can’t be fixed with normal retirement strategies or being flexible.
This is just demonstrably false. The "safe" withdrawal rate for a German investor living through the early 20th century holding, say, German real estate and a globally-diversified portfolio of stocks and bonds was effectively zero and certainly less than 1%. Yet, many Germans survived both wars and continued to live their lives. Many of their children and grandchildren prospered. Flexibility can deal with failure scenarios that are much, much more severe than a sub 3% withdrawal rate. Humans are much more adaptable, and the full range of potential future outcomes is much wider, than you suppose.
You're both right. If the SWR dips below 3%, financial flexibility might be unable to the problem. Life flexibility can (as in many Germans and Austrians, luckily such as my grandparents, surviving and rebuilding). But these were really, really tough times. A distant relative recently recounted how he survived in WWII Vienna as a young boy. This is a different level of flexibility from "due to continued high inflation in the 2020s, my portfolio only supported a 2.35% withdrawal rate and I had to sell my jetskis".

We'll have to deal with what life throws at us. Make a good plan (appropriate portfolio for your situation), execute it, and if it fails, make a new one. If that means "welcome to Walmart" on weekday afternoons or growing your own potatoes on an unused patch in the neighborhood - we'll struggle through.
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Re: The Day the 4% Rule Died

Post by nigel_ht »

HootingSloth wrote: Thu Jun 16, 2022 10:21 am
nigel_ht wrote: Thu Jun 16, 2022 10:14 am An effective sub 3% WR is sufficiently safe that the failure scenarios generally can’t be fixed with normal retirement strategies or being flexible.
This is just demonstrably false. The "safe" withdrawal rate for a German investor living through the early 20th century holding, say, German real estate and a globally-diversified portfolio of stocks and bonds was effectively zero and certainly less than 1%. Yet, many Germans survived both wars and continued to live their lives.
LOL

Really? You think VPW vs SWR makes any difference whatsoever in that outcome?

Those scenarios are outside the scope of retirement planning strategies.

Or even the kind of “flexibility” VPW proponents talk about.

Scenarios like losing 2 world wars (or even winning 2 world wars for the Brits) are simply not actionable or mitigable at my wealth level. Add a couple 0s and I’d own property in New Zealand.

Add one zero and I might spring for another passport.

“Being flexible” is just a mantra for those kind of events. “Being lucky” and “Knowing when to Run” is far more useful. Luck. Luck is everything between who lives and who dies. Preparation allows a higher probability of living if you are at all lucky.

I’m going to guess I’ve spent far more time thinking about how to help my family survive those circumstances than most here. Klangfool and a couple others might be my superior but not so many others.

It’s a product of having one parent who survived by running from the Japanese and Communists (many perhaps most classmates died) and another who was born in a Japanese internment camp in the US.

Your entire net worth and freedom can be erased through an executive order. They went from very prosperous to living in a refurbished industrial chicken coop after the war.

Good luck mitigating that with a retirement strategy.
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Re: The Day the 4% Rule Died

Post by HootingSloth »

alpine_boglehead wrote: Thu Jun 16, 2022 10:43 am
HootingSloth wrote: Thu Jun 16, 2022 10:21 am
nigel_ht wrote: Thu Jun 16, 2022 10:14 am An effective sub 3% WR is sufficiently safe that the failure scenarios generally can’t be fixed with normal retirement strategies or being flexible.
This is just demonstrably false. The "safe" withdrawal rate for a German investor living through the early 20th century holding, say, German real estate and a globally-diversified portfolio of stocks and bonds was effectively zero and certainly less than 1%. Yet, many Germans survived both wars and continued to live their lives. Many of their children and grandchildren prospered. Flexibility can deal with failure scenarios that are much, much more severe than a sub 3% withdrawal rate. Humans are much more adaptable, and the full range of potential future outcomes is much wider, than you suppose.
You're both right. If the SWR dips below 3%, financial flexibility might be unable to the problem. Life flexibility can (as in many Germans and Austrians, luckily such as my grandparents, surviving and rebuilding). But these were really, really tough times. A distant relative recently recounted how he survived in WWII Vienna as a young boy. This is a different level of flexibility from "due to continued high inflation in the 2020s, my portfolio only supported a 2.35% withdrawal rate and I had to sell my jetskis".

We'll have to deal with what life throws at us. Make a good plan (appropriate portfolio for your situation), execute it, and if it fails, make a new one. If that means "welcome to Walmart" on weekday afternoons or growing your own potatoes on an unused patch in the neighborhood - we'll struggle through.
I fully agree. There is a whole spectrum of possible outcomes from "Oh well, it turned out 3.7% or 2.9% or whatever was the realized SWR for this time period" to "Financial assets proved wholly worthless in solving the scope of problems." Ultimately it is human adaptability that deals with these outcomes. Members of my family have been kidnapped for periods of years. Others lived in military occupations and had to steal from the occupying forces in order to eat. They all survived, and here I am. Obviously, withdrawal strategies are not the relevant way of adapting to the far end of the risk spectrum, but they help with many things on the closer end. If you realize the full scope of outcomes that you are prepared to deal with, then you can stop worrying about the ones that are easily dealt with by spending less (whether you decide to spend less by formula or by ad hoc adjustments).
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Re: The Day the 4% Rule Died

Post by nigel_ht »

HootingSloth wrote: Thu Jun 16, 2022 11:17 am
alpine_boglehead wrote: Thu Jun 16, 2022 10:43 am
HootingSloth wrote: Thu Jun 16, 2022 10:21 am
nigel_ht wrote: Thu Jun 16, 2022 10:14 am An effective sub 3% WR is sufficiently safe that the failure scenarios generally can’t be fixed with normal retirement strategies or being flexible.
This is just demonstrably false. The "safe" withdrawal rate for a German investor living through the early 20th century holding, say, German real estate and a globally-diversified portfolio of stocks and bonds was effectively zero and certainly less than 1%. Yet, many Germans survived both wars and continued to live their lives. Many of their children and grandchildren prospered. Flexibility can deal with failure scenarios that are much, much more severe than a sub 3% withdrawal rate. Humans are much more adaptable, and the full range of potential future outcomes is much wider, than you suppose.
You're both right. If the SWR dips below 3%, financial flexibility might be unable to the problem. Life flexibility can (as in many Germans and Austrians, luckily such as my grandparents, surviving and rebuilding). But these were really, really tough times. A distant relative recently recounted how he survived in WWII Vienna as a young boy. This is a different level of flexibility from "due to continued high inflation in the 2020s, my portfolio only supported a 2.35% withdrawal rate and I had to sell my jetskis".

We'll have to deal with what life throws at us. Make a good plan (appropriate portfolio for your situation), execute it, and if it fails, make a new one. If that means "welcome to Walmart" on weekday afternoons or growing your own potatoes on an unused patch in the neighborhood - we'll struggle through.
I fully agree. There is a whole spectrum of possible outcomes from "Oh well, it turned out 3.7% or 2.9% or whatever was the realized SWR for this time period" to "Financial assets proved wholly worthless in solving the scope of problems."
So you “fully agree” that 4% SWR + social security and a paid off house doesn’t fail…as in doesn’t “require flexibility” within that reasonable spectrum of “3.7-2.9%” outcomes?

