Author Topic: For those who follow the 4% rule  (Read 15525 times)

Ursus Major

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Re: For those who follow the 4% rule
« Reply #50 on: February 16, 2017, 11:17:48 AM »
So once again eyeballing that image the 95% threshold for 50 and 60 years is at WR of around 3.3% (give or take a bit).

So that's quite different from 4%. You can also see that for a WR of 3.9% your success rate for 60 years is around 83% (again give or take a bit).

There's no practical difference between a 83% success rate and a 95% success rate. At 4%, I think there's what like one fail year in all the cFIRE sim data? 83% maybe adds one more year. Basically, both indicate a very high likelihood of success.

I think you need to check your numbers. cfiresim simulations start in 1871 and for a 30 year scenario their last cycle currently starts in 1988 (strange that it isn't 1987). That's 118 cycles. So a 95% success rate means that 112 cycles succeeded, thus 6 cycles failed.

For the 40 year period you thus have 108 cycles. A 83% success rate means that ca. 90 cycles succeeded, thus 18 failed.

In other words: You go from 6 failing cycles to 18 and not from 1 to 2.

Ursus Major

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Re: For those who follow the 4% rule
« Reply #51 on: February 16, 2017, 11:34:12 AM »
Slate-WA -


If you were to just take 4% of whatever the portfolio is at every year, that would be a very, very robust plan.
This would be very robust. In fact, it couldn't fail! The new 100% success rate 4% plan.

Of course it doesn't fail. The minor(?) caveat is that your withdrawals might be very low, if you happen to retire in a bad year. If your portfolio falls by 50%, then you're actually only withdrawing 2% of your original portfolio (in real terms). Great for the portfolio, perhaps not so great for your lifestyle.

cfiresim shows that for a 60/40 portfolio and a 40-year horizon your portfolio would go down as much as 60% withdrawal would be as low as 1.5% of your original portfolio. If that is fine with you, then this would be a decent strategy.

Its only (and I would say: major) downside is that the sequence of return risk will stay with you forever, not just for the first decade or so. That is actually a pretty big deal, because you might feel okay about working part time in your 40s and 50s to compensate for a shortfall, but perhaps less so in your 70s and 80s. To mitigate that you could cap your withdrawals on the upside for the first few years (assuming you have an upside then) to bring your effective withdrawals below 4%.

AZryan

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Re: For those who follow the 4% rule
« Reply #52 on: February 16, 2017, 01:38:34 PM »
Quote from: Ursus Major
Its only (and I would say: major) downside is that the sequence of return risk will stay with you forever,
If you're still talking about a fixed 4% withdrawal, then there's no seq. of return risk. As you agree, such a method can't ever run out of money.
It can fail by giving you too little to live off of. Maybe that's all you mean? But that's a diff. risk.

Slate-WA

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Re: For those who follow the 4% rule
« Reply #53 on: February 16, 2017, 01:55:57 PM »
I'm not trying to live on 50k forever right...I'm trying to live on 4% of my nest egg?

The 4% WR Rule is based on 4% of the initial portfolio value + inflation withdrawn each year. Are you concerned that the $50K/yr + inflation is too little or too much?

I wasn't aware that the SWR of 4% meant you'd add inflation.  I poorly assumed that inflation was factored into the growth of your nest egg somehow.  didn't put too much thought. 

Where would I grab the inflation rate for each given year to ensure I'm using the correct number that the guidance would be expecting I use?

Ursus Major

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Re: For those who follow the 4% rule
« Reply #54 on: February 16, 2017, 02:12:34 PM »
Quote from: Ursus Major
Its only (and I would say: major) downside is that the sequence of return risk will stay with you forever,
If you're still talking about a fixed 4% withdrawal, then there's no seq. of return risk. As you agree, such a method can't ever run out of money.
It can fail by giving you too little to live off of. Maybe that's all you mean? But that's a diff. risk.

Yes, that's what I mean. and the risk is not altogether different. In fact you could regard the "run-out-of-money" risk as a special case of the "lower-your-withdrawal-risk",  where you lower your withdrawal by 100% for an indefinite amount of time.

dandarc

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Re: For those who follow the 4% rule
« Reply #55 on: February 16, 2017, 02:13:24 PM »
I'm not trying to live on 50k forever right...I'm trying to live on 4% of my nest egg?

The 4% WR Rule is based on 4% of the initial portfolio value + inflation withdrawn each year. Are you concerned that the $50K/yr + inflation is too little or too much?

I wasn't aware that the SWR of 4% meant you'd add inflation.  I poorly assumed that inflation was factored into the growth of your nest egg somehow.  didn't put too much thought. 

Where would I grab the inflation rate for each given year to ensure I'm using the correct number that the guidance would be expecting I use?
I think they use CPI in most of the calculators, but, in retirement you should be spending as little as you can to meet your desired standard of living.  That probably doesn't go up by the CPI every year.  Some years it might go up more, or less or even go down.

4% rule is a guideline to help you determine when you have enough - not a "how to" for handling your withdrawal phase.
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steveo

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Re: For those who follow the 4% rule
« Reply #56 on: February 16, 2017, 02:27:25 PM »
steveo,

you can model these events with an assumed probability into your calculations and come up with a SWR based on that. Have you ever done that? How did they do on the 1966 retirement year? Or are you assuming that nothing comparable will ever happen.

I tell you how I figure out FI. I look at the historical data and then at the assumptions underlying the historical data. I don't try and micromanage this to somehow control my downside risk. All I do is state that there is a high probability of success if I get to a 5.5% WR with pretty unrealistic assumptions that are not in my favour.

Well, that's one way of doing it. I prefer to have at least some sense of the downside risk in historical context, before I make my decisions.

You are overstretching the Russian Roulette analogy. All it was meant to do is to show that the average or likely outcome is irrelevant, if the focus is on downside protection.

I agree with this comment but I don't think it's the best way to live your life in general.

Rhetorical fallacy alert: straw man argument. I never claimed that it is the best way to life my (or anyone's) life in general.


I think you are arguing from a point of view that we need to worry about the 4% rule. I don't think that you are recognising that it is a decision based on your risk and opportunity cost profile. I don't really buy the rhetorical fallacy argument here.

If all you are worried about is downside protection in relation to FIRE for instance then you will have to work a long time to manage that downside risk. If you like your job that is fine. If not then I think it's the wrong approach. To me it's not as simple as only worrying about the downside risk. There are trade-offs and these should be recognised.

