Author Topic: Stop worrying about the 4% rule  (Read 417052 times)

PizzaSteve

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Re: Stop worrying about the 4% rule
« Reply #1400 on: April 14, 2018, 09:44:58 AM »
Some useful discussion here:

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=247050&newpost=3880684

Will not comment, but good points on understanding conclusions and limitations of Trinity study(basis for most SWR assumptions).
« Last Edit: April 16, 2018, 10:08:47 AM by PizzaSteve »

sol

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Re: Stop worrying about the 4% rule
« Reply #1401 on: April 14, 2018, 10:54:52 AM »
Noted is that study us for a 30 yr retirement, not longer and assumptions should be adjusted accordingly for longer plans (like mine :-)).

Have you read this thread?  There are thousands of words of analysis on the impacts of changing the SWR vs changing the withdrawal period, with charts and graphs, contained in the earlier pages of this very thread. Including second order analysis of the analyses.

I've found the BH forums to be incredibly helpful for people who are just starting out and trying to wrap their heads around basic concepts, but the depth of the analysis there is sometimes lacking.  There are some incredibly smart people over there, who unfortunately don't write very clearly and often muddle their insights and so the most complex analyses goes unrecognized.  Many of the nuances discussed in this thread, for example, are things I have never seen openly discussed on bogleheads.

MissNancyPryor

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Re: Stop worrying about the 4% rule
« Reply #1402 on: April 24, 2018, 06:49:25 PM »
Hey MMMers, remedial question here:

Do you consider the value of your paid-for house in the net worth upon which your initial SWR is calculated?  Or do you consider it a buffer that you could convert to some cash later if needed? 

For simple math, if I have $1M net worth including a $200K house, initial 4% SWR would be $40K and I should set that as my ongoing retirement number.   

If I only consider $800K that means I should set $32K as my number, but I know I have the house on the side (growing in value hopefully) that I can tap into by downsizing or becoming a renter if I need to.

In each case I can give myself inflationary raises of 2-3% a year and should monitor things to adjust spending if shit hits the fan in the economy, so we can disregard those distractions for this question. 

Which is the traditional way to calculate things?  I realize that the ultra conservative thing to do is to not include the house and to only pull 3% as the SWR, a bulletproof method that will make my heirs very rich.  I am wondering what the 'standard' guidance is or what the original theory suggests.       

(I word-searched all 29 pages of this thread manually and hit deborah's journal a bunch of times and learned steveo is considering downsizing, but this question is not answered.  Sending up a balloon, thanks!)

MDM

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Re: Stop worrying about the 4% rule
« Reply #1403 on: April 24, 2018, 07:14:47 PM »
1. Do you consider the value of your paid-for house in the net worth upon which your initial SWR is calculated?

2. Which is the traditional way to calculate things?
1. No, because
2. The studies from which the 4% number comes considered only stocks and bonds.

See Determining withdrawal rates using historical data and
Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable.
The latter article is often called the "Trinity study" because the authors were professors of finance at Trinity University.

MissNancyPryor

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Re: Stop worrying about the 4% rule
« Reply #1404 on: April 24, 2018, 09:20:26 PM »
Perfect, thanks! 

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1405 on: April 25, 2018, 10:46:25 AM »
I don't count it either. You have to live somewhere and no doubt if we chose to live somewhere else we would either buy or rent (duh!), so the proceeds of selling would ultimately be used to pay for the new digs.

I also assume that when we are old we might live in a nursing home.. well, once again thats where the proceeds of the house sale would go.

Bottom line is it really isn't "real money" in the sense that it doesn't provides income upon which you can live.

nereo

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Re: Stop worrying about the 4% rule
« Reply #1406 on: April 25, 2018, 11:28:45 AM »
ditto - with the caveat that one may consider the value of their house IF they are planning on selling it and moving (e.g. downsizing, relocating) early on in FI.  If rented out (partially or in full) that income would go into your calculations.

Thankfully simulators like cFIREsim allow you to estimate the effects of a lump-sum input (in this case the sale of a home) at any point during your retirement.  Obviously the uncertainty of how much a home might sell for should be considered.

steveo

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Re: Stop worrying about the 4% rule
« Reply #1407 on: April 25, 2018, 05:24:10 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.


Le Barbu

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Re: Stop worrying about the 4% rule
« Reply #1408 on: April 25, 2018, 06:32:27 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.

My home equity is included in my NW but not in my FI stash

steveo

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Re: Stop worrying about the 4% rule
« Reply #1409 on: April 25, 2018, 09:14:51 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.

My home equity is included in my NW but not in my FI stash

This is just semantics though. When I talk about my net worth I am stating my stash. You can definitely use home equity as part of your stash assuming you can convert that equity to investment funds - i.e. downsize your house and put the difference into your investment portfolio.

So in my case if I'm confident I will sell my house and pocket say $500k I would consider that part of my stash.

seattlecyclone

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Re: Stop worrying about the 4% rule
« Reply #1410 on: April 26, 2018, 02:12:34 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.

My home equity is included in my NW but not in my FI stash

This is just semantics though. When I talk about my net worth I am stating my stash. You can definitely use home equity as part of your stash assuming you can convert that equity to investment funds - i.e. downsize your house and put the difference into your investment portfolio.

