Author Topic: Portfolio Charts - New Retirement Spending Tool  (Read 2136 times)

arebelspy

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Portfolio Charts - New Retirement Spending Tool
« on: March 26, 2019, 09:00:37 AM »
@Tyler has done it again.

Check out Portfolio Charts' new Retirement Spending tool.

https://portfoliocharts.com/2019/03/25/smart-retirement-planning-is-about-more-than-just-avoiding-failure/
https://portfoliocharts.com/portfolio/retirement-spending/

It's super fun to play around with, and highly informative towards ER spending planning.

(I get excited whenever Portfolio Charts has a new blog post show up in my RSS feed. They never disappoint. If you aren't subscribed... do so.)

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 two kids.
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HumanAfterAll

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #1 on: March 26, 2019, 10:13:56 PM »
I agree, this is really awesome. Thanks @Tyler !

dragoncar

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #2 on: March 27, 2019, 12:36:08 AM »


Tyler certainly has very informative and well-written intro text.  But sometimes I feel like when I'm reading all that text before a recipe on someone's food blog and I just want to scroll down and see the recipe right now (or in this case the tool)
« Last Edit: March 27, 2019, 12:39:17 AM by dragoncar »

ysette9

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #3 on: March 27, 2019, 02:49:49 AM »
Thank you so much for sharing. I really appreciate the long-winded introduction because, unlike cooking recipes, I need the explanation. :)

I’ve bookmarked this and will check it out in more detail after some sleep (aka when I get my brain back).

Tyler

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #4 on: March 27, 2019, 09:39:30 AM »
I thought you guys might appreciate this one.  :)  I do this stuff also to learn new things myself, and this is one of those times where the results are IMO pretty fascinating.

Yeah, being thorough sometimes may come across as long-winded to people who are already educated on a topic.  But getting this right involved so much work that it felt wrong not to share the theory, history, inspiration, and credit to do the topic justice. 
« Last Edit: March 27, 2019, 09:46:47 AM by Tyler »

dragoncar

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #5 on: March 27, 2019, 10:11:05 AM »
I thought you guys might appreciate this one.  :)  I do this stuff also to learn new things myself, and this is one of those times where the results are IMO pretty fascinating.

Yeah, being thorough sometimes may come across as long-winded to people who are already educated on a topic.  But getting this right involved so much work that it felt wrong not to share the theory, history, inspiration, and credit to do the topic justice.

Iím just impatient to see the cool new toy

arebelspy

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #6 on: March 27, 2019, 01:08:05 PM »
Yeah, being thorough sometimes may come across as long-winded to people who are already educated on a topic.  But getting this right involved so much work that it felt wrong not to share the theory, history, inspiration, and credit to do the topic justice.

Don't change a thing about how you blog. The explanations are always fantastic.
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 two 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.

ysette9

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #7 on: March 27, 2019, 06:09:25 PM »
Yeah, being thorough sometimes may come across as long-winded to people who are already educated on a topic.  But getting this right involved so much work that it felt wrong not to share the theory, history, inspiration, and credit to do the topic justice.

Don't change a thing about how you blog. The explanations are always fantastic.
Word

ysette9

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #8 on: March 30, 2019, 05:23:07 AM »
@Tyler
I've finally had a moment to give this a whirl on a real computer. At first glance I find it intuitive to use and I like the interface. I appreciate this "second set of eyes" if you will, as an alternative to cFIREsim. Playing around with it, I'm struck by how dramatically being willing to drop my spending by as little as 5% in the bad times impacts how successful the overall portfolio is. That said, if I might make some suggestions for things to consider in the future. :)

  • We are planning on employing the reverse equity glide path method to hedge against sequence of returns risk. I'd love to see the option to have a dynamic portfolio the way cFIREsim allows.
  • Could the x-axis be extended to 50- or 60-year retirements?
  • If I am understanding correctly, a portfolio failure will show up as an X (green or red) at the end of one of the curves graphed, yes? It would be snappy to also include a cFIREsim-esque line stating "100% success" or "90% success" for an easy takeaway.

