Search found 80 matches

by BruceA
Thu May 09, 2013 8:26 pm
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

Wow!

LG please remove me from this forum permanently so that I am never tempted to post here again. Thanks.
by BruceA
Thu May 09, 2013 6:26 pm
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

Cut-Throat wrote:
BruceA wrote:[Response to snarky comment removed by admin LadyGeek]
Oh, I understand spreadsheets quite well....And again it seems you have come up with nothing new.

I have a lot of spreadsheets myself, but they are no replacement for Historical Market returns pitted against your withdrawal plans.
[Additional response to snarky comment removed by admin LadyGeek]

Please simply compare my methodology with Firecalc, summarizing how each works and the outputs of each, and commenting upon their relative usefulness. If you do understand my model such a reply should take you less time than it did to assemble your last post, and then I and others would be able to benefit from your insights.
by BruceA
Thu May 09, 2013 2:04 pm
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

Please simply compare my methodology with Firecalc, summarizing how each works and the outputs of each, and commenting upon their relative usefulness. If you do understand my model such a reply should take you less time than it did to assemble your last post, and then I and others would be able to benefit from your insights. Since, you've never showed us an example of your spreadsheet, it is no wonder that people don't know what you are doing. It would be far easier to attach a sample spreadsheet or whatever you've got and let people see it. You could change the numbers. How can anyone make a comment on a 'mythical retirement planner'? [Snarky comment removed by admin LadyGeek] [Response to snarky comment removed by admin LadyGeek]
by BruceA
Thu May 09, 2013 12:05 pm
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

Your post (quote) is contradictory and, no offense, but your OP seems to me to claim that you have developed something truly phenomenal - and "certain" to work for other retirees. Thanks Landy, your post illustrates the continual confusion over what my model does and does not do. I suppose that shows my inability to clearly express myself, so let me try again. 1. Despite what EO and others keep saying, I do not keep budgets; I simply keep a summary of total monthly actual expenditures that I input in a couple of minutes. It is up to the user to evaluate what is necessary, what is discretionary, and how the actual spending might change in the future. 2. It is possible to prepare a base case of annual available spend that is very a...
by BruceA
Thu May 09, 2013 9:36 am
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

The question I actually asked was: Would anyone be willing to comment upon the matter of the relative usefulness of the outputs from my model and the various other models currently being used? So far, no takers. Actually this question has been Beat to Death in Many other threads that you started. Lots of takers and lots of comments. Your 'Method' has shown nothing new and is quite elementary compared to the other retirement planners that are available. If you can show us something truly new, that we haven't seen before, I'm sure you'll get some insightful comments. But a simple spreadsheet showing income, expenses and a few Black Swans is not New. There are a lot of smart people here, that have seen this One Trick Pony Before. C-T Yes ther...
by BruceA
Wed May 08, 2013 4:15 pm
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

To address Bruce's question on financial models, I see zero utility for myself for any such tool at this point in time. Something like that MIGHT have been useful 20 yrs ago to predict the future, but way too much market uncertainty to make even that of much use... Interesting comment Wizard because that is almost the opposite of the question I was posing. My retirement planning model, and all of the other popular legit models do not pretend to predict the future and all fully recognize the degree of market uncertainty. Anyone who selects a planning model because it purports to predict the future has been had. IMO the only way to judge the value of a model is with respect to the amount and nature of information it provides to assist you wi...
by BruceA
Wed May 08, 2013 8:25 am
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

I was hoping that this thread might develop a discussion of some of the general concepts of my model. The issue that I was most interested in discussing involves the outputs generated by my model as compared to the other alternative models that many use. In my last post above I described that issue as: 1. The output from my model is easier to interpret and apply than that from RIP. What I find helpful is knowing how much I will have available to spend each year until death, at which time the investments decline to zero. I can then compare that to actual spending and run various worst case and planning alternatives with recomputed annual available spends. That to me is much more meaningful than having a model tell me succeed/fail or that I h...
by BruceA
Tue May 07, 2013 1:42 pm
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

