Author Topic: Stop worrying about the 4% rule  (Read 440425 times)

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1250 on: December 28, 2017, 08:25:02 PM »
Correct. 40 years is greatly determined to mean money should last bear indefinitely if it makes it there. But my point was. Why do I care if I ran out at 30 years vs 38 years it still failed and didn't support me and I had to change my plan to make something else happen.

Good question!

If all of my historical failures are only coming up short 10-50K, I'm much more confident in my ability to make minor course corrections to rectify minor short falls as I see them materializing.  If I have several failures coming up multiple hundreds of thousands short, it becomes more difficult to correct. I would also argue that it becomes increasingly difficult to correct for shortfalls(at least through income) after a certain age.

There is a notable difference between 30-40 years and perpetual, almost nonexistent at 80 years vs perpetual.

And I think it's shortsighted to plan based on current life expectancy. They keep rising at least for the healthy non drug users.

Touche.  However, keep in mind, making it to 80-90 is lucky (or skilled) enough.  Making to that age and still enjoying a reasonable active and healthy life, much less likely.  Everyone has an anecdote of their great aunt who is 100 and still walks miles to the grocery store every day; but that is a far, far outlier.  I hope its you and I, but it probably wont be, so I'm not willing to risk quality life now on that assumption.  Much like the likelihood of dying vs running out of money graphs up thread show.
« Last Edit: December 28, 2017, 08:27:44 PM by Classical_Liberal »

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1251 on: December 29, 2017, 05:39:17 AM »
All of my grandparents and great aunts and uncles are living well into there late 80s still active and all of them are making into the 90s still living. So it's much more likely for me to need to plan on that. Esp as medical advances continue.

Daisy

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Re: Stop worrying about the 4% rule
« Reply #1252 on: December 29, 2017, 10:17:56 AM »
All of my grandparents and great aunts and uncles are living well into there late 80s still active and all of them are making into the 90s still living. So it's much more likely for me to need to plan on that. Esp as medical advances continue.

I have this same "problem".

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1253 on: December 29, 2017, 10:28:25 AM »
I have this same "problem".

I do as well, but I've noticed my parents [divorced - living apart] now in their 90's haven't spent hardly any money in a couple decades. So if I get through the early sequence of returns risk, end up paying off my mortgage and getting gov't benefits those later years don't particularly worry me from a financial perspective.

Anon in Alaska

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Re: Stop worrying about the 4% rule
« Reply #1254 on: December 30, 2017, 05:44:05 AM »

I will point out that a quick calculation suggests that moving maybe 2% of that hypothetical $500K from bonds to stocks - i.e., a very slightly riskier asset allocation - gets you that same $700 per year with a lot less hassle.

But yeah, the principle of moving money monthly instead of yearly is sound.  Again, just the hassle factor.

If I'm earning 7%, then I'm already in stocks. I'm 51, I don't have time to take the non-risky strategy. If it fails, it fails and I get a part time job or start collecting Social Security early. If it doesn't fail then I get to retire before I'm dead.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1255 on: December 30, 2017, 05:55:31 AM »
I have this same "problem".

I do as well, but I've noticed my parents [divorced - living apart] now in their 90's haven't spent hardly any money in a couple decades. So if I get through the early sequence of returns risk, end up paying off my mortgage and getting gov't benefits those later years don't particularly worry me from a financial perspective.

That's probably true none of our calcs include ssa or Medicare.

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1256 on: December 30, 2017, 08:41:52 AM »
I have this same "problem".

I do as well, but I've noticed my parents [divorced - living apart] now in their 90's haven't spent hardly any money in a couple decades. So if I get through the early sequence of returns risk, end up paying off my mortgage and getting gov't benefits those later years don't particularly worry me from a financial perspective.

That's probably true none of our calcs include ssa or Medicare.

To put that into perspective 22% of all retirees in the US live on SS alone.  So your plan doesn't even include what nearly a quarter of folks are completely reliant upon.

I currently live off an amount just over my anticipated full SS, without additional contributions. Even if benefits get cut in half my WR drops to nearly half at 67...and I don't even count it!  To think, many think this forums calculations aren't conservative enough?

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1257 on: December 30, 2017, 09:38:10 AM »
I have this same "problem".

I do as well, but I've noticed my parents [divorced - living apart] now in their 90's haven't spent hardly any money in a couple decades. So if I get through the early sequence of returns risk, end up paying off my mortgage and getting gov't benefits those later years don't particularly worry me from a financial perspective.

That's probably true none of our calcs include ssa or Medicare.

To put that into perspective 22% of all retirees in the US live on SS alone.  So your plan doesn't even include what nearly a quarter of folks are completely reliant upon.

I currently live off an amount just over my anticipated full SS, without additional contributions. Even if benefits get cut in half my WR drops to nearly half at 67...and I don't even count it!  To think, many think this forums calculations aren't conservative enough?

Oh yeah I know we're going to have way more than we need. We aren't counting the govt or inheritances. So we could likely quit a couple years earlier if we could quantify these 2 things and know around what we could expect. But I can see ssa and Medicare being done away with for the wealthy or those like around here who have large staches.