Well, I actually prefer to have a better sense of the down-side risk and then make my decision. I also never said that protecting the downside is the only criteria for the decision to retire early. I did say however that protecting the downside is the only relevant criteria for the FIRE simulation, so for me the takeaway of relevance from that simulation is the success rate (or failure rate); the median outcome is completely irrelevant to me. A small, but important distinction. Once you know your downside according to the model, you can then still decide, whether it is worth it. Two separate pieces of the puzzle in my book. But then I seem to approach this in a more structured way than you do.

Of course it's only a figure based on historical So to restate my original point: I still believe that one of the weaknesses of applying the 4% rule to a retirement horizon longer than 30 years is that the original rule allowed for capital depletion, meaning it counts any portfolio amount >=$0 at the end of the 30 years as a success.

I understand what you are stating but my take is that I don't need to backtest anything because it's just a guide and that is all it will ever be. So I look at the situation and state I'm comfortable with that. I think you look at the situation and state that you aren't comfortable with it.

A question: You say we don't need to back-test anything. So in that case why do you care, if I suggest a different model for back-testing? One is as irrelevant to you than the other?

Yes, you are correct that I am not comfortable with assuming that the 30 year model (with depletion) and 4% WR is the best base scenario for my early retirement, because the success rate deviations between 30 year and 40 year are too big.

I don't care if you want to concern yourself with the downside. That is your decision. We are just discussing it. Personally I feel that you are being overly cautious but that is your decision. You probably feel that myself and others are overly optimistic. It's up to everyone to come to their own decisions.

I also do care about back-testing but I also recognise the limitations of back-testing. I'm not sure if you understand this point. It's the same to me as people who try and micro manage their asset allocations. All I feel that you can do with back-testing historical data is make some broad decisions based on the data. Micro-managing for instance the downside years to me misses the point.
« Last Edit: February 16, 2017, 02:29:13 PM by steveo »

steveo

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Re: For those who follow the 4% rule
« Reply #57 on: February 16, 2017, 02:32:05 PM »
4% rule is a guideline to help you determine when you have enough - not a "how to" for handling your withdrawal phase.

Different people appear to have different perspectives but this is my perspective. It's just a guideline. You have to tailor your retirement date and withdrawal phased based on your specific scenario.

Retire-Canada

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Re: For those who follow the 4% rule
« Reply #58 on: February 16, 2017, 02:58:00 PM »
4% rule is a guideline to help you determine when you have enough - not a "how to" for handling your withdrawal phase.

Different people appear to have different perspectives but this is my perspective. It's just a guideline. You have to tailor your retirement date and withdrawal phased based on your specific scenario.

I have yet to hear of anyone taking out exactly 4% of the initial stash + inflation each year without any variation. The journals/accounts I have read have folks who either estimated their spending as significantly higher than it actually was or found that their needs varied quite a bit so they didn't always need the full 4%. I also have not read of anyone who regretted not working longer and saving more.

That's shooting for a 4% WR FIRE plan. The folks that are shooting for 3%WR are most likely also estimating conservatively so they are actually pulling out 2% - 3% annually making their plans that much more robust than they had planned. That also means they could have worked less and saved less to get to the level of FIRE risk they were planning for.

sol

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Re: For those who follow the 4% rule
« Reply #59 on: February 16, 2017, 04:35:35 PM »
I also have not read of anyone who regretted not working longer and saving more.

And you won't, until we hit another massive downturn.  Everyone who has retired in the past seven years is sitting pretty today.

But if you had asked a 2008 retiree in late 2009, you'd have gotten a different answer.  That guy just watched approximately half of his nest egg vanish.  He's fine now, but he was freaking out then.

Retire-Canada

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Re: For those who follow the 4% rule
« Reply #60 on: February 16, 2017, 04:47:42 PM »
And you won't, until we hit another massive downturn.  Everyone who has retired in the past seven years is sitting pretty today.

But if you had asked a 2008 retiree in late 2009, you'd have gotten a different answer.  That guy just watched approximately half of his nest egg vanish.  He's fine now, but he was freaking out then.

That's the key. Even that guy who started in that shitty year is fine. And you can take action before you FIRE to address that problem - like using a gliding equity glidepath. That doesn't require extra years of work, but can mitigate the back luck of starting in a year like 2008.

Mr. Green

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Re: For those who follow the 4% rule
« Reply #61 on: February 16, 2017, 05:18:51 PM »
I know everyone likes to reference the Trinity study but I think blindly using the success rate percentages from that study without considering asset allocation is a bit foolish. The AA used in that study under performs a more aggressive AA significantly. The 40-year success rate of an all-stocks portfolio is 95% when withdrawing 4%, and I think a 90/10 outperforms that by a hair. If you want to sit there and stare at Sol's chart and nothing else, and claim that the 40-year success rate is 10% lower than the 30-year success rate, that's absolutely correct. I feel bad for the person that makes his decision to continue working or not by nothing but Sol's chart, because that's only one tiny piece of data, and the success rate doesn't have to be that low. That doesn't even count all the human intervention factors that would alter the failure course because you know withing the first decade of retirement if you have a problem.

I've said it before and I'll say it again. If you're a 30 year old male in the US, you have a better chance of dying before the age of 65 than you do of running out of money (using Sol's chart). Only 82.5% of 30 year-old males make it to 65. If a 15% failure rate is enough to keep you working, what does a 17.5% chance of dying do?
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Metric Mouse

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Re: For those who follow the 4% rule
« Reply #62 on: February 16, 2017, 08:00:15 PM »

I've said it before and I'll say it again. If you're a 30 year old male in the US, you have a better chance of dying before the age of 65 than you do of running out of money (using Sol's chart). Only 82.5% of 30 year-old males make it to 65. If a 15% failure rate is enough to keep you working, what does a 17.5% chance of dying do?
Makes me happy I'm not 30. :D
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MustacheMathTM

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Re: For those who follow the 4% rule
« Reply #63 on: February 16, 2017, 11:10:51 PM »
Spartana, you always write with the calm voice of reason and you have definitely gotten the whole FIRE thing figured out. Although the discussions on this forum is what makes it so valuable to ERers, sometimes me thinks the discussions can be a bit contentious.  There is no one size fits all approach to FIRE.  I for one have not even tapped my stash yet because I'm fortunate enough to have a pension that covers living expenses with a decent buffer built in.  The buffer is made possible by frugal habits.  I am also fortunate that my small side gig, sub teaching, fits into one of my interests of mentoring and coaching kids. When I do start to tap my stash, it will be way less than 4% as my stash also serves as life insurance in case of my untimely demise.  My pension gets buried with me.  We each have to figure out what will work best for our unique situations.  I personally did not FIRE based on the results of a calculator telling me that 4% would work.  I decided I would be ok based on input from this FORUM.  I listed my assets and asked others to review my plan.  The 100% thumbs up from members of this forum gave me more confidence than cFIREsim or FIRECALC.


