Author Topic: Stop worrying about the 4% rule  (Read 812050 times)

dougules

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Re: Stop worrying about the 4% rule
« Reply #1750 on: July 09, 2019, 11:12:18 AM »
I've just been listening to this book bu Douglas Brinkley, "American Moonshot."  He gives the impression that Von Braun arranged to surrender to the Americans.  Looks like he figured he might get more humane treatment, which he did.  He notes the Stalin was not happy when the Americans got the Von Braun crew.

The Russians had 27 million of their people die in World War 2.  I guess he did the math.

Yeah that was quite a gamble because it was illegal to employ Nazi's. It was under the secret plan to whitewash war records called operation paperclip that he didn't get thrown in prison or hanged along with the other Nazis at Nuremberg.

Interestingly I note the question on my citizenship question this last year.. "have you been associated with the Nazi party in Germany between 1939 and 1945?".

The smart ass in me wanted to say.. "No, but the US Government has"...:)

That gamble paid off.  They were treated like local heroes here.  I guess people forgot they had been Nazis when the Cold War and the space race heated up.  We actually bought our rental house from the widow of one of the folks on his team. 

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1751 on: July 09, 2019, 12:28:22 PM »
I've just been listening to this book bu Douglas Brinkley, "American Moonshot."  He gives the impression that Von Braun arranged to surrender to the Americans.  Looks like he figured he might get more humane treatment, which he did.  He notes the Stalin was not happy when the Americans got the Von Braun crew.

The Russians had 27 million of their people die in World War 2.  I guess he did the math.

Yeah that was quite a gamble because it was illegal to employ Nazi's. It was under the secret plan to whitewash war records called operation paperclip that he didn't get thrown in prison or hanged along with the other Nazis at Nuremberg.

Interestingly I note the question on my citizenship question this last year.. "have you been associated with the Nazi party in Germany between 1939 and 1945?".

The smart ass in me wanted to say.. "No, but the US Government has"...:)

That gamble paid off.  They were treated like local heroes here.  I guess people forgot they had been Nazis when the Cold War and the space race heated up.  We actually bought our rental house from the widow of one of the folks on his team.

Yes it did.. There was a great program on last night about the space race. They said that Von Braun was a bit of a PITA to the US Government.. A bit of an attention seeking prima donna with a VERY sketchy past. He might not have actually beaten the prisoners to death himself but he sure as hell knew it was happening.

Personally I would have strapped him to a metal chair under the first Saturn V rocket and had the local Rabbi press the launch button.. But thats just me..:)

lutorm

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Re: Stop worrying about the 4% rule
« Reply #1752 on: September 08, 2019, 02:13:42 AM »
Having plowed through 1750 posts in this thread over the last week, I now have a much better understanding of the "4% rule". Thanks everyone who's contributed!

My personal reflection on the questions and misunderstandings around the rule is that when you're dealing with probability and statistics, it's very important to be very clear about what question you are asking. A while back someone asked about the apparent contradiction about retiree A and B where A started one year and B started the year after when the market had dropped and why retiree A could withdraw more money than B.

The way I like to think about it is that you don't have a 95% chance of a 4% withdrawal rate succeeding. What the analysis said is that out of all starting years, 95% of the years succeeded. So, assuming the future is substantially the same as the past, if you retire at a random year in the future you have a 95% chance of picking a year that succeeds. But you retire in a single, specific year, and your retirement either will or will not succeed. It's not random, you just don't know which the outcome is going to be yet.

But, when you start saying things like "retiree B retires after a 20% market drop", you've explicitly conditioned your question and the answer is no longer that 95% of the years would succeed, because most of those years didn't start with a 20% drop. You'll have to restrict yourself to the situations in the past that match your condition (if there are any, there's not much data and I suspect you'll quickly run out of data if you start matching on other variables.)  The same applies to any other present-day knowledge you are attempting to condition on, like the CAPE someone mentioned, inflation rate, whatever.

So when people are saying "I'm going to go with a 3% WR because valuations are so high", or whatever, it seems they should calculate what the SWR for the years in history that match that condition. Or, "I'm going to go with 6% because I can lower my expenses by 25% if (condition is fulfilled)", or "because I'm getting x$ in SS in 15 years." Those hypotheses are all testable against the historical data. I agree that flexibility in expenses and income are crucial for peace of mind, but assuming that the data exists it seems much better to actually calculate what the expected results are than to just handwave and assert that it should be fine.