Because your whole “demonstrably false” rejoinder comes from that other category.
HootingSloth
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Re: The Day the 4% Rule Died

Post by HootingSloth »

nigel_ht wrote: Thu Jun 16, 2022 11:29 am
HootingSloth wrote: Thu Jun 16, 2022 11:17 am
alpine_boglehead wrote: Thu Jun 16, 2022 10:43 am
HootingSloth wrote: Thu Jun 16, 2022 10:21 am
nigel_ht wrote: Thu Jun 16, 2022 10:14 am An effective sub 3% WR is sufficiently safe that the failure scenarios generally can’t be fixed with normal retirement strategies or being flexible.
This is just demonstrably false. The "safe" withdrawal rate for a German investor living through the early 20th century holding, say, German real estate and a globally-diversified portfolio of stocks and bonds was effectively zero and certainly less than 1%. Yet, many Germans survived both wars and continued to live their lives. Many of their children and grandchildren prospered. Flexibility can deal with failure scenarios that are much, much more severe than a sub 3% withdrawal rate. Humans are much more adaptable, and the full range of potential future outcomes is much wider, than you suppose.
You're both right. If the SWR dips below 3%, financial flexibility might be unable to the problem. Life flexibility can (as in many Germans and Austrians, luckily such as my grandparents, surviving and rebuilding). But these were really, really tough times. A distant relative recently recounted how he survived in WWII Vienna as a young boy. This is a different level of flexibility from "due to continued high inflation in the 2020s, my portfolio only supported a 2.35% withdrawal rate and I had to sell my jetskis".

We'll have to deal with what life throws at us. Make a good plan (appropriate portfolio for your situation), execute it, and if it fails, make a new one. If that means "welcome to Walmart" on weekday afternoons or growing your own potatoes on an unused patch in the neighborhood - we'll struggle through.
I fully agree. There is a whole spectrum of possible outcomes from "Oh well, it turned out 3.7% or 2.9% or whatever was the realized SWR for this time period" to "Financial assets proved wholly worthless in solving the scope of problems."
So you “fully agree” that 4% SWR + social security and a paid off house doesn’t fail…as in doesn’t “require flexibility” within that reasonable spectrum of “3.7-2.9%” outcomes?

Because your whole “demonstrably false” rejoinder comes from that other category.
What is demonstrably false is that flexibility cannot deal with a sub 3% withdrawal rate. Sometimes the required flexibility is spending 2.9%, or 2.2%, or whatever, instead of 3%. Sometimes the required changes are more dramatic. There is no need to pick a minimum number and act like it is a floor. There is no floor, and life may mean you need to adjust, whether by formula or ad hoc. Some scenarios will always require ad hoc adjustment, and it is a matter of personal preference which you will handle by formula and which by ad hoc adjustment. There are many different ways to have a viable plan and variable withdrawal rates are a good part of a plan for some.
nigel_ht wrote: Thu Jun 16, 2022 10:45 am It’s a product of having one parent who survived by running from the Japanese and Communists (many perhaps most classmates died).
It seems we have more in common than many, although running was not always an option, and some survived occupation without running. :sharebeer
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
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Re: The Day the 4% Rule Died

Post by nigel_ht »

HootingSloth wrote: Thu Jun 16, 2022 11:37 am
nigel_ht wrote: Thu Jun 16, 2022 11:29 am
HootingSloth wrote: Thu Jun 16, 2022 11:17 am
alpine_boglehead wrote: Thu Jun 16, 2022 10:43 am
HootingSloth wrote: Thu Jun 16, 2022 10:21 am

This is just demonstrably false. The "safe" withdrawal rate for a German investor living through the early 20th century holding, say, German real estate and a globally-diversified portfolio of stocks and bonds was effectively zero and certainly less than 1%. Yet, many Germans survived both wars and continued to live their lives. Many of their children and grandchildren prospered. Flexibility can deal with failure scenarios that are much, much more severe than a sub 3% withdrawal rate. Humans are much more adaptable, and the full range of potential future outcomes is much wider, than you suppose.
You're both right. If the SWR dips below 3%, financial flexibility might be unable to the problem. Life flexibility can (as in many Germans and Austrians, luckily such as my grandparents, surviving and rebuilding). But these were really, really tough times. A distant relative recently recounted how he survived in WWII Vienna as a young boy. This is a different level of flexibility from "due to continued high inflation in the 2020s, my portfolio only supported a 2.35% withdrawal rate and I had to sell my jetskis".

We'll have to deal with what life throws at us. Make a good plan (appropriate portfolio for your situation), execute it, and if it fails, make a new one. If that means "welcome to Walmart" on weekday afternoons or growing your own potatoes on an unused patch in the neighborhood - we'll struggle through.
I fully agree. There is a whole spectrum of possible outcomes from "Oh well, it turned out 3.7% or 2.9% or whatever was the realized SWR for this time period" to "Financial assets proved wholly worthless in solving the scope of problems."
So you “fully agree” that 4% SWR + social security and a paid off house doesn’t fail…as in doesn’t “require flexibility” within that reasonable spectrum of “3.7-2.9%” outcomes?

Because your whole “demonstrably false” rejoinder comes from that other category.
What is demonstrably false is that flexibility cannot deal with a sub 3% withdrawal rate.
But that’s not the point. The point is that you don’t need flexibility using SWR when you add in SS and home ownership.
Sometimes the required flexibility is spending 2.9%, or 2.2%, or whatever, instead of 3%.
You need to find me a 2.2% scenario that plausibly happens without needing to re-evaluate everything else…fall of the American Empire? Sure. Lose reserve currency status and I’m going overweight global with whatever we have left.

Lose superpower status and I’m looking at exit strategies.

It is far more likely for your expenses to double than for a 2.2% SWR scenario.
Sometimes the required changes are more dramatic. There is no need to pick a minimum number and act like it is a floor. There is no floor, and life may mean you need to adjust, whether by formula or ad hoc.
I look at two most likely scenarios and a most dangerous scenario for planning purposes.

Estimating my expenses is part of that process and that’s a minimum floor number before more “rigorous” contingency plans are required. Like selling the house and downsizing more.
nigel_ht wrote: Thu Jun 16, 2022 10:45 am It’s a product of having one parent who survived by running from the Japanese and Communists (many perhaps most classmates died).
It seems we have more in common than many, although running was not always an option, and some survived occupation without running. :sharebeer
Lol…well unless they were members of the Communist elite they didn’t fare too well.

If you were “landlord class” with Nationalist ties running with whatever portable wealth you still had was the right move if you could swing it…

It’s all luck. My dad told me about how he was on the last 2 airplanes out of some city. His flew to some smaller city on the coast. The other flew to Shanghai. His made it. The other didn’t.

Got to the US with little more than the shirt on his back.