One of the largest risks to FIRE is working longer than necessary. We don't ever really discuss it. Bc what's omy when you made it already for some extra padding.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1258 on: December 30, 2017, 09:54:40 AM »
One of the largest risks to FIRE is working longer than necessary. We don't ever really discuss it. Bc what's omy when you made it already for some extra padding.

Well I promise you I will not be working a regular job if my stash were to get to 4%WR. I doubt I'll even make it there before I pull the plug. I'm waiting to cross 5%WR and then start to look at specific exit strategies so I am out before or on 4%WR.

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1259 on: December 30, 2017, 10:22:07 AM »
One of the largest risks to FIRE is working longer than necessary. We don't ever really discuss it. Bc what's omy when you made it already for some extra padding.

Well I promise you I will not be working a regular job if my stash were to get to 4%WR. I doubt I'll even make it there before I pull the plug. I'm waiting to cross 5%WR and then start to look at specific exit strategies so I am out before or on 4%WR.

Agreed!

It could be that it was the best year of your life... Which never happened because it was instead spent working a mediocre, high-paying job.  Even if you actually do live to a healthy 100, how many years are left?  If I lost a random year of my life, depending on winch year it was (the best have been self-directed), l would have really missed out!

PizzaSteve

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Re: Stop worrying about the 4% rule
« Reply #1260 on: January 01, 2018, 09:19:55 AM »
One of the largest risks to FIRE is working longer than necessary. We don't ever really discuss it. Bc what's omy when you made it already for some extra padding.

Well I promise you I will not be working a regular job if my stash were to get to 4%WR. I doubt I'll even make it there before I pull the plug. I'm waiting to cross 5%WR and then start to look at specific exit strategies so I am out before or on 4%WR.

Agreed!

It could be that it was the best year of your life... Which never happened because it was instead spent working a mediocre, high-paying job.  Even if you actually do live to a healthy 100, how many years are left?  If I lost a random year of my life, depending on winch year it was (the best have been self-directed), l would have really missed out!
Its all a philosophical perspective.

If we sincerely believe that working and living your life under our current circumstances is 'losing/wasting a year of your life' (regardless of our financial status) then we should actually consider quitting immediately IMHO. 

Work has many purposes.  Your life includes many hours that are not at your desk or field work location.  I think we should all try to honor our life choices, and while planning for the futue, also enjoy our life in every moment. 

One assumes that most of us picked a profession with some notion or passion for something enjoyable or meaningful.  I assume we are in our situation based on ideas of what we wanted to do with our life, whether it is have kids, marry, life a particular place, buy a car or home, how we wanted to contribute to society, etc. 

Dismissing all those choices as wasted time makes me somewhat sad for that person.  It comes accross as a person who would be dissatisfied with their life regardless of net worth.  Anything short of some imagined perfect FIRD life is wasted...sort of like the 'princess syndrome' likeon those Bridezilla TV shows.  These brides so obsessed with planning the perfect wedding that they forget to enjoy the moment, love their spouse, contemplate married life, appretiate their guests, etc.

Working a job should be what you chose to do and the income should be appretiated for what it is.  I think it is disrespectful to criticize those who work past 4% as wasting time.

PS, that point is meant to encourge gratitude in rhetoric, not to encourge over saving.  The encouragement to FIRE once one has enough is good work.
« Last Edit: January 01, 2018, 10:08:24 AM by PizzaSteve »

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1261 on: January 01, 2018, 09:55:36 AM »
I think it is disrespectful to criticize thise who work past 4% as wasting time.



I think calling out OMY syndrome is one of the great public services of this site along with the simple math behind the 4% rule, etc... People are programmed almost from birth to take their place on the pointy end of the economic plow and generate financial value for society. To even think a person subjected to decades of what is effectively mind control and programming is making a rational choice to keep working is a suspect proposition in my mind. At the very least pointing out the opportunity to stop working at very safe levels of risk and potentially saving someone from giving up some of their precious remaining time on the planet to work is not unreasonable on this site where face punches are given for all sorts of things.

It's like the prisoner who can't leave their cell despite the door being unlocked and ajar. If you've been at the coal face for many decades do you even have the perspective to appreciate what you are giving up?

For those of us who are not retiring in their 30's it's even more important to actually take the leap to FIRE and see what's on the other side. Let's just assume there is some awesome stuff to do beyond working trading those next few years for more money past a certain point makes less and less sense.

We basically only talk about the risk of running out of money in retirement, but there a bunch more likely risks that working longer does not mitigate and in most cases exacerbates:

- poor health [sedentary computer work is the cigarette of our generation]
- damage relationships [the journal section highlights the impact of a divorce just as you are reaching the finish line]
- dying earlier than you expected [I love Maizeman's charts for illustrating the risk of dying vs. running out of money]

Ultimately as long as it's not mean spirited or cruel having your spending/investing/retirement plan choices critiqued is a primary focus of this forum and one that I appreciate a lot.
« Last Edit: January 02, 2018, 10:35:38 AM by Retire-Canada »

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1262 on: January 01, 2018, 02:39:01 PM »
  I think it is disrespectful to criticize those who work past 4% as wasting time.

