Are Boglehead SWRs Too Conservatve?

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Are Boglehead SWRs Too Conservatve?

Postby William Million » Fri Mar 22, 2013 7:52 pm

Love the Boglehead approach but am concerned when I see talk of recommended retirement Safe Withdrawal Rates below 3%, even 2%. If you blow through retirement savings by 70, you failed. However - and this is equally important - if your estate grew or remained stable from 60 to 90 years old, you also failed at the retirement game.

Here's what I observe: Wait too long to spend nest egg? By 80 or 85, you might not have as many passions to spend it on anyway. Die with a large nest egg? Kids who inherit don't really appreciate it. At least there's charity . . .

If you reach 90 and still have the large nest egg, did you deprive yourself of perks that would have made you happy? - treating kids and grandkids to a Disney cruise, flying business rather than economy class, driving a Lexus instead of an Accord - even if you would not think of those frills during the accumulation phase due to sound Boglehead frugality. I think it's hard for some Bogleheads to change gears, spending more and saving less, when the time comes.
Last edited by William Million on Fri Mar 22, 2013 8:04 pm, edited 1 time in total.
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Re: Are Boglehead SWRs Too Conservatve?

Postby sperry8 » Fri Mar 22, 2013 7:58 pm

I think 4% works well. I retired in 2007. I went all in to the market in 2008. Stocks proceeded to drop 50%+ (so I lost half my money). Fast forward to today - and I'm even - and that includes living. I withdrew 4% each year. So here we are with one of the worst stock market crashes happening right at my retirement. I had no new income and withdrew 4%. And in 5 years, I have the exact same amount of money I started with. So actually, it would appear 4% is low.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Clearly_Irrational » Fri Mar 22, 2013 8:10 pm

This is actually a risk tolerance decision. How comfortable are you with the idea that you have a 1 in 20 chance of running out of money? For me, that seems scary high, for someone else it may be excessively cautious.
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Re: Are Boglehead SWRs Too Conservatve?

Postby William Million » Fri Mar 22, 2013 8:15 pm

Clearly_Irrational wrote:This is actually a risk tolerance decision. How comfortable are you with the idea that you have a 1 in 20 chance of running out of money? For me, that seems scary high, for someone else it may be excessively cautious.


Including reverse mortgage?

I'd hate to run out at 78. But I can live with a 1 in 2 chance of no assets by 95.
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Re: Are Boglehead SWRs Too Conservatve?

Postby sscritic » Fri Mar 22, 2013 8:17 pm

William Million wrote: Die with a large nest egg? Kids who inherit don't really appreciate it.

William Million Senior left you his Million million, and you don't appreciate it? That's on you. I will appreciate every penny I get from my mother and father.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Clearly_Irrational » Fri Mar 22, 2013 8:21 pm

William Million wrote:
Clearly_Irrational wrote:This is actually a risk tolerance decision. How comfortable are you with the idea that you have a 1 in 20 chance of running out of money? For me, that seems scary high, for someone else it may be excessively cautious.


Including reverse mortgage?

I'd hate to run out at 78. But I can live with a 1 in 2 chance of no assets by 95.


Kudos to you, personally that idea scares the heck out of me. That's probably more easily solved with a deferred annuity though.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Sheepdog » Fri Mar 22, 2013 8:26 pm

I'd rather die with money left over than not any at all.
So what if I only bought a Ford rather than a Ferrari? I only wanted only a Ford.
Spending money just to spend it because I have it does not give me joy.
If I leave something to help others or the arts, now the thought of that gives me joy.
My SWR is not too conservative for my life style. Besides, I am only 79+.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Mel Lindauer » Fri Mar 22, 2013 8:29 pm

William Million wrote:I think it's hard for some Bogleheads to change gears, spending more and saving less, when the time comes.


You're so right. Here's a column I did for Forbes on that very topic. It's titled "Switching Gears at Retirement: Going from Savings to Spending Mode". Here's a link: http://www.forbes.com/sites/theboglehea ... ding-mode/
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Re: Are Boglehead SWRs Too Conservatve?

Postby hicabob » Fri Mar 22, 2013 8:52 pm

Clearly_Irrational wrote:
William Million wrote:
Clearly_Irrational wrote:This is actually a risk tolerance decision. How comfortable are you with the idea that you have a 1 in 20 chance of running out of money? For me, that seems scary high, for someone else it may be excessively cautious.


Including reverse mortgage?

