Author Topic: 4% SWR Sacrosanct? Interesting international study  (Read 10723 times)

Wadiman

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4% SWR Sacrosanct? Interesting international study
« on: February 11, 2015, 02:34:01 AM »
I initially posted this on the australian investing thread and the readers there suggested posting it here for other 'stachers' to check out:

http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2

It discusses some general considerations for safe withdrawal rates and looks at Australia, NZ, Netherlands, Japan and Italy in some detail based on historical data.

Table 2 (p15) is very interesting from an international perspective - it  provides a ranking of annualised performance (stocks, real accumulated returns) from 1900 - 2011.

Financial.Velociraptor

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #1 on: February 11, 2015, 07:33:19 AM »
I went FIRE on 5OCT2012 and use a much greater than 4% WR.  I got into a lot of high yielding stocks plus tax exempt leveraged municipal bond funds before the market started chasing yield and have a net 9.85% blended yield on my portfolio.  I consider anything under 9% "safe" as that does not touch principal and still leaves me room for capital appreciation.

4SWR is something the financial industry invented to keep people wage slaves and fee generators until they have 25 times their lifestyle burn rate (too much IMO.)  Raptors and Stachians need to review their personal situation and think for themselves.

GoCubsGo

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #2 on: February 11, 2015, 08:05:38 AM »
Velociraptor- What SWR rate did you use as your basis to retire at what appears to be 40 year old?  What was your rationale as far as testing for different market situations that could crop up in your long retirement (e.g. did you run scenarios of Fireism etc). Did you factor in going back to work or a variable spending model in down markets?

From your post I'm assuming you retired with less than the "standard" 25x expenses (correct me if I'm wrong).  I like to hear from people that are actually living it and what their process was when then they pulled the plug as I wrestle with "how much is enough" all the time. 

Retire-Canada

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #3 on: February 11, 2015, 08:51:57 AM »
This is a topic near and dear to my heart. My investments are in the high growth phase and working very hard for me. However, I want to start taking money out in the next 5 - 10 years so I need to start some risk management planning against a stock market downturn right at that point.

I'm not a market expert so I'll leave that end of the discussion to someone else.

Quote
As retirees have no (or minimal) future income from their labour, income replacement (from retirement savings and/or the public pension) may have to last as long as 25 years, possibly more, particularly in the case of a couple.

Reading this part of the report I noted that for myself and I suspect a lot of folks reading this board neither of these two statements are true.

1. My retirement will be well over 40yrs

2. Earning additional money is easy

The first difference means the principal has to last longer - ideally be untouched when I die.  The second means I can top up my retirement to the tune of $30K - $40K without much trouble in say the first 15yrs-20yrs. At some point I won't want to work, but initially I expect to do some work.

Phased Retirement

- I'm currently working 40hrs/wk M-F w/ 5 weeks holiday/yr
- I'm planning on going to a 4 day work week next year and taking any raises as extra holiday once I've adjust my income for inflation
- when my investments have reach a sufficient size I plan to move to working 6 months or less a year 4 days a week earning as much as my planned SWR income
- if my investments go nuts I can skip this phase or drop down to an advisory role where I work 25% of the year on an as needed basis [I suspect I'll stay in this role for several decades even with great investment income just because it's fun.
- if my investments tank I can work 6 months of the year 4 days a week for 10-15yrs and feel awesome about my life while my investments sort themselves out

High SWR Income Plan

- I'm planning on getting $40K
- I can be comfortable on $30K
- I can live alone just fine on $20K
- I assume I'll retire alone, but I have a partner who is also planning to make $40K/yr in retirement
- so if we stay together or I am with someone else similar our planned combined income adjusted for inflation is $80K/yr!!!
- at 60 I'll get $8.4K/yr from gov't pension and at 67 I'll get a combined $15K from the gov't with my partner that will be something like $23K/yr combined and it's indexed

Smart Investing

- I'm not a uber investor, but I am learning fast
- as you progress through your retirement plan you need to adjust your investments accordingly
- 100% high growth equities the last year before you pull the plug is not smart
- adjusting your portfolio over time is smart
- I don't know if I'll ever buy any annuities or get into rental houses or something unrelated to stocks and bonds, but I may as my risk tolerance and desire for diversification increase

Eat Up That Principal

- I'd like to maintain my principal and setup some sort of trust for scholarships or something like that
- however, if I have to I can die penniless as I have no kids.
- being able to churn through $500K - $1M at say $20K/yr = 25 - 50yrs of income even if my investments only match inflation
- not ideal, but it's an option