Anyway, just my impressions from all this reading. Thanks again everyone.

2Birds1Stone

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Re: Stop worrying about the 4% rule
« Reply #1753 on: September 08, 2019, 05:07:13 AM »
I would recommend this post by big ERN.

https://earlyretirementnow.com/2018/07/25/why-is-retirement-harder-than-saving-for-retirement-swr-series-part-27/

It's not all rainbows and unicorns like some people would like you to believe.

kenmoremmm

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DadJokes

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Re: Stop worrying about the 4% rule
« Reply #1755 on: November 06, 2019, 02:12:03 PM »

markbike528CBX

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Re: Stop worrying about the 4% rule
« Reply #1756 on: February 15, 2020, 04:22:22 PM »
From https://forum.mrmoneymustache.com/investor-alley/the-4-vs-5-withdrawal-rate/

Reposted here to provide the links to the ORIGINAL documents that people swat about, ie The Trinity Study and Bengen's paper.

@reeshau   Thanks for the links!  I don't remember them being posted in clear (and live links) before.

For clarity:  the 4% rule does not guarantee preservation of capital.  It doesn't guarantee anything, of course, but the stated goal is to end up with a portfolio above $0 after a 30 year retirement, based on historical returns.  Period.

There are a lot of places that stretch that conclusion beyond recognition, but one person who has usefully expanded upon it is Wade Pfau, who has kept the data series updated as new years of market performance bring more data points.  The chart below is from a Forbes article by Wade, expanding the data set through (ending year) 2018.  (it's tiny in-line with this message.  Click it to expand it to readable size.)

In the chart below, Bengen's original parameters are a 50/50 portfolio, for 30 years.

For more research:

Bengen's original article, defining the 4% rule:  http://www.retailinvestor.org/pdf/Bengen1.pdf

The Trinity study, expanding on Bengen's results with retirements of different lengths, and differing asset allocations:  https://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf

Wade Pfau's Forbes article with the latest expansion:  https://www.forbes.com/sites/wadepfau/2018/01/16/the-trinity-study-and-portfolio-success-rates-updated-to-2018/

There is nothing that says you can't withdraw 5%; it's just that you have a finite chance of failure, if things get bad.  There are a number of ways you could react to that:  reduce your spending in a market downturn, go back to work for a time, or ensure you have income-generating assets that enable you to avoid stock withdrawals when markets are down.  Nobody can tell you whether you can or can't take a certain strategy; they can tell you implications, but in the end it's your life.  There are no do-overs, so it's a gut check for you.

American GenX

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Re: Stop worrying about the 4% rule
« Reply #1757 on: February 15, 2020, 05:19:33 PM »
Reposted here to provide the links to the ORIGINAL documents that people swat about, ie The Trinity Study and Bengen's paper.

Bengen later changed it to the 4 1/2% rule by including small caps in the allocation.

https://www.reddit.com/r/financialindependence/comments/6vazih/im_bill_bengen_and_i_first_proposed_the_4_safe/dlz1l6r/

Bill Bengen: "The "4% rule" is actually the "4.5% rule"- I modified it some years ago on the basis of new research. The 4.5% is the percentage you could "safely" withdraw from a tax-advantaged portfolio (like an IRA, Roth IRA, or 401(k)) the first year of retirement, with the expectation you would live for 30 years in retirement."

https://www.fa-mag.com/news/small-cap-withdrawal-magic-28553.html?issue=268

Bill Bengen: "When I introduced small-company stocks into this mix in 2006, it significantly improved the SAFEMAX (which was able to rise to about 4.5%)"

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1758 on: February 21, 2020, 12:15:50 AM »
This forum would be really great if it had a whiteboard so I could draw as I write, but basically, the higher the current market is vs. historical CAPE, the lower you should expect your future returns.

Current Shiller PE Ratio: 31.77 -0.12 (-0.39%)
4:00 PM EST, Thu Feb 20
Mean:   16.70   
Median:   15.76   
Min:   4.78   (Dec 1920)
Max:   44.19   (Dec 1999)

The 4% rule is great based on being at or below the historical average Shiller/CAPE...  So yeah, we are not on solid ground relying upon the historical 4% inflation adjusted return for our 30 year rolling period.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1759 on: February 21, 2020, 03:58:15 AM »
Current - 31.77
Mean - 16.70

31.77 / 16.7 is about 2.