I'd hate to run out at 78. But I can live with a 1 in 2 chance of no assets by 95.


Kudos to you, personally that idea scares the heck out of me. That's probably more easily solved with a deferred annuity though.


Or just have a self-imposed rule that you will buy an annuity (SPIA of course) if your net worth gets down to N , (N being perhaps 25% of your starting net worth).
Sort of a self-imposed safety net?
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Re: Are Boglehead SWRs Too Conservatve?

Postby Sidney » Fri Mar 22, 2013 9:08 pm

William Million wrote:At least there's charity . . .

Yeah, why would anyone want to do that when he could be driving a Lexus.
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Re: Are Boglehead SWRs Too Conservatve?

Postby William Million » Fri Mar 22, 2013 9:21 pm

Sidney wrote:
William Million wrote:At least there's charity . . .

Yeah, why would anyone want to do that when he could be driving a Lexus.


Many Bogleheads do both
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Re: Are Boglehead SWRs Too Conservatve?

Postby Jake46 » Fri Mar 22, 2013 9:30 pm

sperry8 wrote:I think 4% works well. I retired in 2007. I went all in to the market in 2008. Stocks proceeded to drop 50%+ (so I lost half my money). Fast forward to today - and I'm even - and that includes living. I withdrew 4% each year. So here we are with one of the worst stock market crashes happening right at my retirement. I had no new income and withdrew 4%. And in 5 years, I have the exact same amount of money I started with. So actually, it would appear 4% is low.


I also retired in 2007. We have withdrawn about 4% each year & our portfolio is larger than 2007. We plan to continue.
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Re: Are Boglehead SWRs Too Conservatve?

Postby jasonv » Fri Mar 22, 2013 11:38 pm

hicabob wrote:
Clearly_Irrational wrote:
William Million wrote:
Clearly_Irrational wrote:This is actually a risk tolerance decision. How comfortable are you with the idea that you have a 1 in 20 chance of running out of money? For me, that seems scary high, for someone else it may be excessively cautious.


Including reverse mortgage?

I'd hate to run out at 78. But I can live with a 1 in 2 chance of no assets by 95.


Kudos to you, personally that idea scares the heck out of me. That's probably more easily solved with a deferred annuity though.


Or just have a self-imposed rule that you will buy an annuity (SPIA of course) if your net worth gets down to N , (N being perhaps 25% of your starting net worth).
Sort of a self-imposed safety net?


That is more or less what Oblivious Investor described in a recent blog post:
http://www.obliviousinvestor.com/annuit ... ckup-plan/

I simply don't see much of a need to use a SWR much below 4% when inflation-adjusted SPIAs are still paying out over 4%.
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Re: Are Boglehead SWRs Too Conservatve?

Postby steve roy » Sat Mar 23, 2013 12:19 am

Remember the wisdom of Errol Flynn:

"Any man who dies with more than five thousand dollars to his name is a failure."
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Re: Are Boglehead SWRs Too Conservatve?

Postby BBL » Sat Mar 23, 2013 7:08 am

William Million wrote:Love the Boglehead approach but am concerned when I see talk of recommended retirement Safe Withdrawal Rates below 3%, even 2%. If you blow through retirement savings by 70, you failed. However - and this is equally important - if your estate grew or remained stable from 60 to 90 years old, you also failed at the retirement game.

Here's what I observe: Wait too long to spend nest egg? By 80 or 85, you might not have as many passions to spend it on anyway. Die with a large nest egg? Kids who inherit don't really appreciate it. At least there's charity . . .

If you reach 90 and still have the large nest egg, did you deprive yourself of perks that would have made you happy?


I think that most around here do not see those two outcomes as equal failures. They are far different and in an important way:

1. I blew through savings by age 70 - this is a total disaster; on a scale of 1-100 the financial failure is close to, if not 100.

2. My estate grew from 60-90 - whew! More spending on family, myself, bigger charitable intentions, etc. on a scale of 1-100 this is maybe a 15. I enjoyed the peace of mind that never wavering financial security through retirement provided me and my family. The money I didn't spend when I was in my 30s / 40s / 50s is irrelevant or close to it.

The remote possibility of financial failure in retirement is, for many, worth the price of a lesser standard of living [really 'spending'] while in the accumulation / early retirement phase. The notion of failing at 72 or whatever is simply unthinkable.
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Re: Are Boglehead SWRs Too Conservatve?

