Author Topic: Stop worrying about the 4% rule  (Read 197786 times)

markbike528CBX

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Re: Stop worrying about the 4% rule
« Reply #450 on: September 25, 2016, 01:19:54 PM »
  Dividends are going to get taxed at the high pre-FIRE rate for me instead of the nice post-FIRE capital gains rate for selling shares.

for 10 and 15% tax brackets, BOTH dividends and cap gains are taxed at 0%. 

mathjak107

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Re: Stop worrying about the 4% rule
« Reply #451 on: September 25, 2016, 03:02:23 PM »
the issue ,especially with funds is what is a qualified dividend .there are many years a lot of  our dividends are not qualified .

dividends are not based on a 1 year holding period . you have special holding requirements personally and then the fund has it's own set of requirements .

Holding periods

Although the holding period requirement is the same whether you received a dividend for shares you hold directly or in a mutual fund during the tax year, how you determine the holding period may vary, as outlined below.
Note: When counting the number of days the fund was held, include the day the fund was disposed of, but not the day it was acquired.

Mutual funds
All of the following requirements must be met:
The fund must have held the security unhedged for at least 61 days out of the 121-day period that began 60 days before the security’s ex-dividend date. (The ex-dividend date is the date after the dividend has been paid and processed and any new buyers would be eligible for future dividends.)
For certain preferred stock, the security must be held for 91 days out of the 181-day period, beginning 90 days before the ex-dividend date. The amount received by the fund from that dividend-generating security must have been subsequently distributed to you.
You must have held the applicable share of the fund for at least 61 days out of the 121-day period that began 60 days before the fund’s ex-dividend date.
Stock
You must have held those shares of stock unhedged for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date.
For certain preferred stock, the security must be held for 91 days out of the 181-day period beginning 90 days before the ex-dividend date.
« Last Edit: September 25, 2016, 03:09:08 PM by mathjak107 »

dougules

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Re: Stop worrying about the 4% rule
« Reply #452 on: September 26, 2016, 10:18:46 AM »
  Dividends are going to get taxed at the high pre-FIRE rate for me instead of the nice post-FIRE capital gains rate for selling shares.

for 10 and 15% tax brackets, BOTH dividends and cap gains are taxed at 0%.

Yep.  0% is pretty nice.  We're definitely not in that bracket at the moment. 

sol

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Re: Stop worrying about the 4% rule
« Reply #453 on: September 26, 2016, 08:20:14 PM »
Yep.  0% is pretty nice.  We're definitely not in that bracket at the moment.

More importantly for this community, most of us WILL be in that bracket in retirement, with low expenses and a significant amount of income coming from nontaxable sources like savings, capital return on stocks, and Roth IRAs.

mathjak107

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Re: Stop worrying about the 4% rule
« Reply #454 on: September 27, 2016, 01:43:34 AM »
no way could we see that zero % bracket . but heck i will take having  more income any day and pay the taxes . as long as i got the taxes as low as i can .
« Last Edit: September 27, 2016, 03:34:13 AM by mathjak107 »

ender

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Re: Stop worrying about the 4% rule
« Reply #455 on: September 27, 2016, 07:03:37 AM »
no way could we see that zero % bracket . but heck i will take having  more income any day and pay the taxes . as long as i got the taxes as low as i can .

Honestly, you are not the target audience of this forum.

You retired way later than most people here plan on retiring here.

mathjak107

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Re: Stop worrying about the 4% rule
« Reply #456 on: September 27, 2016, 07:29:42 AM »
yes , that is true . our time frame is different , our needs from our resources are different  and our lifestyle goals and wants are likely very different . i was never one for living a frugal life style in retirement . we went the opposite route . we are living better in retirement with a bigger budget than we did working and having our time consumed .
« Last Edit: September 27, 2016, 07:31:21 AM by mathjak107 »

dougules

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Re: Stop worrying about the 4% rule
« Reply #457 on: September 27, 2016, 10:20:35 AM »
yes , that is true . our time frame is different , our needs from our resources are different  and our lifestyle goals and wants are likely very different . i was never one for living a frugal life style in retirement . we went the opposite route . we are living better in retirement with a bigger budget than we did working and having our time consumed .