Does this mean we are OK on a 2% withdrawal rate?

nereo

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Re: Stop worrying about the 4% rule
« Reply #1760 on: February 21, 2020, 07:34:24 AM »
Current - 31.77
Mean - 16.70

31.77 / 16.7 is about 2.

Does this mean we are OK on a 2% withdrawal rate?

Better make it 1%. You know, “to be safe” [/sarcasm]

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1761 on: February 21, 2020, 07:49:37 AM »
Better make it 1%. You know, “to be safe” [/sarcasm]

But, is that really safe? I mean I'm not sure I could sleep at night without a 0.5%WR and paid off house and that doesn't include SS or any Gov't benefits...because you know paranoia. ;-)

maizefolk

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Re: Stop worrying about the 4% rule
« Reply #1762 on: February 21, 2020, 07:51:02 AM »
Better make it 1%. You know, “to be safe” [/sarcasm]

I don't know. Sure a 0% withdrawal rate has never failed in the US, but our history up till now has been exceptionally positive.

A 0% withdrawal rate hasn't always been safe internationally. Look at 1916 Russia or 1946 China. (Or 146 BC Carthage.)
« Last Edit: February 21, 2020, 07:53:31 AM by maizeman »

American GenX

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Re: Stop worrying about the 4% rule
« Reply #1763 on: February 21, 2020, 08:29:07 AM »
This forum would be really great if it had a whiteboard so I could draw as I write, but basically, the higher the current market is vs. historical CAPE, the lower you should expect your future returns.

The 4% rule is great based on being at or below the historical average Shiller/CAPE...  So yeah, we are not on solid ground relying upon the historical 4% inflation adjusted return for our 30 year rolling period.

This brings back memories of these two older threads:
https://forum.mrmoneymustache.com/investor-alley/cape-and-safe-withdrawal-rates/
https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/

waltworks

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Re: Stop worrying about the 4% rule
« Reply #1764 on: February 21, 2020, 08:53:11 AM »
I always post this, but here goes again.

Aiming for a super low withdrawal rate is just a way to front-load your FIRE "failure" in most cases, by working much, much longer than you need to.

Remember that the Trinity study assumes you won't make any further income (almost certainly not true for people on this forum), ever, and that you have very little flexibility about spending (again, not true for all but the most extreme cases who are living on $6k a year or whatever).

Your odds of running out of money as a person who has actual useful skills and likes to do things anyway and is willing to sell their car and take the bus if needed are insanely low. Stupidly low. Even if you're FIRE at 30 and will live to 95.

With a normal 4% withdrawal rate (million bucks invested, $40k spend), at 80/20 stocks/bonds that 65 year retirement succeeds 80% of the time.

Pretty damn good!

Add just 10% spending flexibility and you're at 90% success - and that's without making a dime, ever again.

Make just a measly $2000 a year from ages 30-50 (my wife earned about that much last year substitute teaching for about 2 weeks) and you're at 98% success.

Social security is not included in that.

I could go on and on.

Your failure risks have to do with lifestyle inflation/changes (get married and have 8 special needs kids, decide your dream is yachting, not thru-hiking), death from a variety of reasons (95% of male 30 year olds won't survive to 95 anyway), and black swan political/natural disaster stuff (Yellowstone erupts, nuclear war, your ethnic group becomes persecuted, etc). Not running out of money.

-W


Padonak

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Re: Stop worrying about the 4% rule
« Reply #1765 on: February 21, 2020, 09:01:43 AM »
This is a great reminder waltworks. Thanks for posting this. Puts things in perspective.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1766 on: February 21, 2020, 09:07:59 AM »
One undeniable advantage to a super low WR is that 0% of people that died working at their desks ran out of money in retirement. Let me say that again....0%.

dandarc

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Re: Stop worrying about the 4% rule
« Reply #1767 on: February 21, 2020, 09:15:53 AM »
One undeniable advantage to a super low WR is that 0% of people that died working at their desks ran out of money in retirement. Let me say that again....0%.
A company I used to work for had that actually happen a few years before I started. Dude stayed late on a Friday, and was found dead at his desk Monday. Suppose when you get into the thousands of employees and higher, it becomes inevitable.