Postby irwinmfletcher » Sat Mar 23, 2013 7:23 am

William I agree with you about the doom and gloom SWR posts. However, as I have gotten older I get more of a kick out of looking at my account balance than actually buying "stuff".

Buying experiences is a different story. There I have a lot of things I think about spending money on.
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Re: Are Boglehead SWRs Too Conservatve?

Postby jimkinny » Sat Mar 23, 2013 10:18 am

The approach that makes sense to me and many others is simply to remain flexible.

We do not know what the next 20-30 years will bring so be willing and able to cut back spending if necessary and increase spending if you are able.

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Re: Are Boglehead SWRs Too Conservatve?

Postby john94549 » Sat Mar 23, 2013 11:42 am

William Million wrote: But I can live with a 1 in 2 chance of no assets by 95.


My Mom is 97, turning 98 in June of this year. She did not share your risk tolerance.
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Re: Are Boglehead SWRs Too Conservatve?

Postby stemikger » Sat Mar 23, 2013 12:07 pm

William Million wrote:Love the Boglehead approach but am concerned when I see talk of recommended retirement Safe Withdrawal Rates below 3%, even 2%. If you blow through retirement savings by 70, you failed. However - and this is equally important - if your estate grew or remained stable from 60 to 90 years old, you also failed at the retirement game.

Here's what I observe: Wait too long to spend nest egg? By 80 or 85, you might not have as many passions to spend it on anyway. Die with a large nest egg? Kids who inherit don't really appreciate it. At least there's charity . . .

If you reach 90 and still have the large nest egg, did you deprive yourself of perks that would have made you happy? - treating kids and grandkids to a Disney cruise, flying business rather than economy class, driving a Lexus instead of an Accord - even if you would not think of those frills during the accumulation phase due to sound Boglehead frugality. I think it's hard for some Bogleheads to change gears, spending more and saving less, when the time comes.


What a great Post. Nothing to add, but this is something that needs to be talked about when the time comes.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Sbashore » Sat Mar 23, 2013 12:16 pm

I think you're right, I retired in 2005 and it's hard to let go of that accumulation propensity in favor of distributions. I've worked out a formula where I spend 5% nominal in good years and 4% nominal in bad. I'm willing to take the fluctuations in favor of not running out of money. Even so, I don't usually spend all that I'm allowed in a given year.
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Re: Are Boglehead SWRs Too Conservatve?

Postby letsgobobby » Sat Mar 23, 2013 1:08 pm

sperry8 wrote:I think 4% works well. I retired in 2007. I went all in to the market in 2008. Stocks proceeded to drop 50%+ (so I lost half my money). Fast forward to today - and I'm even - and that includes living. I withdrew 4% each year. So here we are with one of the worst stock market crashes happening right at my retirement. I had no new income and withdrew 4%. And in 5 years, I have the exact same amount of money I started with. So actually, it would appear 4% is low.

You were lucky the markets did a bungee jump. If it had been 1929, you'd be completely broke now.

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Re: Are Boglehead SWRs Too Conservatve?

Postby ObliviousInvestor » Sat Mar 23, 2013 2:00 pm

How much to spend (as opposed to save for later) is always a trade-off of making yourself happy right now as opposed to making your future-self happy. During the accumulation stage, Bogleheads tend to have a higher-than-average savings rate. I think having a lower-than-average spending rate during retirement is just another side of that same preference to place a higher-than-average priority on future-self-happiness.
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Re: Are Boglehead SWRs Too Conservatve?

Postby KyleAAA » Sat Mar 23, 2013 2:14 pm

Clearly_Irrational wrote:This is actually a risk tolerance decision. How comfortable are you with the idea that you have a 1 in 20 chance of running out of money? For me, that seems scary high, for someone else it may be excessively cautious.


Are you also taking into account the probability of actually living past 90? Say that probability is 25% (completely wild guess). If so, the true probability of running out of money, given you live that long to begin with, is .25 x .05 = .0125. Not nearly so bad.

I agree anything less than 3% is probably too conservative. A 3% withdrawal rate is sustainable pretty much indefinitely with almost any reasonable asset allocation.
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Re: Are Boglehead SWRs Too Conservatve?

Postby midareff » Sat Mar 23, 2013 2:37 pm

A SWR that YOU are comfortable with is not as easy as it would seem at first. Sure, you can pick a number and go with it but, and it's BUT, we don't know what the market is going to do next year or the next few years, let alone how long the portfolio has to last ..... so the early years of retirement could lead one to be a bit conservative. The real big unknown is how long the portfolio needs to last ... when do I die, when does the wife die (if married) ? If I knew that, planning would be very simple.