So in my case if I'm confident I will sell my house and pocket say $500k I would consider that part of my stash.

I don't think there's such a thing as "just semantics." Words have meanings. "Net worth" is the sum of everything you own minus everything you owe. You may decide for whatever reason to exclude a portion of your assets from the part you expect to provide your retirement spending, in which case the "stash" is clearly a different thing from the "net worth."

bluebelle

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Re: Stop worrying about the 4% rule
« Reply #1411 on: April 26, 2018, 03:34:20 PM »
Do you consider the value of your paid-for house in the net worth upon which your initial SWR is calculated?  Or do you consider it a buffer that you could convert to some cash later if needed? 
I include it in my total net worth, but it is not part my FI net worth (ie assets used to determine SWR).  I do factor it back in around age 90.  I know the house will get sold and I'll move into some kind of senior's condo or retirement home by then (probably sooner - since our retirement home is outside of town - depends on how soon self driving cars become a reality for the average person). 

Eucalyptus

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Re: Stop worrying about the 4% rule
« Reply #1412 on: April 27, 2018, 07:17:56 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.


Steveo; I think the ultimate stash back up for all us Aussie MMM's is we all sell our houses then live a life of luxury in our own little community more than 100km from the nearest "city". We can all have big non-moustachian cars to get around. Won't matter, relatively.


For me, I'm going to start FIRE much higher than 4%. The house is definitely one of the backups. I can live in a van if I have to, or just go hiking for a year. I can go back to work if I have to easily enough; I LOVE my work (I'll actually keep working, unpaid, on exactly what I want to research; that's one of my main FIRE goals), when I get to choose what I do (research). Its not hard for me to pick up small research contracts, bits of teaching, etc. My FIRE portfolio will be quite diverse, not just a 60/40 like the Trinity Studies (if i remember correctly). It will be agressive on stocks, with glidepaths to the FIRE date, and rising equity glide path after FIRE. The 4% rule doesn't scare me at all.

steveo

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Re: Stop worrying about the 4% rule
« Reply #1413 on: April 28, 2018, 06:32:06 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.


Steveo; I think the ultimate stash back up for all us Aussie MMM's is we all sell our houses then live a life of luxury in our own little community more than 100km from the nearest "city". We can all have big non-moustachian cars to get around. Won't matter, relatively.


For me, I'm going to start FIRE much higher than 4%. The house is definitely one of the backups. I can live in a van if I have to, or just go hiking for a year. I can go back to work if I have to easily enough; I LOVE my work (I'll actually keep working, unpaid, on exactly what I want to research; that's one of my main FIRE goals), when I get to choose what I do (research). Its not hard for me to pick up small research contracts, bits of teaching, etc. My FIRE portfolio will be quite diverse, not just a 60/40 like the Trinity Studies (if i remember correctly). It will be agressive on stocks, with glidepaths to the FIRE date, and rising equity glide path after FIRE. The 4% rule doesn't scare me at all.

Yep. I think 5% is fine for me to retire one but atm I am aiming a little lower than that but only because I want to have a high probability of making it to Super. So my plan is to get to Super which will mean that I have a 5% or lower WR and be prepared to sell the house.

Mr Mark

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Re: Stop worrying about the 4% rule
« Reply #1414 on: April 29, 2018, 02:02:37 AM »
Hey MMMers, remedial question here:

Do you consider the value of your paid-for house in the net worth upon which your initial SWR is calculated?  Or do you consider it a buffer that you could convert to some cash later if needed? 

For simple math, if I have $1M net worth including a $200K house, initial 4% SWR would be $40K and I should set that as my ongoing retirement number.   

If I only consider $800K that means I should set $32K as my number, but I know I have the house on the side (growing in value hopefully) that I can tap into by downsizing or becoming a renter if I need to.

In each case I can give myself inflationary raises of 2-3% a year and should monitor things to adjust spending if shit hits the fan in the economy, so we can disregard those distractions for this question. 

Which is the traditional way to calculate things?  I realize that the ultra conservative thing to do is to not include the house and to only pull 3% as the SWR, a bulletproof method that will make my heirs very rich.  I am wondering what the 'standard' guidance is or what the original theory suggests.       

(I word-searched all 29 pages of this thread manually and hit deborah's journal a bunch of times and learned steveo is considering downsizing, but this question is not answered.  Sending up a balloon, thanks!)

It's all about your required cashflow. Take whatever annual expenses you need (and that includes somewhere to live, either rent or mortgage/taxes/maintenance or airbnb/hotels).
You then target 25x that annual cash as your required 'stache, and a portfolio of mostly equities and some bonds should be able to supply that amount every year inflated for ever.

It's a lot easier in the USA because (1) you can get a low cost portfolio very easily via Vanguard, (2) US equities have proven in the past to be a great long term investment, and (3) under current tax rules in USA you can pull US$90k /yr from long term capital gains and dividends and pay ZERO federal tax.

The equity in your house does count as a part of your net worth [assets minus liabilities], but does not count as a part of your 'stache for 4% purposes. It may reduce your required expenses (if you own the house, hey, no mortgage! Somewhere to live!), but it doesn't generate income, so you can't use it for your 4% calculation. If you want to downsize and thus turn some home equity equity into extra 'stache, great!