He also told me that gold has value way out of proportion to what it should when you need to get the hell out of dodge…
Last edited by nigel_ht on Thu Jun 16, 2022 12:04 pm, edited 1 time in total.
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Little_Carmine
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Re: The Day the 4% Rule Died

Post by Little_Carmine »

Talk about beating a dead horse. It’s basically impossible to read through these posts and get anything out of them. Time to close this one down.
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HootingSloth
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Re: The Day the 4% Rule Died

Post by HootingSloth »

nigel_ht wrote: Thu Jun 16, 2022 11:59 am
HootingSloth wrote: Thu Jun 16, 2022 11:37 am What is demonstrably false is that flexibility cannot deal with a sub 3% withdrawal rate.
But that’s not the point. The point is that you don’t need flexibility using SWR when you add in SS and home ownership.
Pardon me, but it was the only point I was making, even if it was not the point you felt like talking about.
Sometimes the required flexibility is spending 2.9%, or 2.2%, or whatever, instead of 3%.
You need to find me a 2.2% scenario that plausibly happens without needing to re-evaluate everything else…fall of the American Empire? Sure. Lose reserve currency status and I’m going overweight global with whatever we have left.

Lose superpower status and I’m looking at exit strategies.

It is far more likely for your expenses to double than for a 2.2% SWR scenario.
In my situation, if I picked a fixed withdrawal rate that is low enough to deal with the very bad but not catastrophic scenarios, then I would be in pretty significant danger of spending far too little and allowing the vast majority of the money to go unused during my lifetime, which is not my goal. So a variable withdrawal rate works for me. It may not be ideal for everyone.
I look at two most likely scenarios and a most dangerous scenario for planning purposes.

Estimating my expenses is part of that process and that’s a minimum floor number before more “rigorous” contingency plans are required. Like selling the house and downsizing more.
This seems like one valid approach among many, although it is not really a "minimum floor" per se because you recognize that it may need to be breached.
nigel_ht wrote: Thu Jun 16, 2022 10:45 am It’s a product of having one parent who survived by running from the Japanese and Communists (many perhaps most classmates died).
It seems we have more in common than many, although running was not always an option, and some survived occupation without running. :sharebeer
Lol…well unless they were members of the Communist elite they didn’t fare too well.

If you were “landlord class” with Nationalist ties running with whatever portable wealth you still had was the right move if you could swing it…
Not everyone was Communist elite or Nationalist elite. There were many common people who dealt with Japanese occupation and then looming Communism. Some did not have the resources to escape. Many survived nevertheless and made it out later (in my family members' cases) or stayed behind (many others, some who have thrived and others who have not). I agree that luck is key for everyone.
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Re: The Day the 4% Rule Died

Post by randomguy »

Marseille07 wrote: Wed Jun 15, 2022 11:33 pm
randomguy wrote: Wed Jun 15, 2022 11:10 pm Elder care is no big deal. I can use some of that extra 20k I have to buy LTCi.:) This isn't about spending every last penny. It is about not spending 2-3x as much when you 90-100 as you did from 65-80. And you would need to ask your spouse if they would rather have 15 years of memories with you or an extra 500k in the checking account. Again this is personal. Maybe you would rather live in the 300k/year nursing home with gold plated toilets. Nothing wrong with that. Personally I am willing to settle for the 150k/year ones.
Your comparisons are too extreme. As my sims upthread showed, 3% WR actually yields more withdrawals than 4% SWR (not always of course, I'm talking about the median here), AND much higher ending balance. The tradeoff is not 15 years of memories vs 500K in the checking account, you can actually get to enjoy more years of memories AND more money in the checking account.
A scheme that makes the worst cases worse and the best cases better is the exact opposite of what most people are looking for. You are free to pretend that bottom 10% results don't happen if you want but they are really the only interesting cases. I have tons of confidence that you can handle your portfolio doubling in value. Handling the 30%+ drop is much harder....
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Re: The Day the 4% Rule Died

Post by Marseille07 »

randomguy wrote: Thu Jun 16, 2022 12:32 pm A scheme that makes the worst cases worse and the best cases better is the exact opposite of what most people are looking for. You are free to pretend that bottom 10% results don't happen if you want but they are really the only interesting cases. I have tons of confidence that you can handle your portfolio doubling in value. Handling the 30%+ drop is much harder....
Feel free to check out the lowest 10% on these analyses:
SWR 4%: https://www.cfiresim.com/531339de-1307- ... 10c94d7aed
WR 3%: https://www.cfiresim.com/9e1348a9-7ef3- ... a52c4d265f
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Re: The Day the 4% Rule Died

Post by nigel_ht »

HootingSloth wrote: Thu Jun 16, 2022 12:15 pm
nigel_ht wrote: Thu Jun 16, 2022 11:59 am
HootingSloth wrote: Thu Jun 16, 2022 11:37 am What is demonstrably false is that flexibility cannot deal with a sub 3% withdrawal rate.
But that’s not the point. The point is that you don’t need flexibility using SWR when you add in SS and home ownership.
Pardon me, but it was the only point I was making, even if it was not the point you felt like talking about.
What?
HootingSloth wrote: Thu Jun 16, 2022 10:21 am
nigel_ht wrote: Thu Jun 16, 2022 10:14 am An effective sub 3% WR is sufficiently safe that the failure scenarios generally can’t be fixed with normal retirement strategies or being flexible.
This is just demonstrably false. The "safe" withdrawal rate for a German investor living through the early 20th century holding, say, German real estate and a globally-diversified portfolio of stocks and bonds was effectively zero and certainly less than 1%. Yet, many Germans survived both wars and continued to live their lives.
So ALL you are talking about is final two words of that sentence? Lol.

And somehow it is still impossible to get you to come out and agree that 4% SWR + SS + home ownership is safe enough that the user doesn't need to consider flexibility in the VPW sense (and not surviving WWII sense)...because you don't want to talk about that.

Fine, I agree you need be flexible in the WWII scenario and happy to remove that part of the sentence.
In my situation, if I picked a fixed withdrawal rate that is low enough to deal with the very bad but not catastrophic scenarios, then I would be in pretty significant danger of spending far too little and allowing the vast majority of the money to go unused during my lifetime, which is not my goal. So a variable withdrawal rate works for me. It may not be ideal for everyone.
Which does not imply that someone using 4% SWR + SS + home ownership needs "flexibility". That is an advantage of SWR. Any objections?

The drawback is, as you point out, generally you end up with a larger terminal portfolio. Being able to spend more in good times...which is the majority...is an advantage of VPW.
This seems like one valid approach among many, although it is not really a "minimum floor" per se because you recognize that it may need to be breached.
I am aware of no normally bad scenario in which it will be breached. That's in the "3.7% or 2.9%" range of "very bad but not catastrophic scenario" you talked about.