In any event, "Broke vs. Dead" charts really gave a good perspective on this issue for me. 5% is the new 4% in my plan. Spreadsheet says $3500 / month at 5% . . . like that totally should work if wife and I put any effort at all into the budget. Hmm.

https://engaging-data.com/will-money-last-retire-early/

American GenX

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Re: Stop worrying about the 4% rule
« Reply #1768 on: February 21, 2020, 09:31:08 AM »
Remember that the Trinity study assumes you won't make any further income (almost certainly not true for people on this forum), ever,

Assumes no further income???  The Trinity study is based on historical growth of a portfolio during different 30 year time periods in order to maintain your SWR, so the Trinity study does assume income.  In a tax deferred retirement account, it would be income when you take distributions.  In taxed accounts, interest, dividends, capital gains distributions, and realized capital gains are income.

dandarc

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Re: Stop worrying about the 4% rule
« Reply #1769 on: February 21, 2020, 09:36:23 AM »
Remember that the Trinity study assumes you won't make any further income (almost certainly not true for people on this forum), ever,

Assumes no further income???  The Trinity study is based on historical growth of a portfolio during different 30 year time periods in order to maintain your SWR, so the Trinity study does assume income.  In a tax deferred retirement account, it would be income when you take distributions.  In taxed accounts, interest, dividends, capital gains distributions, and realized capital gains are income.
"No further income beyond what you draw from your portfolio" is implied in waltworks statement. Income in this context of a general discussion of withdrawal rates does not mean "taxable income".

2Birds1Stone

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Re: Stop worrying about the 4% rule
« Reply #1770 on: February 21, 2020, 09:39:56 AM »
Earned income, not investment income.

waltworks

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Re: Stop worrying about the 4% rule
« Reply #1771 on: February 21, 2020, 09:56:00 AM »
Assumes no further income???  The Trinity study is based on historical growth of a portfolio during different 30 year time periods in order to maintain your SWR, so the Trinity study does assume income.  In a tax deferred retirement account, it would be income when you take distributions.  In taxed accounts, interest, dividends, capital gains distributions, and realized capital gains are income.

Are you being deliberately obtuse, or did you really not understand the post?

The Trinity study assumes you never again earn a dime at any kind of job, collect social security, inherit a few thousand bucks from crazy old uncle Roger, or find $20 on the sidewalk.

Is that better?

-W
« Last Edit: February 21, 2020, 09:59:22 AM by waltworks »

American GenX

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Re: Stop worrying about the 4% rule
« Reply #1772 on: February 21, 2020, 10:48:11 AM »
Assumes no further income???  The Trinity study is based on historical growth of a portfolio during different 30 year time periods in order to maintain your SWR, so the Trinity study does assume income.  In a tax deferred retirement account, it would be income when you take distributions.  In taxed accounts, interest, dividends, capital gains distributions, and realized capital gains are income.

Are you being deliberately obtuse, or did you really not understand the post?

The Trinity study assumes you never again earn a dime at any kind of job, collect social security, inherit a few thousand bucks from crazy old uncle Roger, or find $20 on the sidewalk.

Is that better?

OK.  You could have just edited your previous post to correct the error where you simply said "no income, ever".  No reason to cop an attitude or throw insults.   And of course the Trinity study isn't calculating in those other things, like SS and inheritance.  Surely everyone on this web forum already knows that.

nereo

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Re: Stop worrying about the 4% rule
« Reply #1773 on: February 21, 2020, 10:50:54 AM »


source: www.xkcd.com

waltworks

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Re: Stop worrying about the 4% rule
« Reply #1774 on: February 21, 2020, 10:55:41 AM »
OK.  You could have just edited your previous post to correct the error where you simply said "no income, ever".  No reason to cop an attitude or throw insults.   And of course the Trinity study isn't calculating in those other things, like SS and inheritance.  Surely everyone on this web forum already knows that.

Ok, dude. The post says "make any further income". I suppose I could have said "earn" instead but "make" is pretty clear. Then, in case you didn't get it, the rest of it goes on to talk about what happens if you do earn a little money/work. If you couldn't figure that out after all that, I guess I don't know what to say.

-W

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1775 on: February 21, 2020, 11:03:44 AM »
...the higher the current market is vs. historical CAPE, the lower you should expect your future returns.