DreamFIRE

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Re: Stop worrying about the 4% rule
« Reply #1415 on: April 29, 2018, 08:28:05 PM »
Hey MMMers, remedial question here:
(3) under current tax rules in USA you can pull US$90k /yr from long term capital gains and dividends and pay ZERO federal tax.

That's usually not the case, certainly not for a single person (I assume "Miss" implies single.)  For a single person, the 0% capital gains bracket is $0-38,600

If you had no other taxable income, you could add a $12,000 additional gains due to the standard deduction.

So, then you're up to $50600 of long term capital gains that you would pay 0% federal tax on, but ONLY if you had no other taxable income.   So $90K in capital gains would trigger taxes at the federal level.

Myself, I have to pay 15% on all my long term capital gains because I earn over $100K/yr of other income, well above the 0% capital gains tax level.

Of course, normally when selling shares that realize capital gains as opposed to dividends, the gain is only part of the amount you are pulling from the investment.  So a $30K gain, for example, from selling shares will mean you're actually pulling much more from your investment than $30K.
« Last Edit: April 29, 2018, 08:57:11 PM by DreamFIRE »

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1416 on: April 30, 2018, 04:51:36 AM »
Dream this is a discussion during the withdrawal phase. 50.6k is more than enough for a single person as is 90k for a couple.

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1417 on: May 07, 2018, 07:20:36 AM »
Intercst (aka John Greaney):

"Adding rigor to the 4% rule"

http://www.retireearlyhomepage.com/intercstinsights.html


(Just for fun. I'm completely convinced that N = 25 x E will work just fine for us).


ysette9

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Re: Stop worrying about the 4% rule
« Reply #1418 on: May 07, 2018, 09:42:00 AM »
Haha

hykue

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Re: Stop worrying about the 4% rule
« Reply #1419 on: May 09, 2018, 12:10:18 AM »
Stocks have tended to perform better over longer time periods and should therefore provide the highest possible SWR's.

This may seem instinctively true but mathematically it's more complicated than that.  Safe Withdrawal Rates are highly influenced not only by average returns but also by annual volatility.  All things being equal, higher volatility lowers the SWR.  So two portfolios with equal average returns may have drastically different withdrawal rates based on the underlying volatility.  And sometimes portfolios with lower average returns but lower volatility can still beat stocks.  That's how you get interesting results like this:



This plots the returns and calculated SWRs of a variety of different popular lazy portfolios.  Note that the Total Stock Market has one of the highest returns but the lowest SWR!  Also note than none of the top-3 SWR portfolios have more than 40% stocks.  For a more detailed walkthrough, I'd recommend reading this.  And to see an example of a portfolio with only 40% stocks that matches the long-term returns of the stock market with much lower volatility and a much higher SWR, try this.

Mind blown. This is an awesome application of the best kind of intensive geekiness. I am in awe. Also, I am three years behind, but don't want to lose this thread. Thank you so much!

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1420 on: May 09, 2018, 06:27:42 AM »
Stocks have tended to perform better over longer time periods and should therefore provide the highest possible SWR's.

This may seem instinctively true but mathematically it's more complicated than that.  Safe Withdrawal Rates are highly influenced not only by average returns but also by annual volatility.  All things being equal, higher volatility lowers the SWR.  So two portfolios with equal average returns may have drastically different withdrawal rates based on the underlying volatility.  And sometimes portfolios with lower average returns but lower volatility can still beat stocks.  That's how you get interesting results like this:



This plots the returns and calculated SWRs of a variety of different popular lazy portfolios.  Note that the Total Stock Market has one of the highest returns but the lowest SWR!  Also note than none of the top-3 SWR portfolios have more than 40% stocks.  For a more detailed walkthrough, I'd recommend reading this.  And to see an example of a portfolio with only 40% stocks that matches the long-term returns of the stock market with much lower volatility and a much higher SWR, try this.

Mind blown. This is an awesome application of the best kind of intensive geekiness. I am in awe. Also, I am three years behind, but don't want to lose this thread. Thank you so much!

you need to take this with a grain of salt the data only goes back to 1970 this isnt data from the beginning of the markets.  Some think 1970 is sufficient to set their portfolio - i don't believe it is.

Mr Mark

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Re: Stop worrying about the 4% rule
« Reply #1421 on: May 09, 2018, 07:32:15 AM »
Stocks have tended to perform better over longer time periods and should therefore provide the highest possible SWR's.

This may seem instinctively true but mathematically it's more complicated than that.  Safe Withdrawal Rates are highly influenced not only by average returns but also by annual volatility.  All things being equal, higher volatility lowers the SWR.  So two portfolios with equal average returns may have drastically different withdrawal rates based on the underlying volatility.  And sometimes portfolios with lower average returns but lower volatility can still beat stocks.  That's how you get interesting results like this:



This plots the returns and calculated SWRs of a variety of different popular lazy portfolios.  Note that the Total Stock Market has one of the highest returns but the lowest SWR!  Also note than none of the top-3 SWR portfolios have more than 40% stocks.  For a more detailed walkthrough, I'd recommend reading this.  And to see an example of a portfolio with only 40% stocks that matches the long-term returns of the stock market with much lower volatility and a much higher SWR, try this.