KarlJ I am very familiar with Fidelity's RIP and MCS. The RIP is very good and very sophisticated; possibly the best off the shelf planning tool available. My approach is not nearly as sophisticated, but I can say that my model gives me personally much more realistic and meaningful results than does RIP. 1. The output from my model is easier to interpret and apply than that from RIP. What I find helpful is knowing how much I will have available to spend each year until death, at which time the investments decline to zero. I can then compare that to actual spending and run various worst case and planning alternatives with recomputed annual available spends. That to me is much more meaningful than having a model tell me succeed/fail or that I...
by BruceA
Tue May 07, 2013 11:24 am
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

Overthehill Clearly, as you indicate, there is no such thing as an optimal worst case scenario. When dealing with a worst case scenario, I think it best to test a range. Japan's actual drop in equity value was a "permanent" 80%. We did have a larger than 50% drop in 2008, but that was not permanent and so much less severe. My preference is for a permanent 50% equity drop. Of course, anyone with fixed pensions or annuities must also test inflation worst case scenarios. The problem with most retirement planning models, as I see it, is that many attempt to use some sort of historical worst case, and maybe attach probabilities. Others simply ignore Black Swans and suggest preparing a Plan B. Plugging a range of worst case scenarios in...
by BruceA
Tue May 07, 2013 8:38 am
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

3. Compute various worst case scenarios so that I can determine what I need to do to plan for them.. My worst case scenario is based on being reasonably certain that we would have enough to take us to the grave even if our total portfolio dropped by 50% and stayed there more or less for the duration (except for inflation), meaning that we would have to live off of the balance. That's about as bad as I think it make sense to plan for dealing with. Our asset allocation is close to 48% equities and 52% fixed (or cash). We also have SS. I think our portfolio could lose 50% and we still could at least come close to maintaining our current lifestyle, plus or minus a tad. We would probably have to give up significant gifting and charitable contri...
by BruceA
Mon May 06, 2013 1:54 pm
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Re: Retirement planning for those already retired

When I retired I focused on what I needed for retirement planning and that is described above. A couple of replies focused on the "budget", but as I said, I simply compute what I need for estimating annual expenditures, and not a detailed budget. I update it each month and that only takes a few minutes. What I am trying to do in this thread is to generate a discussion of big picture retirement planning. My approach is: 1. Evaluate actual expenditures; 2. Compute a base case of cash available to me for each year until my estimated year of death; and 3. Compute various worst case scenarios so that I can determine what I need to do to plan for them. MPT follower, you asked if my model is forthcoming. I discussed this model in some de...
by BruceA
Mon May 06, 2013 11:27 am
Forum: Investing - Theory, News & General
Topic: Retirement planning for those already retired
Replies: 44
Views: 7357

Retirement planning for those already retired

I am retired and I use a retirement planning approach that works very well for me, and I'm certain it will work for other retirees as well. How much am I spending each year? How much will I be able to spend each year until I die? And what will happen under various worst case scenarios? That is what I need to know, and that is what my approach provides. How much am I spending? I keep monthly records of the amounts I am spending, which are easily updated in just a few minutes. I don't keep detailed records of specific spending, but I do make a note of large expenditures or unusual expenses. From these it is easy to determine spending patterns and get a good feel for discretionary spending. Will spending change as I get older? Possibly, but by...
by BruceA
Sun Feb 24, 2013 12:43 pm
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Re: Retirement models and Black Swans

Maybe these complex models should all be scrapped and financial advisors could then earn their fee by thoroughly analyzing all the data that is relevant and material to each individual client, e.g., a detailed analysis of expected returns plus consideration of relevant negative scenarios. Probably more work for the financial advisors, but I'd guess a lot more helpful to their clients. I don't understand what the point would be. Any analysis done today no matter how sophisticated would still yield a result with a very large error bar on it. The large error bar would basically mean that the result would overlap with a simple analysis or as Cut-Throat just typed "3-4%". Once one realizes that the results have absolutely no precision...
by BruceA
Sat Feb 23, 2013 5:18 pm
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Re: Retirement models and Black Swans