Home Equity

- I don't include my home in my retirement planning calcs
- I can be happy living in an apartment
- I live in an expensive market and can drop home prices by 50% by moving not too far away
- I love travelling and can live in a van quite happily for at least a decade after retirement
- so I can sell my house and harvest that equity to fund my retirement if I need to give my investments time to rebound

Retirement Cost of Living Options

- I love to ride mountain bikes and surf [costs very little when you are at the destination]
- if I had very little income available from my investments say $10K/yr instead of $40K/yr I can load up my clown car and head to Baja or Costa Rica and live happily on the beach for months at a time for the cost of food.
- travelling for a decade in my truck would not be anything, but total awesome
- my $40K/yr plan is living alone high on the hog I can drop that value without suffering

Health & Skills

- I am healthy and fit probably 15yrs younger in practice than average in Canada
- my parents are in their 90's and healthy
- I spent 10yrs in the army as an officer
- I'm now a professional engineer and project manager
- I can ride a bicycle with a week's worth of groceries 100kms in the mountains without feeling abused
- I can fix bicycles
- I can fish
- I'm smart and communicate well
- as long as I don't die or get seriously injured in a freak accident I can adapt to every thing from a stock market crash to peak oil to a killer virus to a zombie apocalypse.

The End Game

- I'm not a doomer, but I do think it's worth considering the absolute worst case scenarios just to demonstrate how freaking robust your retirement plan is
- if the shit really hits the fan.....cannibals, nuclear war, etc.. I believe in living each day to its fullest and I have very little attachment to the future
- if my life ends tomorrow I am totally okay with that....I've had an amazing life and I have no regrets other than investing my $$ better when I was in my 20's ;)!!!
- my GF is a nurse we have a plan to keep insulin and needles in the house if things start to get grim
- two lawn chairs on the roof at sunset with the insulin is the plan
- I never expect that to happen, but knowing what to do is comforting

Bottom line retirement planning isn't about just the stock market and the SWR is just one element. You need to plan and 4% isn't crazy. You also need to give some thought to what you'll do if various events happen. The great thing about retiring younger than the traditional age is that you have more time to be flexible and adjust your plan. If you planned to retire at 37 and you have to work until 44 that's not awful. Or if you planned to keep your serious golf habit in retirement and have to skip it for 3 years when your investments are down that's not awful.

Anyways this is what I am thinking. I'd love to hear other people's thoughts on SWR and how you plan to deal with variations in your investments.

-- Vik
« Last Edit: February 11, 2015, 09:49:52 AM by Vikb »

Financial.Velociraptor

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #4 on: February 11, 2015, 08:53:29 AM »
Velociraptor- What SWR rate did you use as your basis to retire at what appears to be 40 year old?  What was your rationale as far as testing for different market situations that could crop up in your long retirement (e.g. did you run scenarios of Fireism etc). Did you factor in going back to work or a variable spending model in down markets?

From your post I'm assuming you retired with less than the "standard" 25x expenses (correct me if I'm wrong).  I like to hear from people that are actually living it and what their process was when then they pulled the plug as I wrestle with "how much is enough" all the time.

Cubs,

I didn't run any scenarios with software.  I wanted to leave my old job very much and did so with the knowledge I have experience that is highly valued in the work marketplace.  My plan was to see how FIRE worked and pick up a couple months a year of contract work if I was falling short as I knew I was at least "close."  I left during a period when there was a raging market so I did quite a bit better than planned and have never needed to return to work.

I gave notice when I was at about 9.5 times my lifestyle burn rate in my taxable account.  (being debt free, including extinguished mortgage helps a great deal!)  I have never touched my IRA which I keep as catastrophe insurance.  Since I had a "high" yield on distributions, 9.5x was "just enough" to live off without touching principle.  Capital gains in 2013 (72% return in '13!!!) and 2014 allowed me selectively retrench.  I have traded a large part of my highest yielding but lowest distribution growth equities for lower/yield-div/growth and moderately leveraged tax free municipal bond funds (NIO yields about 6% tax free right now.)  Yield is lower now but I'm better positioned for upside and have better volatility insurance I think.

I do "well enough" to just sit back and live off distributions but I truly enjoy trading options so I pick up some extra income that way to see to it that I stay ahead of inflation.  I had the extra capital to deploy, I'd very much like to get more exposure to insurance companies with a strong history of underwriting discipline.  I am also very high on GLRE and TPRE because they are run by Einhorn/Loeb and look very much like budding Berkshires. 

Honestly, I'm not very 'stachian.'  I eat out almost every day, usually with my retired father. I probably could have cut back before going back to work if it had come to that. 