Mind blown. This is an awesome application of the best kind of intensive geekiness. I am in awe. Also, I am three years behind, but don't want to lose this thread. Thank you so much!

you need to take this with a grain of salt the data only goes back to 1970 this isnt data from the beginning of the markets.  Some think 1970 is sufficient to set their portfolio - i don't believe it is.

Yep. I agree.

Be aware by being from 1970 it also takes in the transition from gold standard to market priced gold, so the back tested gold portfolios - such as the PP and 'golden butterfly' - do a lot better than I think they should (because the US coming off the gold standard was a one off event).

But the issue of volatility reducing SWR is a really great point.

hykue

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Re: Stop worrying about the 4% rule
« Reply #1422 on: May 15, 2018, 11:38:56 PM »
Oh absolutely do worry!

Just find one best home in your calculations for each terrible thing which could possibly go wrong. Then if you're tempted to worry about it somewhere else and correct for the same risk a second time, just remember: "Hey I've taken into account (radical healthcare inflation/the odds of living to 120/a big uptick in inflation/minor nuclear war/the odds I'll start a harem at 85 and having to send a dozen kids to college when I'm in my early 100s) in my math already."

Literally loled :)

hykue

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Re: Stop worrying about the 4% rule
« Reply #1423 on: May 16, 2018, 02:20:16 AM »
Stocks have tended to perform better over longer time periods and should therefore provide the highest possible SWR's.

This may seem instinctively true but mathematically it's more complicated than that.  Safe Withdrawal Rates are highly influenced not only by average returns but also by annual volatility.  All things being equal, higher volatility lowers the SWR.  So two portfolios with equal average returns may have drastically different withdrawal rates based on the underlying volatility.  And sometimes portfolios with lower average returns but lower volatility can still beat stocks.  That's how you get interesting results like this:



This plots the returns and calculated SWRs of a variety of different popular lazy portfolios.  Note that the Total Stock Market has one of the highest returns but the lowest SWR!  Also note than none of the top-3 SWR portfolios have more than 40% stocks.  For a more detailed walkthrough, I'd recommend reading this.  And to see an example of a portfolio with only 40% stocks that matches the long-term returns of the stock market with much lower volatility and a much higher SWR, try this.

Mind blown. This is an awesome application of the best kind of intensive geekiness. I am in awe. Also, I am three years behind, but don't want to lose this thread. Thank you so much!

you need to take this with a grain of salt the data only goes back to 1970 this isnt data from the beginning of the markets.  Some think 1970 is sufficient to set their portfolio - i don't believe it is.

Yep. I agree.

Be aware by being from 1970 it also takes in the transition from gold standard to market priced gold, so the back tested gold portfolios - such as the PP and 'golden butterfly' - do a lot better than I think they should (because the US coming off the gold standard was a one off event).

But the issue of volatility reducing SWR is a really great point.

Yes, thank you! I won't run out and set a portfolio based on this alone, I just had never managed follow my doubts about volatlity to any logical conclusion. This helped!

PizzaSteve

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Re: Stop worrying about the 4% rule
« Reply #1424 on: May 24, 2018, 06:07:39 PM »
I find it is better to keep all studies in perspective and think of the 4% rule not as " a scientific principle", but rather the best wisdom of our elder shaman economists, based on recent history.

Even though it is derived statistically via excellent models, it cant predict the future by definition.  We could all be screwed or golden, we just dont know.  So what do we do in that situation?  We look at history and plan a prudent course, but also we must stay mentally flexible.  If someone starts calling a group of people animals and suggests herding them into cattle cars somewhere, we need to be prepared to take action with more than just a portfolio allocation.

The portfolio is only a minor note in the symphony of FIRE.  What is more important is the 'live within your means' mindset, the 'invest to get your free dollars working' mindset, and the 'be mindful with spending' mindset.  The combo of these is 99% successful.  The other 1% requires mindful observing and action within the world of politics and human governance.

Namaste.
« Last Edit: May 24, 2018, 06:10:49 PM by PizzaSteve »

DavidAnnArbor

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Re: Stop worrying about the 4% rule
« Reply #1425 on: May 24, 2018, 07:12:28 PM »
Thank you PizzaSteve I liked the prudent and mindful presentation of that big picture.

Jamese20

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Re: Stop worrying about the 4% rule
« Reply #1426 on: June 07, 2018, 02:10:25 PM »
hi all,

i am from the UK and HATE that there is very limited literature from a UK based perspective on the 4% rule other than ours should be lower (like 2.5%) which are just for click-bait i am sure because even this country has averaged 5% returns after inflation over 100+ years.

equally frustrating is I dont find much literature from a global portfolio perspective and what the 4% rule would look like then?

hard to not worry about the 4% rule when 1. you are not from the states 2. no specific studies I can see that dont have some agenda of creating click bait.

p.s I have one major gripe with the 4% rule is alot of FI blogs answers to making sure it doesnt fail is "go back to work" I would class that as failure for me of the 4% rule if you need to go back to work because the 4% rule has made you go back to work, but that is just me






EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1427 on: June 07, 2018, 03:24:10 PM »
Well, two things you can use to calibrate on.  1) I agree that needing additional income or else you run out of money constitutes a failure.  Not that young folks remember, but the absolute hardest time to sufficiently supplement income is when everyone else is in the same boat.  2) at least healthcare and retirement provisions are more clearly defined, in the US, prior to 65, you get reduced Social Security and no public medical coverage (once Affordable Care Act collapses).