Parents made 90+ .. I have medical issue but great care ... what's in the cards for me? or my 15 year younger bride with a much shorter family history? My crystal ball is quite cloudy, no answers. .. no answers leads to caution. My WR is presently at 2.5% and I am looking to raise it to 2.75% or so. That's over pension and SS.... since I retired and stopped deferred comp and Roth contributions I am living on more $$ than I ever did working. Old saving habits die very hard, but I am trying :-) .

BTW, you may wish to read Otar, Unveiling The Retirement Myth, for some of the potential retirement scenarios.

Having said all that; I think you have to realize that by definition the "heads" are a conservative group. I know I'd rather die with $1M still invested (not a plan to leave to heirs) than spend my final 5 under a bridge. Shoot your own dice.
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Re: Are Boglehead SWRs Too Conservatve?

Postby 1210sda » Sat Mar 23, 2013 3:55 pm

The are two paths that can develop between now and the end of my life:

1) spend too much and risk running out of money before I die, OR,
2)not spend enough and risk leaving too much behind. Since I can't get it exact, I have chosen to err on the side of leaving too much for kids, charity, etc.

That is my philosophical view.

The practical side is that my income needs are not extreme, I am able to spend and live at what I consider a very comfortable level knowing that I will be leaving a nice sum to others. This "knowledge" does not motivate me to spend any more. BTW, I've been following this approach since I retired in 2001.

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Re: Are Boglehead SWRs Too Conservatve?

Postby William Million » Sun Mar 24, 2013 12:41 pm

KyleAAA wrote:
Clearly_Irrational wrote:This is actually a risk tolerance decision. How comfortable are you with the idea that you have a 1 in 20 chance of running out of money? For me, that seems scary high, for someone else it may be excessively cautious.


Are you also taking into account the probability of actually living past 90? Say that probability is 25% (completely wild guess). If so, the true probability of running out of money, given you live that long to begin with, is .25 x .05 = .0125. Not nearly so bad.

I agree anything less than 3% is probably too conservative. A 3% withdrawal rate is sustainable pretty much indefinitely with almost any reasonable asset allocation.


That's really my point that a SWR below 3% is so conservative that it raises questions whether the retiree hasn't become paranoid about overspending due to years of Boglehead frugality during the accumulation phase.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Bonnan » Sun Mar 24, 2013 1:47 pm

I must be paranoid as I don't equate "spending or buying stuff" with a higher standard of living. And somewhere I read that money doesn't buy happiness but it sure does buy peace of mind.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Investor2 » Sun Mar 24, 2013 3:32 pm

Jake46 wrote:
sperry8 wrote:I think 4% works well. I retired in 2007. I went all in to the market in 2008. Stocks proceeded to drop 50%+ (so I lost half my money). Fast forward to today - and I'm even - and that includes living. I withdrew 4% each year. So here we are with one of the worst stock market crashes happening right at my retirement. I had no new income and withdrew 4%. And in 5 years, I have the exact same amount of money I started with. So actually, it would appear 4% is low.


I also retired in 2007. We have withdrawn about 4% each year & our portfolio is larger than 2007. We plan to continue.


Sperry8 and Jake46 - what were your asset allocations, and did you keep the same asset allocations throughout?

I have been all in in stocks until very recently, and have significantly more now than in 2007, but I'm still in the accumulation phase and was buying throughout this period. I had not realized that those in the withdrawal phase also did will despite the downturn - this is certaily encouraging news! :happy
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Re: Are Boglehead SWRs Too Conservatve?

Postby bUU » Sun Mar 24, 2013 3:34 pm

Bonnan wrote:I must be paranoid as I don't equate "spending or buying stuff" with a higher standard of living. And somewhere I read that money doesn't buy happiness but it sure does buy peace of mind.

And actually even the idea that money doesn't buy happiness (or at least staves off unhappiness) has been somewhat debunked. Apparently, vis a via today's economy, income up to $75k for a typical family appears to be positively correlated with happiness. (Income higher than that appears to have little or no positive impact). I'll try to find the link.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Artsdoctor » Sun Mar 24, 2013 4:04 pm

Being a doctor, I'm reminded of statistics everyday. I see people in their 40s with strokes (it's unusual but not if you're that patient) and I see people in their 90s who are just wearing out but are pretty functional.