And I think it's incredibly disrespectful to try to stop honest debate and criticism of your positions when participating in a public discussion forum. It's also intellectually dishonest.

Finally, it's incredibly hypocritical for you to criticize others opinions when you demand your own stand unanswered. Practice what you preach.

(for those confused, see PizzaSteve's .sig )

sol

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Re: Stop worrying about the 4% rule
« Reply #1263 on: January 01, 2018, 02:55:40 PM »
Finally, it's incredibly hypocritical for you to criticize others opinions when you demand your own stand unanswered. Practice what you preach.

(for those confused, see PizzaSteve's .sig )

This has been a continuous problem with PizzaSteve.  He has strong and well-voiced opinions, which I am grateful that he shares, but he then refuses to engage with anyone even after calling them out.  It's like he wants to write, but he doesn't want anyone to read.

Better to just locate that "block poster" button, then he can write all he wants and nobody has to know. 

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1264 on: January 01, 2018, 02:58:22 PM »
A happiness/fulfillment thread may be best to continue this particular discussion.  However, from a 4% rule standpoint, it's important for a causal or new reader to understand; working past 25% expenses has sigmoid function diminishing returns from a monetary standpoint.

From a happiness, personal fulfillment, or even "keeping score" standpoint, arguments can be made to continue work.  Heck, many people thrive in more controlled daily environments, there is nothing inherently wrong with that personality.  I would caution though, if you have 25X expenses (I would even argue basic necessity expenses), ask this question.  Would you go to work for free?  Not some modified form of your job, exactly what you do now. 

If the answer to that question is "no"; my (nondebating) opinion... I think making some changes in life are in order.  That may mean trying to change your current job, getting a new one, or venturing into something more self-directed.   Life is short, time on earth is scarce, your money(at this level) is not. 

I also wholeheartedly agree this forum needs to provide a counterpoint to the fear based conditioning @ Retire-Canada has pointed out above.




nereo

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Re: Stop worrying about the 4% rule
« Reply #1265 on: January 02, 2018, 10:33:12 AM »
Finally, it's incredibly hypocritical for you to criticize others opinions when you demand your own stand unanswered. Practice what you preach.

(for those confused, see PizzaSteve's .sig )

This has been a continuous problem with PizzaSteve.  He has strong and well-voiced opinions, which I am grateful that he shares, but he then refuses to engage with anyone even after calling them out.  It's like he wants to write, but he doesn't want anyone to read.

Better to just locate that "block poster" button, then he can write all he wants and nobody has to know.
I will admit to working on this Sol, but not wanting to argue and avoiding personal attacks is different from accepting that someone has a contrary view.

When people form their writing in terms like, `I disagree, my view is X' I will engage.  When they say 'You are wrong to have your view followed by isukts and personal attacks, I dont want to engage.

For example you just fired off a generalized personal attack, which you sometimes do.  And while you are obviously very intelligent with views I mostly agree with, your style of doing that puts me off wanting to debate with you.

Its that simple.  So yes, I would prefer you stop talking about me in that way.  If you want to pkace me oin ignore and stop talking to or about me, that us fine...yet here you are talking about me in public, yet again.

@ PizzaSteve -
I think what's left me scratching my head is where you say that you don't even want to debate or discuss points being made. Debate is a prime reason I post here and I suspect that's true for many others. I'm not afraid to admit that I've altered my initial opinion and on occasion even had my initial 'facts' been proven wrong by a few posters here.  It reduces my confirmation bias and has helped me learn a great deal. Other times I've learned a great deal about how others outside my field of science are misinterpreting information, which is valuable information to have because it shows where communication has broken down.

I speak of course of this portion of your signature:
Quote
In the event of a post, no need to reply or quote if you disagree. I am posting information meant to stand on its own and hope to avoid back and forth debating.

Sure, if someone calls me an asshat* I do my best to ignore and move on. But if they're giving me a well reasoned and researched counter-opinion, i'm far more likely to pay attention.

*interestingly, one person who call me an asshat in one thread has also provided me with several detailed responses to questions in other threads.  Just one of many reasons why I try not to use the "ignore" function unless the person is a troll thru-and-thru.
« Last Edit: January 02, 2018, 11:32:45 AM by nereo »

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1266 on: January 02, 2018, 10:34:08 AM »
I will admit to working on this Sol, but not wanting to argue and avoiding personal attacks is different from accepting that someone has a contrary view.

So either participate in the discussion or just lurk. Nobody is forcing you to post and run. You seem to want your cake and eat it too. That's bad manners.

As an example there is a FI forum that I read, but for various reasons don't want to get into shit with people there so I don't sign in to an account there and I just read content that interests me. When I see something I don't agree with or want to comment on there is no post/reply button since I am not signed in and that reminds I am just a lurker.


sol

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Re: Stop worrying about the 4% rule
« Reply #1267 on: January 02, 2018, 10:38:45 AM »
Here you are talking about me in public, yet again, after i asked you not to, I thought somewhat politely.