Other than that, you need to adjust the 4% rule based on your investments.  US outperformed UK over the last century or so, but there's no guarantee UK won't outperform US next century (given our ability to elect Trump).

cerat0n1a

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Re: Stop worrying about the 4% rule
« Reply #1428 on: June 07, 2018, 04:17:24 PM »
i am from the UK and HATE that there is very limited literature from a UK based perspective on the 4% rule other than ours should be lower

Absolutely no need to restrict yourself to investing in UK stocks though. You can buy a global index tracker like Vanguard's VWRL just as easily. (And in fact, even if you did limit yourself to the FTSE - something like 65-70% of earnings come from outside the UK - not to mention the built-in biases towards banks & oil and lack of tech stocks.)

Currency risk obviously comes into play, but offset against that is the state pension, no healthcare costs to worry about and the very generous tax treatment of FIREes through ISAs, pensions, no CGT on your own house, decent tax free allowances for dividends, interest and so on.

TempusFugit

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Re: Stop worrying about the 4% rule
« Reply #1429 on: June 07, 2018, 04:48:41 PM »
...US outperformed UK over the last century or so, but there's no guarantee UK won't outperform US next century...

Government policy issues aside, clearly the historical data over the past century favors the US because of the effects of 2 world wars.

The US was the winner on both sides of that equation in the sense that we didn't suffer the negative impact to our infrastructure and workforce, and then we reaped the benefits of supplying all the materials for rebuilding Europe after the wars. 
 
One would expect the future returns to move toward each other absent another hugely destabilizing event affecting our countries disproportionately.  That's all other things being 'equal' in terms of free trade, etc. 

Perhaps the SWR rules based on historical data for the UK would be somewhat useless due to the dramatic affects of those wars on returns.  That being said, I have seen some SWR calculations for other countries in the context of showing how there is no SWR if your country loses a major war, such as what happened to Japan and Germany.  That probably falls into the category of having 'bigger problems'.

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1430 on: June 07, 2018, 05:23:04 PM »
Perhaps the SWR rules based on historical data for the UK would be somewhat useless due to the dramatic affects of those wars on returns.  That being said, I have seen some SWR calculations for other countries in the context of showing how there is no SWR if your country loses a major war, such as what happened to Japan and Germany.  That probably falls into the category of having 'bigger problems'.

What bothers me is how often I see presentations of the "SWR for other countries" without people pointing out that essentially the differences between countries are showing is how badly individual country were destroyed during the two world wars (and the civil war in Spain).

@Jamese20 The reason we don't see more literature and studies on the 4% rule and similar outside the US boils down to data availability. The studies of SWR in ~20 countries all use the Dimson, Marsh, & Staunton dataset on stock market and bond returns which isn't publicly available, but is included in some subscription data services which cost huge amounts of money. So what comes out is primarily from employees at big banks or financial advisory firms. In contrast, in the USA, a professor named Robert Shiller released data on US stock and bond returns each month from 1871-present on his website. So any interested blogger or random guy with a python script (like me) can try out all sorts of different approaches to investment and withdrawal rate strategies.

Radagast

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Re: Stop worrying about the 4% rule
« Reply #1431 on: June 07, 2018, 10:23:57 PM »
hi all,

i am from the UK and HATE that there is very limited literature from a UK based perspective on the 4% rule other than ours should be lower (like 2.5%) which are just for click-bait i am sure because even this country has averaged 5% returns after inflation over 100+ years.

equally frustrating is I dont find much literature from a global portfolio perspective and what the 4% rule would look like then?

hard to not worry about the 4% rule when 1. you are not from the states 2. no specific studies I can see that dont have some agenda of creating click bait.

p.s I have one major gripe with the 4% rule is alot of FI blogs answers to making sure it doesnt fail is "go back to work" I would class that as failure for me of the 4% rule if you need to go back to work because the 4% rule has made you go back to work, but that is just me
https://portfoliocharts.com/calculators/
Tyler's calculators include UK and include data as far as 1970, which I understand was one of the worse starting periods for SWR.

Jamese20

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Re: Stop worrying about the 4% rule
« Reply #1432 on: June 07, 2018, 11:42:06 PM »
i am from the UK and HATE that there is very limited literature from a UK based perspective on the 4% rule other than ours should be lower

Absolutely no need to restrict yourself to investing in UK stocks though. You can buy a global index tracker like Vanguard's VWRL just as easily. (And in fact, even if you did limit yourself to the FTSE - something like 65-70% of earnings come from outside the UK - not to mention the built-in biases towards banks & oil and lack of tech stocks.)