First, take a good look at your family history. If you have a bunch of people in your family living to be 100, you're going to be planning your retirement portfolio completely differently than someone who has a chunk of first-degree relatives having heart attacks in their 40s/50s.

Second, have a Plan B. It's perfectly acceptable to plan on 4-5% withdrawal rate at first if you have a Plan B if the market tanks right after you retire. Can you move to a low-tax state? Can you move into a smaller house or apartment? You have to be flexible.

I know there's a tendency to think you'd be spending more in your 60s than your 90s. After all, it gets a little trickier hiking around Angkor Wat with each passing decade. But around-the-clock care to keep you in your home is a LOT more expensive than you'd think. Do you want to live in an assisting living community where you have to put down on a big chunk of money? Do you want to live with your kids? Do you want your kids to have to shell out their money to support you? Would you be happy and content being in a nursing home that Medicaid is paying for? Everyone has their own priorities.

When talking to family members and patients about what happens after discharge from a life-changing hospitalization, I have NEVER heard someone say, "We have just too much money to do what you're suggesting." On the other hand, you can imagine how frequently I hear, "I'm sorry, but we just can't afford that."

Bogleheads are probably more conservative financially than most because we have a grasp of financial history. And we usually know that the unexpected is just part of life.

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Re: Are Boglehead SWRs Too Conservatve?

Postby Investor2 » Sun Mar 24, 2013 4:06 pm

I've been seriously thinking of using SPIAs to address this issue, especially as I have no kids. While I don't really need one (will have a pension and SS @ 70), buying an additional inflation-adjusted SPIA might help me worry less and make it easier for me to spend the money I've saved, espeially early in retirement when I'll be able to get the most enjoyment out of it, through travel, etc.

Jim Otar's book talks a lot about SPIAs. From some of his tables it looks like SPIAs can be one of the best options, even for those in his "green zone" who clearly have enough money saved and can get by with a low withdrawal rate. Basically, annuities allow those in the "gree zone" to export several risks (longevity, inflation, market, and sequence of return risks) to an insurance company, and still leave some money untouched and invested long term, which should continue to grow.

(To get the most benefit from this approach, I would probably need to buy the SPIA at retirement (late 50s or maybe wait until 60), which is contrary to recommendations I've seen Taylor and others here make to purchase an annuity when you're older, ideally in your 70s.)
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Re: Are Boglehead SWRs Too Conservatve?

Postby avalpert » Sun Mar 24, 2013 4:39 pm

bUU wrote:
Bonnan wrote:I must be paranoid as I don't equate "spending or buying stuff" with a higher standard of living. And somewhere I read that money doesn't buy happiness but it sure does buy peace of mind.

And actually even the idea that money doesn't buy happiness (or at least staves off unhappiness) has been somewhat debunked. Apparently, vis a via today's economy, income up to $75k for a typical family appears to be positively correlated with happiness. (Income higher than that appears to have little or no positive impact). I'll try to find the link.


Current research shows that more income does correlate with more happiness all the way up the income ladder: http://www.ncbi.nlm.nih.gov/pubmed/23231724
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Re: Are Boglehead SWRs Too Conservatve?

Postby bUU » Mon Mar 25, 2013 5:21 am

This is the article I was thinking of...

http://www.nbcnews.com/id/39026848/ns/health-behavior

The distinction is between "happiness" and "well-being":

Happiness got better as income rose but the effect leveled out at $75,000, Deaton said. On the other hand, their overall sense of success or well-being continued to rise as their earnings grew beyond that point.
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Re: Are Boglehead SWRs Too Conservatve?

Postby avalpert » Mon Mar 25, 2013 9:13 am

bUU wrote:This is the article I was thinking of...

http://www.nbcnews.com/id/39026848/ns/health-behavior

The distinction is between "happiness" and "well-being":

Happiness got better as income rose but the effect leveled out at $75,000, Deaton said. On the other hand, their overall sense of success or well-being continued to rise as their earnings grew beyond that point.


To be more precise the distinction they made was between emotional well being (defined as day-to-day feelings) and live evaluation (which measures broader perspective on life). Frankly, for the layman both are part of happiness. The higher income after a certain point doesn't predict increases in day-to-day well being because that is dominated by more immediate concerns such as health whereas the broader perspective does continue to increase as income increases.

Here is their paper: http://www.pnas.org/content/107/38/16489.full
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Re: Are Boglehead SWRs Too Conservatve?