I talk to you because I want you to be an active and involved member of the community.  You clearly have a lot to say.  Please say it!

But with that privilege comes the responsibility to weather criticism of your ideas.  When I post the forum I fully expect someone out there will think me a moron, and post a rebuttal.  Great!  I can ignore it, or I can defend my ideas.  What I cannot do is try to belittle and shame anyone in an attempt to prevent them from doing the same thing that I am doing.  Because I can post, you can post.  Because I express opinions, I have to accept that other people are allowed (encouraged!) to express their differing opinions.

Consider adopting this same kind of reciprocity.  By virtue of your very participation in the forum, I don't think you get to tell anyone else what they can or cannot say.  Your .sig is not only silly, it seems antithetical to everything the internet is about.  You might as well rephrase it to say "I am right and everyone else needs to shut up." 

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1268 on: January 02, 2018, 10:44:46 AM »
Your .sig is not only silly, it seems antithetical to everything the internet is about.  You might as well rephrase it to say "I am right and everyone else needs to shut up."

Agreed it's fucking ludicrous to say "I'm going post why you are wrong or I disagree, but please don't quote me or reply with why you disagree. My post is that last damn word on the topic." ;)


PizzaSteve

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Re: Stop worrying about the 4% rule
« Reply #1269 on: January 02, 2018, 10:52:55 AM »
removed as off topic...feel free to clean up thread of off topic posts.  i feel it is for the best of the thread in general.
« Last Edit: January 02, 2018, 12:02:16 PM by PizzaSteve »

brooklynguy

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Re: Stop worrying about the 4% rule
« Reply #1270 on: January 02, 2018, 10:56:36 AM »
But I get it...you successfully shut me up.  I will go away.

I don't think you do get it, because this is the polar opposite of the point that was made.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1271 on: January 02, 2018, 10:58:23 AM »
But I get it...you successfully shut me up.  I will go away.

You passive aggressive BS gets really old. You are the one creating this drama. You could just participate in the forum normally like the rest of us. Nobody is telling you to shut up.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1272 on: January 02, 2018, 11:29:55 AM »
But I get it...you successfully shut me up.  I will go away.

You passive aggressive BS gets really old. You are the one creating this drama. You could just participate in the forum normally like the rest of us. Nobody is telling you to shut up.

yep dont know how you can read everything posted above and get that you should shutup.  Maybe i should post some of the PM's i've received that go deeply into personal attacks.  often followed by a PM stating to ignore it b/c you're leaving the site.

Participate and have fun conversations with very intelligent people who see the world differently and be open to changing your view - i'm very hard headed but have changed many of my views on countless things here. 

As @nereo said debate is one of the reasons many choose to frequent these forums.  B/c it may alter our view points, or allow us to defend a view the common cattle think in the US cant grasp without more indepth and thought out data.   

sol

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Re: Stop worrying about the 4% rule
« Reply #1273 on: January 02, 2018, 12:22:37 PM »
But I get it...you successfully shut me up.  I will go away.

You passive aggressive BS gets really old. You are the one creating this drama. You could just participate in the forum normally like the rest of us. Nobody is telling you to shut up.
No, Sol started the drama with a comment aimed at me.  But again, feel free to clean up the thread.  I will delete my off topic posts.

You need to be right so badly, you feel obligated to twist words.  It has nothing to do with the 4% rule for Sol to insult me or comment on my sig.  To say I started the drama is false.

Please elaborate!  I welcome the scrutiny.

Technically, I think it was TomTX who called you out, this time.  I responded to him, not you, and then you jumped on me.  Which is your right, but I think it's inaccurate to label me as the instigator this time.

(Please note this is also not an attempt to shut you up, nor a personal attack.)

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1274 on: January 02, 2018, 12:24:42 PM »
But I get it...you successfully shut me up.  I will go away.

You passive aggressive BS gets really old. You are the one creating this drama. You could just participate in the forum normally like the rest of us. Nobody is telling you to shut up.
No, Sol started the drama with a comment aimed at me.  But again, feel free to clean up the thread.  I will delete my off topic posts.

You need to be right so badly, you feel obligated to twist words.  It has nothing to do with the 4% rule for Sol to insult me or comment on my sig.  To say I started the drama is false.

yet again you completely missed the point.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1275 on: January 02, 2018, 12:25:35 PM »
To say I started the drama is false.

I didn't say you started this particular incident in the longer saga that is your odd relationship with participating in this forum. I said you are creating the drama...in other words you are the root cause of the stuff that seems to make you unhappy. That also means you can change the situation.

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1276 on: January 05, 2018, 04:44:34 PM »
But I get it...you successfully shut me up.  I will go away.

You passive aggressive BS gets really old. You are the one creating this drama. You could just participate in the forum normally like the rest of us. Nobody is telling you to shut up.
No, Sol started the drama with a comment aimed at me.  But again, feel free to clean up the thread.  I will delete my off topic posts.