I think you are pointing out the weaknesses of some the popular retirement calculators. Just like the way Trinity study showed that the "old-school" calculators which assumed constant 8% every year were way too optimistic, maybe the withdrawal calculators that assume normal distribution or that the history already reflects the "worst case scenario" needs to be re-thought. Or maybe the problem is with the financial advisors who continually come up with new and more complex models. "Non-Zero Skewness and Mixed Tails" -- is this really helpful? Maybe these complex models should all be scrapped and financial advisors could then earn their fee by thoroughly analyzing all the data that is relevant and material to ea...
by BruceA
Sat Feb 23, 2013 3:38 pm
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Re: Retirement models and Black Swans

Who is suggesting "throw up your hands"? Inserting various types of Black Swan events when modeling retirement planning makes good sense to me. 25% drop in one day? Milevsky type drop? Why not. One might consider many other market decline levels and other types of Black Swans to try. For example, if one had a large part of retirement income in fixed pensions and annuities, higher inflation scenarios should be inserted. After adding the Black Swans or other scenarios, why bother with MCS? What value is added with the additional MCS layer? To me the important question is what should you do with the information you obtained from adding these various scenarios? Ultimately you do not have a nice neat sustainability percentage (or SWR),...
by BruceA
Sat Feb 23, 2013 11:35 am
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Re: Retirement models and Black Swans

Chan-va

Do you agree that investment returns do not follow a normal curve and that there are fat left tails (consider Mandelbrot rather than Taleb if you prefer)? Do you agree that history cannot predict future negative outliers? If so, do you agree that the percentage probability of success derived by these models is overstated? Those are the (practical) questions being posed here. Your suggested course of action and your Black Swan example seem a bit extreme.
by BruceA
Sat Feb 23, 2013 11:13 am
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Re: Retirement models and Black Swans

Positive Black Swans do occur, but these are generally ignored as gravy or good fortune. People are more concerned with "will I have enough" than "will I have too much". I believe Taleb concluded that they are less likely than negative Black Swans.
by BruceA
Sat Feb 23, 2013 10:30 am
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Re: Retirement models and Black Swans

As I see it, a model is not useless if it provides relevant and material information that helps in decision making. For example, an MCS can beneficially illustrate the effect of return sequencing, which is more realistic and conservative than using constant returns. The problem I have with MCS is not anchoring per se, but the overreliance on a success percentage without considering that that number is overstated. I agree that there is no way to engineer certainty, but it's important not to accept a model's result as providing that certainty.
by BruceA
Sat Feb 23, 2013 9:53 am
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Re: Retirement models and Black Swans

It seems that many on this forum use retirement planning models. The most commonly used appear to be: 1) SWR models and variations; and 2) models such as Firecalc, Fidelity retirement planner, and others that use Monte Carlo Simulations. These models do not take into account Black Swans. To what extent do the "severe side effects" to which Taleb refers limit or nullify the benefits of these models? They nullify or limit the benefit to the extent that a black swan actually occurs. Isn't the definition of a black swan that it is an extreme event with an unknown probability of occurring. In fact doesn't the definition even include that the nature of the event is not yet known? By definition you can't know the extent to which models ...
by BruceA
Sat Feb 23, 2013 9:11 am
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Re: Retirement models and Black Swans

First, Monte Carlo simulations can be programmed for "Black Swans" or fat tails Second, having said that 2008 type event would be included in a MCS that used historical data for stocks, even assuming normal distribution Third, fwiw, Taleb is obviously a smart guy who thinks the right way about risk, at least IMO> In fact his way of thinking is very similar to the way I was taught to think about risks and also to the investment strategy I've been using and recommending for a very long time (before Taleb wrote about it). First, never treat the unlikely as impossible (account for left tail risks showing up and have a Plan B). Second, use a barbell approach owning the riskiest assets in small amounts and then the rest of the portfoli...
by BruceA
Sat Feb 23, 2013 8:34 am
Forum: Investing - Theory, News & General
Topic: Retirement models and Black Swans
Replies: 41
Views: 2966