Currency risk obviously comes into play, but offset against that is the state pension, no healthcare costs to worry about and the very generous tax treatment of FIREes through ISAs, pensions, no CGT on your own house, decent tax free allowances for dividends, interest and so on.

I agree and that's why I mentioned even from a global perspective there isn't much detail regarding the 4% rule with a global portfolio

I guess I will just have to use it as a rough guide but I find answers like "just go back to work" really frustrating as that is not what I want to be doing if I decide to retire early.

Work sucks overall and alot of folks on FI sites claim to love it, maybe they do but I have to say I don't fit into that at the moment.

Maybe I will find something once I have the free time to sit and think about how I can earn some spare cash but I don't really expect to retire to then have to work


Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1433 on: June 08, 2018, 08:00:25 AM »
I guess I will just have to use it as a rough guide but I find answers like "just go back to work" really frustrating as that is not what I want to be doing if I decide to retire early.

Work sucks overall and alot of folks on FI sites claim to love it, maybe they do but I have to say I don't fit into that at the moment.

Let's agree work sucks.

Your choices are:

1. work extra years now to save/invest beyond a reasonable 4%WR
2. stop at 4%WR and face a small risk you might have to do some part-time work later

Option 1 means a 100% chance of doing a bunch more of that work that sucks. Option 2 most likely won't happen. Personally that leads me to choose Option 2.

Jamese20

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Re: Stop worrying about the 4% rule
« Reply #1434 on: June 08, 2018, 10:52:42 AM »
I guess I will just have to use it as a rough guide but I find answers like "just go back to work" really frustrating as that is not what I want to be doing if I decide to retire early.

Work sucks overall and alot of folks on FI sites claim to love it, maybe they do but I have to say I don't fit into that at the moment.

Let's agree work sucks.

Your choices are:

1. work extra years now to save/invest beyond a reasonable 4%WR
2. stop at 4%WR and face a small risk you might have to do some part-time work later

Option 1 means a 100% chance of doing a bunch more of that work that sucks. Option 2 most likely won't happen. Personally that leads me to choose Option 2.

sounds lovely in theory - i struggle at part time work that is enjoyable? unless I am just being really blind and stupid?

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1435 on: June 08, 2018, 11:03:46 AM »
sounds lovely in theory - i struggle at part time work that is enjoyable? unless I am just being really blind and stupid?

1. the PT work is only a small possibility not a certainty
2. if your annual spend is say $40K/yr you only have to make $10K/yr to make a dramatic difference in your portfolio's performance
3. there is no panic in finding that PT job the second something happens in the market...you have months and years to make a move so you can find some work you don't hate
4. personally I can think of several ways to earn $10K/yr that I would not find objectionable for a limited period of time
5. keep reminding yourself about point #1

Ultimately if that ^^ doesn't work for you then go ahead and spend as much time at your full-time job as you want until you feel like you can safely stop. It's your life.

However, if you start off with the statement that "work sucks" then choose a 100% certainty of working more so you can avoid say a 5% chance of working for a short period part-time later on then I don't understand your logic.
« Last Edit: June 08, 2018, 11:52:36 AM by Retire-Canada »

Jamese20

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Re: Stop worrying about the 4% rule
« Reply #1436 on: June 08, 2018, 11:45:50 AM »
sounds lovely in theory - i struggle at part time work that is enjoyable? unless I am just being really blind and stupid?

1. the PT work is only a small possibility not a certainty
2. if your annual spend is say $40K/yr you only have to make $10K/yr to make a dramatic difference in your portfolio's performance
3. there is no panic in finding that PT job the second something happens in the market...you have months and years to make a move so you can find some work you don't hate
4. personally I can think of several ways to earn $10K/yr that I would not find objectionable for a limited period of time
5. keep reminding yourself about point #1

Ultimately if that ^^ doesn't work for you then go ahead and spend as much time at your full-time job as you want until you feel like you can safely stop. It's your life.

However, if you start off with the statement that "work sucks" then choose a 100% certainty of working more so you can avoid say a 5% chance of working for a short period part-time later on then I don't understand that your logic.

Of course I agree with you on the last point, I just wish it felt like part time work was an option for me , my current job is kind of an all or nothing thing really

I hope I never had to do it and I don't think I would have to really, simply ignoring inflation for 5 years gives enough margin of safety that I think I'll be fine

Plus I'll have a sizeable pension coming up afterwards I can fall back on...

In 10 years time I'll be ready to go I think

ysette9

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Re: Stop worrying about the 4% rule
« Reply #1437 on: June 08, 2018, 12:55:32 PM »
THat is a very all-or-nothing way of thinking about it though. Certainly there is something else in the wide world of paying work that could bring in $10k/year with your education and experience? You could probably mow your neighbor’s lawns and pick up that kind of money if you put your brain into it. It doesn’t have to be work in your current profession or bust.

Tyler

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Re: Stop worrying about the 4% rule
« Reply #1438 on: June 08, 2018, 01:21:16 PM »
Mind blown. This is an awesome application of the best kind of intensive geekiness. I am in awe. Also, I am three years behind, but don't want to lose this thread. Thank you so much!