In not normal bad scenarios, I agree that "flexibility" may be required but would counter that at that point your withdrawal methodology stops mattering.
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Re: The Day the 4% Rule Died

Post by randomguy »

Marseille07 wrote: Thu Jun 16, 2022 10:27 am
nigel_ht wrote: Thu Jun 16, 2022 10:14 am As an aside, I believe that Taylor objected the last time someone brought up the “Taylor Method” in one of these discussions. I don’t recall exactly what he said but I recall it was along the lines of “no, that’s not what I do and please keep me out of your squabbles”…only vastly more politely.
That's interesting. It's not really a method, and it's unfortunate if Taylor is attributed to it when that's not what he does.
This is what Taylor wrote

viewtopic.php?t=73249

Maybe he expanded on it later but I have never seen those posts. The criticism are going to be anything works when you are pretty rich (3-4m in todays dollars), with a pension, and retire into a bull market that last 18 years.... But it is also pretty close to how I expect most people work. They use the 4% type rules to come up with a reasonable withdrawal amount (i.e. I retire when I have 2.5m and want to spend 100k/year from the portfolio) and then tweak spending along the way (i.e. some years you take more vacations. Some you take less. You put off that kitchen remodel by a couple years). In normal times it works fine. When you hit a bottom 10% type case though it isn't remotely clear especially if you aren't rich. It is easy to talk about just skipping the 3rd and 4th vacation and the guac at chipotle. A lot tougher when those 30% spending cuts have you thinking about downsizing the house and moving in with the kids.
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Re: The Day the 4% Rule Died

Post by marcopolo »

Marseille07 wrote: Thu Jun 16, 2022 12:47 pm
randomguy wrote: Thu Jun 16, 2022 12:32 pm A scheme that makes the worst cases worse and the best cases better is the exact opposite of what most people are looking for. You are free to pretend that bottom 10% results don't happen if you want but they are really the only interesting cases. I have tons of confidence that you can handle your portfolio doubling in value. Handling the 30%+ drop is much harder....
Feel free to check out the lowest 10% on these analyses:
SWR 4%: https://www.cfiresim.com/531339de-1307- ... 10c94d7aed
WR 3%: https://www.cfiresim.com/9e1348a9-7ef3- ... a52c4d265f
You think this bolsters your case?!?

What i see is exactly what randomguy was referring to.
At the 10% point, the 4% SWR spends most of your money ($80k/yr; $2.4m total) while you are alive to enjoy it.
The 3% case spends significantly less (as little as $46k/yr; $1.7m total) during your lifetime, and leaves you with a ton of money leftover.

Maybe that is your goal. But, for people that want to enjoy their retirement years, that does not seem very efficient use of money.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

marcopolo wrote: Thu Jun 16, 2022 12:57 pm
Marseille07 wrote: Thu Jun 16, 2022 12:47 pm
randomguy wrote: Thu Jun 16, 2022 12:32 pm A scheme that makes the worst cases worse and the best cases better is the exact opposite of what most people are looking for. You are free to pretend that bottom 10% results don't happen if you want but they are really the only interesting cases. I have tons of confidence that you can handle your portfolio doubling in value. Handling the 30%+ drop is much harder....
Feel free to check out the lowest 10% on these analyses:
SWR 4%: https://www.cfiresim.com/531339de-1307- ... 10c94d7aed
WR 3%: https://www.cfiresim.com/9e1348a9-7ef3- ... a52c4d265f
You think this bolsters your case?!?

What i see is exactly what randomguy was referring to.
At the 10% point, the 4% SWR spends most of your money ($80k/yr; $2.4m total) while you are alive to enjoy it.
The 3% case spends significantly less (as little as $46k/yr; $1.7m total) during your lifetime, and leaves you with a ton of money leftover.

Maybe that is your goal. But, for people that want to enjoy their retirement years, that does not seem very efficient use of money.
How about this (4% WR): https://www.cfiresim.com/f8b82e9f-4206- ... 8da0041377

It's a matter of making tradeoffs. I'm just illustrating that I have considered the lowest 10%, not just dancing around the average / median numbers.

And I don't agree with the notion that just because p10 may end up being lower withdrawals doesn't mean it is a bad idea. After all, you have 90% chance of going above p10 (by definition).
marcopolo
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Re: The Day the 4% Rule Died

Post by marcopolo »

Marseille07 wrote: Thu Jun 16, 2022 12:59 pm
marcopolo wrote: Thu Jun 16, 2022 12:57 pm
Marseille07 wrote: Thu Jun 16, 2022 12:47 pm
randomguy wrote: Thu Jun 16, 2022 12:32 pm A scheme that makes the worst cases worse and the best cases better is the exact opposite of what most people are looking for. You are free to pretend that bottom 10% results don't happen if you want but they are really the only interesting cases. I have tons of confidence that you can handle your portfolio doubling in value. Handling the 30%+ drop is much harder....
Feel free to check out the lowest 10% on these analyses:
SWR 4%: https://www.cfiresim.com/531339de-1307- ... 10c94d7aed
WR 3%: https://www.cfiresim.com/9e1348a9-7ef3- ... a52c4d265f
You think this bolsters your case?!?

What i see is exactly what randomguy was referring to.
At the 10% point, the 4% SWR spends most of your money ($80k/yr; $2.4m total) while you are alive to enjoy it.
The 3% case spends significantly less (as little as $46k/yr; $1.7m total) during your lifetime, and leaves you with a ton of money leftover.

Maybe that is your goal. But, for people that want to enjoy their retirement years, that does not seem very efficient use of money.
How about this (4% WR): https://www.cfiresim.com/f8b82e9f-4206- ... 8da0041377

It's a matter of making tradeoffs. I'm just illustrating that I have considered the lowest 10%, not just dancing around the average / median numbers.
Its only marginally better. It still slashes spending down to $53k/yr; $1.9m total.
I think the main problem with your approach is that there is no dampening effect of the volatility of the portfolio.
There is really no need to make such drastic cuts just because there is a temporary drop in portfolio value.

The fixed-dollar approach is too strict
The fixed-percentage approach varies too wildly.

A better approach (IMHO), would be to add some dampening effect to the withdrawal amount as a function of portfolio value.
An amortization approach (like TPAW, discussed elsewhere of the forum), is a pretty good approach to smooth the withdrawals as portfolio fluctuates, in both directions.

We take a much less formal approach of setting very loose guidelines of spending, and spend what we need each year, with a long term eye on portfolio values. We can do that because our portfolio had reached 50x at the start of this year due to growth since we retired. We don't anticipate having to cut spending due to the recent downturn. If it gets significantly worse, we will adjust accordingly, as out budget has quite a bit of discretionary spending.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

marcopolo wrote: Thu Jun 16, 2022 1:13 pm Its only marginally better. It still slashes spending down to $53k/yr; $1.9m total.
I think the main problem with your approach is that there is no dampening effect of the volatility of the portfolio.
There is really no need to make such drastic cuts just because there is a temporary drop in portfolio value.

The fixed-dollar approach is too strict
The fixed-percentage approach varies too wildly.

A better approach (IMHO), would be to add some dampening effect to the withdrawal amount as a function of portfolio value.
An amortization approach (like TPAW, discussed elsewhere of the forum), is a pretty good approach to smooth the withdrawals as portfolio fluctuates, in both directions.

We take a much less formal approach of setting very loose guidelines of spending, and spend what we need each year, with a long term eye on portfolio values. We can do that because our portfolio had reached 50x at the start of this year due to growth since we retired. We don't anticipate having to cut spending due to the recent downturn. If it gets significantly worse, we will adjust accordingly, as out budget has quite a bit of discretionary spending.
We're talking about p10 here. While 1.9M vs 2.4M isn't zero, I'd argue the ending balance of 1.65M vs 466K isn't zero either. I'd much rather have 1.65M even if it meant I spent 500K less over a 30-year period. Keep in mind, these sims started off w/ 2M; depending on one's personality, only having 466K left can feel empty.