I think I would file the >0% tax bracket under "First World Problems."

ender

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Re: Stop worrying about the 4% rule
« Reply #458 on: September 27, 2016, 07:10:37 PM »
yes , that is true . our time frame is different , our needs from our resources are different  and our lifestyle goals and wants are likely very different . i was never one for living a frugal life style in retirement . we went the opposite route . we are living better in retirement with a bigger budget than we did working and having our time consumed .

It's important to remember that.

Good, generalized ER advice is often different than "planning on retiring at 65" advice.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #459 on: September 28, 2016, 06:53:14 AM »
It's important to remember that.

Good, generalized ER advice is often different than "planning on retiring at 65" advice.

And also worth mentioning in threads as the casual reader may not have that backstory to add context to the advice/comments.

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #460 on: October 06, 2016, 06:24:48 PM »
Withdrawal Rates During Retirement: Are We Being Too Conservative?
https://www.ifa.com/articles/withdrawal_rates_during_retirement_being_conservative/

The conclusion:
This analysis was simple but leaves a very powerful message for investors. While many prognosticators may be saying “death to the 4% rule” based on their prediction of future returns, most investors are going to be JUST FINE. We analyzed withdrawal rates looking at the worst rolling period returns that we have ever experienced and we are getting results that are right on track and even better with what has been recommended in the past. Remember, this leaves the investor with the same amount of principal they started with at retirement. If we were trying to liquidate all retirement assets, these withdrawal rates would be even higher. As a general rule, we have been advising our clients for years that a withdrawal rate of 5-6% is a safe bet throughout retirement and also allows for consistency in cash flows from year to year. This accommodates possible events or return scenarios that we have never experienced before (like 2008) as well as the multiple risk capacities that our investors have in retirement.

IFA use portfolios of index funds from Dimensional Fund Advisors, that are typically not available to retail investors. DFA funds tend to perform a little better than equivalent Vanguard funds, but to get them you have to go through an advisor. Not sure what IFA charge, perhaps 1%?

mathjak107

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Re: Stop worrying about the 4% rule
« Reply #461 on: October 07, 2016, 03:09:06 AM »
we all use a variable spending plan  in retirement . it eventually self adjusts . no  one spends and inflation adjusts like a robot

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #462 on: October 07, 2016, 10:30:59 AM »
Withdrawal Rates During Retirement: Are We Being Too Conservative?
https://www.ifa.com/articles/withdrawal_rates_during_retirement_being_conservative/

The conclusion:
This analysis was simple but leaves a very powerful message for investors. While many prognosticators may be saying “death to the 4% rule” based on their prediction of future returns, most investors are going to be JUST FINE. We analyzed withdrawal rates looking at the worst rolling period returns that we have ever experienced and we are getting results that are right on track and even better with what has been recommended in the past. Remember, this leaves the investor with the same amount of principal they started with at retirement. If we were trying to liquidate all retirement assets, these withdrawal rates would be even higher. As a general rule, we have been advising our clients for years that a withdrawal rate of 5-6% is a safe bet throughout retirement and also allows for consistency in cash flows from year to year. This accommodates possible events or return scenarios that we have never experienced before (like 2008) as well as the multiple risk capacities that our investors have in retirement.

IFA use portfolios of index funds from Dimensional Fund Advisors, that are typically not available to retail investors. DFA funds tend to perform a little better than equivalent Vanguard funds, but to get them you have to go through an advisor. Not sure what IFA charge, perhaps 1%?

I like that they are downplaying the risk to 4%WR, however, the limited data they are working with really skews the WR upwards for the longer rolling periods (20 & 30yrs).  The worst 30 year rolling return year used was a start year of 1986.  The two biggest threats to a 4%WR are sequence of returns and low returns coupled with high inflation.  Their WORST case (a 1986 retiree) had neither of those, the 2000 & 2008 market downturns were meaningless after so many years of great returns and average inflation.  As a matter of fact, if I had a choice of when to retire in the past century for best financial outcome (using the power of hindsight) it would be anytime from 1981-1994.  This articles "worst" period is actually a historical "very good" period.