Anyway, I guess the point is; if your yield on distributions is over 4%, the 4SWR rule is complete nonsense.  SWR is about not depleting your capital.  If you live entirely off yield, your capital is clearly intact.  And I think writing options can be done with low risk while still generating about 10% yields on a consistent basis.

You have to pick a WR that lets you sleep at night though (sleep is important!)  So calm your fear and anticipation and look at the problem dispassionately for a few months. 

My second point is about "closeness" to FIRE.  It doesn't have to be binary.  If you have say 7 times your lifestyle burn rate saved and have stable distribution income from that, pretty much anyone should be able to partially FIRE and move to part time or maybe seasonal work.  An all-or-nothing viewpoint is a recipe for OMYism.

GoCubsGo

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #5 on: February 11, 2015, 09:42:10 AM »
Thanks Raptor and VikB!  It's great to hear viewpoints and backstories of people who have pulled the trigger and the thought that goes into to future planning.  I left a high paying consultant position in my late 30's due to burnout and I've never been happier and have gone into a less lucrative but more fulfilling career since.  Doing so also allowed me more time to focus on my investments and add new investments to my portfolio (rental homes, business investments, deeper understanding of stock investing, etc.)

Raptor- If you can maintain that 10% yield it will definitely afford you with solid security (and it sounds like you have the knowledge and flexibility to switch course based on market events which is great). Tax free munis is something I've been meaning to research so this will prod me. 

I'm at a point where I need to start thinking of bulking up or redistributing more $ towards taxable accounts as currently I'm at 70% 401K/IRA and 30% Taxable.  This will allow me more access to the yields that are generated prior to "traditional" retirement withdrawal age.

Great stories.  Thanks for posting.

waltworks

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #6 on: February 11, 2015, 09:44:10 AM »
I would personally say, V-raptor, that Cfiresim would be a good use of half an hour of your time. IMO you're not going to see 9% returns indefinitely. It sounds like you are still "working" in some capacity trading, though, so maybe you're fine regardless.

I think the 4% SWR is a pretty decent rule of thumb assuming you are going to truly stop bringing in any income and don't have room to cut expenses. If you plan to have some income of some kind, or can easily cut back expenses if needed, then you can up it considerably. Just depends on your goals.

-W

Retire-Canada

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #7 on: February 11, 2015, 09:55:28 AM »

I'm at a point where I need to start thinking of bulking up or redistributing more $ towards taxable accounts as currently I'm at 70% 401K/IRA and 30% Taxable.  This will allow me more access to the yields that are generated prior to "traditional" retirement withdrawal age.

Great stories.  Thanks for posting.

I'm in Canada so our situation is a bit different, but I plan to fund my retirement entirely through my registered tax deferred accounts [RRSP]. That will leave my taxable and tax free [TFSA] accounts available for emergencies. We face a mandatory withdrawal of our RRSP accounts at 71 and some of my simulations show $100K+/yr of income at that age and the accompanying tax hit.

So I want to draw down that account when I am in the lower $45K/yr tax bracket.

My other accounts have much less to zero tax impact so I can access them any time I need to, but hope they will remain untouched through my life.

Cookie78

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #8 on: February 11, 2015, 10:20:19 AM »

I'm at a point where I need to start thinking of bulking up or redistributing more $ towards taxable accounts as currently I'm at 70% 401K/IRA and 30% Taxable.  This will allow me more access to the yields that are generated prior to "traditional" retirement withdrawal age.

Great stories.  Thanks for posting.

I'm in Canada so our situation is a bit different, but I plan to fund my retirement entirely through my registered tax deferred accounts [RRSP]. That will leave my taxable and tax free [TFSA] accounts available for emergencies. We face a mandatory withdrawal of our RRSP accounts at 71 and some of my simulations show $100K+/yr of income at that age and the accompanying tax hit.

So I want to draw down that account when I am in the lower $45K/yr tax bracket.

My other accounts have much less to zero tax impact so I can access them any time I need to, but hope they will remain untouched through my life.

Love your previous post. I can identify with a lot of that, but at the beginning of my focused FI journey, I hadn't put it all into words yet. :)

Good point about RRSP too. I'm still working on the accumulation phase and hadn't planned that far ahead to where I'm withdrawing. Where do you get the info for RRSP withdrawal simulations?

Retire-Canada

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #9 on: February 11, 2015, 11:01:44 AM »
Love your previous post. I can identify with a lot of that, but at the beginning of my focused FI journey, I hadn't put it all into words yet. :)

Good point about RRSP too. I'm still working on the accumulation phase and hadn't planned that far ahead to where I'm withdrawing. Where do you get the info for RRSP withdrawal simulations?