You need to be right so badly, you feel obligated to twist words.  It has nothing to do with the 4% rule for Sol to insult me or comment on my sig.  To say I started the drama is false.

Nope.  Not sol.

I made a comment based on your opinion expressed, using the style you expressed it in - and aiming at your ridiculous "I get the last word!!!1111" signature block.

Your response was disingenuous and inaccurate. Your .sig doesn't ask people to avoid personal attacks, it tells people not to argue the substance you put forth.

Even biblical scripture gets debated, PizzaSteve.

If you didn't want to debate, you would let others' opinions stand when they respond to something you post. You get your say, they get theirs. But (as demonstrated in this thread) you seem incapable of doing so. Which is hypocritical. Which is what I pointed out.

Deleting all your posts in a huff post-facto doesn't count, btw.
« Last Edit: January 05, 2018, 04:47:07 PM by TomTX »

Mr. Green

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Re: Stop worrying about the 4% rule
« Reply #1277 on: January 10, 2018, 08:10:39 AM »
Work has many purposes.  Your life includes many hours that are not at your desk or field work location.  I think we should all try to honor our life choices, and while planning for the futue, also enjoy our life in every moment. 

One assumes that most of us picked a profession with some notion or passion for something enjoyable or meaningful.  I assume we are in our situation based on ideas of what we wanted to do with our life, whether it is have kids, marry, life a particular place, buy a car or home, how we wanted to contribute to society, etc. 
I think your assumption does not reflect reality. Surveys have shown for many years that the majority of people in America are dissatisfied with their jobs. They do it for the money and the stability. So it kinda makes sense that if those people suddenly found themselves in a stable situation where they no longer needed the money (FIRE) that they would choose to do something else. However, most people cannot grasp the concept, just like most people can't choose to delay gratification. So the working reality becomes ingrained until eventually, you can't even imagine what life would be like without working. Those are the people that die early when they do stop working in their 60's, because they end up lost, feeling like they have no purpose. Borrowing a line from The Shawshank Redemption, "They're institutionalized."

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1278 on: January 11, 2018, 08:26:10 AM »
"Insights on Using the 4% Withdrawal Rule From Its Creator" [William Bengen]

http://www.aaii.com/journal/article/insights-on-using-the-withdrawal-rule-from-its-creator

CR: Originally, in your 1994 study, “Determining Withdrawal Rates Using Historical Data,” (Journal of Financial Planning, October 1994), you used a 4% withdrawal rate. What prompted you to increase the withdrawal rate to 4.5%?

WB: I included more asset classes.

Originally, I only worked with two asset classes. I used U.S. large-company stocks and U.S. intermediate-term government bonds. I then added small-cap stocks. The small-cap stocks added enough of a boost in terms of return to allow the withdrawal rate to be increased.

It was originally around 4.2%, actually. Including small-cap stocks raised it a little bit to about 4.5%. This shows you the importance of having a diversified portfolio during retirement.


I thought this comment was also interesting:

WB: A couple of years ago, he [Michael Kitces] developed a terrific chart where he plotted market valuations against the safe withdrawal rate year by year. It was an amazingly close negative correlation between the two. The higher that stock valuations are, the lower the safe withdrawal rate turned out to be.

His conclusion was that when you get a CAPE (cyclically adjusted price-earnings ratio) above 20, you should stick with the lowest, the safe, withdrawal rate because otherwise it’s too risky. We’re certainly well above that now. So, I don’t think any kind of a scheme where you attempt to try to take out 5% or 5.5% now is likely to work.

I expect, at some point, that there’s going to be another serious decline back to more normal valuations. You’re going to have to start scaling back what you withdraw each year. It might be painful, after you have misled yourself about the kind of lifestyle you really think you can afford.

« Last Edit: January 11, 2018, 08:36:50 AM by AdrianC »

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1279 on: January 11, 2018, 08:39:01 AM »
"Insights on Using the 4% Withdrawal Rule From Its Creator" [William Bengen]

http://www.aaii.com/journal/article/insights-on-using-the-withdrawal-rule-from-its-creator

CR: Originally, in your 1994 study, “Determining Withdrawal Rates Using Historical Data,” (Journal of Financial Planning, October 1994), you used a 4% withdrawal rate. What prompted you to increase the withdrawal rate to 4.5%?

WB: I included more asset classes.

Originally, I only worked with two asset classes. I used U.S. large-company stocks and U.S. intermediate-term government bonds. I then added small-cap stocks. The small-cap stocks added enough of a boost in terms of return to allow the withdrawal rate to be increased.

It was originally around 4.2%, actually. Including small-cap stocks raised it a little bit to about 4.5%. This shows you the importance of having a diversified portfolio during retirement.


I thought this comment was also interesting:

WB: A couple of years ago, he [Michael Kitces] developed a terrific chart where he plotted market valuations against the safe withdrawal rate year by year. It was an amazingly close negative correlation between the two. The higher that stock valuations are, the lower the safe withdrawal rate turned out to be.