Thanks Gunny. I pretty much just muddled through and figured it out on my own too.  Never heard about the 4% rule or used a calculator but realize that my spending has generally been low enough overall ( and a very comfortable barebones is extremely low for me right now if I had to go that route for awhile) that Im in the 4%ish rule camp alresdy and can't imagine I'll have an ER fail.
Spartana is completely bad ass. Definitely one of my forum heroes.
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Retire-Canada

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Re: For those who follow the 4% rule
« Reply #64 on: February 17, 2017, 08:37:14 AM »
If a 15% failure rate is enough to keep you working, what does a 17.5% chance of dying do?

People continue to work because they have been programmed all their lives to do so. The chart is irrelevant it's just the excuse to not make a change. If the chart didn't exist they lock onto something else. The programming is fuelled by fear and fear is pretty much limitless.

So there is no logical analysis going on that you can argue with by demonstrating the poor opportunity cost choice of continuing to work past an already very safe/reasonable point like a 4%SWR. If the concern really was just running out of money there are ways to mitigate those risks that don't involve working extra years, but the folks deep in OMY syndrome aren't really fuelled by a fear of running out of money. I think it's a fear of changing their lives. So if you show them how to mitigate the main financial risks of FIRE with a 4%WR stash they baulk.

I do think you make a good point and it's a point that should be made because maybe you'll catch someone on the verge of OMYing you can divert or somebody who has OMY'd for so long they've hit rock bottom and might be willing to change course.

Ursus Major

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Re: For those who follow the 4% rule
« Reply #65 on: February 17, 2017, 11:54:50 AM »
I know everyone likes to reference the Trinity study but I think blindly using the success rate percentages from that study without considering asset allocation is a bit foolish. The AA used in that study under performs a more aggressive AA significantly. The 40-year success rate of an all-stocks portfolio is 95% when withdrawing 4%, and I think a 90/10 outperforms that by a hair.

Actually according to cfiresim it's 91.67% both for the 100% equities and 90/10 portfolio (using the default parameters with a 4%WR). It's for the 30-year cycle that a 90/10 allocation provides a higher success rate (96.61%) than the 100% equities scenario (94.42%). Still around 92% is not bad and I also believe that a high equity calculations is key for a successful early retirement.

If you want to sit there and stare at Sol's chart and nothing else, and claim that the 40-year success rate is 10% lower than the 30-year success rate, that's absolutely correct. I feel bad for the person that makes his decision to continue working or not by nothing but Sol's chart, because that's only one tiny piece of data, and the success rate doesn't have to be that low. That doesn't even count all the human intervention factors that would alter the failure course because you know withing the first decade of retirement if you have a problem.

Let's be clear here: That chart was thrown at me as a counterargument to my position. I used it to point out that it in fact backed it up.

I would totally agree that anyone who is looking at retiring really understand the ramifications of the scenario and run their own simulations. They should also run some simulations for an adverse scenario (working extra years, cutting consumption) to see how much that really would help them. And after that they come to a plan of action based on their own perception of and capacity for risk. And perhaps they should also have a predefined "statement of action" at what point they do what. E.g. a series of statements "If my portfolio goes below x%  in real teams, I am going to cut my consumption by y%".

And finally they should realize that that a lot of successful cycles (and some failure cycles) do not apply, because we actually have a bit more knowledge: We know current equity and debt valuations and it is reasonable to conclude that a 2017 retiree would have an outcome below the median. Thus the conditional probability of success likely is also lower.

And once the prospective retiree realizes all this, then they can come to an intelligent decision for their course of action.

If this thread has shown me anything, it is that a certain percentage of good-intentioned folks on this forum have a rather loose command of the facts. (And I'm not talking about 91.67% vs 95%, that's just minute stuff.) So when someone claims something, you better fact-check for yourself.


I've said it before and I'll say it again. If you're a 30 year old male in the US, you have a better chance of dying before the age of 65 than you do of running out of money (using Sol's chart). Only 82.5% of 30 year-old males make it to 65. If a 15% failure rate is enough to keep you working, what does a 17.5% chance of dying do?

You do realize that there is a logical problem with this argument, don't you? Your argument - in general terms - is that behavior x has generally a good outcome and its probability of a bad outcome is lower than a bad outcome for y, so it's reasonable to do x, because of that.

So let's go back to the Russian Roulette example with the 20 bullet magazine. If someone offered you $10M for for a "shot", you could argue that as a 30-year old male in the US you have a better chance of dying before the age of 65 than you do of dying from this action. If a 5% failure rate is enough to keep you from taking the "shot", what does a 17.5% of dying do?

Now everyone would see the problem with that line of reasoning. And since the argument is constructed the same way as your argument, it would show to me that your argument also has some logical problem.

I haven't examined this thoroughly, but at first glance it seems that the problem is that you're adding risk. Now that risk is lower than your base risk (dying before 65), but it is (in first approximation) independent and and an additional risk. Therefore the probability for a bad outcome goes up, meaning you either die before 65 or run out of money (or both).

So you are now going (using Sol's chart and again assuming that those two events are independent) from a 17.5% chance of a bad outcome (you'll die before 65) to a 29.875% [1- (1-0.15)*(1-0.175)] chance of a bad outcome (you either die before 65 or run out of money or both).

So that's not a convincing argument to me.

Mr. Green

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Re: For those who follow the 4% rule
« Reply #66 on: February 17, 2017, 01:08:41 PM »
So let's go back to the Russian Roulette example with the 20 bullet magazine. If someone offered you $10M for for a "shot", you could argue that as a 30-year old male in the US you have a better chance of dying before the age of 65 than you do of dying from this action. If a 5% failure rate is enough to keep you from taking the "shot", what does a 17.5% of dying do?
This makes no sense. You're comparing the 17.5% chance that someone will die within the next 35 years to the 5% chance that he will die right now.

I haven't examined this thoroughly, but at first glance it seems that the problem is that you're adding risk. Now that risk is lower than your base risk (dying before 65), but it is (in first approximation) independent and and an additional risk. Therefore the probability for a bad outcome goes up, meaning you either die before 65 or run out of money (or both).

So you are now going (using Sol's chart and again assuming that those two events are independent) from a 17.5% chance of a bad outcome (you'll die before 65) to a 29.875% [1- (1-0.15)*(1-0.175)] chance of a bad outcome (you either die before 65 or run out of money or both).
You can't simply multiply the numbers together because a requirement for running out of money is being alive.