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #463 on: October 07, 2016, 12:49:57 PM »
One interesting take-away is that retiring near the 2008 downturn resulted in the worst 10-yr SWR's.  I'm betting that the 10-yr rolling periods continue to get worse as we move in to 2017 and 2018.  I wonder if they will update this study?  And I wonder how the 30 year SWR will look from 2007 - 2037?  Obviously we are limited to the data we have, but we still don't really know what the long term impact of the 2008/9 downturn and the subsequent ZIRP (if you allocate some retirement funds to bonds) has been on SWR since it is too recent.  And the worst 30 year rolling period started in 1986?  I'd rate this article 'meh' on being an improvement on the Trinity Study, more like a sales pitch for DFA (IFA).
Transitioning to FIRE'd albeit somewhat cautiously...

mathjak107

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Re: Stop worrying about the 4% rule
« Reply #464 on: October 07, 2016, 01:23:21 PM »
actually retiring in 2008 was just an average retirement time frame  15 years in .  2008 was v-shaped and really had not much of an effect . a more modest drop that was extended out longer would have been far worse .

 in fact the 2008 retiree stands no different than where any other average time frame retiree stood 15 years in .

kices looked in to that very issue .

https://www.kitces.com/blog/how-has-the-4-rule-held-up-since-the-tech-bubble-and-the-2008-financial-crisis/#more-7856




Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #465 on: October 07, 2016, 01:31:25 PM »
The 2000 retiree has seen two large, but relatively short lived, "V's" in the first ten years.  Likely not fairing as well.

Edit: note to self, read article cited before comment.  Apparently the 2000 retire is doing OK.
« Last Edit: October 07, 2016, 01:33:35 PM by Classical_Liberal »

mathjak107

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Re: Stop worrying about the 4% rule
« Reply #466 on: October 07, 2016, 01:40:24 PM »
according to kices the 2000 retiree is doing worse than 2008 . the y2k retiree is on par with the 1929 retiree . on track to be a worst case scenario .

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #467 on: October 07, 2016, 02:28:05 PM »
2000 is at a 6.2% WR, halfway through, similar to 1929 start which survived 4%WR.  1966 was over a 10% WR rate at 15 yrs, which did not.

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #468 on: October 07, 2016, 02:38:18 PM »

https://www.kitces.com/blog/how-has-the-4-rule-held-up-since-the-tech-bubble-and-the-2008-financial-crisis/#more-7856

I wonder why the Kitces and IFA papers disagree?  Kitces seems to imply that 2000 - 2010 is worse than IFA's worst 10-yr period cited, 2006 - 2016.  Kitces didn't explain his work (like if he used 50/50 allocation) and his 2008 drop seems to indicate -20% as opposed to the actual 37% S&P drop...
Transitioning to FIRE'd albeit somewhat cautiously...

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #469 on: October 07, 2016, 02:53:40 PM »
Kitces was using 60/40.  Not sure which exact stocks or bonds though.

The other article was examining max WR maintaining principal balance on different allocations via their particular "target date" type funds.  They dont specify what stocks & bonds are in those funds.   The worst rolling 10 year returns with more than 60 percent stocks was 1999 in that article (2000 retiree).

deborah

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Re: Stop worrying about the 4% rule
« Reply #470 on: October 07, 2016, 11:51:51 PM »
Withdrawal Rates During Retirement: Are We Being Too Conservative?
https://www.ifa.com/articles/withdrawal_rates_during_retirement_being_conservative/

The conclusion:
This analysis was simple but leaves a very powerful message for investors. While many prognosticators may be saying “death to the 4% rule” based on their prediction of future returns, most investors are going to be JUST FINE. We analyzed withdrawal rates looking at the worst rolling period returns that we have ever experienced and we are getting results that are right on track and even better with what has been recommended in the past. Remember, this leaves the investor with the same amount of principal they started with at retirement. If we were trying to liquidate all retirement assets, these withdrawal rates would be even higher. As a general rule, we have been advising our clients for years that a withdrawal rate of 5-6% is a safe bet throughout retirement and also allows for consistency in cash flows from year to year. This accommodates possible events or return scenarios that we have never experienced before (like 2008) as well as the multiple risk capacities that our investors have in retirement.

IFA use portfolios of index funds from Dimensional Fund Advisors, that are typically not available to retail investors. DFA funds tend to perform a little better than equivalent Vanguard funds, but to get them you have to go through an advisor. Not sure what IFA charge, perhaps 1%?