Bogle’s formula:
[Long Term] Future Market Returns = Dividend Yield + Earnings Growth +/- Change in P/E Ratio = 2 + 3 + 0 = 5% Real.

If you think growth will go back to what it was decades ago plug in 2%. International yields a bit more, but has slower growth. Either way, 4% or 5%, it's enough. Just don't mix many bonds in there (1-2%?), or cash (0%), or gold (0%).

maizefolk

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Re: Stop worrying about the 4% rule
« Reply #1776 on: February 21, 2020, 11:06:47 AM »
And of course the Trinity study isn't calculating in those other things, like SS and inheritance.  Surely everyone on this web forum already knows that.

Most (but not all) people probably know that, but in my experience most haven't taken the time to sit down and think what a strikingly conservative assumption it is they they will never receive a dollar of social security income, nor inherit a dollar from any family member, nor have a year where they simply don't spend as much as planned and have some money left over.

secondcor521

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Re: Stop worrying about the 4% rule
« Reply #1777 on: February 21, 2020, 11:16:40 AM »
And of course the Trinity study isn't calculating in those other things, like SS and inheritance.  Surely everyone on this web forum already knows that.

Most (but not all) people probably know that, but in my experience most haven't taken the time to sit down and think what a strikingly conservative assumption it is they they will never receive a dollar of social security income, nor inherit a dollar from any family member, nor have a year where they simply don't spend as much as planned and have some money left over.

I wonder how frequent inheritances of any significance (>$50K-ish) are.  I think they're fairly uncommon.

Not a challenge or a criticism, just a tangent about which your post led me to wonder.

waltworks

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Re: Stop worrying about the 4% rule
« Reply #1778 on: February 21, 2020, 11:46:59 AM »
I bet a LOT of people on this forum will inherit *something* of enough value to have an effect on FIRE success. The general public, of course, not so much. But MMM forum members are overwhelmingly the products of upper middle class families that have substantial NW (there are of course lots of exceptions).

For reference, inheriting even $50k when you're 40 years old in that 65 year long 4% rule scenario increases your odds of success from 80% to 84%. Inheriting $100k takes you to 91%.

-W

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1779 on: February 21, 2020, 12:26:00 PM »
I bet a LOT of people on this forum will inherit *something* of enough value to have an effect on FIRE success. The general public, of course, not so much. But MMM forum members are overwhelmingly the products of upper middle class families that have substantial NW (there are of course lots of exceptions).

For reference, inheriting even $50k when you're 40 years old in that 65 year long 4% rule scenario increases your odds of success from 80% to 84%. Inheriting $100k takes you to 91%.

-W

Hmm.. It would be interesting to get some data on the family economic backgrounds. Anecdotally I observe that a lot of wannabe FIRE's come from working class or lower middle class backgrounds that want a better outcome than their parents have/had.

waltworks

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Re: Stop worrying about the 4% rule
« Reply #1780 on: February 21, 2020, 12:39:05 PM »
I bet a LOT of people on this forum will inherit *something* of enough value to have an effect on FIRE success. The general public, of course, not so much. But MMM forum members are overwhelmingly the products of upper middle class families that have substantial NW (there are of course lots of exceptions).

For reference, inheriting even $50k when you're 40 years old in that 65 year long 4% rule scenario increases your odds of success from 80% to 84%. Inheriting $100k takes you to 91%.

-W

Hmm.. It would be interesting to get some data on the family economic backgrounds. Anecdotally I observe that a lot of wannabe FIRE's come from working class or lower middle class backgrounds that want a better outcome than their parents have/had.

We should do a poll!

I bothered to google the inheritance question, and found this from https://blog.massmutual.com/post/why-millennials-should-not-rely-on-an-inheritance:
"According to Federal Reserve research conducted in 2013, the average inheritance for the wealthiest 5 percent of U.S. households was $1.1 million, while the bottom 50 percent received just $68,000 and the middle 45 percent received $183,000."

That's a LOT more than I thought for the "middle" and bottom portions of the distribution.

-W

nereo

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Re: Stop worrying about the 4% rule
« Reply #1781 on: February 21, 2020, 12:42:38 PM »
I tend to agree with Walt on this one.