Postby tfb » Mon Mar 25, 2013 10:10 am

A SWR by definition will be too conservative, because it's supposed to be safe, which targets the worst case scenario, or near-worst case. I think if you target the median case and be ready to scale back when necessary, you will enjoy more.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Call_Me_Op » Mon Mar 25, 2013 10:16 am

William Million wrote:However - and this is equally important - if your estate grew or remained stable from 60 to 90 years old, you also failed at the retirement game.


I disagree - unless you really do view this as a game.
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Re: Are Boglehead SWRs Too Conservatve?

Postby RadAudit » Mon Mar 25, 2013 10:42 am

William Million wrote:However - and this is equally important - if your estate grew or remained stable from 60 to 90 years old, you also failed at the retirement game.


Ahhh, yes. The old "well, at least, he was a good provider while he was here game." No thanks. I think I'll err on the side of caution and try to avoid being the topic of conversation and derision at every women's club breakfast from my death until sometime in the hereafter.l
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Re: Are Boglehead SWRs Too Conservatve?

Postby Scott S » Tue Mar 26, 2013 11:42 am

Count me among those who disagree that it's some kind of personal failure not to burn through all of your retirement savings before death. (How selfish!) If you do a good job saving and have some fortune along the way, your portfolio may be so large that you don't even have to spend 2% to meet your needs and have some fun along the way.
My Plan: * Age-10 in bonds until I reach age 60, 50/50 thereafter. * Equity split: 50/50 US/Int'l, Bond split: 50/50 TBM/TIPS. * Everything over 2 months' expenses gets invested.
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Re: Are Boglehead SWRs Too Conservatve?

Postby YDNAL » Tue Mar 26, 2013 12:19 pm

William Million wrote:Love the Boglehead approach but am concerned when I see talk of recommended retirement Safe Withdrawal Rates below 3%, even 2%.

On a less depressing note than some previous posts..... IF you put 100¢ under the mattress, IF your live 25 more years, IF there is NO inflation, THEN you can spend 4¢ per year, for the rest of your life (25 years), buying your favorite bubble gum. :happy

IMO, too much time/effort is spent on "IFs."
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: Are Boglehead SWRs Too Conservatve?

Postby Khanmots » Tue Mar 26, 2013 12:58 pm

William Million wrote:
KyleAAA wrote:
Clearly_Irrational wrote:This is actually a risk tolerance decision. How comfortable are you with the idea that you have a 1 in 20 chance of running out of money? For me, that seems scary high, for someone else it may be excessively cautious.


Are you also taking into account the probability of actually living past 90? Say that probability is 25% (completely wild guess). If so, the true probability of running out of money, given you live that long to begin with, is .25 x .05 = .0125. Not nearly so bad.

I agree anything less than 3% is probably too conservative. A 3% withdrawal rate is sustainable pretty much indefinitely with almost any reasonable asset allocation.


That's really my point that a SWR below 3% is so conservative that it raises questions whether the retiree hasn't become paranoid about overspending due to years of Boglehead frugality during the accumulation phase.


Depends how long you plan on being retired for. Run the math on what rate of withdraw is supported for a 40 or even a 50 year retirement instead of the standard assumed of 30 years or less.

Not everyone plans on working until 65, some of us hope to retire in their early 50s or sooner.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Valuethinker » Wed Mar 27, 2013 12:38 pm

William Million wrote:Love the Boglehead approach but am concerned when I see talk of recommended retirement Safe Withdrawal Rates below 3%, even 2%. If you blow through retirement savings by 70, you failed. However - and this is equally important - if your estate grew or remained stable from 60 to 90 years old, you also failed at the retirement game.

Here's what I observe: Wait too long to spend nest egg? By 80 or 85, you might not have as many passions to spend it on anyway. Die with a large nest egg? Kids who inherit don't really appreciate it. At least there's charity . . .

If you reach 90 and still have the large nest egg, did you deprive yourself of perks that would have made you happy? - treating kids and grandkids to a Disney cruise, flying business rather than economy class, driving a Lexus instead of an Accord - even if you would not think of those frills during the accumulation phase due to sound Boglehead frugality. I think it's hard for some Bogleheads to change gears, spending more and saving less, when the time comes.



Annuitize.

Your only true SWR is the one that comes from annuitizing 100%. That gives you your upper limit on withdrawals.

The circumstances of my father's death were in a tragic accident. Death waited for him at a streetcorner. On that day, Death was waiting, patiently, for his arrival. As Death waits for all of us for the appointed hour. Whether like that, or in the hands of some cancer doctor saying 'I'm sorry', Death has already made your appointment. It's out there in the diary.