I like that they are downplaying the risk to 4%WR, however, the limited data they are working with really skews the WR upwards for the longer rolling periods (20 & 30yrs).  The worst 30 year rolling return year used was a start year of 1986.  The two biggest threats to a 4%WR are sequence of returns and low returns coupled with high inflation.  Their WORST case (a 1986 retiree) had neither of those, the 2000 & 2008 market downturns were meaningless after so many years of great returns and average inflation.  As a matter of fact, if I had a choice of when to retire in the past century for best financial outcome (using the power of hindsight) it would be anytime from 1981-1994.  This articles "worst" period is actually a historical "very good" period.
Actually, my parents retired in 1986 (they were early retirees), and they are having a lot of trouble with their financial situation. However, one of their issues is that the products we are relying on - such as indexes rather than buying individual shares, and retirement products - were not available to them then. They also have a fear of the new products available because of the problems people have had being cheated by financial advisors, so they are not taking advantage of these products. I keep looking at them and thinking that this could be me in 30 years. In 30 years will I trust new products? Will I select the best way to go?

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #471 on: October 08, 2016, 09:45:28 AM »
Actually, my parents retired in 1986 (they were early retirees), and they are having a lot of trouble with their financial situation. However, one of their issues is that the products we are relying on - such as indexes rather than buying individual shares, and retirement products - were not available to them then. They also have a fear of the new products available because of the problems people have had being cheated by financial advisors, so they are not taking advantage of these products. I keep looking at them and thinking that this could be me in 30 years. In 30 years will I trust new products? Will I select the best way to go?

I'm very sorry to hear about your parents Deborah, I wish them the best of luck!  Obviously they raised a smart daughter and hopefully they can draw on that social capital to help!

I would sincerely argue though, the 4% rule didn't fail them as 1986 retirees.  Other things were obviously amiss from an investment choice standpoint and maybe a spending side as well.  A simple 50/50 split of S&P 500 and LTT (both of which were readily available in 1986) would have blown away the 4% rule over the past 30 years. 

tonysemail

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Re: Stop worrying about the 4% rule
« Reply #472 on: October 11, 2016, 10:57:49 AM »
Actually, my parents retired in 1986 (they were early retirees), and they are having a lot of trouble with their financial situation. However, one of their issues is that the products we are relying on - such as indexes rather than buying individual shares, and retirement products - were not available to them then. They also have a fear of the new products available because of the problems people have had being cheated by financial advisors, so they are not taking advantage of these products. I keep looking at them and thinking that this could be me in 30 years. In 30 years will I trust new products? Will I select the best way to go?

If you've already "won" the game, then why would you want to change strategies and adopt new products?
I agree with the philosophy of investing in what you can understand.
At least, that's how I rationalize NOT chasing higher returns through complicated products that already exist today..

But in general, I agree that a big vulnerability of FIRE is the assumption that we remain perfectly rational and flexible as we age 50+ years.
I only have to look at my parents and grandparents generation to know that things sometimes go sideways.
Unfortunately, I can't think of a way to insure against your own decision making.
Maybe an annuity or irrevocable trust would mitigate somewhat.

frugal_c

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Re: Stop worrying about the 4% rule
« Reply #473 on: November 13, 2016, 09:44:59 AM »
actually retiring in 2008 was just an average retirement time frame  15 years in .  2008 was v-shaped and really had not much of an effect . a more modest drop that was extended out longer would have been far worse .

 in fact the 2008 retiree stands no different than where any other average time frame retiree stood 15 years in .

kices looked in to that very issue .

https://www.kitces.com/blog/how-has-the-4-rule-held-up-since-the-tech-bubble-and-the-2008-financial-crisis/#more-7856





I disagree with this article.  I have run the math and I have a 2000 retiree in big trouble. It looks like they are pulling out over 10% WDR at this point assuming 100% stocks.   Definitely possible I made a mistake but yeah it looks like a fail at this point.

EDIT : Okay, it does say in the article that the numbers are based on 60/40 split.  Using that I get about a $670k inflation adjusted portfolio, or a 6% WDR going forward.  That is based on using cfiresim.

Given that most people are advocating for high stock allocations, I think the likely failure of the 99-00 timeframe is important.  We now have 3 fails, 1929, 1966-67 and 99-00.  There are also many near fails in between.   It appears that the 4% while likely to work is dangerous to hang your hat on.  I just don't see why you wouldn't save up just a few more years to greatly increase your likelihood of success.
« Last Edit: November 13, 2016, 10:07:33 AM by frugal_c »

MDM

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Re: Stop worrying about the 4% rule
« Reply #474 on: November 13, 2016, 10:10:36 AM »
I disagree with this article.  I have run the math and I have a 2000 retiree in big trouble. It looks like they are pulling out over 10% WDR at this point assuming 100% stocks.   Definitely possible I made a mistake but yeah it looks like a fail at this point.
A year by year comparison among your results and ones from, say, cfiresim and firecalc, might be instructive.  I have no idea what the results would be, but it seems a worthwhile way to get at the root cause of any differences.