Retirement models and Black Swans

Nassim Nicholas Taleb wrote: Models and constructions, these intellectual maps of reality, are not always wrong; they are wrong only in some specific applications. The difficulty is that a) you do not know beforehand (only after the fact) where the map will be wrong, and b) the mistakes can lead to severe consequences. These models are like potentially helpful medicines that carry random but very severe side effects. The Platonic fold is the explosive boundary where the Platonic mindset enters in contact with messy reality, where the gap between what you know and what you think you know becomes dangerously wide. It is here that the Black Swan is produced. It seems that many on this forum use retirement planning models. The most commonly us...
by BruceA
Fri Feb 22, 2013 1:18 pm
Forum: Investing - Theory, News & General
Topic: Taleb and Kahneman: Antifragility vs. common-man attitudes
Replies: 147
Views: 18509

Re: Taleb and Kahneman: Antifragility vs. common-man attitud

It's very easy for some to dislike Taleb, but do those people really disagree with the importance of considering fat tails (black swans)?

But Monte Carlo models depend on the input parameters, and these parameters are derived from some historical data.

Many of the MCS models do use historical inputs, but more sophisticated models use variable inputs. None of the models provide for Black Swans. What MCS does is compute probability of success considering random sequencing of returns. Knowledge of such sequencing is more valuable than not having such knowledge, but the MCS model does not create awareness of the "severe side effects". The question remains whether such side effects nullify the benefits of the models.
by BruceA
Fri Feb 22, 2013 11:54 am
Forum: Investing - Theory, News & General
Topic: Taleb and Kahneman: Antifragility vs. common-man attitudes
Replies: 147
Views: 18509

Re: Taleb and Kahneman: Antifragility vs. common-man attitud

SWR=2 is generally a result of refining the model by not relying on historical returns. I am certain Taleb is familiar with modeling using Monte Carlo simulations, and quite possibly aware of SWR models.

I suppose the questions for this forum are whether those who use these models are fully aware of the "severe side effects", and whether those severe side effects nullify the benefits of the models.
by BruceA
Fri Feb 22, 2013 10:54 am
Forum: Investing - Theory, News & General
Topic: Taleb and Kahneman: Antifragility vs. common-man attitudes
Replies: 147
Views: 18509

Re: Taleb and Kahneman: Antifragility vs. common-man attitud

WWTS

Has anyone considered what Taleb would say about the most common retirement strategies -- Safe Withdrawal Rates, and the various models that incorporate Monte Carlo Situations?
by BruceA
Sat Jan 19, 2013 10:43 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Rodc

Are you open to the possibility that Paul is correct? Is Paul open to the possibility that you are correct? Are you suggesting that you both are correct even though your positions are totally inconsistent? Did you miss my earlier posts that explained in detail how and to what extent I agreed with both SWR and your anti-SWR (MCS, etc.) views.

The trolls have arrived. Time to put an end to this.
by BruceA
Sat Jan 19, 2013 9:41 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

ydnal

Nice straw man. Next time at least try to understand the issues before commenting.
by BruceA
Sat Jan 19, 2013 9:05 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Was it really necessary to follow with such an oversimplified and patronizing comment?
by BruceA
Fri Jan 18, 2013 11:56 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