One last question: What does it mean when a line terminates prematurely before the full 40-year retirement length? Does that just mean that was a historical data set that doesn't start far enough back in time?

Thanks again!

ysette9

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #9 on: March 30, 2019, 05:56:36 AM »
All right, I answered one of my questions myself. Digging into the explanation on the Withdrawal Rates chart I see that the data set you are using only goes back to 1970 due to the expanded investment options.

Quote
The tradeoff for having many more asset classes to model than the original studies is that there are fewer years of available historical data. The Bengen and Trinity studies looked at data back to 1926 while the data here only goes back to 1970
https://portfoliocharts.com/portfolio/withdrawal-rates/

I suppose that is also the answer to why there aren't options for longer retirement periods. :)

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Something of a logistics questions for anyone who cares to chime in: We are going to FIRE with a mortgage. In cFIREsim I can model that as extra spending that has an end date. For this tool I'm playing around with modeling my ex-mortgage portfolio and spending in one go, and then having a separate scenario where I invest a chunk equal to the mortgage balance and then withdraw 6% yearly to service the mortgage. I realize there are limitations to this, but I think it is telling me what my gut is saying: very likely to succeed and very likely to result in lots of extra $ at the end. Does anyone see a better way of modeling this?

Tyler

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #10 on: March 30, 2019, 09:24:34 AM »
I suppose that is also the answer to why there aren't options for longer retirement periods. :)

Yep.  :)  The length of the dataset we have to study affects the maximum retirement length I can directly model, and the fewer number of long runs also limits the practical utility of "% success" measurements at a certain point.  But the data is still quite useful for studying the retirement effects of the many different assets available today.  The thing I like about this particular style of chart is that seeing the full spread of results in a single image is an intuitive way to understand the underlying uncertainty of any given plan.  Even without massive numbers of data points, you can still get a pretty good feel for the extremes. 

Regarding 60-year retirements, I personally believe planning for that requires a different mindset.  It's less about finding failure points over extremely long timeframes and more about reframing the problem in terms of perpetual withdrawal rates that are designed to last forever.

And thanks for the feedback about glide paths.  It's something I've been thinking about for a while, and maybe one day I'll figure out a nice way to do it. 

ysette9

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #11 on: March 30, 2019, 09:10:56 PM »
Thanks for the reply and the link to your post about perpetual withdrawal rates. I've studied that and it gives me more to chew on.

At this point I think the biggest thing for me to sort out is my own risk tolerance. Playing around with your calculator, cFIREsim, some simple spreadsheets, and all of that slowly builds this picture in my mind of where the edges are in the safe withdrawal rate space. I'd like to think that on one end of the spectrum is a 5%+ withdrawal rate where I am, on average, likely to have enough money (50% success rate) to go the distance. On the other end of the spectrum is the perpetual withdrawal rates where I will both have enough money always, and be leaving a good nest egg to heirs. I have found it enlightening to see how powerful small variables can be like a reverse equity glide path in the first ten years or being slightly flexible in spending. With this new tool I'll spend some time doing the same with the larger space of available investments.

Thinking out loud here, and realizing I should move this musing over to my journal at this point, I think the PWR is too conservative for our situation. I'm still exploring quantifying them, but I have layers of safety built in.
  • 2x SS later in life (small though it likely will be)
  • Small pension from my first employer
  • Fat FIRE budget, so flexibility to adjust spending downward during down markets
  • Two highly educated, skilled, experienced people who could likely figure out a way to bring in some cash if necessary
  • While it certainly does not factor into our calculations, there are two sets of financially smart, retired couples in the generation above us who have expressed intentions of leaving inheritance for my sister and me.