If you want to disagree with the article's conclusions, you might also use the same assumptions (e.g., asset allocation of 60/40 not 100/0) as the article.  Otherwise it seems a disagreement about assumptions, not conclusions.

frugal_c

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Re: Stop worrying about the 4% rule
« Reply #475 on: November 13, 2016, 10:42:59 AM »
It's a good point MDM.  With 60/40 in cfiresim starting in 2000, you now have $690k (adjusted for inflation).    That indicates a 5.8% wdr going forward and very likely a fail.

If you use a 60/40 allocation and look at the late 60's almost every single year there fails with that ratio.

Overall, if you run cfiresim with 40 year time horizons and a 60/40 split your success rate is only 82%.   This is why I don't think it's a reasonable asset mix to consider for a 4% WDR.  You really have no choice but to go to higher stock allocations.
« Last Edit: November 13, 2016, 10:53:57 AM by frugal_c »

MDM

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Re: Stop worrying about the 4% rule
« Reply #476 on: November 13, 2016, 10:57:06 AM »
It's a good point MDM.  With 60/40 in cfiresim starting in 2000, you now have $690k (adjusted for inflation).    That indicates a 5.8% wdr going forward and very likely a fail.
Why "very likely a fail"?  Only has to last ~14 more years now, and with a current 5.8% WR that can happen with returns below inflation.

frugal_c

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Re: Stop worrying about the 4% rule
« Reply #477 on: November 13, 2016, 11:21:17 AM »
The point is that the article has the portfolio as just fine with similar to starting assets, I am not seeing that.

For the time horizon, I guess it's open to debate what to use.  For people retiring 40 and under I think you need to be running things with a much longer window.  I consider it a fail if at 30 years the assets are mostly gone.   I generally run things with a 40 year time horizon and even then I want the assets to mostly still be there.  It seems dangerous to allow your stash to just run out and be completely reliant on government benefits.  That just isn't what I consider FI, it sounds very stressful to me.  I could understand if you disagree on that assumption.

TomTX

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Re: Stop worrying about the 4% rule
« Reply #478 on: November 13, 2016, 12:07:53 PM »
It's a good point MDM.  With 60/40 in cfiresim starting in 2000, you now have $690k (adjusted for inflation).    That indicates a 5.8% wdr going forward and very likely a fail.

If you use a 60/40 allocation and look at the late 60's almost every single year there fails with that ratio.

Overall, if you run cfiresim with 40 year time horizons and a 60/40 split your success rate is only 82%.   This is why I don't think it's a reasonable asset mix to consider for a 4% WDR.  You really have no choice but to go to higher stock allocations.

So, an 18% chance that I would need to go back to work for a year. Or do some part time consulting. Or crank up the CC churning. Or get some other side-gig income.

Meh.
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frugal_c

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Re: Stop worrying about the 4% rule
« Reply #479 on: November 13, 2016, 12:30:45 PM »
When you look at these scenarios you might have to work full time for 10+ years.   These scenarios are not even close.

I get what people are saying here regarding cutting back or getting a part time job but then why don't we just say that from the outset.  You can retire and pull out 4% a year as long as you are willing to go back to work for a decade or more if things go bad.  I can see why you would be willing to take that bet but let's just be up front about it.

If you really want to retire and not have to have worried historically you should be more in the 3-3.5% WDR.


TomTX

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Re: Stop worrying about the 4% rule
« Reply #480 on: November 13, 2016, 12:49:27 PM »
When you look at these scenarios you might have to work full time for 10+ years.   These scenarios are not even close.

I get what people are saying here regarding cutting back or getting a part time job but then why don't we just say that from the outset.  You can retire and pull out 4% a year as long as you are willing to go back to work for a decade or more if things go bad.  I can see why you would be willing to take that bet but let's just be up front about it.

If you really want to retire and not have to have worried historically you should be more in the 3-3.5% WDR.

Why would I go back to work for a decade? Are you thinking that I would just sit on my ass until my assets are depleted, then work? That would be stupid.