Edit: typo
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Ursus Major

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Re: For those who follow the 4% rule
« Reply #67 on: February 17, 2017, 01:52:18 PM »
So let's go back to the Russian Roulette example with the 20 bullet magazine. If someone offered you $10M for for a "shot", you could argue that as a 30-year old male in the US you have a better chance of dying before the age of 65 than you do of dying from this action. If a 5% failure rate is enough to keep you from taking the "shot", what does a 17.5% of dying do?
This makes no sense. You're comparing the 17.5% chance that someone will die within the next 35 years to the 5% chance that he will die right now.

You can substitute any other example of an event with a bad outcome  if you like.

I haven't examined this thoroughly, but at first glance it seems that the problem is that you're adding risk. Now that risk is lower than your base risk (dying before 65), but it is (in first approximation) independent and and an additional risk. Therefore the probability for a bad outcome goes up, meaning you either die before 65 or run out of money (or both).

So you are now going (using Sol's chart and again assuming that those two events are independent) from a 17.5% chance of a bad outcome (you'll die before 65) to a 29.875% [1- (1-0.15)*(1-0.175)] chance of a bad outcome (you either die before 65 or run out of money or both).
You can't simply multiply the numbers together because a requirement for running out of money is being alive.

I did state that that in first approximation I regarded the events as independent, so the approach is correct for that assumption. Now I understand you disagree with that assumption, so let's dig into this a little more: The combined probability in the model for running out of money and dying would be 2.625% [15%*17.5%]. So if you'd like to exclude those, then the probability or either running out of money or dying (but not both!) is 27.25% [29.875%-2.625%]

So the probability of dying before 65 or running out of money or both is somewhere between 27.25% and 29.875%. Where exactly between those numbers would depend on how the risks of dying and the risks of running out of money were distributed and correlated. But we don't need to look at that, because, we can look at the lower bounds. 

So you are now going (using Sol's chart and again assuming that those two events are independent) from a 17.5% chance of a bad outcome (you'll die before 65) to a chance of at least 27.25% of a bad outcome. Still an unconvincing argument to me.

Now I am the first to admit that sometimes I make calculation error and that my command of statistics is not as strong, as I'd like it to be. If I've made a mistake, I hope that someone could point out the error in my thinking and propose a better model and/or more accurate calculation.

sol

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Re: For those who follow the 4% rule
« Reply #68 on: February 17, 2017, 02:38:34 PM »
The number of decimal places in this thread amuses me. You're all WAY to focus on the details of results that have enormous error bars.

The statistically "correct" amount of money to save is the one that gives your SWR a 50% success rate.  Beyond that you're probably oversaving.  You can buy additional security with additional years at your desk job, but they're probably wasted years.

Everyone can reduce expenses in an emergency.  No matter what you spend, somebody somewhere is happy spending half that amount and you could be too.  Beyond a 50% success rate, you're most likely to never have to reduce spending ever again.

So the real problem here isn't the math, it's your spending.  If you want to spend more, you have to work longer.  If you want to retire earlier, you have to spend less. This isn't that complicated.  Don't pretend you've found some secret loophole in the simple math to justify your desire to spend more, you don't need one. Just accept working longer to spend more.  I won't judge.

Libertea

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Re: For those who follow the 4% rule
« Reply #69 on: February 17, 2017, 07:03:21 PM »
People have to do what they feel comfortable with.  Personally, I want to be like a big ten bank: too big to fail (TBTF).  And I also wanted to quit my job.  So I semi-retired, which allowed me to do both at the same time.  (My work schedule is more likely to take the form of working for a while, then taking time off, then working for a while, as opposed to working PT constantly.)  That being said, I didn't really want to quit working altogether; I just wanted to quit that particular job.  I wonder if maybe more people who are on the cusp of FI but not TBTF might ought to consider doing a PT or lifestyle job instead of a "career" per se.  The more I think about it, the less sense it makes to me to wait until FI(RE) to start enjoying my life.  The fact that I was burned out on my job was reason enough to go very PT if not quit it altogether.

FWIW, my future boss (I go back to work at the end of June) doesn't know yet that I don't intend to get a real job after I do my paid internship. :-p

steveo

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Re: For those who follow the 4% rule
« Reply #70 on: February 17, 2017, 07:56:29 PM »
The number of decimal places in this thread amuses me. You're all WAY to focus on the details of results that have enormous error bars.

The statistically "correct" amount of money to save is the one that gives your SWR a 50% success rate.  Beyond that you're probably oversaving.  You can buy additional security with additional years at your desk job, but they're probably wasted years.

Everyone can reduce expenses in an emergency.  No matter what you spend, somebody somewhere is happy spending half that amount and you could be too.  Beyond a 50% success rate, you're most likely to never have to reduce spending ever again.

So the real problem here isn't the math, it's your spending.  If you want to spend more, you have to work longer.  If you want to retire earlier, you have to spend less. This isn't that complicated.  Don't pretend you've found some secret loophole in the simple math to justify your desire to spend more, you don't need one. Just accept working longer to spend more.  I won't judge.

Sol - I am on the same page as yourself when it comes to WR's however I think people like Ursus Major aren't really worried about spending more. They really seem to be focussed on getting close to a 100% success rate with the same level of spending. It really appears to be about managing the risk of retiring in one of those years that are exceptionally bad without reducing your spending by one cent. It sounds extreme to me however that appear to be what they are stating.

Mr. Green

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Re: For those who follow the 4% rule
« Reply #71 on: February 17, 2017, 08:38:19 PM »
The number of decimal places in this thread amuses me. You're all WAY to focus on the details of results that have enormous error bars.

The statistically "correct" amount of money to save is the one that gives your SWR a 50% success rate.  Beyond that you're probably oversaving.  You can buy additional security with additional years at your desk job, but they're probably wasted years.

Everyone can reduce expenses in an emergency.  No matter what you spend, somebody somewhere is happy spending half that amount and you could be too.  Beyond a 50% success rate, you're most likely to never have to reduce spending ever again.

So the real problem here isn't the math, it's your spending.  If you want to spend more, you have to work longer.  If you want to retire earlier, you have to spend less. This isn't that complicated.  Don't pretend you've found some secret loophole in the simple math to justify your desire to spend more, you don't need one. Just accept working longer to spend more.  I won't judge.