Also, just asked Mr Google and here's what it turned up:
Quote
According to a 2015 HSBC survey, American retirees expect to leave an average inheritance of almost $177,000 to their heirs. The Survey of Consumer Finances (SCF), reported that median inheritance was $69,000 (the average was $707,291).

So there you go.  To be frank we anticipate receiving somewhat more than the median inheritance of $69k given both sets of parents have substantial assets, but ironically as we also hope to be FI long before either set of parents expire it probably won't make a huge difference in our lives. YMMV.

maizefolk

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Re: Stop worrying about the 4% rule
« Reply #1782 on: February 21, 2020, 12:52:00 PM »
It's a good question. While I was typing this I got distracted by something else so nereo and waltworks pulled up other and perhaps even more useful data but what I fould was that a net worth of $50k (including home equity) would put someone in the 20th percentile for people age 75-79. Obviously in many cases there might be multiple inheritors, and/or end of life care could eat up a lot of the net worth.

But to me that would seem to suggest it's likely that a modest majority of people to live long enough may receive at least a five figure inheritance at some point in their lifetime.

nereo

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Re: Stop worrying about the 4% rule
« Reply #1783 on: February 21, 2020, 01:05:03 PM »
What struck me was the gap between median ($69k) and mean ($707k) inheritances, which means a very small minority of people are receiving incredibly large sums.... 8, 9, 10 figure inheritances.
I mean... I know it happens among the uber-rich, but it's just such a different world it's hard to relate.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1784 on: February 21, 2020, 05:13:26 PM »
“Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where we are hard, and cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand. They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves. Even when they enter deep into our world or sink below us, they still think that they are better than we
are. They are different. ”  - F. Scott Fitzgerald

Having a 1 or 2 percent withdrawal rate must be very easy for them.  Because they make money faster than they spend it, maybe you could even say they have the zero withdrawal rate if you don't quibble about the earning definition.

chevy1956

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Re: Stop worrying about the 4% rule
« Reply #1785 on: February 21, 2020, 10:46:15 PM »
And of course the Trinity study isn't calculating in those other things, like SS and inheritance.  Surely everyone on this web forum already knows that.

Most (but not all) people probably know that, but in my experience most haven't taken the time to sit down and think what a strikingly conservative assumption it is they they will never receive a dollar of social security income, nor inherit a dollar from any family member, nor have a year where they simply don't spend as much as planned and have some money left over.

The doom and gloom posts completely forget about these points. The 4% rule fails with really tight assumptions 5% of the time over 30 years. Even with high valuations from an arbitrary measurement of value a 4% WR will work more than likely last 30 years the vast majority of times. That is without any of those tight assumptions being broken.

I suppose everyone has to look at their particular situation. If you are 30 with no kids and really tight expenses maybe the 4% rule isn't right for you. If you are 50 with social security coming in at 70 that will meet all your needs maybe a 6% WR is fine.

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1786 on: February 22, 2020, 12:16:47 AM »
Just don't mix many bonds in there (1-2%?), or cash (0%), or gold (0%).
Wrong, according to ERN's research.
https://earlyretirementnow.com/2020/01/08/gold-hedge-against-sequence-risk-swr-series-part-34/

chevy1956

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Re: Stop worrying about the 4% rule
« Reply #1787 on: February 22, 2020, 12:45:29 AM »
Just don't mix many bonds in there (1-2%?), or cash (0%), or gold (0%).
Wrong, according to ERN's research.
https://earlyretirementnow.com/2020/01/08/gold-hedge-against-sequence-risk-swr-series-part-34/

I hadn't read that one. It was good. ERN's conclusion is interesting.

Quote
Making a major change is hard! For me to go from 0% gold to 10-15% gold allocation would be a major shift and I’d need to see evidence almost “beyond reasonable doubt” to make that move. But with the lingering doubts about whether gold will perform as well as in the past (see the disclaimer and the caveat about the gold ownership restrictions and the government fixing prices above), I’m still on the fence about putting a six-figure sum into some useless metal just sitting around and not generating any dividends. But likewise, if you currently do own 10-15% you probably don’t see any clear and convincing evidence to move out of gold either.
« Last Edit: February 22, 2020, 12:49:47 AM by chevy1956 »

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1788 on: February 22, 2020, 06:28:15 AM »
Just don't mix many bonds in there (1-2%?), or cash (0%), or gold (0%).
Wrong, according to ERN's research.
https://earlyretirementnow.com/2020/01/08/gold-hedge-against-sequence-risk-swr-series-part-34/


Remove all data during the gold standard when the price was fixed by the government, and for the first couple of years afterward  to allow for finding the real current value when going off the gold standard. The usefulness of gold in a portfolio goes down noticeably.