Don't worry. This is embarrassing, but I really only started thinking about this rationally in Oct 2014. Luckily my irrational and poorly planned savings/investments weren't totally insane. ;)

I've come along way in 5 months so anyone can make this happen without planning super far in advance. The key is to save and invest in stuff as early as possible. Sounds like you are rocking and rolling on that front. :)

I realized as I read MMM and other ERE blogs as well as investment sites that I cannot work out the impacts of my various choices in my head or on paper. So I built an ever increasingly complicated spreadsheet with my investments/savings and income mapped out from today until I'm 71 which is when you have to withdraw ~7% from your RRSP as you convert it to a RIFF.

All my numbers are in 2015 $ adjusted for inflation. My numbers are all approximate going by memory.

I'm a long way from 71 so I am not bothering to work things out to an accuracy of +/- 0.00001%. All I really care about now is to understand what my RRSPs will likely look like at 71 and what that mandatory withdrawal rate means.

My goal is to keep my income ~$45K all my life as that gives me a lot of money to spend and is taxed at a reasonably low rate - especially since I put a lot of $$ in my RRSPs at one or two tax brackets higher.

When I am 71 I'll be getting ~$15/yr from CCP + OAS - you can get your numbers from Service Canada.

So to stay at $45K I only want 7% of my RRSPs to be $30K = ~$429K RRSP. I've realized that's almost impossible unless my investments tank so my new goal for 71 is to keep within the next tax bracket of $45K-$88K. That means 7% = 73K which is ~$1M or less of RRSP.

To figure out what my withdrawals from my RRSP should be I used the spreadsheet to work back from 71 to now adjusting my taxable income to around $45K. Keeping in mind taking money out of the RRSP doesn't mean spending it. It just means paying taxes on it at a lower rate than I put it in and then moving any excess for my needs $$ to my TFSA or my non-registered accounts.

There are a bunch of ways you can game this, but shooting for $45K made sense to me and then I know when it makes almost no sense to save more. Which for me is at the end of 2020 currently.

My model makes a number of assumptions:

- inflation at 2%
- ROI of investments average of 7%
- tax rules will only become less favourable
- I don't want to touch my principal
- in fact I only plan to take out enough to reach my RRSP tax optimization target and ensure my overall investment value increases year by year
- take out RRSP money in Dec and ignore the withholding tax as it is only an instalment payment and you get that back when you file your tax return less your actual taxes owed
- CPP & OAS are reliable for my lifetime

My current investments are averaging 15% or ~13% if inflation is ~2% so I'm doing much better than planned. Each year I'll update the spreadsheet with actual values and if the high growth continues for say 3 more years I'll be done saving and probably working only part time.

Once I am working less than 50% of the time I plan to spend more time on the back end of my planning 71-100. It's far enough out now that I only need to be shooting for a reasonable RRSP value going in.

If/when things change a lot from the current situation I'll adjust my spreadsheet assumptions and see what they mean. That might mean taking out less from my RRSP and later or it could mean taking out more sooner.

Although the whole RRSP/tax optimization thing is kind of fun if you enjoy spreadsheets the reality is that if you are forced to pay more tax on say $120K/yr from your RRSPs when you retire that's really a first world problem. The more important part is understanding when to stop saving or at least when you can stop saving if you aren't loving your job.

Again I just want to point out I am not a tax/RRSP or investing expert. My plans are only approximate, but the beauty with a longer than average retirement is that you have a lot of free time to get smarter about your investing/tax skills as long as you don't do anything totally stupid now.

Sorry for the long rambling response. I've been thinking a lot about this stuff lately and nobody I know wants to talk about it. ;)

-- Vik
« Last Edit: February 11, 2015, 11:06:18 AM by Vikb »

Cookie78

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #10 on: February 11, 2015, 11:11:44 AM »
Thanks. I think I'll have to read that over a few more times tonight to absorb all the info. :)

I think I know the basics at this point, but I have a lot to learn about tax implications yet. Unfortunately I learn best by DOING instead of reading or listening, which might mean a few more mistakes if I'm not careful. One step at a time.

So thankful for this forum.

forummm

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #11 on: February 11, 2015, 11:12:26 AM »
Velociraptor- What SWR rate did you use as your basis to retire at what appears to be 40 year old?  What was your rationale as far as testing for different market situations that could crop up in your long retirement (e.g. did you run scenarios of Fireism etc). Did you factor in going back to work or a variable spending model in down markets?