Sol - I am on the same page as yourself when it comes to WR's however I think people like Ursus Major aren't really worried about spending more. They really seem to be focussed on getting close to a 100% success rate with the same level of spending. It really appears to be about managing the risk of retiring in one of those years that are exceptionally bad without reducing your spending by one cent. It sounds extreme to me however that appear to be what they are stating.
I was essentially trying to say the same thing. If the chances of running out of money are 3 in 20 AND that risk can be mitigated in any number of ways (going back to work, reducing spending, etc.) AND the chances or dying within the next 35 years are 1 in 6 (in my example), I think continuing to work for the sake of blindly withdrawing 4% and never require adjusting is a waste, assuming that's the only thing keeping someone at the job.  It's all up to the individual though. This topic has certainly been beaten to death on many occasions.
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Re: For those who follow the 4% rule
« Reply #72 on: February 18, 2017, 12:41:53 AM »
The number of decimal places in this thread amuses me. You're all WAY to focus on the details of results that have enormous error bars.

The statistically "correct" amount of money to save is the one that gives your SWR a 50% success rate.  Beyond that you're probably oversaving.  You can buy additional security with additional years at your desk job, but they're probably wasted years.

Everyone can reduce expenses in an emergency.  No matter what you spend, somebody somewhere is happy spending half that amount and you could be too.  Beyond a 50% success rate, you're most likely to never have to reduce spending ever again.

So the real problem here isn't the math, it's your spending.  If you want to spend more, you have to work longer.  If you want to retire earlier, you have to spend less. This isn't that complicated.  Don't pretend you've found some secret loophole in the simple math to justify your desire to spend more, you don't need one. Just accept working longer to spend more.  I won't judge.

Sol - I am on the same page as yourself when it comes to WR's however I think people like Ursus Major aren't really worried about spending more. They really seem to be focussed on getting close to a 100% success rate with the same level of spending. It really appears to be about managing the risk of retiring in one of those years that are exceptionally bad without reducing your spending by one cent. It sounds extreme to me however that appear to be what they are stating.
I was essentially trying to say the same thing. If the chances of running out of money are 3 in 20 AND that risk can be mitigated in any number of ways (going back to work, reducing spending, etc.) AND the chances or dying within the next 35 years are 1 in 6 (in my example), I think continuing to work for the sake of blindly withdrawing 4% and never require adjusting is a waste, assuming that's the only thing keeping someone at the job.  It's all up to the individual though. This topic has certainly been beaten to death on many occasions.

I understood what you were stating as well. If you compare the likelihood of portfolio failure to the likelihood of death I think that people's bias towards working longer should change however I don't think that they actually do change. Some people just look at the worst case and manage to that.

I see the assumptions behind the 4% WR as pretty extreme on the safety side however it comes down to each individuals appetite for risk and the opportunity cost they associate with working. I know that every time I get sucked into these threads I start off thinking maybe I should be more safe and by the time I'm done I think that I'm being too cautious. I've now gone back into cfiresim and looked at the 50% point for myself.

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Re: For those who follow the 4% rule
« Reply #73 on: February 18, 2017, 07:28:42 AM »
I've now gone back into cfiresim and looked at the 50% point for myself.

What do you think? Are you over saving if you push for 4%?

50% success rate is about a 6% WR (I get 6.4% for 30years).

Someone with half their spending covered by a pension and with healthcare covered could do this. It's a bit risky for those of us relying on our investment portfolio for 100% of spending for 20 or 30 years before SS kicks in. IMO.

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Re: For those who follow the 4% rule
« Reply #74 on: February 18, 2017, 08:52:51 AM »
People have to do what they feel comfortable with.  Personally, I want to be like a big ten bank: too big to fail (TBTF).  And I also wanted to quit my job.  So I semi-retired, which allowed me to do both at the same time.  (My work schedule is more likely to take the form of working for a while, then taking time off, then working for a while, as opposed to working PT constantly.)  That being said, I didn't really want to quit working altogether; I just wanted to quit that particular job.  I wonder if maybe more people who are on the cusp of FI but not TBTF might ought to consider doing a PT or lifestyle job instead of a "career" per se.  The more I think about it, the less sense it makes to me to wait until FI(RE) to start enjoying my life.  The fact that I was burned out on my job was reason enough to go very PT if not quit it altogether.

FWIW, my future boss (I go back to work at the end of June) doesn't know yet that I don't intend to get a real job after I do my paid internship. :-p

I plan on going PT next year. I don't want to wait until I get to 4% WR territory. My life is too precious and once you free up a ton more time to do what you want a lot of the negative impacts of FT are mitigated very well.

Unlike you I would be happy to quit working altogether. I have so many items on my bucket list that even once FIREd I'll be making tough choices with what to do with my time.

I'll FIRE at a 4.5% to 5% WR rate most likely based on my current projections. I'll manage the risk of portfolio failure by using a combination of a variable withdrawal rate and a rising equity  glide path. Neither of those methodologies cost me more time, but they mitigate the key financial FIRE failure risks.

What I like about your plan is that you are looking beyond your FIRE spreadsheet and $$/% to come up with a plan that takes into account the critical lifestyle elements that are not inputs to cFIREsim.

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Re: For those who follow the 4% rule
« Reply #75 on: February 18, 2017, 08:59:37 AM »
What do you think? Are you over saving if you push for 4%?

50% success rate is about a 6% WR (I get 6.4% for 30years).

Punching the numbers I posted above for a 30yr retirement at the lower starting $ value I get ~97% success in cFIREsim without Gov't benefits and 100% with them for 30yrs and 99% success incl Gov't benefits for 50yrs.

That's without getting my investments to 25 times my average annual spending target before FIRE.

I hit a 50% success rate 2yrs ago. So most likely I've already worked far too long. I probably should have FIREd at ~75%. You can call the time between then and when I FIRE my FEAR Tax. ;)
« Last Edit: February 18, 2017, 09:09:20 AM by Retire-Canada »

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Re: For those who follow the 4% rule
« Reply #76 on: February 18, 2017, 10:34:23 AM »
I've said it before and I'll say it again. If you're a 30 year old male in the US, you have a better chance of dying before the age of 65 than you do of running out of money (using Sol's chart). Only 82.5% of 30 year-old males make it to 65. If a 15% failure rate is enough to keep you working, what does a 17.5% chance of dying do?

That's an interesting way of thinking about it.

I tried running some sims assuming 4% withdrawals, 100% stocks, and the actuarial life tables from the social security administration for men from ages 30-100. Stock return data is from shiller.



To get around the issue discussed both here and in other threads that extremely long retirement windows can actually increase success rates by taking bad years like 1966 out of the dataset, I calculated the chance of portfolio failure in each year separately using only all possible starting months which had enough data to project out a portfolio that number of years, but excluding starting months which had already gone broke in earlier years. What this means is that the data on failures during year 30 is based on data from simulated retirements starting in 1390 different months, while the data on failures in year 70 (age 100 for someone who retires at 30) is based on only 910 months worth of data. Less than ideal, but it means we won't throw out data on portfolios that failed in 25 years just because we don't have data on how they'd perform in 60 years.