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Re: Stop worrying about the 4% rule
« Reply #1789 on: February 22, 2020, 06:33:42 AM »
Just don't mix many bonds in there (1-2%?), or cash (0%), or gold (0%).
Wrong, according to ERN's research.
https://earlyretirementnow.com/2020/01/08/gold-hedge-against-sequence-risk-swr-series-part-34/


Remove all data during the gold standard when the price was fixed by the government, and for the first couple of years afterward  to allow for finding the real current value when going off the gold standard. The usefulness of gold in a portfolio goes down noticeably.
Yep.  Every time the economy sours there are gobs of adverts from companies selling gold because it's a great investment in bad economic times.

Um...   If'n it's such a great investment in bad economic times and we're entering bad economic times, why are they literally paying money to sell it?


chevy1956

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Re: Stop worrying about the 4% rule
« Reply #1790 on: February 22, 2020, 03:43:07 PM »
Just don't mix many bonds in there (1-2%?), or cash (0%), or gold (0%).
Wrong, according to ERN's research.
https://earlyretirementnow.com/2020/01/08/gold-hedge-against-sequence-risk-swr-series-part-34/


Remove all data during the gold standard when the price was fixed by the government, and for the first couple of years afterward  to allow for finding the real current value when going off the gold standard. The usefulness of gold in a portfolio goes down noticeably.

I have no gold and that article definitely confirmed to me that my decision was the right one. Interestingly all the portfolios that were assessed that are popular that contain gold (the golden butterfly/the permanent portfolio etc) to me appear much more fragile than a simple stocks/bonds/cash portfolios.

From ERN:-
Quote
So, the widely-cited exotic portfolios don’t exactly deliver any notable improvement in the safe withdrawal stats. I’d stay away from them! If you want to use gold to hedge against sequence risk, shift some of the equity portion into gold. But stay away from the “sexy” portfolio allocations recommended by the internet gurus and motivational speakers!

To me if you are going down the path of tweaking your portfolio in exotic ways (ERN's words) then you should be saving up more. You want a simple robust portfolio to minimize your risk.

I think this initial discussion stated to only have a small percentage of bonds however ERN's analysis states a rising equity glide path is the best approach to alleviate sequence of returns risk. So having a larger percentage of bonds close to and when you retire is a smart idea.
« Last Edit: February 22, 2020, 03:52:23 PM by chevy1956 »

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1791 on: February 22, 2020, 06:10:08 PM »
In the interest of full disclosure, I'm not technically zero gold in practice. Less than an ounce, so not really material to the portfolio. It's pretty and purchased many years ago. I don't pretend it's an investment. It is on the net worth spreadsheet.

I was about to say that my car's worth less, but I checked and that's not true. Shockingly my (used) car purchased 3 years ago from state surplus is selling the same model/year for the exact same dollar amount, and KBB agrees with that for a trade-in price (with private party actually being higher).

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Re: Stop worrying about the 4% rule
« Reply #1792 on: February 23, 2020, 10:08:34 AM »
All of this conversation has led me to believe that most likely a lot of us will die with a shit-ton of money. When I retired 6 years ago I had a WR of about 3% and I was 52 at the time.

Since then our invested assets have more than doubled and so now we are at 1.5%.

When the company pensions kick in... Well its going to be approaching zero%. This is an extreme example but with SS just round the corner on top of that I can see we have been way too conservative.

Its a good problem to have of course but its becoming obvious that DW and I need to re-write our wills. Her fam is full of drug addicts and partiers.. If we left them this kind of money it would most likely ruin their pathetic lives, so we can't do that.

If 6% really is a safe WR for us (me at 58.5 and DW at 55), that translates into a level of spend I simply couldn't imagine.

Really must start doing our international travel in business class..:)

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Re: Stop worrying about the 4% rule
« Reply #1793 on: February 23, 2020, 10:18:38 AM »
All of this conversation has led me to believe that most likely a lot of us will die with a shit-ton of money. When I retired 6 years ago I had a WR of about 3% and I was 52 at the time.