From your post I'm assuming you retired with less than the "standard" 25x expenses (correct me if I'm wrong).  I like to hear from people that are actually living it and what their process was when then they pulled the plug as I wrestle with "how much is enough" all the time.

Cubs,

I didn't run any scenarios with software.  I wanted to leave my old job very much and did so with the knowledge I have experience that is highly valued in the work marketplace.  My plan was to see how FIRE worked and pick up a couple months a year of contract work if I was falling short as I knew I was at least "close."  I left during a period when there was a raging market so I did quite a bit better than planned and have never needed to return to work.

I gave notice when I was at about 9.5 times my lifestyle burn rate in my taxable account.  (being debt free, including extinguished mortgage helps a great deal!)  I have never touched my IRA which I keep as catastrophe insurance.  Since I had a "high" yield on distributions, 9.5x was "just enough" to live off without touching principle.  Capital gains in 2013 (72% return in '13!!!) and 2014 allowed me selectively retrench.  I have traded a large part of my highest yielding but lowest distribution growth equities for lower/yield-div/growth and moderately leveraged tax free municipal bond funds (NIO yields about 6% tax free right now.)  Yield is lower now but I'm better positioned for upside and have better volatility insurance I think.

I do "well enough" to just sit back and live off distributions but I truly enjoy trading options so I pick up some extra income that way to see to it that I stay ahead of inflation.  I had the extra capital to deploy, I'd very much like to get more exposure to insurance companies with a strong history of underwriting discipline.  I am also very high on GLRE and TPRE because they are run by Einhorn/Loeb and look very much like budding Berkshires. 

Honestly, I'm not very 'stachian.'  I eat out almost every day, usually with my retired father. I probably could have cut back before going back to work if it had come to that. 

Anyway, I guess the point is; if your yield on distributions is over 4%, the 4SWR rule is complete nonsense.  SWR is about not depleting your capital.  If you live entirely off yield, your capital is clearly intact.  And I think writing options can be done with low risk while still generating about 10% yields on a consistent basis.

You have to pick a WR that lets you sleep at night though (sleep is important!)  So calm your fear and anticipation and look at the problem dispassionately for a few months. 

My second point is about "closeness" to FIRE.  It doesn't have to be binary.  If you have say 7 times your lifestyle burn rate saved and have stable distribution income from that, pretty much anyone should be able to partially FIRE and move to part time or maybe seasonal work.  An all-or-nothing viewpoint is a recipe for OMYism.

Sounds like you're going to crash and burn at some point when the market stops growing so rapidly--and likely even corrects downward 20% or more. That always happens, so be ready to suddenly become mustachian, going back to work (hard to do during a downturn), or burning through your savings (which may be half what they once were).

Retire-Canada

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #12 on: February 11, 2015, 11:34:40 AM »
Thanks. I think I'll have to read that over a few more times tonight to absorb all the info. :)

I think I know the basics at this point, but I have a lot to learn about tax implications yet. Unfortunately I learn best by DOING instead of reading or listening, which might mean a few more mistakes if I'm not careful. One step at a time.

So thankful for this forum.

This link has aggregated a lot of useful info: http://www.taxtips.ca/rrsp-rrif-tfsa.htm

Google "RRSPs and how much is enough" or "RRSP too much"

It's worth getting lots of opinions and distilling down the parts that make sense to you.

Cookie78

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #13 on: February 11, 2015, 11:38:29 AM »
Thanks. I think I'll have to read that over a few more times tonight to absorb all the info. :)

I think I know the basics at this point, but I have a lot to learn about tax implications yet. Unfortunately I learn best by DOING instead of reading or listening, which might mean a few more mistakes if I'm not careful. One step at a time.

So thankful for this forum.

This link has aggregated a lot of useful info: http://www.taxtips.ca/rrsp-rrif-tfsa.htm

Google "RRSPs and how much is enough" or "RRSP too much"

It's worth getting lots of opinions and distilling down the parts that make sense to you.

Awesome! Thank you. :)

KMB

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #14 on: February 11, 2015, 12:26:08 PM »
I ... have a net 9.85% blended yield on my portfolio.

What is a net blended yield?

Also, love your blog dude!

PloddingInsight

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #15 on: February 11, 2015, 12:35:35 PM »
Anyway, I guess the point is; if your yield on distributions is over 4%, the 4SWR rule is complete nonsense.  SWR is about not depleting your capital.  If you live entirely off yield, your capital is clearly intact.