Thanks again for your contributions to the community.

arebelspy

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #12 on: April 04, 2019, 08:05:07 AM »
@Tyler Have you done any writing or research on rebalancing (periodic versus bands, and if so, when/what, respectively)?
« Last Edit: April 04, 2019, 08:06:38 AM by arebelspy »
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 two 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.

Tyler

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #13 on: April 04, 2019, 09:52:21 AM »
@Tyler Have you done any writing or research on rebalancing (periodic versus bands, and if so, when/what, respectively)?

I briefly looked at it years ago in context of the Permanent Portfolio that recommends rebalancing bands, but I didn't go into a lot of depth and there's nothing I can point to that I would consider a definitive opinion.  My intuition is that using percentage bands for each asset would be similar to using the Retirement Spending account triggers to set a middle band with no action, resulting in several years of horizontal spending in a row rather than annual spending changes.  But obviously they measure different things so there could be more to the story.  Good idea -- it's definitely worth more study.   

dragoncar

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #14 on: April 04, 2019, 03:29:06 PM »
@Tyler Have you done any writing or research on rebalancing (periodic versus bands, and if so, when/what, respectively)?

My understanding is that rebalancing typically wonít increase returns (itís path dependent so it will sometimes hurt, sometimes help), but is mostly useful to keep your risk level where you want it.  A few years ago I decided not to actively rebalance (I used to passively do it by contributing to a lagging asset, and it might make sense to take withdrawals from an over performing asset)

But I am curious in the sense of portoliocharts if rebalancing can give you a smoother ride that somehow increases your SWR without necessarily increasing CAGR

Tyler

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #15 on: April 04, 2019, 04:31:14 PM »
But I am curious in the sense of portoliocharts if rebalancing can give you a smoother ride that somehow increases your SWR without necessarily increasing CAGR

Just to be clear, all of the calculations currently assume the portfolio is rebalanced annually.  But the question about the effect of annual rebalancing relative to other methods (no rebalancing, asset bands, etc) is certainly interesting.  It's on my list of things to look into. 

bacchi

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #16 on: April 04, 2019, 04:46:48 PM »
There's some interesting research by Bernstein on rebalancing.

http://www.efficientfrontier.com/ef/100/rebal100.htm

Quote
So, at first blush the answer to the rebalancing frequency problem would seem to be "not very often." But appearances are deceiving. Take a look at the bottom row of the above table. The average difference between quarterly and 4-yearly rebalancing is only 18 basis points. This comes at a costónamely, that over a 4-year period your allocation will get seriously out of wack, incurring higher risk. For example, the above 40/15/15/30 S&P/SM/EAFE/bond portfolio, started at policy in January 1995 would have wound up at 56/13/10/21 if not rebalanced over the next 4 years.

Vanguard found similar results: https://www.vanguard.com/pdf/icrpr.pdf


arebelspy

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #17 on: April 04, 2019, 06:47:03 PM »
It's on my list of things to look into.

Great!

I won't ask how long said list is.
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 two 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.

ysette9

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #18 on: April 04, 2019, 07:09:29 PM »
It's on my list of things to look into.

Great!

I won't ask how long said list is.
The poor guy got at least two new things added to his list thanks to this thread. ;-)

Tyler

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #19 on: April 04, 2019, 07:33:51 PM »
I won't ask how long said list is.
The poor guy got at least two new things added to his list thanks to this thread. ;-)

Ha!  Whenever I feel writer's block coming on I'll know where to turn.  :)

ysette9

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #20 on: April 04, 2019, 07:52:07 PM »
Glad we could be of help.


dragoncar

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #21 on: April 04, 2019, 09:15:20 PM »
It's on my list of things to look into.

Great!

I won't ask how long said list is.

Tyler, can you look into ways we can reduce the size of your list?  Thanks in advance

arebelspy

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Re: Portfolio Charts - New Retirement Spending Tool
« Reply #22 on: April 04, 2019, 09:23:50 PM »
How many years of data do we have on the size of Tyler's list? No cherry picking!
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 two 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.