This has been quite a ride. I have written over 50 posts on this one subject and with practically no results. I got to thinking about it and, although it did turn out to be a waste of time, looking back it proved to be an interesting case study -- so no regrets. I brought up my method for monitoring retirement income in a few earlier threads, and continued much of it on this thread. I developed this method over a few years after becoming frustrated with the existing methods of: SWR, various MCS models, Firecalc, etc. A summary of SWR problems is included here, http://www.bogleheads.org/forum/viewtopic.php?p=1577462#p1577462 , and problems with other approaches are discussed elsewhere. I have been using the method I developed for 4 years now...
by BruceA
Thu Jan 17, 2013 9:50 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Paul I was a bit curt in my last reply, so let me try and explain one more time. trying to get what withdrawal rate your strategy allowed was very difficult The important thing to grasp here is that there is no withdrawal rate; instead there is a computed AAS. The AAS is the amount available to spend each year so that your investments shrink to zero the year you die. In the example the AAS is assumed as base case of 60k and worse case of 42.5. I could have as easily used base 40k and worse 30k as examples. In your example, you used returns of 7% and 5% I did not use returns of 7% and 5%. This was the assumed respective parts of AAS derived from equities and fixed. I should never have mentioned these percentages, but instead simply shown an ...
by BruceA
Wed Jan 16, 2013 4:03 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Rod, to you the world is mathematical certainty, or nothing. Paul, to you the world of retirement planning can only be evaluated and measured as a SWR. I too would like to apologize for wasting everyone's time.
by BruceA
Wed Jan 16, 2013 10:49 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Rod, really? I'm at a loss as to how to respond to your last post.
by BruceA
Wed Jan 16, 2013 9:56 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Rod Of course you realize that your example is overly simplistic. In the real world one would have SS, part of his portfolio in a traditional or Roth IRA, perhaps a pension, maybe deferred comp, RMD in 5 years, etc. So the real world after tax analysis using this model becomes much more meaningful than your simple case. However, I realize that you are attempting to cut the method to its absolute basics, so I'll respond as best I can. Rod, I would ask, however, that you play Bob. Let's assume that the model produced a base case AAS of 7% of equities and 5% of fixed (just an assumption for illustration purposes). This means that Bob will have an AAS of 60k. Using a worse case of 50% equity loss and no reversion, you Bob will have an AAS of 42...
by BruceA
Tue Jan 15, 2013 4:56 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Rod I'm sorry you have misunderstood how my model works. Computation of AAS using worse case scenarios is an integral part of the overall methodology, not a stress test. The stated purpose of SWR is to plan withdrawals such that you will not deplete your investments during your lifetime. My model plans withdrawals in the same way, but using much more individualized and realistic assumptions, as previously discussed. Unlike SWR, under my method withdrawals are set to insure success under various worse case scenarios; therefore failure under my method only occurs if you choose inadequate worse case AAS scenarios. To say that this is no better than MCS or SWR simply means that you do not understand how it works. How many worse case scenarios d...
by BruceA
Tue Jan 15, 2013 8:50 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Rod I agree with what you have said many times which is: SWR and other methodologies that purport safe planning using historical patterns are unreliable in the long run. I agree. I agree. I agree that, if my methodology were limited to that which you quote in your last post, it would be equally unreliable. Actually I believe it would be less safe than SWR because it is, by definition, less conservative than SWR. Of course the method you are criticizing is not my methodology; better put, it is only half of my methodology. The first half that you consider only sets a base case of AAS. I believe that my AAS is better than that used in an SWR method because it deals specifically with my actual pots of after-tax income and future estimates of re...
by BruceA
Mon Jan 14, 2013 4:42 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Rodc wrote: But the fundamental issues remain. You have simply huge uncertainties in your fundamental input variables.
Rod
And these are managed with the worse case AAS scenarios. You have not yet indicated why you don't agree with this central and important point.
by BruceA
Mon Jan 14, 2013 4:19 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

EmergDoc wrote:The benefit of reading and understanding the SWR studies is that it gets you in the neighborhood.