Exactly!  As long as there is no such thing as inflation, you are perfectly correct.

Financial.Velociraptor

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #16 on: February 11, 2015, 04:03:09 PM »
I ... have a net 9.85% blended yield on my portfolio.

What is a net blended yield?

Also, love your blog dude!

KMB,

My "yield" is from a combination of dividend paying stocks, instruments that pay non-dividend distributions, bonds, and a few stocks that pay no dividend so the conventional term 'dividend yield' falls a little short.  I also write options for income but do not put that in my "yield" calculation.  I also do some long/short investing in my portfolio so it gets a little unclear what denominator to divide my total distributions by.  I coined the term 'net blended yield' to reflect the simple average of the distributions from my long positions at cost basis, but without counting any basis that is leveraged because it is funded by short positions.  Basically, about nine and half percent is what I'd earn if stopped all the [fancy] stuff like options and shorts and just relied on pedestrian [passive] brokerage credits from my holdings.  The yield is higher than most people can get in the current environment because I bought a lot of it before the market started chasing yield by bidding up asset prices (and likewise suppressing yield.) 

There are people in this thread who think I am being unrealistic to assume that my distributions will keep coming and that high yield is impossible going forward.  I'm of the opinion the Fed has to raise rates [eventually] and that there will be plenty of yield to find in tax exempt munis.  Historical default rates are very low.  There are dozens of closed end funds that invest only in highly rated munis with modest leverage between a third and half, that yield around 6% in today's ZIRP world.  I feel pretty confident cities and states will be paying a couple percent more when the Fed finally raises rates by 200 basis points.  And 8% or so at 25 percent tax bracket tax exempt is about 10%.  So to my way of thinking, I can actually keep my yield high while lowering my risk over time.  The long/short and options stuff are just gravy.  I don't need it but I get a real charge from cracking the code so to speak so will keep doing it.

Glad you like the blog!  I'm having a lot of fun writing it.  I was out of town Friday to Tuesday so there haven't been new posts but I hope to do one tomorrow laying out around 20 tickers I think offer the potential for an excellent risk/reward profile for written puts, buy-write, or straddles.

Retire-Canada

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #17 on: February 11, 2015, 04:24:07 PM »
Glad you like the blog!  I'm having a lot of fun writing it.  I was out of town Friday to Tuesday so there haven't been new posts but I hope to do one tomorrow laying out around 20 tickers I think offer the potential for an excellent risk/reward profile for written puts, buy-write, or straddles.

When I click on the blog link in your sig I get a browser error. I can find it via Google. Could be me, but thought I would mention it.

Financial.Velociraptor

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #18 on: February 11, 2015, 04:45:02 PM »
When I click on the blog link in your sig I get a browser error. I can find it via Google. Could be me, but thought I would mention it.

Thanks for the heads up.  I made a dumbo T-Rex move with the UBB.  It's fixed now!

skyrefuge

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #19 on: February 11, 2015, 04:50:11 PM »
...my long positions at cost basis

The yield is higher than most people can get in the current environment because I bought a lot of it before the market started chasing yield by bidding up asset prices (and likewise suppressing yield.)


Ah, so you're really reporting your "yield-on-cost"? That's a meaningless metric that's useless when communicating with others, so you should just report your actual yield instead. But at least that means your actual yield (and expectations) are likely to be somewhat less insane than we thought they were!

waltworks

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #20 on: February 11, 2015, 05:05:03 PM »
Yeah, lots of people did 10% on cost basis over the last 5 or so years. Hell, it would be hard NOT to!

Doesn't mean shit going forward, of course. But right now there are plenty of people who think they're geniuses...

-Walt

...my long positions at cost basis

The yield is higher than most people can get in the current environment because I bought a lot of it before the market started chasing yield by bidding up asset prices (and likewise suppressing yield.)


Ah, so you're really reporting your "yield-on-cost"? That's a meaningless metric that's useless when communicating with others, so you should just report your actual yield instead. But at least that means your actual yield (and expectations) are likely to be somewhat less insane than we thought they were!

Financial.Velociraptor

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #21 on: February 11, 2015, 05:22:27 PM »
Quote from: waltworks
Yeah, lots of people did 10% on cost basis over the last 5 or so years.

Totally agree.  I'm not at all special or even particularly 'stachian.  My house was paid off and I started investing aggressively at the right time.  It *IS* better to be lucky than smart.

Quote from: skyrefuge
Ah, so you're really reporting your "yield-on-cost"? That's a meaningless metric that's useless when communicating with others, so you should just report your actual yield instead. But at least that means your actual yield (and expectations) are likely to be somewhat less insane than we thought they were!