You're welcome!  I'm glad you find it useful.  Withdrawal rates certainly aren't the be-all-end-all with retirement planning and there's a lot more to a good strategy than a backtested withdrawal rate, but I do think it pays to understand how they work and plan accordingly.  BTW, since I first wrote that post I've done a lot more work on the same subject.  You can find a collection here: https://portfoliocharts.com/portfolio/retirement-income/


i am from the UK and HATE that there is very limited literature from a UK based perspective on the 4% rule other than ours should be lower (like 2.5%) which are just for click-bait i am sure because even this country has averaged 5% returns after inflation over 100+ years.

equally frustrating is I dont find much literature from a global portfolio perspective and what the 4% rule would look like then?

hard to not worry about the 4% rule when 1. you are not from the states 2. no specific studies I can see that dont have some agenda of creating click bait.
https://portfoliocharts.com/calculators/
Tyler's calculators include UK and include data as far as 1970, which I understand was one of the worse starting periods for SWR.

Yep.  :) 

The frustration of non-US investors about US-centric investing analysis is definitely warranted, and I'm doing my best to help.  All of the calculators on the site (including Withdrawal Rates) are able to directly model UK portfolios using UK securities, inflation, and exchange rates.

And you may also find these links interesting:

Explanation of how your home country affects withdrawal rates

Collection of British portfolios with accompanying stats
« Last Edit: June 08, 2018, 01:36:27 PM by Tyler »

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1439 on: June 08, 2018, 03:53:48 PM »
I see the S&P500 is a mere 3.2% down from the Feb all time high...:)

TempusFugit

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Re: Stop worrying about the 4% rule
« Reply #1440 on: June 08, 2018, 04:27:06 PM »
I see the S&P500 is a mere 3.2% down from the Feb all time high...:)

I prefer to think in positive terms:  The S&P is UP 3.1% since Jan 2.     


Jamese20

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Re: Stop worrying about the 4% rule
« Reply #1441 on: June 09, 2018, 03:39:21 AM »
THat is a very all-or-nothing way of thinking about it though. Certainly there is something else in the wide world of paying work that could bring in $10k/year with your education and experience? You could probably mow your neighbor’s lawns and pick up that kind of money if you put your brain into it. It doesn’t have to be work in your current profession or bust.

Mowing lawns ? I think you are kind of proving my point - I would rather be full time professional with some self respect than having to mow my neighbors lawn because the 4% rule is failing me

If I can find a side hussle of sorts that give me some decent income then that's brilliant, the hard part is finding what that is

I don't buy mmm just stumbling onto a 6 figure paying website, I know how much effort and commitment it takes to run any site let alone a fantastic one like this.

It really is easy to say "find some enjoyable part time work" when 90% of people hate even their full time work let alone trying to find part time work.


Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1442 on: June 09, 2018, 06:05:14 AM »
I would rather be full time professional with some self respect than having to mow my neighbors lawn because the 4% rule is failing me



I think you've answered your question. Just work more. The beauty with shooting for a sub-4%WR is not only will you have more money you'll have less time you need to fund your retirement before you die. Quite cunning! ;)

Personally I'll retire earlier and enjoy my life. I'm flexible and adaptable. For FIRE success I think that's a lot more important than having a sub-4%WR.

Everyone is different so do what works for you.

Jamese20

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Re: Stop worrying about the 4% rule
« Reply #1443 on: June 09, 2018, 08:58:55 AM »
I would rather be full time professional with some self respect than having to mow my neighbors lawn because the 4% rule is failing me



I think you've answered your question. Just work more. The beauty with shooting for a sub-4%WR is not only will you have more money you'll have less time you need to fund your retirement before you die. Quite cunning! ;)

Personally I'll retire earlier and enjoy my life. I'm flexible and adaptable. For FIRE success I think that's a lot more important than having a sub-4%WR.

Everyone is different so do what works for you.

not quite :) neither are really the answer i would ideally want :)

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Re: Stop worrying about the 4% rule
« Reply #1444 on: June 09, 2018, 09:33:15 PM »
Good points made.  That said, work suckage is a relative thing.

I was tempted to reply earlier on that topic and about enjoying life.  I agree about working, and I actually like the majority of a given work week on my job.  But there was also a comment about FIREing and enjoying life.  People should be able to enjoy life while working as well, not hanging onto FIRE to finally enjoy life.

Quote
The easiest path is not always the best for our soul, so consider that some people will choose to work beyond 4% for multiple reasons, not just to never run out of sufficient funds.

Exactly.  But from the financial perspective, if someone's 4% is calculated on barebone just to pay the necessary expenses, then they better save extra for discretionary spending so that they're not "just getting by" in FIRE.

Jamese20

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Re: Stop worrying about the 4% rule
« Reply #1445 on: June 10, 2018, 03:33:45 AM »
I guess I will just have to use it as a rough guide but I find answers like "just go back to work" really frustrating as that is not what I want to be doing if I decide to retire early.

Work sucks overall and alot of folks on FI sites claim to love it, maybe they do but I have to say I don't fit into that at the moment.

Let's agree work sucks.