If spending down is your goal, check out VPW: https://www.cfiresim.com/104cdfa6-6607- ... d53dd595aa
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Re: The Day the 4% Rule Died

Post by marcopolo »

Marseille07 wrote: Thu Jun 16, 2022 1:19 pm
marcopolo wrote: Thu Jun 16, 2022 1:13 pm Its only marginally better. It still slashes spending down to $53k/yr; $1.9m total.
I think the main problem with your approach is that there is no dampening effect of the volatility of the portfolio.
There is really no need to make such drastic cuts just because there is a temporary drop in portfolio value.

The fixed-dollar approach is too strict
The fixed-percentage approach varies too wildly.

A better approach (IMHO), would be to add some dampening effect to the withdrawal amount as a function of portfolio value.
An amortization approach (like TPAW, discussed elsewhere of the forum), is a pretty good approach to smooth the withdrawals as portfolio fluctuates, in both directions.

We take a much less formal approach of setting very loose guidelines of spending, and spend what we need each year, with a long term eye on portfolio values. We can do that because our portfolio had reached 50x at the start of this year due to growth since we retired. We don't anticipate having to cut spending due to the recent downturn. If it gets significantly worse, we will adjust accordingly, as out budget has quite a bit of discretionary spending.
We're talking about p10 here. While 1.9M vs 2.4M isn't zero, I'd argue the ending balance of 1.65M vs 466K isn't zero either. I'd much rather have 1.65M even if it meant I spent 500K less over a 30-year period.

If spending down is your goal, check out VPW: https://www.cfiresim.com/104cdfa6-6607- ... d53dd595aa
Its not just the $500k less spending, it is also the wild variations in spending. I would rather spend $70k/yr +/-$5k then have to restrict my spending to $50k in some years and be "allowed" to spend $90k in other years.

But, personal finance is personal. If that is your goal (spend less, and have bigger swings in yearly spending) in order to die with more money, then that is what you should do. You certainly must recognize why others might choose a different approach.

Good luck to you.
Once in a while you get shown the light, in the strangest of places if you look at it right.
FactualFran
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Re: The Day the 4% Rule Died

Post by FactualFran »

randomguy wrote: Wed Jun 15, 2022 10:53 pm And as I keep trying to politely point out, why are you talking about 30 year periods when the discussion was about 20 year periods? I get it that after like 30 years we are all brainwashed into thinking 30 years and real returns when talking about withdrawal rates. That was not the world Peter Lynch was writing in.
In a reply to the statement "Was Lynch's 7% nominal really that much different than Bengen's 4% real? You are arguing over about .5% differences..." that did not specify a payout period, I posted data and explicitly stated that it was for "30 years of withdrawals". If you want to discuss the results of a specific payout period, explicitly state the payout period.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

marcopolo wrote: Thu Jun 16, 2022 1:27 pm Its not just the $500k less spending, it is also the wild variations in spending. I would rather spend $70k/yr +/-$5k then have to restrict my spending to $50k in some years and be "allowed" to spend $90k in other years.

But, personal finance is personal. If that is your goal (spend less, and have bigger swings in yearly spending) in order to die with more money, then that is what you should do. You certainly must recognize why others might choose a different approach.

Good luck to you.
I do recognize that. I'm not selling my approach, I'm just stating my plan.

Withdrawal swings can be a problem, but imo it is not a big issue (at least for me) because I can see them miles ahead with monthly finance updates. I already see my monthly budget go down by $200/mo during this downturn. It is not great of course, but I don't see it as something to freak out on.
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Re: The Day the 4% Rule Died

Post by nigel_ht »

Marseille07 wrote: Thu Jun 16, 2022 12:47 pm
randomguy wrote: Thu Jun 16, 2022 12:32 pm A scheme that makes the worst cases worse and the best cases better is the exact opposite of what most people are looking for. You are free to pretend that bottom 10% results don't happen if you want but they are really the only interesting cases. I have tons of confidence that you can handle your portfolio doubling in value. Handling the 30%+ drop is much harder....
Feel free to check out the lowest 10% on these analyses:
SWR 4%: https://www.cfiresim.com/531339de-1307- ... 10c94d7aed
WR 3%: https://www.cfiresim.com/9e1348a9-7ef3- ... a52c4d265f
You probably want 100% success rate on both. Otherwise you are giving SWR an advantage over constant %.

https://www.cfiresim.com/0744bc90-b1df- ... 1c7ac10b7a

The lowest 10% is higher on the 3% constant percentage in terms of ending portfolio.

I dunno that Id want to end risk only spending $29,850 in the first 5 years though.

Now if you add a $4K / month floor ($48K) your ending portfolio values don't change that much.

https://www.cfiresim.com/5d0aebab-2c34- ... 3ac5147052

Lowest: $1,456,855 vs $1,449,733
Lowest 10%: $2,265,471 vs $2,106,358

That's probably worth the tradeoff...

Interesting insight though.

If I want capital preservation (nominal) at the same approximate level I need to drop down to $53,000 or 2.65% for a constant dollar approach.

https://www.cfiresim.com/e18e4301-e0a7- ... eda99df7de

Lowest: $1,415,202
Lowest 10%: $2,235,111

That gives me only a $5K spending advantage in the worst case but the median for 3% + $48K floor is $81K overall and $60K for the first 5 years.

Thanks Marseille07! I think I may just switch away from constant dollar to constant percentage with a floor. I can live with that trade especially since I'm doing a seperate "go-go years" set aside.
Last edited by nigel_ht on Thu Jun 16, 2022 1:42 pm, edited 1 time in total.
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

randomguy wrote: Thu Jun 16, 2022 12:51 pm It is easy to talk about just skipping the 3rd and 4th vacation and the guac at chipotle. A lot tougher when those 30% spending cuts have you thinking about downsizing the house and moving in with the kids.
Yah, this is why I consider the worst case and have a spending floor. Downsizing the house and moving in with the kids doesn't just impact us but also whichever kid takes us in. There are pluses and minuses so I prefer that decision to be voluntary...

We aren't rich but we ain't poor. Avoiding that scenario and having a good retirement is doable.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

nigel_ht wrote: Thu Jun 16, 2022 1:37 pm
Marseille07 wrote: Thu Jun 16, 2022 12:47 pm
randomguy wrote: Thu Jun 16, 2022 12:32 pm A scheme that makes the worst cases worse and the best cases better is the exact opposite of what most people are looking for. You are free to pretend that bottom 10% results don't happen if you want but they are really the only interesting cases. I have tons of confidence that you can handle your portfolio doubling in value. Handling the 30%+ drop is much harder....
Feel free to check out the lowest 10% on these analyses:
SWR 4%: https://www.cfiresim.com/531339de-1307- ... 10c94d7aed
WR 3%: https://www.cfiresim.com/9e1348a9-7ef3- ... a52c4d265f
You probably want 100% success rate on both. Otherwise you are giving SWR an advantage over constant %.

https://www.cfiresim.com/0744bc90-b1df- ... 1c7ac10b7a

The lowest 10% is higher on the 3% constant percentage in terms of ending portfolio.

I dunno that Id want to end risk only spending $29,850 in the first 5 years though.

Now if you add a $4K / month floor ($48K) your ending portfolio values don't change that much.

https://www.cfiresim.com/5d0aebab-2c34- ... 3ac5147052

Lowest: $1,456,855 vs $1,449,733
Lowest 10%: $2,265,471 vs $2,106,358

That's probably worth the tradeoff...