His conclusion was that when you get a CAPE (cyclically adjusted price-earnings ratio) above 20, you should stick with the lowest, the safe, withdrawal rate because otherwise it’s too risky. We’re certainly well above that now. So, I don’t think any kind of a scheme where you attempt to try to take out 5% or 5.5% now is likely to work.

I expect, at some point, that there’s going to be another serious decline back to more normal valuations. You’re going to have to start scaling back what you withdraw each year. It might be painful, after you have misled yourself about the kind of lifestyle you really think you can afford.


yep i plan to use the CAPE as an indicator. i'd likely work PT for one more year if i were at a 4% swr today. 

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1280 on: January 11, 2018, 08:33:55 PM »
yep i plan to use the CAPE as an indicator. i'd likely work PT for one more year if i were at a 4% swr today.

So... This article comments 4.2% is a historical safemax; then states WR can be increased by diversifying asset classes.  It also states 5-5.5% probably wont work in a high CAPE environment.  This information leads you to believe OMY is needed at a 4% WR?   

Would you care to share your logic regarding 4% not being enough based on this information? 

ysette9

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Re: Stop worrying about the 4% rule
« Reply #1281 on: January 11, 2018, 08:59:38 PM »
This article by the Mad Fientist goes into a safe withdrawal rate prediction as a function of CAPE. There is also a calculator on the website that currently lists SWR at 3.5% due to a Shiller CAPE ratio of 32. This does assume a 80/20 asset allocation.

For what it’s worth.

https://www.madfientist.com/safe-withdrawal-rate/

steveo

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Re: Stop worrying about the 4% rule
« Reply #1282 on: January 11, 2018, 11:05:40 PM »
I don't agree with any of these ideas that a high CAPE means you have to retire on less than 4%. In all cases the chance of failure with no adjustments at all is 5% if you get to a 4% WR. Do you seriously think that you can't adjust a little bit.

I also think that it's a good idea to have a decent amount of bonds in your portfolio to draw down from if the stock market crashes. If you have say a 1 million portfolio and you live off 40k per year. Just say the market crashes but you have 300k in bonds. Just say you also adjust and live off 30k worth of bonds + any dividends or interest that you obtain each year from your portfolio. That gives you a staying power of 10 years to wait until the market goes back up. That all also assumes that you don't go and get a part time job or whatever.

I get wanting to have more money and feel safer but there are alternatives and stating that you need greater than 25 times your expenses is to me not rational.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1283 on: January 12, 2018, 04:22:53 AM »
I agree just bc the cape is high doesn't mean a 4% won't work. But it's historically been a good indicator. But keeping 30% bonds on hand is worse at making your money last. Anything less than 80/20 starts to get detrimental fast.

steveo

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Re: Stop worrying about the 4% rule
« Reply #1284 on: January 12, 2018, 04:34:21 AM »
I agree just bc the cape is high doesn't mean a 4% won't work. But it's historically been a good indicator. But keeping 30% bonds on hand is worse at making your money last. Anything less than 80/20 starts to get detrimental fast.

I don't think that this is true. I think it's correct if you are maintaining a 70/30 allocation over the course or your retirement but not if you are using a withdrawal plan based off McClung's analysis. I intend to drawdown as per McClung's analysis with a higher equity allocation than he recommends.

Even ignoring that analysis I think having the bonds and using them to get you through the first 10 years will give you a higher chance of portfolio success.

I think most people on here just look at portfolio success rate and don't even consider a different income generating strategy when they are drawing down on their portfolio.

Monkey Uncle

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Re: Stop worrying about the 4% rule
« Reply #1285 on: January 12, 2018, 05:03:18 AM »
This article by the Mad Fientist goes into a safe withdrawal rate prediction as a function of CAPE. There is also a calculator on the website that currently lists SWR at 3.5% due to a Shiller CAPE ratio of 32. This does assume a 80/20 asset allocation.

For what it’s worth.

https://www.madfientist.com/safe-withdrawal-rate/

The calculator is based on Kitces' 0.77 correlation between earnings yield (inverse of CAPE 10) and forward 10-year returns.  It's been 25+ years since I knew anything about statistics, but I think I remember that to calculate a valid correlation coefficient, you need independent data samples.  It seems very likely that there is quite a bit of autocorrelation between all of the data points within one business cycle.  Someone who remembers statistics better than I do can correct me if I'm wrong, but if Kitces used a time interval that is any shorter than a complete business cycle, I'm thinking the 0.77 number is suspect.

The Kitces graph in the mad Fientist article only covers somewhere between four and six business cycles, depending on how you count the peaks, thus it is based on a pretty small sample size.  And the article doesn't address all the questions that have been raised about whether CAPE still works the same way it did 30+ years ago.  There is no denying a relationship between CAPE earnings yield and SWR, at least up through the 1980s, but it has been pretty loose at times, it's based on fairly scant data (from a statistical point of view), and by predicting the future we are extrapolating beyond the data set that was used to construct the model.  So I would be inclined to take the calculator results with a grain of salt.