Since then our invested assets have more than doubled and so now we are at 1.5%.

When the company pensions kick in... Well its going to be approaching zero%. This is an extreme example but with SS just round the corner on top of that I can see we have been way too conservative.


If this ever-diminishing WR is causing you stress I'm happy to take some of that burden off of you @Exflyboy, so you can return to a more sensible ~3% WR. 

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1794 on: February 23, 2020, 10:56:20 AM »
All of this conversation has led me to believe that most likely a lot of us will die with a shit-ton of money. When I retired 6 years ago I had a WR of about 3% and I was 52 at the time.

Since then our invested assets have more than doubled and so now we are at 1.5%.

When the company pensions kick in... Well its going to be approaching zero%. This is an extreme example but with SS just round the corner on top of that I can see we have been way too conservative.


If this ever-diminishing WR is causing you stress I'm happy to take some of that burden off of you @Exflyboy, so you can return to a more sensible ~3% WR.

I see the new 2020 model of the new Corvette is quite the piece of engineering.. I'm almost thinking "why not just buy one?"

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Re: Stop worrying about the 4% rule
« Reply #1795 on: February 23, 2020, 11:26:07 AM »
I think the "death chart" i.e. the chart that shows the chances of death compared to running out of money with the 4% rule should be somehow stickied in this thread so it shows on every page. I think maizeman put it up first. Somehow everyone assumes they'll be alive 30+ years from now. 

I hate to be the bearer of bad news, but a lot of us are going to die in the next 30 years, in which case you would have had a successful retirement, money-wise at least.

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Re: Stop worrying about the 4% rule
« Reply #1796 on: February 23, 2020, 11:42:30 AM »
I did throw in 10% spending flexibility, which means the ability to avoid spending a mere $4k in a year when the markets are down. I didn't even remove the overly high investing fees. Taking investing fees down from 0.3% to 0.1% improves portfolio success rate from 95% to 98%. No effect on the death rate. If you have 15% spending flexibility and 0.1% fees, portfolio success goes to 100%. This means the ability to avoid spending (or generate income) of a mere $500 per month.

For those unfamiliar with this chart, the tiny red sliver is "portfolio failed" and the rising massive grey curve is "died".

https://engaging-data.com/will-money-last-retire-early/

« Last Edit: February 23, 2020, 11:48:19 AM by TomTX »

American GenX

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Re: Stop worrying about the 4% rule
« Reply #1797 on: February 23, 2020, 12:28:42 PM »
I think the "death chart" i.e. the chart that shows the chances of death compared to running out of money with the 4% rule should be somehow stickied in this thread so it shows on every page. I think maizeman put it up first. Somehow everyone assumes they'll be alive 30+ years from now. 

I hate to be the bearer of bad news, but a lot of us are going to die in the next 30 years, in which case you would have had a successful retirement, money-wise at least.
Assuming, or rather expecting that you'll still be alive and preparing for the possibility of being alive are two different things.  You may not expect to live to a ripe old age, but you might want to prepare financially for that possibilty.

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Re: Stop worrying about the 4% rule
« Reply #1798 on: February 23, 2020, 01:21:03 PM »
And indeed, that's the interesting flip side of the coin, GenX!

Are you eating lots of red meat? Do you get moderate to intense cardio exercise for at least 4 or 5 hours a week (so, really, almost an hour a day)? How about weight bearing/strength exercise? Balance work/yoga (go google how likely a fall is to kill you when you're old)? Do you spend excessive amounts of time sitting down at work/in traffic? Do you sleep 7 or 8 good hours a night?

Tons of us here are obsessed with getting that WR down - but it won't mean anything if you're not alive. And there are easy things you can do to improve your odds. They take planning (which you should already be good at if you're reading this thread) and effort (natch, stop eating shitty food) and sometimes stepping out of your comfort zone (hire a personal trainer, buy some workout clothes, be that weirdo who doesn't watch any TV so they can get good sleep, use lots of titanium-dioxide sunscreen that makes you look like a weirdo outdoors, etc).

-W

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1799 on: February 23, 2020, 01:40:11 PM »
As an FYI - sun exposure (especially sunburns) may increase the chance of skin cancer, but sunbathing seems to reduce all-cause mortality noticeably. Large, 20 year study:

https://www.ncbi.nlm.nih.gov/pubmed/24697969