Your choices are:

1. work extra years now to save/invest beyond a reasonable 4%WR
2. stop at 4%WR and face a small risk you might have to do some part-time work later

Option 1 means a 100% chance of doing a bunch more of that work that sucks. Option 2 most likely won't happen. Personally that leads me to choose Option 2.
Good points made.  That said, work suckage is a relative thing.  Once its gone you appretiate some of its qualities, such as 1) adding productively to society, 2) opportunity and requirement to meet with and interact with people unlike you, you might otherwise meet (good to see and understand that people unlike you exist in society) and perhaps mentor/build relationships with them that are valuable, 3) direct opportunitiy to see and observe non mustacian people to create anecdotes for 'shame threads'....where will you get more material for `heard at work', if not working?, 4) earning money is a feel good thing that can be hard to say good bye too.

Anyway, just a thought that while some aspects of work can suck, we can also try to appretiate all the learning opportunities that work provides.  I have learned a lot from my sucky work experiences, how to be more mindful and in control of myself, deal with bad people, etc.   Many life experiences, including work, misfortune, illness, have plenty to learn from their challenges.  The easiest path is not always the best for our soul, so consider that some people will choose to work beyond 4% for multiple reasons, not just to never run out of sufficient funds.

A pretty obvious point, perhaps and maybe off topic.  Likely I will remove it later to keep the thread on the math and not the retirement psychology we will face on trigger day....still dealing with that myself.

I think the things you have posted mostly start to get realised when you actually dont need the money - until then, i think most would find it difficult in most circumstances to see the benefits.

after all, they wouldn't call it "work" if it was in reality, some really wonderful thing to do :) having said that I would probably start to feel that trigger day myself you are describing - I really do think work becomes so much more enjoyable when you do not need the money and until you get there, you never fully realise its benefits?

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Re: Stop worrying about the 4% rule
« Reply #1446 on: June 10, 2018, 08:41:01 AM »
But from the financial perspective, if someone's 4% is calculated on barebone just to pay the necessary expenses, then they better save extra for discretionary spending so that they're not "just getting by" in FIRE.

We calculated 2 numbers.

An FI number, which meant we could survive indefinitely without jobs. 

A FIRE number, which meant we could fund the life we choose to live indefinitely without jobs.

You can shed a lot of stress when you reach the first number, and shed your jobs without worry when you reach the second number. 

(Well, mathmatically without worry, but in reality, there may well be some worry, because we're people not calculators.)

« Last Edit: June 17, 2018, 03:26:41 PM by SwordGuy »

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1447 on: June 10, 2018, 08:45:17 AM »
after all, they wouldn't call it "work" if it was in reality, some really wonderful thing to do :)

Extremely low effort post below:


Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1448 on: June 10, 2018, 05:32:22 PM »
Good points made.  That said, work suckage is a relative thing.  Once its gone you appretiate some of its qualities, such as 1) adding productively to society, 2) opportunity and requirement to meet with and interact with people unlike you, you might otherwise meet (good to see and understand that people unlike you exist in society) and perhaps mentor/build relationships with them that are valuable, 3) direct opportunitiy to see and observe non mustacian people to create anecdotes for 'shame threads'....where will you get more material for `heard at work', if not working?, 4) earning money is a feel good thing that can be hard to say good bye too.

Anyway, just a thought that while some aspects of work can suck, we can also try to appretiate all the learning opportunities that work provides.  I have learned a lot from my sucky work experiences, how to be more mindful and in control of myself, deal with bad people, etc.   Many life experiences, including work, misfortune, illness, have plenty to learn from their challenges.  The easiest path is not always the best for our soul, so consider that some people will choose to work beyond 4% for multiple reasons, not just to never run out of sufficient funds.

A pretty obvious point, perhaps and maybe off topic.  Likely I will remove it later to keep the thread on the math and not the retirement psychology we will face on trigger day....still dealing with that myself.

I wouldn't argue there were positives to some aspects of working. After 33yrs of work [in my case] if I haven't gotten the benefit/appreciation from them yet another decade chained to a desk isn't going to make that happen.  If I was one of these lucky bastards ERing after 5yrs at some magical software engineering gig maybe I'd feel I missed out.

Most of us have been programmed from nearly birth to work and power the economic engine of society. By the time you have saved up enough to hit a 4%WR you'll have done a lot of work. So my general advice is to get the hell out. From the perspective of someone who has always been working it's hard and scary to quite and see what you and your life are like without that career/job. It's always easier to stay chained to the desk. So people look for almost any rationale they can to OMY.

Reading these forums I don't come across any instances where I think "Boy this guy/gal is really going to suffer because they didn't work enough and get to enjoy enough of those work experience benefits."
« Last Edit: June 10, 2018, 05:39:10 PM by Retire-Canada »

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1449 on: June 10, 2018, 05:42:01 PM »
I agree that everyone's situation is unique. This is likely why I react when people post absolute statements like 'we can all agree work sucks, so we should all quite once we are FI.'  Many on here are teachers, MDs, police...they are helping society not just chained to a desk...

Nobody is saying you or anyone else has to stop working if you don't want to. Retirement [at least in most cases] is voluntary. I would argue a doctor can be chained to a desk as a wage salve just like anyone else. The difference is his/her cage is just more nicely decorated. ;)

I would also argue a lot of people that don't stop working are staying the course not because it's amazing, but because stopping is scary as hell.