Conclusions:
1. The longer your retirement the lower the chance that you'll have less money than you started with (you'll either be broke or have more money than you know what to do with).
2. Baring major technological advances, we're all dead in the long run.

Both are reasonably obvious conclusions, but I find at least for myself that they feel more real when I can see them graphically rather than arguing back and forth about percentages.
« Last Edit: February 18, 2017, 02:53:43 PM by maizeman »
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Re: For those who follow the 4% rule
« Reply #77 on: February 18, 2017, 10:49:14 AM »
For comparison, here are 5%, 4%, and 3.5%, also assuming our hypothetical person retires early at 30, and their retirement lasts until death.



This also lets us calculate FIRE success rates in terms of "don't run out of money before you die" instead of "don't run out of money over X years" which is probably a more relevant number to most of us. For a 30 year old man:

A 5% withdrawal rate has a 21.3% chance of failure before death
A 4% withdrawal rate has a 5.6% chance of failure before death
A 3.5% withdrawal rate has a 0.6% chance of failure before death.

I can regenerate these with the actuarial numbers for a 30 year old woman as well (noticeably less grey in the top right), just don't want to overspam the thread.

Edit: Thanks to sol for pointing out the original graphs lacked a y-axis label.
« Last Edit: February 18, 2017, 02:54:50 PM by maizeman »
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Re: For those who follow the 4% rule
« Reply #78 on: February 18, 2017, 11:13:13 AM »
The words we use to describe probabilities are an interesting and ambiguous bunch. Apologies in advance for the following nitpicking, I think we're generally in agreement on this topic.

The number of decimal places in this thread amuses me. You're all WAY to focus on the details of results that have enormous error bars.

Yup. I think calculating the numbers is fun, but no argument here about the enormous error bars inherent in trying to predict the future.

Quote
The statistically "correct" amount of money to save is the one that gives your SWR a 50% success rate.  Beyond that you're probably oversaving.  You can buy additional security with additional years at your desk job, but they're probably wasted years.
"Probably" is a loaded word. The only study I know of (http://sourcesandmethods.blogspot.com/2008/02/part-2-to-kent-and-beyond-what-do-words.html) found that people tend to regard an event described as "probably" going to happen as having about 75% odds. So I would say you're probably not oversaving until you hit a success rate of 75%.
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Re: For those who follow the 4% rule
« Reply #79 on: February 18, 2017, 12:44:36 PM »
Maizeman, graphs without labelled axes make me a sad panda.

And can you explain what you've done a little better?  Are you assuming a person retires at 30 years old, such that age 50 means 20 years of living off of each SWR?  Because these success/mortality graphs get VERY different for people who retire at later ages.
« Last Edit: February 18, 2017, 03:05:46 PM by sol »

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Re: For those who follow the 4% rule
« Reply #80 on: February 18, 2017, 01:35:33 PM »
Sol, yes all of these are based off of retiring at 30. The graphs are based off of essentially two numbers (let's leave aside the light blue vs dark blue distinction).

The SSA provides a number that is essentially the "risk of death" for a person in a given year based off of their age and gender. By looking at the inflation adjusted returns of the different 100% stock portfolio histories by starting in each different month of Shiller's dataset of 1871-present stock market returns, I calculated a "risk of bankruptcy" in a given year, using the number of years since a person started taking withdrawals from their portfolios and the withdrawal rate they've been using.

With those two numbers, it's just a matter of calculating proportions. At the start 100% of people are alive, 30 years old, none of them are bankrupt. Over the next year X% go bankrupt*, and 0.1505% of both bankrupt and non-bankrupt people die. Then at the start of the second year, 99.8405% of people are alive, 31 years old, and none of them are bankrupt. The graph continues that on for the next 70 years (so at the end 0.57% people are alive and 101 years old and 0.05% of people are alive and broke).

Age at FIRE, gender (different life expectancy), and withdrawal rate used are all going to chance the shape of the graph. In principle it'd also be possible to generate these for different investment mixes but *shrug* gotta draw the line somewhere.

*Actually with a 4% withdrawal rate and 100% stocks, no one manages to go bankrupt in year 1, but hopefully you see my point. With a 4% withdrawal rate the first year with a non-zero bankruptcy probability is year 17. Of the 1,546 start months with enough history to calculate stock returns out 17 years, one drops below zero during that year, giving a bankruptcy risk rate of 0.065% for 17 years into FIRE with a 4% withdrawal rate.
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Re: For those who follow the 4% rule
« Reply #81 on: February 18, 2017, 03:47:28 PM »
I've now gone back into cfiresim and looked at the 50% point for myself.

What do you think? Are you over saving if you push for 4%?

50% success rate is about a 6% WR (I get 6.4% for 30years).

Someone with half their spending covered by a pension and with healthcare covered could do this. It's a bit risky for those of us relying on our investment portfolio for 100% of spending for 20 or 30 years before SS kicks in. IMO.

I think 50% is a bit risky when it comes to 20 to 30 years until SS kicks in however it depends on your buffers. From my perspective though some people aren't taking into account SS. So they are planning for a really high success rate with assumptions that are already pretty extreme on the safety side.

My perspective now is to look at the 50% success rate within reason. So I'm not quitting as soon as I get to 50% but when I hit a round number or finish a year of work when I'm past the 50% success rate it's a good time for me to consider ER. I'm also looking at the 50% success rate as a better target than a 95% success rate.

I have a little different scenario though in that I live in Australia and I can't touch my old man money until I'm 60. So once I get to a 50% chance of making it to 60 without working I will probably consider myself FI and work out my retirement date from that point. Once I get to that 50% level though I'll be at close to an 70%-80% success rate and that excludes all the in my opinion harsh assumptions such as never working again, no SS, no inheritance, no reduced spending or downsizing.

So my conclusion is that we all have to work through the assumptions of the 4% WR ourselves and specific to our scenarios but there is no need to be overly safe and manage to the 1 to 2 years out of 100 where you follow the WR blindly and don't succeed.

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Re: For those who follow the 4% rule
« Reply #82 on: February 18, 2017, 04:03:29 PM »
This also lets us calculate FIRE success rates in terms of "don't run out of money before you die" instead of "don't run out of money over X years" which is probably a more relevant number to most of us. For a 30 year old man:

A 5% withdrawal rate has a 21.3% chance of failure before death
A 4% withdrawal rate has a 5.6% chance of failure before death
A 3.5% withdrawal rate has a 0.6% chance of failure before death.