Like I said, I'm not a miracle worker.  I'm not generating a huge amount of alpha (maybe a few percent a year).  My expectations, I believe, are reasonable.  But I consider cost-on-yield to be the correct way to think of things when you hope to sell [never].  Why should persuade myself into thinking my distributions have increased when it is actually capital gains I've accumulated.  Since, I'm not often a seller, it is the distribution that matters and not the market cap.

PS - Two percent alpha per year is enough to make a raptor enormously rich over 40 years.

waltworks

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #22 on: February 11, 2015, 05:42:03 PM »
Again, time with Cfiresim would be useful for you. 10% WR will fail 97% of the time, no matter how you allocate your assets. There are certainly downsides to being too conservative, but 10% ain't gonna work long term.

-W

skyrefuge

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #23 on: February 11, 2015, 05:51:11 PM »
Since, I'm not often a seller, it is the distribution that matters and not the market cap.

Yes, the distribution amount matters. But if you're going relate that amount to market cap, it only makes sense to relate it to the current market cap, not some historical market cap.

Alice bought 10 shares of POOP in 2010 when it was $10/share and paying out $0.5/share. In 2015 it's paying $1/share and worth $20/share. Her yield-on-cost is ($1/$10) = 10%

Bob bought 10 shares of POOP in 2015 for $20/share, when it was paying out $1/share. His yield-on-cost is ($1/$20) = 5%

Both Alice and Bob are in the exact same position, and will remain so going forward.  Both own $200 worth of POOP, and both will receive $20 in dividends. The fact that their yield-on-cost numbers are different while their positions are indistinguishable tells you that yield-on-cost is a useless metric. (yes, it indicates that Alice has seen capital appreciation in the past, but there are better metrics to use to indicate that).

Maybe more simply, if you were to sell your whole portfolio today, and rebuy it 1 second later, your yield-on-cost would change even though nothing else had changed.

I'm sure poor Wadiman (the OP) is like "WTF? This is the most off-topic blown up thread ever! 23 posts of people randomly telling their whole investment stories, and not a single post addressing the topic?" Sorry Wadiman!

Retire-Canada

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #24 on: February 11, 2015, 06:05:49 PM »
I'm sure poor Wadiman (the OP) is like "WTF? This is the most off-topic blown up thread ever! 23 posts of people randomly telling their whole investment stories, and not a single post addressing the topic?" Sorry Wadiman!

There are a bunch of posts about SWR in this tread. The initial post just pointed to a report questioning the validity of the 4% SWR recommendation for traditional retirements.

It makes a number of assumptions about folks retiring that don't particularly apply to the ER crowd. Without those assumptions being true I don't think the concerns around SWR they report identifies are of serious concern given the flexibility most ERs seem to have.

Anyone who assumes 4% SWR is a guarantee of success [ie. sacrosanct] under any possible circumstance would be foolish since nobody can predict the future. The questions I'd ask is 4% SWR a reasonable planning figure and how do you deal with adverse investment returns. MMM has a few posts discussing this.

Sure there is some tangential discussion, but I think it's worth every penny you paid to access it. ;)

-- Vik
« Last Edit: February 11, 2015, 06:11:29 PM by Vikb »

Financial.Velociraptor

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #25 on: February 11, 2015, 06:16:44 PM »
Ok, fine.  I give.  My yield before short/leverage is about 7.4%.  I spend about 90% of my distributions and reinvest the rest so my WR is .074*.90=six and two thirds.  Approximately, of course.  I don't follow a formal budget or track pennies.  That's just about how much I draw out from brokerage each month on average after the big ones in december/january for taxes and insurance.  cfire or whatever it is called may be predicting a 99% likelihood of disaster but I see only something that is working and slowly growing more robust over time.


waltworks

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #26 on: February 11, 2015, 06:47:12 PM »
Can I use this as my new .sig?

-W

cfire or whatever it is called may be predicting a 99% likelihood of disaster but I see only something that is working and slowly growing more robust over time.

Financial.Velociraptor

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #27 on: February 11, 2015, 07:29:19 PM »
You bet, waltworks.  Its yours now.

skyrefuge

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #28 on: February 11, 2015, 08:53:17 PM »
Can I use this as my new .sig?

cfire or whatever it is called may be predicting a 99% likelihood of disaster but I see only something that is working and slowly growing more robust over time.

heh...it should be his sig, worn as a sort of Scarlet Letter to warn the unaware!