A bicyclist shooting up the sidewalk took me out-- they thought I'd broken my neck. Still got a hole in the memory. It wasn't my day-- but it could have been.

Don't plan to live forever, because you won't. Death is waiting on some streetcorner for you, too.
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Re: Are Boglehead SWRs Too Conservatve?

Postby sperry8 » Fri Mar 29, 2013 11:45 pm

Investor2 wrote:
Jake46 wrote:
sperry8 wrote:I think 4% works well. I retired in 2007. I went all in to the market in 2008. Stocks proceeded to drop 50%+ (so I lost half my money). Fast forward to today - and I'm even - and that includes living. I withdrew 4% each year. So here we are with one of the worst stock market crashes happening right at my retirement. I had no new income and withdrew 4%. And in 5 years, I have the exact same amount of money I started with. So actually, it would appear 4% is low.


I also retired in 2007. We have withdrawn about 4% each year & our portfolio is larger than 2007. We plan to continue.


Sperry8 and Jake46 - what were your asset allocations, and did you keep the same asset allocations throughout?

I have been all in in stocks until very recently, and have significantly more now than in 2007, but I'm still in the accumulation phase and was buying throughout this period. I had not realized that those in the withdrawal phase also did will despite the downturn - this is certaily encouraging news! :happy


I had 70% equities and 30% cash & bonds. During the downturn, my cash component jumped up... although I did continue to buy equities on the way down and tax loss harvest. Although I did buy, I didnt keep the equity component exactly at 70%... I was scared. It didn't get below 65-60% though. Recently, my equity portion got to 75% so I rebalanced it back to 70% (sold some equities).

And yes, I was encouraged too. I really didn't know what to expect. I now feel very comfortable with a 4% allocation. Of course, if for some reason a 75-90% drop happens I'll have to tighten my belt to ride out the storm. But until then, I'm encouraged.
Certainty is a requirement of ignorance.
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Re: Are Boglehead SWRs Too Conservatve?

Postby MnD » Sat Mar 30, 2013 9:35 am

I think their is an ultra-frugal contigent here and for at least some, discussions about dropping SWR below 4% is "music to their ears".

I've run some calculators that indicate a very small chance of failure, but a 50% outcome of ending with several million.
I do not want to leave several million on the table when I check out! OTOH some would focus very much on that small failure probability.

I've got 5 years to develop a plan but I'm going to do something with annuitization, a dynamic withdrawal rate, perhaps a significant real estate investment and/or other things.
I think I have an unusual personality type - risk taker, spender and very diligent saver and investor. A SWR of 2% does not "float my boat". :mrgreen:
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Re: Are Boglehead SWRs Too Conservatve?

Postby Khanmots » Sat Mar 30, 2013 12:28 pm

MnD wrote:I think their is an ultra-frugal contigent here and for at least some, discussions about dropping SWR below 4% is "music to their ears".

I've run some calculators that indicate a very small chance of failure, but a 50% outcome of ending with several million.
I do not want to leave several million on the table when I check out! OTOH some would focus very much on that small failure probability.

I've got 5 years to develop a plan but I'm going to do something with annuitization, a dynamic withdrawal rate, perhaps a significant real estate investment and/or other things.
I think I have an unusual personality type - risk taker, spender and very diligent saver and investor. A SWR of 2% does not "float my boat". :mrgreen:

Given a system with highly divergent ranges of outcome, if one is to insulate themselves against the unlikely negative events, one will indeed find that there are many potential outcomes where the insulation was necessary. Now... if only I could know in advance what my return would be.

However... I don't. So I'm planning on a SWR/SPIAs/etc to minimize the risk of eating Alpo while I live under a bridge. Now, nothing says a SWR has to be constant. I could plan to spend more up front with a planned decline in spending later (perhaps I spent 5 years traveling before settling down). I could also reevaluate every 5 years or so to reconcile a plan that's prepared for bad scenarios against a reality that has hopefully not been as bad as what I prepared for. There's lots of reasonable ways to adjust my plan.

But if I want to avoid the Alpo, I need to have a plan for those bad scenarios. Otherwise I'm just playing the lotto and praying that I get lucky.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Artsdoctor » Sat Apr 06, 2013 12:40 pm

As investors, we look at statistics. And we make try to make decisions on what will most likely happen. The same things happen you practice medicine: you really try not to practice medicine anecdotally.