If the market crashes hard in the first 5 years, I work (or whatever for cash) for maybe a year to avoid selling the devalued assets. When the market recovers, I go back to being retired for 30-40 more years. If everything is great for 5 years, my assets are building and even if the market crashes my portfolio is big enough to take it.

You're trying to convince me that a 100% chance of working 2-3 extra years (adding padding) is a better choice than an 18% chance of needing to go back to work for 1-2 years after I take a sabbatical/ER until the market crashes...

That makes no sense.
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MDM

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Re: Stop worrying about the 4% rule
« Reply #481 on: November 13, 2016, 12:50:47 PM »
The point is that the article has the portfolio as just fine with similar to starting assets, I am not seeing that.
That's a good point.

A quick check using some S&P 500 data (see http://forum.mrmoneymustache.com/welcome-to-the-forum/stock-market-gains-401k/msg1302928/#msg1302928) also indicates a large drop between 2000 and 2015.  Of course, that gets us back to 60/40 vs. 100/0.  Don't know if Kitces provides details that would allow one to reconstruct his year by year values for comparison with yours.

Until one understands the difference in these calculations (offhand, I don't), discussion of conclusions based on the differences seems not worthwhile.

frugal_c

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Re: Stop worrying about the 4% rule
« Reply #482 on: November 13, 2016, 01:04:03 PM »
The point is that the article has the portfolio as just fine with similar to starting assets, I am not seeing that.
That's a good point.

A quick check using some S&P 500 data (see http://forum.mrmoneymustache.com/welcome-to-the-forum/stock-market-gains-401k/msg1302928/#msg1302928) also indicates a large drop between 2000 and 2015.  Of course, that gets us back to 60/40 vs. 100/0.  Don't know if Kitces provides details that would allow one to reconstruct his year by year values for comparison with yours.

Until one understands the difference in these calculations (offhand, I don't), discussion of conclusions based on the differences seems not worthwhile.

I ran the numbers on cfiresim with a 60/40 split, same as in the article.  The article has things ending at around $1m, I have it ending at $690k.   In my mind cfiresim refutes the article.

MDM

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Re: Stop worrying about the 4% rule
« Reply #483 on: November 13, 2016, 01:08:16 PM »
I ran the numbers on cfiresim with a 60/40 split, same as in the article.  The article has things ending at around $1m, I have it ending at $690k.   In my mind cfiresim refutes the article.
Don't know that we have reached "refutes" yet, unless you know why the results are different.  Could be unrecognized differences in assumptions, a Kitces error, a cfiresim error, etc.

frugal_c

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Re: Stop worrying about the 4% rule
« Reply #484 on: November 13, 2016, 01:10:40 PM »
When you look at these scenarios you might have to work full time for 10+ years.   These scenarios are not even close.

I get what people are saying here regarding cutting back or getting a part time job but then why don't we just say that from the outset.  You can retire and pull out 4% a year as long as you are willing to go back to work for a decade or more if things go bad.  I can see why you would be willing to take that bet but let's just be up front about it.

If you really want to retire and not have to have worried historically you should be more in the 3-3.5% WDR.

Why would I go back to work for a decade? Are you thinking that I would just sit on my ass until my assets are depleted, then work? That would be stupid.

If the market crashes hard in the first 5 years, I work (or whatever for cash) for maybe a year to avoid selling the devalued assets. When the market recovers, I go back to being retired for 30-40 more years. If everything is great for 5 years, my assets are building and even if the market crashes my portfolio is big enough to take it.

You're trying to convince me that a 100% chance of working 2-3 extra years (adding padding) is a better choice than an 18% chance of needing to go back to work for 1-2 years after I take a sabbatical/ER until the market crashes...

That makes no sense.

It is worse than you make it out to be.   

I also think i misspoke saying you have to go back full-time, it is more like part-time.   

I just see where you would have to go back for 5-10 years or maybe longer without touching the principal.  The problem with the 30's and the 70's was it wasn't just a drop down and then a return 2 years later where everything was fine again.  Things just kept dragging on.  In the 70's inflation just kept going up and the stocks were going essentially nowhere.  So you might have gone back for part-time work in 74/75 and then I don't know when you would be comfortable retiring again.  It probably wouldn't have been until the mid 80's.

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #485 on: November 13, 2016, 01:25:24 PM »

I ran the numbers on cfiresim with a 60/40 split, same as in the article.  The article has things ending at around $1m, I have it ending at $690k.   In my mind cfiresim refutes the article.