This is interesting. I'm now 43 and I won't be retired for a number of years. Best case I think 2 more years. I assume the data for someone retiring at 50 is a fair bit different as well. I also think that this analysis needs to clarify the key assumptions that are relevant within the 4% SWR - i.e. no SS, inheritance, reduced spending, any further income or gain in assets from for instance selling your house. I have 3 kids and live in a city with some of the highest house prices in the world and I own my house.

To me the assumptions of the 4% SWR are unrealistic and err on the side of safety. I would also use the same assumptions if I was doing the analysis but when I'm making a subjective call on my target I need to take all of these assumptions into account.

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Re: For those who follow the 4% rule
« Reply #83 on: February 18, 2017, 04:41:18 PM »
Indeed the analysis looks different for a man retiring at 45 with a 6% withdrawal rate (that's what you proposed upthread, correct?)



And the risk of running out of money before death is 29.6%.

As for all the other factors unique to your personal situation, it's certainly reasonable for you to factor them into your own projections.

Personally I happily expect no inheritance and SS is so far away it doesn't actually alter the success rate appreciably whether I include it or not (either I'll go broke before I can claim it, or I'll have enough money I won't need it.)

Everyone ultimately needs to run their own numbers to see what they're comfortable with, but I really like Mr. Green's idea of combining data from mortality tables with stock market projects to get the actual risk of running out of money before death, rather than just saying something like "I'm thirty now, and I plan to live to 90, so what's the success rate of strategy X over 60 years."
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Re: For those who follow the 4% rule
« Reply #84 on: February 18, 2017, 04:43:09 PM »
That's an interesting way of thinking about it.

I tried running some sims assuming 4% withdrawals, 100% stocks, and the actuarial life tables from the social security administration for men from ages 30-100. Stock return data is from shiller.



Thank you for the graphs. That really does help illustrate the situation. Could I trouble you for a 4%WR graph for someone retiring at 50?

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Re: For those who follow the 4% rule
« Reply #85 on: February 18, 2017, 04:48:16 PM »
Sure thing! Also wow, FIREing at 50 definitely makes the failure case for 4% a lot less prominent.



Chance of running out of money before death is 2.4%, less than half what the same withdrawal rate provides at 30.
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Re: For those who follow the 4% rule
« Reply #86 on: February 18, 2017, 07:04:47 PM »
Indeed the analysis looks different for a man retiring at 45 with a 6% withdrawal rate (that's what you proposed upthread, correct?)



And the risk of running out of money before death is 29.6%.

As for all the other factors unique to your personal situation, it's certainly reasonable for you to factor them into your own projections.

Personally I happily expect no inheritance and SS is so far away it doesn't actually alter the success rate appreciably whether I include it or not (either I'll go broke before I can claim it, or I'll have enough money I won't need it.)

Everyone ultimately needs to run their own numbers to see what they're comfortable with, but I really like Mr. Green's idea of combining data from mortality tables with stock market projects to get the actual risk of running out of money before death, rather than just saying something like "I'm thirty now, and I plan to live to 90, so what's the success rate of strategy X over 60 years."

Thanks for this - this is great. You are correct in that we all need to run our own numbers but looking at this makes me realise how close we are to being able to retire. I suppose I want some buffer because I don't want to worry about going back to work but that buffer doesn't have to be crazy. There is no way I need to get to a 3% or even 4% WR.

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Re: For those who follow the 4% rule
« Reply #87 on: February 18, 2017, 08:16:14 PM »
These graphs are fun.

But I feel I should point out there are a couple of options that aren't well captured in these sorts of scenarios.  For example, social security and pensions that kick in at a specified age effectively shorten your retirement "lifespan" if they can support your costs once you reach that age.  Look at how much red you can remove from those graphs if you get to exclude everything after age 65.  In my case, for example, our pensions and SS payments will fully cover our expenses after only 21 years, so my entire FIRE nest egg only has to last that long.  That's EASY!

Also, the probability of an early death isn't entirely independent of the probability of a market crash, which is one assumption in these graphs.  Big crashes, like the kind associated with depressions and wars, are definitely associated with increased mortality rates.  Also, you always have the option of ending your life if you've arrived at that worst case financial scenario.  I know several people whose longevity insurance policy is euphemistically referred to as "self termination".


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Re: For those who follow the 4% rule
« Reply #88 on: February 18, 2017, 08:17:56 PM »
Sure thing! Also wow, FIREing at 50 definitely makes the failure case for 4% a lot less prominent.



Chance of running out of money before death is 2.4%, less than half what the same withdrawal rate provides at 30.

Thank you. This is a great way to appreciate the data that numbers alone don't convey. It's useful to see the "Go Broke" zone relative to the "I'm Dead" zone. That helps focus me on what's important. Living my life not being chained to a desk to mitigate the risk of running out of money.

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Re: For those who follow the 4% rule
« Reply #89 on: February 18, 2017, 08:44:36 PM »
These graphs are fun.

But I feel I should point out there are a couple of options that aren't well captured in these sorts of scenarios.  For example, social security and pensions that kick in at a specified age effectively shorten your retirement "lifespan" if they can support your costs once you reach that age.  Look at how much red you can remove from those graphs if you get to exclude everything after age 65.  In my case, for example, our pensions and SS payments will fully cover our expenses after only 21 years, so my entire FIRE nest egg only has to last that long.  That's EASY!

Also, the probability of an early death isn't entirely independent of the probability of a market crash, which is one assumption in these graphs.  Big crashes, like the kind associated with depressions and wars, are definitely associated with increased mortality rates.  Also, you always have the option of ending your life if you've arrived at that worst case financial scenario.  I know several people whose longevity insurance policy is euphemistically referred to as "self termination".

Well it's straightforward enough to incorporate things like social security or pensions into these types of analysis if you're considering them for your own projections, just a couple more lines of code than the version I'm using.

I agree that the actual probability of early death is somewhat correlated with major negative economic events, however, the mortality tables I'm using don't capture that type increased death rate anyway, since they use a single year's worth of data (2013 in this case, somewhat lacking in major wars or economic catastrophes in the USA) to estimate death rates for people at a given age at the start of each year.

Killing myself because I'd run out of money and don't want to be homeless on the streets in old age is definitely an option, but I'd still consider that to still fall into the set of outcomes classified as "portfolio failures" and plan my strategy based on what the acceptable risk of failure I'm willing to tolerate may be. 
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Re: For those who follow the 4% rule
« Reply #90 on: February 19, 2017, 02:13:27 PM »
Sure thing! Also wow, FIREing at 50 definitely makes the failure case for 4% a lot less prominent.



Chance of running out of money before death is 2.4%, less than half what the same withdrawal rate provides at 30.

Many thanks for that graph. Talk about perspective!