DavidAnnArbor

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #29 on: February 12, 2015, 07:33:33 AM »

 I'm of the opinion the Fed has to raise rates [eventually] and that there will be plenty of yield to find in tax exempt munis.  Historical default rates are very low. 

The Fed may eventually raise rates, unless we get into another recession. There are too many variables to make any assumptions that interest rates will rise in June 2015. The wage pressures currently don't exist right now to justify a raise as is noted by many economists.

Retire-Canada

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #30 on: February 13, 2015, 01:59:49 PM »
Sort of a SWR question...if you are using Firecalc and simulating various SWR what success % do you feel is solid enough that you plan for that SWR?

In practice anyone smart would use a variable SWR with some side income/frugality to adjust for market fluctuations, but for a planning number what success rate makes you happy?

-- Vik

kyith

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #31 on: February 20, 2015, 04:57:06 AM »
most of the data are based on USA and if you are an international investor like me, you wonder if you can safely use a 4% SWR.

I guess for most of us, the better way is to figure out if we can come up with 'scripted decisions' to vary during good times and bad.

Zolt's Target Percentage Adjustment and Guyton's variable decision rules are something that i felt most needst to know and have in their brain.



In this case, Zolt, tested against one of the more shitty 30 years and how a SWR that is super stringent would failed. a TPA rate will sustain your money, but lose your purchasing power.



here is another bad situation, the 1937 period. sequence of return risk is real.

Vid in the article is Zolt explaining his concept and some question and answer

http://www.investmentmoats.com/wealth-building-2/financial-independence-target-percentage-adjustment/

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #32 on: March 11, 2015, 09:38:17 AM »
Thanks for posting.  Makes for very interesting reading.  For those who like to be sure 3% is safer but for those of us prepared to be flexible in early retirement 4% should work (ie work a little, live on a little less in bad years).  The numbers are also in a Mustachians favour as we are needing our stache early so our 4% withdrawal is for the years before superannuation.  When we reach retirement age we should have a reduced need to draw on the portfolio.  Whereas this study assumed you were needing your stache to top up super.

waltworks

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #33 on: March 11, 2015, 10:28:47 AM »
Define "safe". If your goal is to work the minimum necessary, you are guaranteeing more work by doing 3%, so no, it's really NOT "safe".

-W

Thanks for posting.  Makes for very interesting reading.  For those who like to be sure 3% is safer but for those of us prepared to be flexible in early retirement 4% should work (ie work a little, live on a little less in bad years).  The numbers are also in a Mustachians favour as we are needing our stache early so our 4% withdrawal is for the years before superannuation.  When we reach retirement age we should have a reduced need to draw on the portfolio.  Whereas this study assumed you were needing your stache to top up super.

beltim

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #34 on: March 11, 2015, 11:07:02 AM »
Can I use this as my new .sig?

-W

cfire or whatever it is called may be predicting a 99% likelihood of disaster but I see only something that is working and slowly growing more robust over time.

cfiresim indicates a better than 40% success rate, and that's without factoring in any pension (Social Security), or the IRA assets that the raptor doesn't count.

kiwigirls

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #35 on: March 11, 2015, 04:24:40 PM »
Define "safe". If your goal is to work the minimum necessary, you are guaranteeing more work by doing 3%, so no, it's really NOT "safe".

-W

Thanks for posting.  Makes for very interesting reading.  For those who like to be sure 3% is safer but for those of us prepared to be flexible in early retirement 4% should work (ie work a little, live on a little less in bad years).  The numbers are also in a Mustachians favour as we are needing our stache early so our 4% withdrawal is for the years before superannuation.  When we reach retirement age we should have a reduced need to draw on the portfolio.  Whereas this study assumed you were needing your stache to top up super.

I was using Safe to mean safe from the risk of portfolio failure as demonstrated by the report.  But everyone has their own tolerance for risk & will know what their minimum is so they can sleep at night.  I am happy to settle for 88% but others may want 100% certainty.

jopiquant

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #36 on: March 11, 2015, 04:33:17 PM »
Following.

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Re: 4% SWR Sacrosanct? Interesting international study
« Reply #37 on: March 12, 2015, 03:08:47 PM »
Ok, fine.  I give.  My yield before short/leverage is about 7.4%.  I spend about 90% of my distributions and reinvest the rest so my WR is .074*.90=six and two thirds.  Approximately, of course.  I don't follow a formal budget or track pennies.  That's just about how much I draw out from brokerage each month on average after the big ones in december/january for taxes and insurance.  cfire or whatever it is called may be predicting a 99% likelihood of disaster but I see only something that is working and slowly growing more robust over time.

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