Interesting insight though.

If I want capital preservation (nominal) at the same approximate level I need to drop down to $53,000 or 2.65% for a constant dollar approach.

Lowest: $1,415,202
Lowest 10%: $2,235,111

That gives me only a $5K spending advantage in the worst case but the median for 3% + $48K floor is $81K overall and $60K for the first 5 years.

Thanks Marseille07! I think I may just switch away from constant dollar to constant percentage with a floor. I can live with that trade especially since I'm doing a seperate "go-go years" set aside.
No problem. The math is really simple, constant-percentage 3~4% is the best way to make your portfolio last; the only downside is the spending model doesn't align well with "go-go" years, but having a spending floor alleviates some of that.
You probably want 100% success rate on both. Otherwise you are giving SWR an advantage over constant %.
This is an interesting point. P10 doesn't fail 4% SWR but it is true the lowest cases failed.
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Re: The Day the 4% Rule Died

Post by nigel_ht »

Marseille07 wrote: Thu Jun 16, 2022 1:42 pm
No problem. The math is really simple, constant-percentage 3~4% is the best way to make your portfolio last; the only downside is the spending model doesn't align well with "go-go" years, but having a spending floor alleviates some of that.
The "easy" solution to that is save $2.2M and have a $200K "go-go years" budget to manage separately.

Whether it's expensive European river cruises or hiking national parks I don't think it's a huge hardship to have as much or more fun money on top of normal living expenses for the first decade as what most folks have for their entire retirement...and while the $48K floor is less than I originally planned that was without going for 100% capital preservation.

Alternatively do 3% spend on $1.8M of the $2M and a lower floor:

https://www.cfiresim.com/5d0aebab-2c34- ... 3ac5147052

There really isn't any other way to figure out a "risk free" way of front loading your retirement spend except to break it out seperately.
HootingSloth
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Re: The Day the 4% Rule Died

Post by HootingSloth »

nigel_ht wrote: Thu Jun 16, 2022 12:51 pm Any objections?
It sounds like you have a plan that would be flexible when it needs to be, you recognize the tradeoffs involved, and you have chosen to pick the side of the tradeoffs that are important to you. No objection to that. Others will decide to be flexible in different ways and to navigate tradeoffs differently because their priorities differ from yours. There are many paths to a workable plan.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

nigel_ht wrote: Thu Jun 16, 2022 1:56 pm The "easy" solution to that is save $2.2M and have a $200K "go-go years" budget to manage separately.

Whether it's expensive European river cruises or hiking national parks I don't think it's a huge hardship to have as much or more fun money on top of normal living expenses for the first decade as what most folks have for their entire retirement...and while the $48K floor is less than I originally planned that was without going for 100% capital preservation.

Alternatively do 3% spend on $1.8M of the $2M and a lower floor:

https://www.cfiresim.com/5d0aebab-2c34- ... 3ac5147052

There really isn't any other way to figure out a "risk free" way of front loading your retirement spend except to break it out seperately.
VPW would front-load, but your portfolio would deplete in the end. So yeah, there's no perfect solution; no matter what you do, you receive the upside as well as the downside.

The ultimate approach is the one you described, of having a separate budget for "go-go years" or to prepare for CCRC. I remember someone mention that the VPW users are supposed to accumulate a couple of millions outside of VPW to finance CCRC.
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

HootingSloth wrote: Thu Jun 16, 2022 2:02 pm
nigel_ht wrote: Thu Jun 16, 2022 12:51 pm Any objections?
It sounds like you have a plan that would be flexible when it needs to be, you recognize the tradeoffs involved, and you have chosen to pick the side of the tradeoffs that are important to you. No objection to that. Others will decide to be flexible in different ways and to navigate tradeoffs differently because their priorities differ from yours. There are many paths to a workable plan.
Lol...would it kill you guys to admit that spending significantly below SWR doesn't require flexibility. Because that's what 4% SWR + SS + paid off home is. Anywhere from 25-50% lower depending on size of your portfolio.

SWR (constant dollar) + SS + Paid Off Home = lower withdrawals in good times but no flexibility required in bad times.
VPW + SS + Paid Off Home = higher withdrawals in good times but requires some flexibility in bad times (50%? Something else?).

Because it's just getting silly where you dance and weave JUST so you can avoid admitting that SWR has any positive attributes...
technovelist
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Re: The Day the 4% Rule Died

Post by technovelist »

nigel_ht wrote: Thu Jun 16, 2022 11:59 am ...
Lol…well unless they were members of the Communist elite they didn’t fare too well.

If you were “landlord class” with Nationalist ties running with whatever portable wealth you still had was the right move if you could swing it…

It’s all luck. My dad told me about how he was on the last 2 airplanes out of some city. His flew to some smaller city on the coast. The other flew to Shanghai. His made it. The other didn’t.

Got to the US with little more than the shirt on his back.

He also told me that gold has value way out of proportion to what it should when you need to get the hell out of dodge…
For many of the extreme scenarios that have happened in the world in the last 100 or so years, having some gold was the difference between bad times and complete disaster.

And that is a separate benefit from its smoothing effect that reduces volatility in more normal times, which I believe is why the Harry Browne Permanent Portfolio has been analyzed, IIRC, as having a 5% SWR.
In theory, theory and practice are identical. In practice, they often differ.
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

Marseille07 wrote: Thu Jun 16, 2022 2:17 pm
nigel_ht wrote: Thu Jun 16, 2022 1:56 pm The "easy" solution to that is save $2.2M and have a $200K "go-go years" budget to manage separately.

Whether it's expensive European river cruises or hiking national parks I don't think it's a huge hardship to have as much or more fun money on top of normal living expenses for the first decade as what most folks have for their entire retirement...and while the $48K floor is less than I originally planned that was without going for 100% capital preservation.

Alternatively do 3% spend on $1.8M of the $2M and a lower floor:

https://www.cfiresim.com/5d0aebab-2c34- ... 3ac5147052

There really isn't any other way to figure out a "risk free" way of front loading your retirement spend except to break it out seperately.
VPW would front-load, but your portfolio would deplete in the end. So yeah, there's no perfect solution; no matter what you do, you receive the upside as well as the downside.

The ultimate approach is the one you described, of having a separate budget for "go-go years" or to prepare for CCRC. I remember someone mention that the VPW users are supposed to accumulate a couple of millions outside of VPW to finance CCRC.
Lol, accumulating a couple million outside of VPW kind of negates the point of VPW in the first place.

3% constant percentage with a floor seems simple enough to understand and execute. It also has the advantage of looking pretty safe and doing what you would expect it to without needing a very complex spreadsheet IF you can live with a 2.0-2.4%ish floor for longish periods.
HootingSloth
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Re: The Day the 4% Rule Died

Post by HootingSloth »

nigel_ht wrote: Thu Jun 16, 2022 3:06 pm
HootingSloth wrote: Thu Jun 16, 2022 2:02 pm
nigel_ht wrote: Thu Jun 16, 2022 12:51 pm Any objections?
It sounds like you have a plan that would be flexible when it needs to be, you recognize the tradeoffs involved, and you have chosen to pick the side of the tradeoffs that are important to you. No objection to that. Others will decide to be flexible in different ways and to navigate tradeoffs differently because their priorities differ from yours. There are many paths to a workable plan.
Lol...would it kill you guys to admit that spending significantly below SWR doesn't require flexibility. Because that's what 4% SWR + SS + paid off home is. Anywhere from 25-50% lower depending on size of your portfolio.