Walking down the street and being run over by a truck can happen. Being healthy and taking that last walk out into the garden and simply falling asleep with the sun on your face can happen, too. We'd all like a quick and painless way of dying. And most of us wouldn't want to burden our families with year-after-year time and financial burdens, either.

The fact is that most older people will wind up lingering and the picture isn't altogether pretty. The facts are that we will spend a huge amount of resources during our last year of life (both insurance and personal finance). Statistically, it's going to happen to you or your spouse. Do you really want to be looking for an assisted living space at 85 and realize that no facility wants you because you spent down too much?

Enjoy your life. That's what assets are for. But don't think getting out of this world will come cheaply for most. If you really want a reality check, take a visit to a nearby nursing home that is willing to take only Medicare/Medicaid.

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Re: Are Boglehead SWRs Too Conservatve?

Postby OverTheHill » Sat Apr 06, 2013 1:07 pm

Artsdoctor wrote:Enjoy your life. That's what assets are for. But don't think getting out of this world will come cheaply for most. If you really want a reality check, take a visit to a nearby nursing home that is willing to take only Medicare/Medicaid.

Artsdoctor

When I was growing up, my Dad was a big fan of us kids working. It started with newspaper routes, then holiday jobs starting around 12, then summer jobs starting around 15, then summer jobs through college and grad school. What I learned the most from my many jobs prior to grad school is what I didn't want to do with my life. Construction, mill work, printing jobs, retail, flipping burgers, and the like were all really sucky jobs, particularly for adults. I knew from an early age that I didn't want to do sucky jobs for a living. Along the same thought line, I think a visit to a few nursing homes will tell a person what they don't want when their time comes.
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Re: Are Boglehead SWRs Too Conservatve?

Postby Artsdoctor » Sat Apr 06, 2013 1:32 pm

Exactly. Unfortunately, a trip to a nearby nursing home WILL let people know what many are in store for. We all want independence and we all want to live in our homes until we die. This will not be the case for many of us; home health aides, visiting nurses, even home renovations can help a great deal--but they've expensive.

Ultimately, discussions about withdrawal rates during retirements bring up mortality issues, which is why it tends to be such an emotional topic. When you argue about withdrawal rates of 2%, 3%, 4%, you're really talking about the way you want to spend the very last portion of your life.

Now the flip side of the coin is the fact that I'm currently rounding on a 39-year-old patient in the hospital who has just had a catastrophic stroke . . .

You really never know what the future holds.

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Re: Are Boglehead SWRs Too Conservatve?

Postby Scooter57 » Sat Apr 06, 2013 1:35 pm

If you want to rule out the awful nursing homes you better have $750k extra on hand as Alzheimers care at a decent assisted living place costs $75k a year now, so you can imagine what it will cost in 20 years.

And you probably ought to put yourself on the waiting list now. Getting a place somewhere decent will be well nigh impossible when the baby boom hits their 80s. There is barely enough capacity for our parent's generation.
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Re: Are Boglehead SWRs Too Conservatve?

Postby momar » Sat Apr 06, 2013 1:49 pm

YDNAL wrote:
William Million wrote:Love the Boglehead approach but am concerned when I see talk of recommended retirement Safe Withdrawal Rates below 3%, even 2%.

On a less depressing note than some previous posts..... IF you put 100¢ under the mattress, IF your live 25 more years, IF there is NO inflation, THEN you can spend 4¢ per year, for the rest of your life (25 years), buying your favorite bubble gum. :happy

IMO, too much time/effort is spent on "IFs."

Talk about wasteful. Buying new gum every year?

Just sprinkle some of this on and keep chewing.

Image

There is no way I am eating Alpo in my old age, which is why I'm eating Purina ONE now.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
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Re: Are Boglehead SWRs Too Conservatve?

Postby Artsdoctor » Sat Apr 06, 2013 2:08 pm

Scooter,

You're partially right! Dementia will become an increasing problem. That's why the image of one's golden years needs to be based on reality and not just hopeful fantasy.

But don't kid yourself. When you apply to the nicer nursing facilities, they're going to take a look at your assets. Trust me: if you've got the money, you're not going to wait in line like everyone else. That's not the way it's done now, and that's not the way it's going to be in the future.

The line may indeed be existent. But I'm skeptical it's going to be that long since so many people will not have prepared financially for it.

When it comes to assisted living, if you've got a reasonable asset portfolio, you're not going to be turned down. I deal with this all too often.

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