So, understand the concept of a SWR, then use your brain after that.
My approach involves computing an annual available spend based upon your own unique set of facts (not some generalized historical set of facts), and that is a better neighborhood. My approach also shows you specifically which neighborhoods you definitely want to avoid. Now you're are in a better neighborhood and in a much better position to use your brain.
by BruceA
Mon Jan 14, 2013 3:59 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

There are many methods. You have one. A careful analysis might say yours is best or it may not. All these methods used together may be more helpful that using the best alone. So of course and ensemble makes sense. If you want a maximum safe withdrawal rate and you use your conservative method you get some answer, X%. Now you go forward in time 30 years to the moments before your death. You used your method and adjusted as time went along. Now, looking back 30 years to 2013, and looking at the money you withdrew over the years, are you within 0.5% of X (ie your 2013 number was something like 4.5%, was the actual in the range of 4%-5%), if you actually keep returns for those 30 years and compute what would have been the percentage that allow...
by BruceA
Mon Jan 14, 2013 1:12 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

BruceA, as Rodc says, "you'll just have to wait and see and adjust along the way," This is true and here's what you say: using best current estimates , compute future annual after-tax returns from each pot of income (pensions, SS, taxable investments, IRA, RMD, etc.); b) using best estimates of inflation , apply future returns to annual expenditures each year for the rest of your life; c) using Excel's What if-Goal Seek function compute the annual available spend for the rest of your life assuming all investments are depleted at death . I use conservative estimates in my model including a life expectancy of age 100 . Best current estimates is the elephant in the room. You have said you want to 1) not run out of money and 2) spend...
by BruceA
Mon Jan 14, 2013 12:56 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Of course it is necessary to gain a fundamental understanding of the accuracy and limitations of any method. Come up with several possible alternative methods and then do your best to gain a fundamental understanding of each, as you suggest. From these alternatives, choose that method which you (or the consensus of several) agrees is best. That is step one. Or a possible step one, often given alternatives, none of which are very good, you use them all for what is called an ensemble forecast (which you could argue is itself an alternative if you wish). Now that you have your personal best method that you wish to use, what do you do when it has at best one significant digit of accuracy? This is perhaps a more challenging question. Rod, have ...
by BruceA
Mon Jan 14, 2013 12:10 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Of course it is necessary to gain a fundamental understanding of the accuracy and limitations of any method. Come up with several possible alternative methods and then do your best to gain a fundamental understanding of each, as you suggest. From these alternatives, choose that method which you (or the consensus of several) agrees is best.
by BruceA
Mon Jan 14, 2013 11:26 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

I believe that our goal should be to find a best method available. I would love to hear alternative suggestions, but not those based upon "scientific validity". Rod, any thoughts? I am not Rod, though your post was directed at him. I think "scientific validity" is a red herring. In this context, what does it mean? The fact is, there is no deterministic method that will give a precise result. The problem is one of probabilities, including market returns, inflation, life expectancy, income requirements, etc. Even then, any method is also subject to assumptions which may or may not prove to be valid in the future. I have no idea what the criteria would be to choose the "best" method. Keith Keith, I agree complete...
by BruceA
Mon Jan 14, 2013 9:32 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Thanks Rod We do seem to be in agreement on one point. It seems that you (and Bernstein and Taleb) believe that there is no scientifically valid method for determining how much can be safely withdrawn in order to avoid running out of funds. Please note that I am focusing on the simpler case of a retiree where all sources of income (taxable investments, IRAs, pensions, SS, etc.) are known. It seems that the majority of people do believe that there is at least some amount of scientific validity in certain methods such as SWR, Firecalc, or one of the many models that use Monte Carlo Simulations. Please let me know if I am reading you correctly, that no scientifically valid method exists. I am not sure, however, that I agree with the your disti...
by BruceA
Fri Jan 11, 2013 9:03 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Rodc Excellent points; I agree with all you say about uncertainty and the reality of SWR. However, it is possible to do more than, "you'll just have to wait and see and adjust along the way". It is apparent that you are proficient at financial analysis. Will you comment on the approach that I suggested in earlier posts. In a nutshell my Excel spreadsheet model is this: a) using best current estimates, compute future annual after-tax returns from each pot of income (pensions, SS, taxable investments, IRA, RMD, etc.); b) using best estimates of inflation, apply future returns to annual expenditures each year for the rest of your life; c) using Excel's What if-Goal Seek function compute the annual available spend for the rest of your...
by BruceA
Thu Jan 10, 2013 8:53 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