I totally understand the desire of early FIREees to have some sort of calculated assurance that their plan is likely to succeed.  But these exercises often end up giving the impression of much greater precision and accuracy than is really warranted by the data available.  Within the modern history of US financial markets, there have been four secular bull markets (1920s, 1940s-1960s, 1980s-1990s, 2009-?) and three secular bear markets (1930s, 1970s, and 2000s).  While these cycles share some broad common themes, they have many substantial differences also (e.g., high inflation was the hallmark of the 1970s secular bear, whereas the 2000's featured low inflation and the Great Depression actually had deflation).  I don't think we can take this data set and say "CAPE is 32, therefore your SWR should be 3.5."  What I think we can say is something like: "Markets have been going up for a while, we've been making new highs for the last few years, and valuations are lofty by historical standards, therefore you probably should build in a few safety buffers.  You'll have to decide for yourself how big that buffer should be, and you won't know whether it was enough (or too much) for at least a decade.  Sorry, but that's the best we can do."

My personal safety buffer is: if you're retiring when the market is making new highs, your SWR should produce a 100% historical success rate.  That way you at least know that it would take something worse than the worst that history has ever served up to sink your plan.  If you end up with too much, I'm sure there are many worthy charities that could benefit from your mistake.

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1286 on: January 12, 2018, 05:09:34 AM »
I agree just bc the cape is high doesn't mean a 4% won't work. But it's historically been a good indicator. But keeping 30% bonds on hand is worse at making your money last. Anything less than 80/20 starts to get detrimental fast.

Agreed. For example, if the market crash is accompanied by rapid inflation - trying to live on $30k in bonds per year with no inflation adjustment is going to start really being untenable after a few years. The buying power of those bonds would be eroded away (even assuming I-Bonds that aren't devalued by rising interest rates)

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1287 on: January 12, 2018, 05:12:58 AM »
I think most people on here just look at portfolio success rate and don't even consider a different income generating strategy when they are drawing down on their portfolio.

I think you are entirely wrong. It is considered. However, having income (even a relatively small one) makes portfolio survival in a downturn effectively trivial. There's nothing to discuss, because additional income in a downturn makes it almost impossible to generate a portfolio failure when starting with a reasonable SWR.

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1288 on: January 12, 2018, 05:54:31 AM »
My personal safety buffer is: if you're retiring when the market is making new highs, your SWR should produce a 100% historical success rate.  That way you at least know that it would take something worse than the worst that history has ever served up to sink your plan.  If you end up with too much, I'm sure there are many worthy charities that could benefit from your mistake.

I agree, but then it's not the 4% rule anymore...it would be something less than 4%...probably 3.5%.

cerat0n1a

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Re: Stop worrying about the 4% rule
« Reply #1289 on: January 12, 2018, 06:07:42 AM »
I totally understand the desire of early FIREees to have some sort of calculated assurance that their plan is likely to succeed.  But these exercises often end up giving the impression of much greater precision and accuracy than is really warranted by the data available. 

Exactly right. That's why these discussions sometimes seem a bit like arguing about how any angels can dance on the head of a pin. The reality is that that no-one is going to withdraw exactly a certain percentage per year - there's always going to be some one-off costs that have to budgeted for - house repairs, replacement of cars, computers, household items etc. and always a certain amount of flexibility in the timing of some spending. Even if your initial carefully calculated 3.497% (or whatever) rate is 100% safe through the historical record, that doesn't give you a cast iron guarantee about the future.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1290 on: January 12, 2018, 06:08:05 AM »
My personal safety buffer is: if you're retiring when the market is making new highs, your SWR should produce a 100% historical success rate.  That way you at least know that it would take something worse than the worst that history has ever served up to sink your plan.  If you end up with too much, I'm sure there are many worthy charities that could benefit from your mistake.

I agree, but then it's not the 4% rule anymore...it would be something less than 4%...probably 3.5%.

typically takes a 3.5% with a large mortgage otherwise you have to go lower if you're looking for 40+ years of retirement.  the mortgage helps you ride out the hyper inflation of the 60s and 70s and still maintain solvency - otherwise i think you have to get around 3.3%

I wish cFIREsim would allow for asset allocations different that stocks to bonds - at least throw in small cap and maybe international so we can play with that too.

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1291 on: January 12, 2018, 06:29:08 AM »
I wish cFIREsim would allow for asset allocations different that stocks to bonds - at least throw in small cap and maybe international so we can play with that too.

I think the problem is getting accurate data about these subset allocations back far enough.  Tyler's Site has all AA's, even from different counties back to 1970.

Monkeys uncle is correct.  With the limited data available, we are grasping a straws to try to gleam more than what's already been repeated to death.  4% rule is the best model to follow.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1292 on: January 12, 2018, 06:41:06 AM »
I wish cFIREsim would allow for asset allocations different that stocks to bonds - at least throw in small cap and maybe international so we can play with that too.

I think the problem is getting accurate data about these subset allocations back far enough.  Tyler's Site has all AA's, even from different counties back to 1970.