SWR (constant dollar) + SS + Paid Off Home = lower withdrawals in good times but no flexibility required in bad times.
VPW + SS + Paid Off Home = higher withdrawals in good times but requires some flexibility in bad times (50%? Something else?).

Because it's just getting silly where you dance and weave JUST so you can avoid admitting that SWR has any positive attributes...
SWR has positive attributes. Have a nice day.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

technovelist wrote: Thu Jun 16, 2022 3:08 pm
nigel_ht wrote: Thu Jun 16, 2022 11:59 am ...
Lol…well unless they were members of the Communist elite they didn’t fare too well.

If you were “landlord class” with Nationalist ties running with whatever portable wealth you still had was the right move if you could swing it…

It’s all luck. My dad told me about how he was on the last 2 airplanes out of some city. His flew to some smaller city on the coast. The other flew to Shanghai. His made it. The other didn’t.

Got to the US with little more than the shirt on his back.

He also told me that gold has value way out of proportion to what it should when you need to get the hell out of dodge…
For many of the extreme scenarios that have happened in the world in the last 100 or so years, having some gold was the difference between bad times and complete disaster.

And that is a separate benefit from its smoothing effect that reduces volatility in more normal times, which I believe is why the Harry Browne Permanent Portfolio has been analyzed, IIRC, as having a 5% SWR.
True. I dunno that I'd hold that much physical gold though. That strikes me as opening up a whole new set of "complete disaster" scenarios. :)

With another 0's worth of net worth I'd park $50K in gold in Switzerland and Singapore. Partly for the coolness factor. Bond. Nigel Bond.

Yes, yes, I have offshore gold reserves. Don't you?
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

HootingSloth wrote: Thu Jun 16, 2022 3:13 pm
nigel_ht wrote: Thu Jun 16, 2022 3:06 pm
HootingSloth wrote: Thu Jun 16, 2022 2:02 pm
nigel_ht wrote: Thu Jun 16, 2022 12:51 pm Any objections?
It sounds like you have a plan that would be flexible when it needs to be, you recognize the tradeoffs involved, and you have chosen to pick the side of the tradeoffs that are important to you. No objection to that. Others will decide to be flexible in different ways and to navigate tradeoffs differently because their priorities differ from yours. There are many paths to a workable plan.
Lol...would it kill you guys to admit that spending significantly below SWR doesn't require flexibility. Because that's what 4% SWR + SS + paid off home is. Anywhere from 25-50% lower depending on size of your portfolio.

SWR (constant dollar) + SS + Paid Off Home = lower withdrawals in good times but no flexibility required in bad times.
VPW + SS + Paid Off Home = higher withdrawals in good times but requires some flexibility in bad times (50%? Something else?).

Because it's just getting silly where you dance and weave JUST so you can avoid admitting that SWR has any positive attributes...
SWR has positive attributes. Have a nice day.
That is hilarious.
randomguy
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Re: The Day the 4% Rule Died

Post by randomguy »

Marseille07 wrote: Thu Jun 16, 2022 2:17 pm
nigel_ht wrote: Thu Jun 16, 2022 1:56 pm The "easy" solution to that is save $2.2M and have a $200K "go-go years" budget to manage separately.

Whether it's expensive European river cruises or hiking national parks I don't think it's a huge hardship to have as much or more fun money on top of normal living expenses for the first decade as what most folks have for their entire retirement...and while the $48K floor is less than I originally planned that was without going for 100% capital preservation.

Alternatively do 3% spend on $1.8M of the $2M and a lower floor:

https://www.cfiresim.com/5d0aebab-2c34- ... 3ac5147052

There really isn't any other way to figure out a "risk free" way of front loading your retirement spend except to break it out seperately.
VPW would front-load, but your portfolio would deplete in the end. So yeah, there's no perfect solution; no matter what you do, you receive the upside as well as the downside.

The ultimate approach is the one you described, of having a separate budget for "go-go years" or to prepare for CCRC. I remember someone mention that the VPW users are supposed to accumulate a couple of millions outside of VPW to finance CCRC.
VPW might front load or it can back load or do both. It all depends on your SOR. For like the 1929/2000 retiree, it is really back loaded. For the 1966 retiree, you have like 4 good years, a dozen horrible ones, and then things creep up till you are living the high life at 95. Retire in 1982 and you party hard for 18 years and then have to scale back a bit.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

randomguy wrote: Thu Jun 16, 2022 3:24 pm VPW might front load or it can back load or do both. It all depends on your SOR. For like the 1929/2000 retiree, it is really back loaded. For the 1966 retiree, you have like 4 good years, a dozen horrible ones, and then things creep up till you are living the high life at 95. Retire in 1982 and you party hard for 18 years and then have to scale back a bit.
Yes, that's fair. I was speaking of its characteristics of starting out around 4.3% then goes higher, but you're correct that the behavior won't always end up front-loading.
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

randomguy wrote: Thu Jun 16, 2022 3:24 pm
VPW might front load or it can back load or do both. It all depends on your SOR. For like the 1929/2000 retiree, it is really back loaded. For the 1966 retiree, you have like 4 good years, a dozen horrible ones, and then things creep up till you are living the high life at 95. Retire in 1982 and you party hard for 18 years and then have to scale back a bit.
Seems some of us want to both front and back load...lol.
randomguy
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Re: The Day the 4% Rule Died

Post by randomguy »

marcopolo wrote: Thu Jun 16, 2022 2:27 am
Can you explain what magic system allows you to spend more and have more leftover?!?

If 3% magically gives you more spending and larger ending balance than 4%, then 2% must be even better, I guess...
Imagine you have 100k and it goes up 10%/year
a) It goes up 10k and you spend 10k/year. In 20 years you have spent 200k and have 100k
b) instead you spend 0 dollars for 19 years. You have 611k. You now spend 300k and have 340k left.

In b you have spend more and have more money. Why? Because you didn't use the money for 19 years. By ignoring that 10k of real spending in year 1 is worth substantially more than 10k of real spending in year 19, you can say you are spending more while also having more. This is basically what this scheme does by spending 30k early and say 60k later instead of a steady 40k.

You need to look at the distribution of spending over time and not just the ending values.
marcopolo
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Re: The Day the 4% Rule Died

Post by marcopolo »

randomguy wrote: Thu Jun 16, 2022 3:48 pm
marcopolo wrote: Thu Jun 16, 2022 2:27 am
Can you explain what magic system allows you to spend more and have more leftover?!?

If 3% magically gives you more spending and larger ending balance than 4%, then 2% must be even better, I guess...
Imagine you have 100k and it goes up 10%/year
a) It goes up 10k and you spend 10k/year. In 20 years you have spent 200k and have 100k
b) instead you spend 0 dollars for 19 years. You have 611k. You now spend 300k and have 340k left.