For what it's worth, here is my summary of all this. SWR (4% and variations) is an excellent rule of thumb. It is generally conservative and very easy to implement. Much better than winging it for those looking for something simple and conservative. Having said that, there are several problems with SWR as I enumerated above. I would think that anyone planning to use SWR should understand each of the seven problem items and make sure you are comfortable you have those under control. Financial circumstances and investments vary considerable among individuals. IMO it is much better to evaluate one's specific personal situation going forward than to use a rule of thumb based on history. So my recommendation is to spend the time and effort to: a...
by BruceA
Tue Jan 08, 2013 4:32 pm
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

Maybe it is worthwhile discussing what is good and bad about SWR. SWR is very helpful as a working rule of thumb, sort of like Jack Bogle's age in bonds. Some people might assume that with a 1million portfolio that they can safely spend 70 or 80k each year and 4% SWR helps to put the brakes on. It is also helpful in doing very big picture future planning. However, in my opinion there are too many things wrong with SWR to use it for serious retirement planning: 1. SWR exactly measures the past, giving people the false belief it will scientifically measure the future. 2. SWR is based on historical returns and most experts today believe that average historical returns far exceed expected returns today; some suggest a corresponding reduction in...
by BruceA
Tue Jan 08, 2013 10:18 am
Forum: Investing - Theory, News & General
Topic: Achieving a Higher Safe Withdrawal Rate
Replies: 109
Views: 10630

Re: Achieving a Higher Safe Withdrawal Rate

If you're going to make flexible adjustments, what's the evidence that any set of numerical rules is going to work any better than Taylor Larimore's system: "We simply withdrew what we needed and kept an eye on our portfolio balance. Most years our balance went up and we spent the money on vacations, luxuries and charity. When our balance went down we tightened our belt and economized. This is what most people do and it works." Agree. I would only add that a detailed understanding of one's financial position, as I have discussed elsewhere, is essential when applying Talyor Larimore's system. Interestingly, it appears the majority on this forum believe that precise withdrawal programs such as SWR, MCS, Firecalc, etc., which are ba...
by BruceA
Mon Dec 31, 2012 10:10 am
Forum: Investing - Theory, News & General
Topic: "Plan B" is an ambiguous idea
Replies: 28
Views: 3763

Re: "Plan B" is an ambiguous idea

Regarding what is Plan B, I agree with the Swedroe article.

I'm curious though why this discussion is only about market declines and not inflation. For those with fixed pensions or annuities, inflation can be as devastating as a market decline.
by BruceA
Thu Dec 20, 2012 9:34 am
Forum: Investing - Theory, News & General
Topic: Retirement Planning with Annual Available Spend
Replies: 15
Views: 2304

Re: Retirement Planning with Annual Available Spend

Umfundi, there was a good bit of explanation of the details in earlier posts, including the threads linked by LadyGeek. I don't think there is any point in adding more detail regarding the mechanics. What is needed is a full discussion of the concept, and there does not appear to be interest in further discussion. At least this should make one clueless-truculent poster happy.:)
by BruceA
Tue Dec 18, 2012 4:06 pm
Forum: Investing - Theory, News & General
Topic: Retirement Planning with Annual Available Spend
Replies: 15
Views: 2304

Re: Retirement Planning with Annual Available Spend

Paul, as I stated in my last reply to you: I have not stated a range of withdrawals because I have none. I use conservative life expectancy (age 100) and conservative estimates of after-tax portfolio growth (not historical, and please note that the B,B,&S earnings estimates are long term, not annual). The key difference between us is that you assume that everyone must use a SWR, and I do not use a SWR. What my model does is compute annual available spend, it does not compute what is a reasonable withdrawal. Let's assume that I determine that I need 80 after-tax income during retirement. AAS does not care what I need, it simply shows how much is available. Let's assume it comes out at 80 - 100 -- good news. Now let's assume 80, but when ...