Monkeys uncle is correct.  With the limited data available, we are grasping a straws to try to gleam more than what's already been repeated to death.  4% rule is the best model to follow.

there is good small cap data all the way back - i know about tylers' but it doesnt test far enough.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1293 on: January 12, 2018, 07:48:55 AM »
I'm closing in on 5%WR at the moment. When I hit that mark I'll start my exit planning in detail and give my client notice. With an actual FIRE of something like 4.5%WR. I'll have plans to address an early sequence of returns risk. My FIRE plan has so many levels of risk mitigation depth that I am not working to sub-4%WR because of CAPE or any similar indicator. Free time in the prime of my life is worth more than making more money for some unlikely scenario that may well be mitigated more effectively a different way. It also ignores all the other ways you can fail FIRE that don't involve running out of money and none of those risks are reduced by OMYing.

ysette9

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Re: Stop worrying about the 4% rule
« Reply #1294 on: January 12, 2018, 08:24:35 AM »
I personally think the CAPE calculator on the Mad Fientist site is too pessimistic for us crowd, as we have multiple layers of safety such as the ability to do part-time work, cut back spending, and SS later on. I really like the ideas of the reverse glide path asset allocation and plan on doing that for my own safety. Like he said, it is really the first ten years we need to worry about for sequence of returns. If I can have a successful first decade by hook or by crook (or by part-time work or more bonds or whatever), then I am home free.

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1295 on: January 12, 2018, 09:59:22 AM »
typically takes a 3.5% with a large mortgage otherwise you have to go lower if you're looking for 40+ years of retirement.  the mortgage helps you ride out the hyper inflation of the 60s and 70s and still maintain solvency - otherwise i think you have to get around 3.3%

Yes, in cFIREsim 100% over 40 years gives 3.3%

CanuckExpat

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Re: Stop worrying about the 4% rule
« Reply #1296 on: January 12, 2018, 01:29:46 PM »
I don't agree with any of these ideas that a high CAPE means you have to retire on less than 4%. In all cases the chance of failure with no adjustments at all is 5% if you get to a 4% WR. Do you seriously think that you can't adjust a little bit.

There's a pessimistic and optimistic way of looking at it. The MadFientist tool extrapolates from Kitces research and can present lower SWR at high CAPE values. The original Kitces article essentially says 4% is safe enough, if CAPE is very low, maybe safe to withdraw even higher.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1297 on: January 12, 2018, 02:16:22 PM »
I don't agree with any of these ideas that a high CAPE means you have to retire on less than 4%. In all cases the chance of failure with no adjustments at all is 5% if you get to a 4% WR. Do you seriously think that you can't adjust a little bit.

There's a pessimistic and optimistic way of looking at it. The MadFientist tool extrapolates from Kitces research and can present lower SWR at high CAPE values. The original Kitces article essentially says 4% is safe enough, if CAPE is very low, maybe safe to withdraw even higher.

yep like i said its a good indicator - but doesnt mean you have to work longer - if i was 50 and hit it today i'd probably be more likely to quit than hitting it at 25 - i may work OMY even with CAPE today - there is alot of differences in those 2 scenarios. 

steveo

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Re: Stop worrying about the 4% rule
« Reply #1298 on: January 12, 2018, 03:09:19 PM »
I think most people on here just look at portfolio success rate and don't even consider a different income generating strategy when they are drawing down on their portfolio.

I think you are entirely wrong. It is considered. However, having income (even a relatively small one) makes portfolio survival in a downturn effectively trivial. There's nothing to discuss, because additional income in a downturn makes it almost impossible to generate a portfolio failure when starting with a reasonable SWR.

I suggest you go and read McClung's book on this and to compare that to the analysis that people are doing. Is anyone here really thinking about a withdrawal strategy with any sort of smarts at all. They aren't. It's completely about maintaining the same portfolio pre and post retirement. That is how we are getting all these comments about having high stock percentages despite analysis stating a lower stock percentage may result in more rather than less successes within retirement.

You actually didn't grasp my point either. An income generating strategy is from your portfolio not from going back to work. I'm talking about living off your portfolio.

In stating all of that I think having the ability to return to work even if it's part time packing shelves and earning a trivial income will make your chances of success really high.
« Last Edit: January 12, 2018, 03:53:49 PM by steveo »

steveo

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Re: Stop worrying about the 4% rule
« Reply #1299 on: January 12, 2018, 03:11:51 PM »
I'm closing in on 5%WR at the moment. When I hit that mark I'll start my exit planning in detail and give my client notice. With an actual FIRE of something like 4.5%WR. I'll have plans to address an early sequence of returns risk. My FIRE plan has so many levels of risk mitigation depth that I am not working to sub-4%WR because of CAPE or any similar indicator. Free time in the prime of my life is worth more than making more money for some unlikely scenario that may well be mitigated more effectively a different way. It also ignores all the other ways you can fail FIRE that don't involve running out of money and none of those risks are reduced by OMYing.

I agree with this as well. I am not sure when I'm retiring but 5% is my initial first point. I may go to 4% but I don't feel it's essential as I have buffers.