I am totally, completely done taking on big work projects once I've finished the one I'm doing. I worked part time all last year, my transition year. Then this year I took on a big project for old clients. It's lucrative, but not enough to compensate for having to work full time for weeks on end when we absolutely don't need the money.

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Re: For those who follow the 4% rule
« Reply #91 on: February 19, 2017, 09:22:37 PM »
Unless your pension is a Calif state pension

It's not, but I understand the sentiment.  America has a nasty habit of breaking its promises to its workers in the pursuit of short term profits.

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Re: For those who follow the 4% rule
« Reply #92 on: February 20, 2017, 07:38:58 AM »
Heading a bit off topic, inspired by the graphs...I was talking with my dad last night, telling him about this project I'm working on and how they changed the schedule so a nice and easy part time gig turned into a full time frenzy. It ain't right, me being semi retired and all. He was laughing. He started full time work off the farm at age 15 and retired at age 72, after he was daignosed with kidney failure and began dialysis.

Working is easy, we both agreed. An easy default. He is surprisingly in favor  of my semi retirement, but skeptical that I will fully retire, pretty much ever. I am a chip off the old block it is true and was raised in this workaholic environment. I am determined not to follow in his footsteps on this.

Thanks again y'all for the inspiring discussions (this and other threads).

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Re: For those who follow the 4% rule
« Reply #93 on: February 20, 2017, 08:26:02 AM »
I'm glad you are resisting the pull to work too long. I think a lot of people equate retiring with sloth. Personally I'll be far more physically active once I FIRE than now. I'll be just as busy. The only difference will be that I'll be doing things I enjoy. I'll also be spending a lot less time sitting at a desk, which will be great for my health.

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Re: For those who follow the 4% rule
« Reply #94 on: February 20, 2017, 12:07:40 PM »
Spartana, you and the rest of my Left Coast Mustachean friends stay safe out there.

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Re: For those who follow the 4% rule
« Reply #95 on: February 21, 2017, 03:36:10 PM »
God, those are good graphs maizeman.

Thanks for taking the time to share!



Chance of running out of money before death is 2.4%, less than half what the same withdrawal rate provides at 30.

Wow.  That red is such a tiny sliver.  Compare that to the grey, ugh.

And people work OMY for several MY worrying about that tiny red slice (which itself can be mitigated via income or cutting expenses).  How sad.
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Re: For those who follow the 4% rule
« Reply #96 on: February 22, 2017, 09:18:42 PM »
I realize that I'm late to this party, but at one point I shared UM's concerns, so I'm sympathetic. I was running 60 year retirement scenarios in FIREcalc, and using the standard 4% withdrawal rate, the probability of success was coming out at about 83%.  But adding in expected social security brought that up to 91%, and changing the fees in the calculator from .15 to .05% (Some Vanguard funds are .03%) brought it to 97%. The exact numbers will differ by how long you have until SS and how much you're going to get, but those are known quantities that can be accounted for. 

I also find Michael Kitces' argument for increasing withdrawal rates above 4% when the CAPE is at average-to-low levels compelling: https://www.kitces.com/wp-content/uploads/2014/11/Kitces-Report-May-2008.pdf.  He tells a hypothetical story about two couples with identical retirement portfolios.  One decides to retire immediately using 4% SWR.  The other decides to work one more year.  In the intervening year, the market has a moderately severe downturn.  So now the second couple, following the 4% rule, actually withdraws less than the first couple even thought they have a larger net worth.  That doesn't seem right.  Kitces' resolution to this paradox is to point out that there is a strong inverse correlation between CAPE and SWR.  The second couple could withdraw more than 4% because after the downturn the CAPE is lower, allowing for a higher SWR. 

As far as I know, there is no calculator that would allow me to run a 60-year scenario with withdrawal rates increased above 4% based on the CAPE, but once I'm retired, I'll have time to run the numbers myself. 

MasterStache

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Re: For those who follow the 4% rule
« Reply #97 on: February 23, 2017, 12:14:03 PM »
God, those are good graphs maizeman.

Thanks for taking the time to share!



Chance of running out of money before death is 2.4%, less than half what the same withdrawal rate provides at 30.

Wow.  That red is such a tiny sliver.  Compare that to the grey, ugh.

And people work OMY for several MY worrying about that tiny red slice (which itself can be mitigated via income or cutting expenses).  How sad.
I can't even see a sliver of the red line (of doom?!) on my phone so must be very tiny indeed. And that graph doesn't cover the possibility and greater likelihood of disability and inability due to aging . Death might not be the only problem you have if waiting too long to retire. Pretty sure the 25 years in retirement between 40 and 65 I'm going to have will be much more physically and mentally fit and healthy than the 25 years between 65 and (gulp) 90.

+1. Although not retired yet (soon to be a part-timer), I already know I will be way more physically active with less cubicle time. Barring some unforeseen catastrophe, 90 is a likelihood as I have 3 grandparents in their 90s and still mentally competent. One is approaching 100.


AZryan

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Re: For those who follow the 4% rule
« Reply #98 on: February 23, 2017, 01:59:32 PM »
rachael talcott,

I think you mainly should focus on 'sequence of returns' risk. Your first decade in retirement is what will set up the rest of your results, and you'll know long before you hit even 20 years of retirement if it's failing.
Being adaptable and proactive during that timeframe is just about all anyone needs to do.

CAPE can be helpful, but how it's measured is not the same as it was, so it's not historically consistent. Don't have the link, but there was a detailed rundown on it that made the case that the historical avg. of ~16 should probably be considered ~20 as it's measured now.

So with CAPE ~29, things are overvalued, but not quite as much as it seems. In 30 years, it almost never dropped down to that old avg., much less gone below it. Even after the 'lost decade' of the 2000's dot com bust and huge 2008 crash, CAPE only touched ~15 for a blip before shooting back up. Unless you think that means we're in for a GIGANTIC reversion that will devastate the market for the next 30+ years, I think CAPE's not very helpful or that predictive going forward.

markbike528CBX

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Re: For those who follow the 4% rule
« Reply #99 on: February 24, 2017, 12:29:54 AM »
+1. Although not retired yet (soon to be a part-timer), I already know I will be way more physically active with less cubicle time. Barring some unforeseen catastrophe, 90 is a likelihood as I have 3 grandparents in their 90s and still mentally competent. One is approaching 100.

Howard family members have this problem....   :-)
https://en.wikipedia.org/wiki/Howard_families

My oldest known ancestor died at 92 (great grandmother), every body else at less than 86 (paternal grandfather).  My wife's female ancestors are much older, so I'm setting 96 as her date (she said so, must obey).  Let the great grandkids-to-be fight over the inheritance.