Author Topic: Oh no, MMM's! We're doomed!  (Read 5228 times)

Guitarist

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Oh no, MMM's! We're doomed!
« on: April 02, 2012, 11:11:55 AM »

shedinator

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Re: Oh no, MMM's! We're doomed!
« Reply #1 on: April 02, 2012, 11:34:48 AM »
Suddenly my 1% plan is looking all sorts of awesome :D

MMM

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Re: Oh no, MMM's! We're doomed!
« Reply #2 on: April 02, 2012, 11:58:09 AM »
I love the 4% rule - I think the only people that doubt it are the ones who take it too literally.

 And of course, the ones who don't understand it, like the authors of the article who suggested that the 4% rule didn't take inflation into account (stock holdings are automatically protected from inflation!).

My own variation on the rule is: you're very much ready for early retirement when your assets meet the 4% rule assuming a fairly cozy level of annual spending.

But you're still going to earn some money in retirement. Not every year, but surely some years. It's inevitable over a 50+ year period of financial independence.

And you're not going to live in a bubble, blindly increasing your spending every year even during the inevitable financial crises that happen over the decades.

These added parameters of flexibility eliminate those corner cases that cause the 4% rule to fail occasionally. So in reality, the Mustachian approach is to retire using the "1%-to-6% rule, averaging around 4% based on current economic forecasts".


menorman

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Re: Oh no, MMM's! We're doomed!
« Reply #3 on: April 07, 2012, 10:11:29 AM »
I'd also like to point out that the article is focused toward people under the assumption that they'll sell their assets to support their retirement spending of $80k/year. Of course, they make no mention of the retirees probably spending substantially less than that annually, thereby finding out that their money lasts awhile. Also, it relies on selling the securities. If one invested in growth stocks that don't pay dividends, then that will be necessary since I doubt you can do much shopping w/ a portfolio of shares. But if someone has developed their MM and passive income streams that meet or exceed it years in advance of retirement, they may not even need to get near their brokerage for a long time. If the majority of the holdings are still in stocks, but ones that pay dividends, just build a dividend stream that covers expenses. When living off dividends, the share price matters less than the dividend payouts and as long as the company stays strong, no reason to jump ship. Also, enough companies raise their dividend annually at a rate that handily outpaces inflation, so again the principal still can remain intact. Of course, none of this information is presented to the masses in anything more than fleeting references.

Tyler

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Re: Oh no, MMM's! We're doomed!
« Reply #4 on: April 07, 2012, 01:40:19 PM »
I have no doubt that anyone who would base their annual spending solely on what a calculator said was "safe" years ago may find at some point that a rigid 4% drawdown could cause problems.  Being smart and flexible is way more important than a fixed SWR.  For example, if the author lifted their nose from the excel spreadsheet long enough to consider getting a simple, part-time job in years where the market fell to make up the difference, that typical 4% in normal years looks a lot more sustainable.

arebelspy

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Re: Oh no, MMM's! We're doomed!
« Reply #5 on: April 07, 2012, 10:41:38 PM »
Pfau recently coauthored a paper about the fact that 4% may be too low for a typical retiree (not early, but read the paper for conclusions).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

vwDavid

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Re: Oh no, MMM's! We're doomed!
« Reply #6 on: April 11, 2012, 01:38:09 PM »
I'd also like to point out that the article is focused toward people under the assumption that they'll sell their assets to support their retirement spending of $80k/year. Of course, they make no mention of the retirees probably spending substantially less than that annually, thereby finding out that their money lasts awhile. Also, it relies on selling the securities. If one invested in growth stocks that don't pay dividends, then that will be necessary since I doubt you can do much shopping w/ a portfolio of shares. But if someone has developed their MM and passive income streams that meet or exceed it years in advance of retirement, they may not even need to get near their brokerage for a long time. If the majority of the holdings are still in stocks, but ones that pay dividends, just build a dividend stream that covers expenses. When living off dividends, the share price matters less than the dividend payouts and as long as the company stays strong, no reason to jump ship. Also, enough companies raise their dividend annually at a rate that handily outpaces inflation, so again the principal still can remain intact. Of course, none of this information is presented to the masses in anything more than fleeting references.

In fact in other forums on this very website there are faithful MMM readers that do not accept dividend based strategies...waiting for the pounce...