I read the article and the comments.  It does not appear to state which types of bonds were used in the articles calculations, this matters big-time. It also doesn't specify which stocks either, but I'm guessing it was S&P 500.  Secondly, the around $1million number you are taking from the article was nominal, not real.  The Cfiresim numbers are real(inflation adjusted) dollars.  The combination of these factors likely explains the difference in results you are seeing.

frugal_c

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Re: Stop worrying about the 4% rule
« Reply #486 on: November 13, 2016, 01:47:20 PM »

I ran the numbers on cfiresim with a 60/40 split, same as in the article.  The article has things ending at around $1m, I have it ending at $690k.   In my mind cfiresim refutes the article.

I read the article and the comments.  It does not appear to state which types of bonds were used in the articles calculations, this matters big-time. It also doesn't specify which stocks either, but I'm guessing it was S&P 500.  Secondly, the around $1million number you are taking from the article was nominal, not real.  The Cfiresim numbers are real(inflation adjusted) dollars.  The combination of these factors likely explains the difference in results you are seeing.

Thanks for clearing it up.   It is roughly the same withdrawal rate, so your explanation makes sense.  Either way, if I retired young I would not be comfortable right now.

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Re: Stop worrying about the 4% rule
« Reply #487 on: December 06, 2016, 01:34:26 PM »

ImCheap

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Re: Stop worrying about the 4% rule
« Reply #488 on: December 09, 2016, 11:59:13 AM »
Relevant to the 4% discussion:

https://assetbuilder.com/knowledge-center/articles/how-to-spend-the-kids-inheritance

Quote
Have you seen the book, “How To Spend the Kids’ Inheritance”? If not, perhaps you've seen the British Airways ads offering “101 Ways to Spend the Kids’ Inheritance.” Both are in the spirit of the old Irish saying, “Only a fool would die solvent.”

I love the last part.

sol

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Re: Stop worrying about the 4% rule
« Reply #489 on: December 09, 2016, 12:13:13 PM »
That article basically says 4% is too low because in 95% of cases you can't spend it down before you die and in more than half of the cases you die with more money than you started with, which is exactly what we've been saying in this thread all along. 

They even propose the same solution: retire on 5-6% SWR and then be prepared to modify your spending up or down as necessary.

steveo

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Re: Stop worrying about the 4% rule
« Reply #490 on: December 09, 2016, 03:02:27 PM »
That article basically says 4% is too low because in 95% of cases you can't spend it down before you die and in more than half of the cases you die with more money than you started with, which is exactly what we've been saying in this thread all along. 

They even propose the same solution: retire on 5-6% SWR and then be prepared to modify your spending up or down as necessary.

The only thing is that lots of people on here will have a retirement period greater than 30 years. Still personally I don't see the issue. We should all be able to adjust something if it is required.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #491 on: December 10, 2016, 08:24:03 AM »
The only thing is that lots of people on here will have a retirement period greater than 30 years. Still personally I don't see the issue. We should all be able to adjust something if it is required.

Yes the main concern is an initial poor sequence of returns which will be early on and allow you to act as appropriate. If you make it through the first decade with good returns you are likely sitting on a massive stash and no worries even with a 50yr+ FIRE. Especially if you are doing like a lot of people I read on this forum and ignoring Gov't retirement benefits, which will kick in 30yrs or less for most of us.

Ursus Major

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Re: Stop worrying about the 4% rule
« Reply #492 on: December 11, 2016, 08:56:43 AM »
The only thing is that lots of people on here will have a retirement period greater than 30 years. Still personally I don't see the issue. We should all be able to adjust something if it is required.

Yes the main concern is an initial poor sequence of returns which will be early on and allow you to act as appropriate. If you make it through the first decade with good returns you are likely sitting on a massive stash and no worries even with a 50yr+ FIRE. Especially if you are doing like a lot of people I read on this forum and ignoring Gov't retirement benefits, which will kick in 30yrs or less for most of us.

So the effect of that initial period of good returns is to lower your actual (then current) withdrawal rate. If your portfolio value increases by 33.3%, a 3% withdrawal is the same amount as a 4% withdrawal from your original amount. So I'm using a lower initial withdrawal rate to be less dependent on a good first decade (even though a 33% increase in portfolio value is not a good return over a decade).

arebelspy

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Re: Stop worrying about the 4% rule
« Reply #493 on: December 11, 2016, 09:10:53 AM »
So I'm using a lower initial withdrawal rate to be less dependent on a good first decade (even though a 33% increase in portfolio value is not a good return over a decade).