In b you have spend more and have more money. Why? Because you didn't use the money for 19 years. By ignoring that 10k of real spending in year 1 is worth substantially more than 10k of real spending in year 19, you can say you are spending more while also having more. This is basically what this scheme does by spending 30k early and say 60k later instead of a steady 40k.

You need to look at the distribution of spending over time and not just the ending values.
OK. I guess if you ignore the time value of money.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

randomguy wrote: Thu Jun 16, 2022 3:48 pm In b you have spend more and have more money. Why? Because you didn't use the money for 19 years. By ignoring that 10k of real spending in year 1 is worth substantially more than 10k of real spending in year 19, you can say you are spending more while also having more. This is basically what this scheme does by spending 30k early and say 60k later instead of a steady 40k.

You need to look at the distribution of spending over time and not just the ending values.
You capture the essence correctly but what you're missing is that the comparison looks like the following:
a) spend 40K/year for 30 years, not much left in the portfolio at p10
b) spend 30K/year at first, but 45K/year after a decade, 60K/year after 2 decades; plus can afford CCRC if necessary.

I have nothing against a), just that my preference is b). And I understand the consequences of my preference.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

marcopolo wrote: Thu Jun 16, 2022 5:47 pm OK. I guess if you ignore the time value of money.
I think the comparisons look weird because we're assuming the same starting portfolio balance. The truth is that that's not going to be the case.

It'll be more like:
a) 50K/year budget running 4% SWR on a 1.25M portfolio
b) 50K/year budget running 3% WR on a 1.65M portfolio

As you see, there is not much notion of front-loading because that's covered by person B having accumulated more money. Yes, it does take extra years of work, or higher income to accomplish that. But that's the kind of game I'm playing here.
randomguy
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Re: The Day the 4% Rule Died

Post by randomguy »

Marseille07 wrote: Thu Jun 16, 2022 5:48 pm
randomguy wrote: Thu Jun 16, 2022 3:48 pm In b you have spend more and have more money. Why? Because you didn't use the money for 19 years. By ignoring that 10k of real spending in year 1 is worth substantially more than 10k of real spending in year 19, you can say you are spending more while also having more. This is basically what this scheme does by spending 30k early and say 60k later instead of a steady 40k.

You need to look at the distribution of spending over time and not just the ending values.
You capture the essence correctly but what you're missing is that the comparison looks like the following:
a) spend 40K/year for 30 years, not much left in the portfolio at p10
b) spend 30K/year at first, but 45K/year after a decade, 60K/year after 2 decades; plus can afford CCRC if necessary.

I have nothing against a), just that my preference is b). And I understand the consequences of my preference.
With that sequence of returns (~7% real, ~6%, ~3%), A has ~2million real dollars at the end of 20 years. And 30 years:) I think they can afford the most CCRCs:)
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

randomguy wrote: Thu Jun 16, 2022 6:29 pm With that sequence of returns (~7% real, ~6%, ~3%), A has ~2million real dollars at the end of 20 years. And 30 years:) I think they can afford the most CCRCs:)
Not at p10. I think it's unfair to criticize low withdrawal amount of 3% WR using p10, then conveniently assume p50 or better to make your case for the legacy amount of 4% SWR.
randomguy
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Re: The Day the 4% Rule Died

Post by randomguy »

Marseille07 wrote: Thu Jun 16, 2022 6:39 pm
randomguy wrote: Thu Jun 16, 2022 6:29 pm With that sequence of returns (~7% real, ~6%, ~3%), A has ~2million real dollars at the end of 20 years. And 30 years:) I think they can afford the most CCRCs:)
Not at p10. I think it's unfair to criticize low withdrawal amount of 3% WR using p10, then conveniently assume p50 or better to make your case for the legacy amount of 4% SWR.
I am just using the returns you gave us. They obviously weren't p10. You don't go from 1m to 1.5m real while taking out 30k year in a p10 case. Feel free to post the p10 results for portfolio B if you want. I have a feeling they are along the lines of 20k/year for a decade, 30k/year for the next, and then 45k with an ending portfolio value roughly where you started in real terms.
marcopolo
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Re: The Day the 4% Rule Died

Post by marcopolo »

Marseille07 wrote: Thu Jun 16, 2022 6:11 pm
marcopolo wrote: Thu Jun 16, 2022 5:47 pm OK. I guess if you ignore the time value of money.
I think the comparisons look weird because we're assuming the same starting portfolio balance. The truth is that that's not going to be the case.

It'll be more like:
a) 50K/year budget running 4% SWR on a 1.25M portfolio
b) 50K/year budget running 3% WR on a 1.65M portfolio

As you see, there is not much notion of front-loading because that's covered by person B having accumulated more money. Yes, it does take extra years of work, or higher income to accomplish that. But that's the kind of game I'm playing here.
It seems you are thinking about this backwards.
If you are accumulating more, there is even less need to cut spending when there are temporary down turns. At 3%, one could quite likely use 3% SWR, with a ratcheting up whenever portfolio grows, without the need to ever cut back.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

randomguy wrote: Thu Jun 16, 2022 7:21 pm
Marseille07 wrote: Thu Jun 16, 2022 6:39 pm
randomguy wrote: Thu Jun 16, 2022 6:29 pm With that sequence of returns (~7% real, ~6%, ~3%), A has ~2million real dollars at the end of 20 years. And 30 years:) I think they can afford the most CCRCs:)
Not at p10. I think it's unfair to criticize low withdrawal amount of 3% WR using p10, then conveniently assume p50 or better to make your case for the legacy amount of 4% SWR.
I am just using the returns you gave us. They obviously weren't p10. You don't go from 1m to 1.5m real while taking out 30k year in a p10 case. Feel free to post the p10 results for portfolio B if you want. I have a feeling they are along the lines of 20k/year for a decade, 30k/year for the next, and then 45k with an ending portfolio value roughly where you started in real terms.
Oh I see the confusion. I didn't mean to describe the market returns by the 30K -> 45K -> 60K example. That was to illustrate the speed at which withdrawals can increase over time.

You're correct that SWR 4% would have quite a bit left in the portfolio if such returns were realized.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

marcopolo wrote: Thu Jun 16, 2022 7:22 pm It seems you are thinking about this backwards.
If you are accumulating more, there is even less need to cut spending when there are temporary down turns. At 3%, one could quite likely use 3% SWR, with a ratcheting up whenever portfolio grows, without the need to ever cut back.
When did I oppose ratcheting up? That's a fine approach if that's what you want to do.

I think you're making a huge deal out of cutting back. The reality is that I don't even spend 3% month in and month out, meaning I'm always cutting back from a finances perspective. And this is actually expected, since my budget includes discretionary spending. There's actually something wrong if I were hitting 3% every month.
Glenn
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Re: The Day the 4% Rule Died

Post by Glenn »

I think such hypothetical discussions of the "4% rule" are worthless. That guideline is useful to try to figure out if you likely have enough to retire on, but does anyone actually follow it mindlessly? I used it as a guideline when I retired 13 years ago, but never expected to simply withdraw an inflation-adjusted 4% automatically, year-after-year, even as my portfolio tanked. Has anyone?

In retirement, do what you presumably did pre-retirement: stay flexible. Thinking you're going to simply take 4%, inflation-adjusted, in the face of ever-changing financial conditions, is just foolish.
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