Author Topic: Survive 1966 with 4% WR?  (Read 2711 times)

Scandium

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Survive 1966 with 4% WR?
« on: October 21, 2015, 07:23:57 AM »
Is there any combination of stocks/bond/cash (but not gold) or rebalancing where retirement in 1966 with 4% withdrawal rate would be successful? Everything I've tried on www.cfiresim.com so far has lead to running out of money in the early 90's. A 3.5% WR works (barely) but is 4% possible?

Using 25% gold it works, but I don't really want to bet on gold in the future so don't consider that viable.


Aphalite

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Re: Survive 1966 with 4% WR?
« Reply #1 on: October 21, 2015, 07:48:59 AM »
Have you tried 100% bonds? Since payouts were above 4% back then, and interests peaked in the 1980s, if you had known that interest rates would be going down to zero in 2015, you probably would have had a fantastic time going 100% bonds back then

Interest Compound

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Re: Survive 1966 with 4% WR?
« Reply #2 on: October 21, 2015, 08:15:57 AM »
It's years like 1966 which convinced me to save a bit more than I need (say 20% more) and use Variable Percentage Withdrawal (VPW) during my withdrawal phase:



https://www.bogleheads.org/forum/viewtopic.php?f=10&t=120430&sid=9431183e66e133690ae2f0a18496ca50

In actuality, I'll have independent income during my withdrawal phase from some side projects, so I'm not too worried about the 20% more part. And since extra income is inflation-adjusted, you can model it using the Social Security tab of the calculator:



Cfiresim has a VPW setting under Spending Plan, check it out.

brooklynguy

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Re: Survive 1966 with 4% WR?
« Reply #3 on: October 21, 2015, 09:08:10 AM »
Is there any combination of stocks/bond/cash (but not gold) or rebalancing where retirement in 1966 with 4% withdrawal rate would be successful?

If you limit the question to stocks and bonds, the answer is no.  You can use cFIREsim's "investigate" feature to see the varying success rates across every stock/bond (but not cash or gold) allocation for a given WR (but you have to use the old site; it appears that this feature has not yet been implemented in the new site).  And there is no stock/bond allocation for which cFIREsim reports success for a 4% spending plan commencing in 1966.

Scandium

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Re: Survive 1966 with 4% WR?
« Reply #4 on: October 21, 2015, 09:13:46 AM »
Is there any combination of stocks/bond/cash (but not gold) or rebalancing where retirement in 1966 with 4% withdrawal rate would be successful?

If you limit the question to stocks and bonds, the answer is no.  You can use cFIREsim's "investigate" feature to see the varying success rates across every stock/bond (but not cash or gold) allocation for a given WR (but you have to use the old site; it appears that this feature has not yet been implemented in the new site).  And there is no stock/bond allocation for which cFIREsim reports success for a 4% spending plan commencing in 1966.

That's what I've found. I also started playing with changing the AA during the stagnant years, or in the 80s, but even with that have not found any combination that works. Increase bonds, decrease bonds etc

Only options that work seem to be pick one:
- 25% gold
- 3.5% WR
- Retire in 1967 instead. Ending balance of ~$150k


Have you tried 100% bonds? Since payouts were above 4% back then, and interests peaked in the 1980s, if you had known that interest rates would be going down to zero in 2015, you probably would have had a fantastic time going 100% bonds back then

nope, 100% bonds does not work. It's actually worse than 100% stocks!

Tyler

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Re: Survive 1966 with 4% WR?
« Reply #5 on: October 21, 2015, 09:31:16 AM »
Go to FIREcalc > Your Portfolio and check "Mixed portfolio".  That gives you more stock and bond options.  FWIW, the default mix seems to work at 4% since 1966.

The way asset allocation affects SWRs is really interesting but not very widely understood.  You can't just lump all "stocks" and "bonds" together. 

brooklynguy

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Re: Survive 1966 with 4% WR?
« Reply #6 on: October 21, 2015, 09:52:31 AM »
The way asset allocation affects SWRs is really interesting but not very widely understood.  You can't just lump all "stocks" and "bonds" together.

Yes, this is a very good point.  I (mistakenly) thought the question in the OP was limited to cFIREsim and its asset allocation options, but of course even if it were, in real life your available investment options are not limited to those tracked by cFIREsim.

Scandium

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Re: Survive 1966 with 4% WR?
« Reply #7 on: October 21, 2015, 11:06:55 AM »
Go to FIREcalc > Your Portfolio and check "Mixed portfolio".  That gives you more stock and bond options.  FWIW, the default mix seems to work at 4% since 1966.

The way asset allocation affects SWRs is really interesting but not very widely understood.  You can't just lump all "stocks" and "bonds" together.

Interesting. I don't know what "stocks" in cFiressim is. S&P500? Total US? Is there any international? I believe both small cap and international did better than US large cap in the 60s, so adding either of those should help. Portfolio visualizer only goes back to the 70s so can't check there.

Tyler

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Re: Survive 1966 with 4% WR?
« Reply #8 on: October 21, 2015, 11:20:26 AM »
Interesting. I don't know what "stocks" in cFiressim is. S&P500? Total US? Is there any international? I believe both small cap and international did better than US large cap in the 60s, so adding either of those should help. Portfolio visualizer only goes back to the 70s so can't check there.

I believe cFIREsim uses the Shiller data, which tracks the US S&P500.

If you're interested, I've written a little about this topic here.  The tool discussed has the same source data as PV, so it won't answer your specific question.  But for reference, the 30-year SafeWR it calculates since 1972 (for a 60/40 S&P500/5-year treasury portfolio) is only about 0.2-0.3% higher than the worst case 1966 scenario from various retirement studies using those same assets.  So maybe that can help get you in the ballpark.
« Last Edit: October 21, 2015, 11:49:50 AM by Tyler »

Radagast

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Re: Survive 1966 with 4% WR?
« Reply #9 on: October 21, 2015, 01:51:30 PM »
Reading The Intelligent Asset Allocator, the Europe, Australasia, and Far East index outperformed the S&P500 index by more than 7% annualized from 1968 to 1986. I believe this period is the classic example of why international stock ownership is good. Or you could allocate 10% to gold (hey, less than 25%) and 10% to emerging markets for a similar result.