Sure, you're just working longer to do so.

That's a trade off some of us were no longer willing to make.  :)
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steveo

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Re: Stop worrying about the 4% rule
« Reply #494 on: December 11, 2016, 01:47:26 PM »
So I'm using a lower initial withdrawal rate to be less dependent on a good first decade (even though a 33% increase in portfolio value is not a good return over a decade).

Sure, you're just working longer to do so.

That's a trade off some of us were no longer willing to make.  :)

I'm not a fan of the lower WR for this reason. I prefer to look at my other options such as social security, downsizing the house, returning to work, working a different job and for me personally inheritance.

waltworks

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Re: Stop worrying about the 4% rule
« Reply #495 on: December 11, 2016, 02:01:56 PM »
Yeah, sometimes it baffles me - people will choose to work another 10 years to get their portfolio failure rate down by 5% or something - but 5% of your remaining life is what, 2 or 3 years?

Crazy irrational, there. C'est la vie.

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arebelspy

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Re: Stop worrying about the 4% rule
« Reply #496 on: December 11, 2016, 02:05:36 PM »
I've started viewing a low WR as a guaranteed ER failure.

The failure is just up front, not down the line.

That is, if you have a higher WR because you pull the plug early, and you end up having to go back to work for a few years to bolster the stache at some point down the line, we'd call that ER failure.

By instead working those years up front, you've guaranteed that you have to work them. Still seems like an ER failure, to me.

Compare to someone else who pulls the plug a few years earlier than you, and then gets a part time job a few different years to supplement in a crash. Both of you work the same. Why is only one a failure?

Consider the person who ERs a few years earlier, and never has to go back, because early returns drop their WR low enough. They never worked the extra years. Why should your working them not be considered ER failure?

Maybe something to challenge your thinking today. ;)

(I understand and recognize all the caveats that the up front years are likely at a higher rate, you may not be able to find a job when the economy is bad, etc. I'm providing food for thought, ignore the nit picking, please.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
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We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

waltworks

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Re: Stop worrying about the 4% rule
« Reply #497 on: December 11, 2016, 02:09:35 PM »
That is a great way of looking at it. Without trying to quantify total life satisfaction (IMO years not worked when younger are more valuable than years not worked when very old, but opinions could vary on that) it's just about total life vs total amount of work. If you spend a ton of time/effort making money to "guarantee" a successful RE, I would agree that what you've really done is decide to fail.

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sol

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Re: Stop worrying about the 4% rule
« Reply #498 on: December 11, 2016, 02:11:08 PM »
Yeah, sometimes it baffles me - people will choose to work another 10 years to get their portfolio failure rate down by 5% or something - but 5% of your remaining life is what, 2 or 3 years?

We've discussed this here before, but the short version is that sometimes working at your job IS your highest purpose in life.

If what you really want to do with your life is sleep late and watch tv, then by all means retire asap and get on with it.  But if your goals include being part of something, or working towards something, sometimes you are better served by staying employed and involved in that something. 

In those cases, we have to more carefully consider whether we would do the same work for free, which is effectively what you're doing if you continue to work after achieving a 4% SWR.  Sometimes the answer is yes.  Some people think that's crazy irrational.


waltworks

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Re: Stop worrying about the 4% rule
« Reply #499 on: December 11, 2016, 02:16:30 PM »
We've discussed this here before, but the short version is that sometimes working at your job IS your highest purpose in life.

If what you really want to do with your life is sleep late and watch tv, then by all means retire asap and get on with it.  But if your goals include being part of something, or working towards something, sometimes you are better served by staying employed and involved in that something. 

In those cases, we have to more carefully consider whether we would do the same work for free, which is effectively what you're doing if you continue to work after achieving a 4% SWR.  Sometimes the answer is yes.  Some people think that's crazy irrational.

Good point Sol. I should have been more clear - *for folks who wish to stop paid work ASAP*, extra working to lower SWR beyond 5% or so (I don't want to sit down and calculate it out, probably actually higher) is irrational.

I doubt I'll ever quit working, because I like doing useful stuff. I was trying to say something a little more subtle than what I ended up saying, my apologies.

-W